Universal Service Fund

Boucher to head House Telecom Subcommittee

Pete Wylie — Thu, 08 Jan 2009 13:10:22 -0500

U.S. Rep. Rich Boucher, (D-Va.), will assume the chair of the House Telecom Subcommittee after previous chair Rep. Edward Markey, (D-Mass.), stepped down to take control of the new Energy and Environment Subcommittee. Boucher has been involved in the telecom industry for some time, and is an outspoken advocate of widespread broadband buildouts to rural areas.

Calls to Boucher's office for comment on his appointment have not been returned. We will update when we receive comment from his office.

Boucher also supports net neutrality, and he sponsored a bill to overhaul the Universal Service Fund, which stalled in committee. As part of the Internet and Intellectual Property Subcommittee, Boucher sponsored legislation that would expand the definition of fair use, which can't sit too well with entrenched content giants like the big four music companies and movie studios.

Boucher is currently serving his 13th term in the House, and has served on the Telecom Subcommittee for several of them. He originated the House Internet Caucus in 1996 and currently serves as co-chair of the group, which has an integral role in shaping IT and Internet policy, according to his website biography. In addition to his work in telecom, Boucher sits on the Consumer Protection, Trade, Commerce, and Judiciary Committees. He previously was Chairman of the Energy and Air Quality Subcommittee. Prior to his time in the House, Boucher was a lawyer in Virginia and New York and served in the Virginia State Senate for seven years.

For more:
- see Boucher's website here
- see the CNNMoney.com article about the chair switch here

2009 predictions to count on, maybe

Dan O'Shea — Mon, 05 Jan 2009 11:28:51 -0500

So, I watched this thing on The History Channel last night, "Nostradamus: 2012," which examined end of the world predictions from the so-called prophet, as well as the Mayans, the Hopis, and some other ancient folk. All the predictions pointed to some kind of cataclysmic event coming soon, possibly on Dec. 21, 2012, to a planet near you---very near you. It all sounded pretty convincing, though it's possible the whole thing is a marketing strategy to help THC promote its programming for "Armageddon Week." What a great way to start the new year.

Oh, Happy New Year, by the way.

I'm no Nostradamus, nor am I a Mayan or a Hopi, and none of the sports-related predictions for 2008 (a Cubs/White Sox World Series, for example) panned out. But, since we may all have a little less than four years left, I'm not going to let my status as an amateur and mostly inaccurate forecaster stop me from making some predictions for 2009. Not too much here about oceans boiling, but for what it's worth:

In 2009, we shall witness:

--A spike in vendor consolidation as more companies panic about declining carrier spending.
--The much-anticipated spike in rural telco consolidation, though it may take months to begin.
--Increasing numbers of lawsuits filed by retiree groups over benefit cuts and changes.
--A major European IPTV service provider shutting down its service (We don't mean Tiscali).
--Some kind of M&A event involving Qwest Communications.
--Some kind of M&A event involving Nortel Networks.
--No reversal of the telco immunity provision passed by Congress, despite renewed attacks on the controversial legislation.
--Major progress toward Net neutrality legislation, Universal Service Fund reform and intercarrier compensation changes.

So it is written, so it shall be done...

-Dan

Qwest loses Nebraska PSC lawsuit

Dan O'Shea — Mon, 22 Dec 2008 11:14:30 -0500

A U.S District Court Judge ruled against Qwest Communications in a lawsuit the telco had filed disputing an earlier ruling by the Nebraska Public Service Commission to force Qwest to charge its competitors cost-based network access fees. The judge ruled that the current cost-based fee system should remain in place--Qwest had sought freedom from the PSC to charge higher rates to companies such as Cox Communications.

Cox said the judge's ruling could bring the two companies closer to finishing a new operating agreement, but it also remains unclear whether or not Qwest may appeal this latest ruling.

