Cybertelecom Federal Internet Law & Policy An Educational Project

Universal Service

"One system, one policy, universal service." -Theodore Vail, AT&T 1910

Each year has seen some progress in annihilating distance and bringing people closer to each other. Thirty years more may bring about results which will be almost astonishing as those of the past thirty years. To the public, this "Bell System" furnishes facilities, in its "universality" of service and connection, of infinite value to the business world, a service which could not be furnished by dissociated companies. The strength of the Bell System lies in this "universality." -Theodore Vail [Brooks 132]

FCC Universal Service: "Universal service is the principle that all Americans should have access to communications services. Universal service is also the name of a fund and the category of FCC programs and policies to implement this principle. Universal service is a cornerstone of the law that established the FCC, the Communications Act of 1934. Since that time, universal service policies have helped make telephone service ubiquitous, even in remote rural areas. Today, the FCC recognizes high-speed Internet as the 21stCentury’s essential communications technology, and is working to make broadband as ubiquitous as voice, while continuing to support voice service.

"The Telecommunications Act of 1996 expanded the traditional goal of universal service to include increased access to both telecommunications and advanced services – such as high-speed Internet – for all consumers at just, reasonable and affordable rates. The Act established principles for universal service that specifically focused on increasing access to evolving services for consumers living in rural and insular areas, and for consumers with low-incomes. Additional principles called for increased access to high-speed Internet in the nation’s schools, libraries and rural health care facilities. The FCC established four programs within the Universal Service Fund to implement the statute. The four programs are:

• Connect America Fund (formally known as High-Cost Support) for rural areas
• Lifeline (for low-income consumers), including initiatives to expand phone service for residents of Tribal lands
• Schools and Libraries (E-rate)
• Rural Health Care

"The Universal Service Fund is paid for by contributions from providers of telecommunications based of an assessment on their interstate and internation end-user revenues. Examples of entities that contribute to the Fund are telecommunications carriers, including wireline and wireless companies, and interconnected Voice over Internet Protocol (VoIP) providers, including cable companies that provide voice service. The Universal Service Administrative Company, or USAC, administers the four programs and collects monies for the Universal Service Fund under the direction of the FCC. The FCC’s annual monitoring report tracks contributions and disbursements.

The FCC is reforming, streamlining, and modernizing all of its universal service programs to drive further investment in and access to 21st century broadband and voice services. These efforts are focused on targeting support for broadband expansion and adoption as well as improving efficiency and eliminating waste in the programs.

History

USPS Rural Free Service 1890

The lack of universal service provided by Western Union was regularly used as an argument by the Postmaster General and members of Congress as to why telegraph service should be nationalized an made part of the Post Office.

Dual Service, "One System, One Policy: Universal Service," Kingsbury Commitment.

The next step in the evolution of universal service was the Communications Act of 1934. The Act, in its preamble, stated that the Federal Communications Commission was created

for the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.

[Section 151 of the Communications Act of 1934, 47 U.S.C. § 151.] There was no other reference to "universal service" in the Act or the legislative history. [Mueller p 157] Since this was merely a policy statement in the preamble, not specifically calling for any program or action, it could easily have amounted to nothing more than a happy thought. There was no further legislative mandate for universal service for sixty years until the Telecommunication Act of 1996.

Milton Mueller argues that the modern vision of "universal service" was was born in the 1970s with the reintroduction of telephone service competition. MCI and Sprint had entered the scene and were introducing long distances services. The problem for AT&T was that it had been using over priced long distance service to subsidize local service. MCI and Sprint had the advantage not only of undercutting overpriced AT&T long distance rages, but also of interconnecting with subsidized local services. In response to this competitive threat, Mueller argues, AT&T campaigned to oppose the entrance of competition and revised the history of "universal service" as an AT&T mandate stemming back to the Communications Act of 1934. [Mueller p 162]

The concept of Universal Service has morphed from Vail's vision of "one service in which every telephone can call to every other phone" to "a telephone in every house" pursuant to the Telecommunications Act of 1934. Current policy discussion contemplates whether universal service should be extended to next generation broadband networks.

