Calif. Fight Brews Over Possible USF Contribution Revamp

California would be the biggest state to adopt connections-based contribution. The CPUC is weighing in docket R.21-03-002 if it should replace the current 7.75% aggregate surcharge on intrastate revenue with a flat rate based on number of connections by Jan. 1 (see 2103040056).

"A single per-line access charge does not necessarily guarantee stability to PPP fund balances,” warned AT&T. “As access lines continue to erode, so too will surcharge collections." Other states that adopted contributions, including New Mexico and Utah, have had big fluctuations in the flat fee in the first few years, the carrier said. It’s more stable and equitable to pay for PPPs through general state tax revenue, supported by "the broadest funding base possible," AT&T said. "The burden should not continue to be borne solely by telecommunications services end-users who already pay disproportionately high taxes on their services. Every business that sends or receives data benefits from the universal service objectives that the PPPs support.”

Other states’ experiences support adopting a connections-based mechanism in California, countered Frontier Communications. Based on experiences elsewhere, "Frontier believes the ‘per access line’ approach is simpler and, most importantly, should help stabilize funding,” the company said. “If the rules are consistent with rules adopted in other states in which Frontier operates, it will not need to materially modify its billing systems or [IT] programs to implement the change.”

Shifting to connections would regressively shift much of the funding burden from businesses to consumers, especially wireless customers, said mobile companies. The proposed method “disproportionately targets less affluent customers” and discriminates against prepaid providers, who usually don’t have an ongoing billing relationship with customers, said CTIA. Family plan customers “will be charged a flat-fee for each line, an approach that surgically counteracts the discounts they receive for bundling multiple lines,” the association said. The connections method “may illegally burden the federal universal service program, and it will necessitate separate systems for federal and California universal service remissions, increasing complexity and expense for carriers,” added CTIA. Verizon and Tracfone raised similar concerns (see here and here).

It "would have an unfair and unequal impact on consumers who have the least ability to pay for telecommunications services,” agreed Sonic Telecom, a CLEC. “It would also shift the burden of PPP funding from businesses to consumers.”

The CPUC can limit regressive effects by assessing different surcharges for business and residential users and exempting low-income and California LifeLine customers from surcharges, said the CPUC’s Public Advocates Office. “Differentiating between customers based on their ability to pay will promote an equitable surcharge mechanism that continues to advance universal service goals.” The Utility Reform Network and Center for Accessible Technology said “a hybrid approach could effectively reflect the fact that while federal and state law require surcharge collection to be nondiscriminatory and fair, it does not require that the mechanism must be the same for all customer classes.”

LifeLine customers are exempt from paying PPP surcharges, and that probably would continue, said Consolidated Communications. "Concerns regarding the regressive nature of a per-line surcharge are outweighed by the disparate approach to calculating assessable revenues among different types of service providers." The National Lifeline Association took no position on switching to connections but said starting to assess LifeLine customers would violate federal law and unfairly burden low-income customers.

Comcast doesn’t oppose a connections-based method if the state’s approach follows California law, balances the surcharge between residential and business lines, and doesn't treat traditional and VoIP lines differently or increase the total amount of surcharges paid by customers, it said. Charter and Cox Communications separately asked the CPUC to flesh out its plan by directing staff to write a report on policy and statutory implications and make a more specific proposal (see here and here).

CalTel and other rural telcos supported the change, depending on how the commission defines access line and how much time it gives for implementation. “An 'access line' should be defined as a fixed or wireless local access voice connection between a customer's premises and a carrier's central office, local switch, hub, or local distribution facility," they commented.

The current revenue-based method is working and legal, said RingCentral, an interconnected VoIP provider.

Other States

Oklahoma’s planned shift to a connections-based contribution had a setback March 30 when commissioners voted 2-1 to vacate a 2-1 March 9 decision ordering that change in docket OSF 201900316. That followed objections by AT&T and Cox Communications March 19 to reporting requirements. About a dozen rural local exchange carriers on March 29 opposed delaying the contribution switch.

The Oklahoma Corporation Commission isn’t done weighing a connections-based mechanism, state USF Administrator Brandy Wreath told us Monday. Commissioners have taken the matter “under advisement, and we’re awaiting a new order to be posted,” he said.

“My sense is that they will act relatively quickly,” said Bill Bullard, attorney for Consolidated and three other rural LECs that joined the March 29 filing. The situation isn’t yet dire for rural telcos that rely on the funding, as the agency has met state USF obligations without raising the contribution factor since the proceeding opened in late 2019, but a recent increase to funding requirements may put pressure on the commission to finish work shortly, he said Monday. “Hopefully, we’ll know soon whether they’re going to approve a connections-based order with some modification to the previous order, or ... change their mind” and raise the current revenue-based contribution factor.

The Nebraska Public Service Commission may decide soon on a proposal to expand the state USF’s connections-based method for residential services to include business and government lines, said Nebraska PSC NUSF Director Cullen Robbins. The commission next meets April 13 and 27. Texas legislators are mulling USF changes with the fund nearing insolvency and RLECs suing the PUC for inaction (see 2103290060).