For more:
- BusinessWeek has this Associated Press story

USF problems snowball toward 2009

Dan O'Shea — Mon, 01 Dec 2008 11:21:04 -0500

Universal Service Fund reform is looking like an even bigger issue for the next iteration of the Federal Communications Commission to deal with, along with a White House administration and Congress that already seem poised to make telecom issues a high priority--well, after the economy and that other stuff, of course.

The USF already was one of the targets of recent reform proposals by Federal Communications Commission Chairman Kevin Martin, but fellow FCC commissioners and legislators convinced Martin to postpone discussion on the reforms that had been planned for early last month-on Election Day to be precise. More fuel was added to the fire last week when the FCC declared that carriers benefiting from the USF's High-Cost Fund were collectively over-paid more than $970 million between July 2006 and June 2007, according to a report at Ars Technica. That particular fund's payouts-about $4.3 billion last year--accounted for about 62 percent of the total money the USF paid out last year.

The amount is staggering and higher than previous estimates of over-payments, but it may not come as a total surprise, as the administration of USF payments has long been believed to be fraught with errors. The FCC has discussed USF reform for years, and it has been a recurring topic in agency meetings over the last year in particular. FCC commissioners narrowly approved a cap on USF funding earlier this year, but issues such as payment errors have remained an open wound.

Last month, it seemed like Martin was poised to try to sew up potential solutions, but fellow commissioners and legislators acted as though they were blind-sided by the move and a related proposal for intercarrier compensation reform. For a moment there, it actually looked like Martin-FierceTelecom's 2007 Person of the Year, by the way-might culminate his reign as FCC chairman with a bang, a shot heard 'round the U.S. telecom industry. The FCC essentially postponed the reform discussion until their next meeting, coming up Dec. 18, but Martin is probably astute in his public doubting that anything will come of that discussion but another delay.

It is not known yet who the next FCC chairman will be, but all the candidates for that job would do well to read up on the troubled 12-year history of the USF.

For more:
- Ars Technica has the overview

AT&T faces $17M verdict for overcharging Calif. customers

Doug Mohney — Thu, 20 Nov 2008 23:27:02 -0500

A federal jury in Kansas City has ordered AT&T to pay nearly $17 million for overcharging California customers when passing along Universal Service Fund billing. However, the jurors found there wasn't enough evidence showing a conspiracy with either Sprint or then-existing MCI to overcharge customers nationwide.

AT&T is currently studying its options on the breech-of-contract ruling, but management has to be happy the jury saw no evidence of antitrust activities. Lawyers representing the plaintiffs are "very pleased" and will ask the judge to tack on another $10 million in interest to the award; the judge is still working out how much of the award will go to attorneys fees and how the award will be paid out in the class action suit.

The antitrust case consolidated dozens of class-action suits filed across the country and covered customers who paid into the Universal Service Fund between Aug. 1, 2001, and March 31, 2003. Carriers are required to contribute a percentage of their gross revenues from interstate and international calls into the USF, with the FCC setting the contribution rate. AT&T described the fee on its bills as a "Universal Connectivity Charge."

Sprint was a co-defendant in the case, but the company settled up in September for $30 million.

For more:
- AP through chron.com reports $17M jury verdict against AT&T

Evslin: No more landlines under Obama

Doug Mohney — Tue, 18 Nov 2008 01:29:27 -0500

VoIP guru Tom Evslin is predicting the death of copper landlines by the end of Barak Obama's first term. We aren't sure if he's a little too bearish on the subject.

Evslin recites the current trends that young people are all cell phone all the time, while the middle aged people are going with cable triple-play bundles and canceling their telco copper services. Meanwhile, Verizon has simply sold all of its legacy copper infrastructure in three northern New England states to FairPoint. Meanwhile, FairPoint, like Verizon and AT&T, continues to lose access lines. And to top it all off, Verizon is busy replacing copper with fiber, starting with its most lucrative markets.