Broadband Plan Recommendations

• The FCC should conduct a comprehensive reform of universal service and intercarrier compensation in three stages to close the broadband availability gap.
• Stage One: Lay the foundation for reform (2010-2011)
• The FCC should improve Universal Service Fund (USF) performance and accountability.
• The FCC should create the Connect America Fund (CAF).
• The FCC should create the Mobility Fund.
• The FCC should design new USF funds in a tax-efficient manner to minimize the size of the gap. The FCC should conduct a comprehensive reform of universal service and intercarrier compensation in three stages to close the broadband availability gap.
• Throughout the USF reform process, the FCC should solicit input from Tribal governments on USF matters that impact Tribal lands.
• The FCC should take action to shift up to $15.5 billion over the next decade from the current High-Cost program to broadband through common-sense reforms.
• The FCC should adopt a framework for long-term intercarrier compensation (ICC) reform that creates a glide path to eliminate per-minute charges while providing carriers an opportunity for adequate cost recovery, and establish interim solutions to address arbitrage.
• The FCC should examine middle-mile costs and pricing.
• Stage Two: Accelerate reform (2012-2016)
• The FCC should begin making disbursements from the CAF.
• The FCC should broaden the universal service contribution base.
• The FCC should begin a staged transition of reducing per minute rates for intercarrier compensation.
• Stage Three: Complete the transition (2017-2020)
• The FCC should manage the total size of the USF to remain close to its current size (in 2010 dollars) in order to minimize the burden of increasing universal service contributions on consumers.
• The FCC should eliminate the legacy High-Cost program, with all federal government funding to support broadband availability provided through the CAF.
• The FCC should continue reducing ICC rates by phasing out per-minute rates for the origination and termination of telecommunications traffic.
• Accelerating broadband deployment
• To accelerate broadband deployment, Congress should consider providing optional public funding to the Connect America Fund, such as a few billion dollars per year over a two to three year period.
• Congress should consider providing other grants, loans and loan guarantees
• Congress should consider expanding combination grant loan programs.
• Congress should consider expanding the Community Connect program.
• Congress should consider establishing a Tribal Broadband Fund to support sustainable broadband deployment and adoption on Tribal lands, and all federal agencies that upgrade connectivity on Tribal lands should coordinate such upgrades with Tribal governments and the Tribal Broadband Fund grant-making process.
• Government should facilitate Tribal, state, regional, and local broadband initiatives
• Congress should make clear that state, regional and local governments can build broadband networks.
• Federal and state policies should facilitate demand aggregation and use of state, regional and local networks when that is the most cost-efficient solution for anchor institutions to meet their connectivity needs.
• Congress should consider amending the Communications Act to provide discretion to the FCC to allow anchor institutions on Tribal lands to share broadband network capacity that is funded by the E-rate or the Rural Health Care program with other community institutions designated by Tribal governments.
• The federal government and state governments should develop an institutional framework that will help America's anchor institutions obtain broadband connectivity, training, applications and services.

Sen. Ted Stevens

Universal Service Report to Congress (Steven's Report)

"In a Report to Congress, the Commission revisited many of its major decisions related to the implementation of the universal service provisions of the Telecommunications Act of 1996. Today's Report is consistent with the Commission's aim of ensuring that low-income and rural consumers have access to local telephone service at affordable rates and that an evolving level of telecommunications services are available and affordable for all Americans. At the same time, the Report reaffirms the Commission's commitment to encouraging the continued development of new services and technologies.

"As required by Congress, the Commission analyzed several definitions in the 1996 Act and the impact of the Commission's interpretation of those definitions on the current and future provision of universal service. The major findings of the Report are detailed below.

Definitions and Policy Implications for Universal Service and the Internet

The 1996 Act requires providers of interstate telecommunications services to contribute to universal service funding mechanisms on an equitable and nondiscriminatory basis. Pursuant to Congress's directive, the Commission reviewed various statutory definitions, including definitions of "information service," "telecommunications," and "telecommunications service." The Commission concluded, as it had in its Universal Service Order, that the categories of "telecommunications service" and "information service" in the 1996 Act are mutually exclusive and consistent with preexisting definitions. The Commission found generally that Congress intended to maintain a regime in which information service providers are not subject to regulation as common carriers merely because they provide their services via telecommunications. The Commission also reaffirmed that information service providers are not subject to universal service obligations, the access charges paid by long distance providers, or rate regulation.

The Commission stated that its analysis of these important definitional issues reflects a consistent approach that will safeguard the current and future provision of universal service to all Americans and will achieve the 1996 Act's goal of a "pro-competitive, deregulatory" communications policy. Thus, the Commission found, in general, that continued growth in the information services industry will buttress, not hinder, universal service.

The Commission stated that the provision of transmission capacity to Internet service providers constitutes the provision of "telecommunications." As a result, telecommunications providers offering leased lines to Internet service providers must contribute to universal service support mechanisms. The Commission found that at least some leased-line providers currently are complying with that requirement, and the prices paid by Internet service providers for their leased lines reflect that universal service obligation. As Internet-based services grow, Internet service providers will have a greater need to lease lines. The payments for those additional leased lines will in turn lead to increased universal service contributions by leased-line providers.

In cases where an Internet service provider uses its own transmission facilities to provide an information service, the Report notes that the Commission's rules currently do not require Internet service providers to contribute to universal service support mechanisms. The Commission stated that, as a theoretical matter, it may be advisable to exercise its discretion under the statute to require such providers to contribute to universal service. The Commission acknowledged, however, the difficulties associated with determining the amount such an Internet service provider should contribute to universal service.

The Commission also examined the application of the statutory definitions to various new services, as required by Congress. In particular, the Commission reviewed services that are generally described as Internet telephony services. Some forms of Internet telephony involve the use of ordinary telephone handsets and employ an Internet protocol (IP) in routing calls to their destination. The Commission observed that certain forms of phone-to-phone IP telephony lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." The Commission, however, did not find it appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual IP service offerings.

Federal Funding of Universal Service ("25-75")

The Commission also reviewed its decisions regarding the percentage of universal service support provided by federal mechanisms. The Commission noted that, prior to adoption of the Universal Service Order, interstate rates generally

recovered 25 percent of local telephone network costs. Through the operation of an explicit universal service support mechanism, some non-rural local telephone companies did recover slightly more than 25 percent of costs through interstate rates. In the Report, the Commission concluded that a strict, across-the-board rule that provides larger local telephone companies with 25 percent of their total high cost support might, in essence, reduce the amount of federal support these companies receive.

The Commission stated that it would work to ensure that states do not receive less funding than before as it implements the new high cost universal service mechanism under the 1996 Act. The Commission's work in this area is not yet complete. It committed to issuing an order which reconsiders the "25-75" decision before the new universal service mechanism is fully implemented. In addition, the Commission committed to consult with the Universal Service Joint Board to address the viability of the 25-75 approach as well as various alternatives. The Commission acknowledged that a state may require greater assistance than it currently receives from interstate sources in order to maintain affordable rates. As states develop plans to reform their own universal service mechanisms, additional federal support may be required to ensure that quality services remain available at just, reasonable, and affordable rates.

In addition, the Commission stressed that there is no change in the mechanism for determining the amount of federal universal service support for rural local telephone companies. Moreover, there will be no change to the mechanism until January 1, 2001, at the earliest. Only the amount of federal universal service support for non-rural telephone companies was under consideration in this Report.

Who Contributes to and Who is Eligible to Receive Universal Service Support

In addition, the Commission reviewed its decisions with regard to which entities are required by the 1996 Act to contribute to federal universal service support and which entities are eligible to receive such support. The Commission concluded in the Report that it had properly interpreted the 1996 Act to require contributions from all telecommunications carriers who provide interstate telecommunications services. Additionally, after carefully evaluating the general standards of eligibility for support set forth in the 1996 Act, the Commission stated that certain of these provisions appeared to be susceptible to more than one interpretation. The Commission, however, found that it had properly implemented eligibility rules that are consistent with both the language and spirit of the 1996 Act.

-FCC News Release

FCC Report to Congress Filed April 10, 1998

• News Release
• Common Carrier Bureau Seeks Comment for Report to Congress on Universal Service Under the Telecommunications Act of 1996 FCC Public Notice DA 98-2
• Comments Due: January 20, 1998 January 26, 1998
• CIX Comments.
• FCC Comment Site (zip file containing comments filed electronically).
• Letter from Larry Irving, NTIA 4/9/98
• ISP/C.
• Replies Due: February 2, 1998 February 6, 1998 Deadlines Extended by Order of the Common Carrier Bureau 1/14/98
• CIX Reply.
• The 1998 appropriations legislation for the Departments of Commerce, Justice, and State, H.R. 2267, directs the Commission to undertake a review of the implementation of the provisions of the Telecommunications Act of 1996 (1996 Act) relating to universal service, and to submit a report to Congress no later than April 10, 1998. The report is to provide a detailed description of the extent to which the Commission's interpretations in the following areas are consistent with the plain language of the Communications Act of 1934, 47 U.S.C. 151 et seq. (Act), as amended by the 1996 Act:
• (1) the definitions of "information service," "local exchange carrier," "telecommunications," "telecommunications service," "telecommunications carrier," and "telephone exchange service" in section 3 of the Act, and the impact of the interpretation of those definitions on the provision of universal service to consumers in all areas of the Nation;
• (2) the application of those definitions to mixed or hybrid services and the impact of such application on universal service, and the consistency of the Commission's application of those definitions, including with respect to Internet access for educational providers, libraries, and rural health care providers under section 254(h) of the Act.
• (3) who is required to contribute to universal service under section 254(d) of the Act and related existing Federal universal service support mechanisms, and of any exemption of providers or exclusion of any service that includes telecommunications from such requirement or support mechanisms;
• (4) who is eligible under sections 254(e), 254(h)(1), and 254(h)(2) of the Act to receive specific Federal universal service support for the provision of universal service, and the consistency with which the Commission has interpreted each of those provisions of section 254; and
• (5) the Commission's decisions regarding the percentage of universal service support provided by Federal mechanisms and the revenue base from which such support is derived.

• FCC to Sen. Stevens: No New ISP Tax!, Boardwatch (June 1998).
• Daily Digest 4/4/98: Statement of FCC Chairman William Kennard Concerning Schools and Libraries Demand Report. Kennard
• Remarks of William E. Kennard Chairman, Federal Communications Commission to Educom Networking '98 April 16, 1998 Washington, D.C. (as prepared for delivery
• Daily Digest: FEDERAL-STATE JOINT BOARD ON UNIVERSAL SERVICE. Extended deadline for parties to submit objections to the Integrated Systems and Internet Solutions' Objection to an FCC 471 to be filed by the Tennessee State Department of Education to and including April 20; extended deadline for replies to those objections to April 27. Dkt No.: CC- 96-45. Action by Chief, Accounting Policy Division. Adopted: April 14, 1998. by Order. (DA No. 98-719). CCB

Papers

"To understand what is wrong with the new [Telecom Act of 1996] universal service section requires some historical background. Contrary to popular opinion, a universal service policy was never part of the 1934 Communications Act. What we now think of as universal service subsidies began in the mid-1960s, when federal and state regulators began to manipulate the telephone system's jurisdictional cost separations to keep local rates low. During the 1970s, long distance competition began to challenge the whole system of telephone monopoly and regulation. To defend themselves, telephone companies created a self-serving myth that universal household telephone penetration never would have existed without monopoly and regulatory subsidies. They also invented a legislative mandate for their subsidies by grasping at a few words in the preamble of the Communications Act. "Universal service" became the basis of the regulated telephone monopoly's claim for protection and legitimacy." - Milton Mueller, "Universal service" and the new Telecommunications Act: Mythology Made Law, Communications of the ACM 1997

• Universal Service: A New Definition? - James Alleman, University of Colorado, Paul Rappoport, Temple University & Centris, Aniruddha Banerjee, Centris TPRC 2009
• State Universal Service Programs: Results of Surveying the State Commissions - Phyllis Bernt, Ohio University, Peter Bluhm, National Regulatory Research Institute, Jing Liu, Washington Utilities and Transportation Commission TPRC 2009
• Jean Camp, Universal Service in a Ubiquitous Digital Network, SSRN 9/4/02
• Mark Cooper, Universal Service: A Historical Perspective and Policies for the Twenty-First Century (Dec 9, 1996) (posted at Benton Foundation Universal Service Library www.benton.org).
• Fraser, Telecommunications Competition Arrives: Is Universal Service Out of Order, 15 Fall Cal. Reg. L. Rep. 1, 1 (1995);
• Sharon Eisner Gillett, Universal Service: Defining the Policy Goal in the Age of the Internet , The Information Society 16(2), June-July 2000.
• Technological breakthroughs lower the cost of broadband service to isolated customers, Pages 121-133 Victor Glass, Salvatore Talluto and Chris Babb, Govt Info Quarterly 6/16/03
• Thomas Hazlett, "Universal Service Telephone Subsidies: What Does $7 Billion Buy?" (June 2006)
• Universal Service Funds: Accelerators or Anachronisms? - Heather E. Hudson, University of Alaska TPRC 2009
• Leonard Kleinrock, et. al., Realizing the Information Future: The Internet and Beyond, National Research Council 149 (1994) ("Access to [NII] networks and services should be equitable, affordable, and ubiquitous.")
• Milton Mueller, "Universal service" and the new Telecommunications Act: Mythology Made Law, Communications of the ACM 1997
• Computer Science and Technology Board (CSTB), National Research Council. 1988. Toward a National Research Network. National Academy Press, Washington, D.C. ("To encourage the development and use of a widely accessible network service, the committee suggests that the NRN [National Research Network] might provide (1) a universal basic service at some low to moderate speed for electronic mail at a low cost to users and (2) higher levels of service with an appropriate charging structure. A low charge for basic service would lessen the initial resistance that might otherwise be felt by first-time users and yet discourage the overloading that occurs with free networks.")
• What is broadband? Where is "rural"?, Pages 151-166 Shree Venkatachalam and Stephen D. McDowell, Govt Info Quarterly 6/16/03
• Rural Independent Cooperative Alliance: Critical Universal Service And Access Issues
• David F. Weiman & Richard C. Levin, Preying for Monopoly? The Case of Southern Bell Telephone Company, 1894-1912, 102 J. POL. ECON. 103 (1994).

Books

• Nicholas Economides, Telecommunications Regulation: An Introduction, in THE LIMITS AND COMPLEXITY OF ORGANIZATIONS (2005),
  
• Milton Mueller, Universal Service : Competition, Interconnection and Monopoly in the Making of the American Telephone System (MIT Press 1997)
• The Control Revolution How the Internet is Putting Individuals in Charge and Changing the World We Know - Andrew Shapiro
• Who Pays for Universal Service? When Telephone Subsidies Become Transparent by Robert W. Crandall, Leonard Waverman
• John Brooks, Telephone: The First Hundred Years 114 (Harper & Row 1975);

Links

• FCC
• Universal Service Administration Corporation USAC
• Universal Service
• High Cost Support
• Low Income
• Federal State Joint Board
• "The Keep Universal Service Fund Fair Coalition supports the current fair, nondiscriminatory, competitively neutral revenue-based collection system. The coalition opposes proposals to change to an unfair, flat, connections-based system. "
• Free Press

News

• PUBLIC FORUM, PANELISTS SLATED FOR MAY 18 OMAHA FIELD WORKSHOP ON MODERNIZING UNIVERSAL SERVICE FOR BROADBAND., FCC 5/12/2011
• Opening Comments from the USF Workshop, Wireless Cowboys 4/28/2011
• Making Universal Service and Intercarrier Compensation Reform Happen, FCC 3/17/2011
• Universal Waste, Global Crossing 3/7/2011
• FCC moves to redirect phone subsidies for the poor, CW 3/7/2011
• Update: Comment Deadlines Set In USF/ICC Rulemaking, CommLawBlog 3/2/2011
• NARUC Commends FCC for Moving Forward on USF Reform, NARUC 2/9/2011
• From voice to broadband: FCC redirects its $8.7B in phone bill fees, Ars Technica 2/9/2011
• First Step Reforming FCC's Universal Service Fund? An Honest Evaluation of the Goals and Trade offs., TOSF 2/9/2011
• Report: Exploring the Digital Nation: Home Broadband Internet Adoption in the United States, NTIA 11/12/2010
• Kill. USF. Now., Wireless Cowboy 7/21/2010
• FCC approves new broadband program for hospitals, cw 7/16/2010
• FCC moves to switch phone subsidy to broadband, CW 4/23/2010
• FCC Aims To Expand USF - But again, they probably should bother to fix it first...., dslreports 12/4/2009
• Congresswoman Introduces Broadband Affordability Act, Tech Policy Central 9/29/2009
• Want Fast Internet? Don't Live In the Sticks, Gigaom 8/27/2009
• USDA: Yes, Rural Broadband Still Sucks - At least we THINK it sucks, since FCC data sucks as well..., dslreports 8/20/2009
• Broadband Plays Catch-Up in Rural Areas, Outpaces Growth in Big Cities, comscore 8/20/2009
• Why Is The FCC Subsidizing The Least Efficient Providers Of Rural Telco Services?, Techdirt 5/13/2008