Loss of copper is going to provoke a number of public policy problems; Evslin is predicting an implosion with medium-sized phone operators who have copper that sounds a lot like Detroit and car manufacturing (i.e. Declining revenue base, bankruptcy, implosion, doom). There's also the whole "What do we do with the Universal Service Fund?" issue to support broadband.

The solution to all this is cheap cell phone and broadband access, maybe through the same device. USF needs to go to subsidizing connectivity, not voice service.

For more:
- Seeking Alpha seeks controversy over the death of wireline. Article.

Parsing the intercarrier compensation mess

Doug Mohney — Tue, 04 Nov 2008 09:51:16 -0500

While a vote to reform intercarrier compensation - how big carriers and little carriers "agree" to settle traffic - has been postponed, the arcane mess remains. Saul Hansell at the NY Times does a deeper dive on the underlying issues involved.

If reform had been passed, a typical consumer's phone bill would have likely changed by no more than a couple of dollars per month; a little more for a rural resident, a little less for the people in the cities and ‘burbs. As lobbying groups square off, rural telcos rally their Congressmen, while consumer advocates worry that AT&T and Verizon would have kept the money they stood to save from the changes, rather than passing savings on to customers through lower fees.

The dirty little secret here is that distance and geography don't matter for phone calls anymore, but the archaic volumes of regulation that defined the differences between long distance calls, local calls, and long distance calls within a state still exist. Invisible boxes called LATAs are drawn across the United States. Cross a LATA, and the phone company gets to bill you.

Another part of the equation has been the country's long-standing policy of subsidizing phone service (and now broadband) to rural customers. Some local phone companies get two-thirds of their revenues from termination fees and subsidies from the Universal Service Fund.

For more:
- Very nice NY Times blog on the intercarrier compensation mess.

Martin folds; FCC telecom overhaul vote delayed

Doug Mohney — Mon, 03 Nov 2008 15:19:59 -0500

Under pressure from Congress and consumer groups, Federal Communications Commission (FCC) Chairman Kevin Martin has canceled a vote tomorrow on a plan to overhaul intercarrier compensation and Universal Service Fund (USF) regulation.

Martin had proposed a "dramatic" update of inter-carrier compensation, along with a review of the way phone companies receive and can spend Universal Service Fund monies, but lawmakers and advocacy groups wanted to get a look at the details as to what would be proposed while giving affected parties the chance to comment.

Reform details had been closely held, but reports said the rule changes would have resulted in the abolishment of the complex set of accounting "settlements" between larger carriers and rural phone companies, in exchange for a simplified rate policy that would have likely boosted rural phone line fees by a couple of dollars.

In addition, Universal Service Fund monies would have been used to compensate rural carriers for lost moneys, but USF funds would have to be specifically invested in broadband expansion.

If intercarrier compensation was reformed, large phone companies would stand to save the most money between lower fees and simplified accounting, while smaller rural carriers would lose out on a major source of revenue.

Last week, 100 members of Congress publicly petitioned the FCC to delay the vote while behind-the-scenes discussions took place between Capital Hill and the FCC commissioners.

For more:
- FCC announces the removal of vote on wireline compensation. Release.

Will FCC chairman postpone big vote?

Dan O'Shea — Mon, 03 Nov 2008 09:37:52 -0500

The Wall Street Journal and Telephony both reported late Friday night that sources were indicating that the Federal Communications Commission may postpone a significant vote on changes to intercarrier compensation and the Universal Service Fund until December. However, as of this weekend, the FCC Chairman Kevin Martin's proposal for changes remained on the agenda for tomorrow's FCC meeting.

The WSJ attributed FCC sources and analysts at Stifel Nicolaus and Co. and Telephony attributed the latter, as saying that the four FCC commissioners on the five-member group want more time to review Martin's proposal, which became public only a few weeks ago. Martin is believed to be driving toward an Election Day vote on the matter tomorrow in part because the FCC faces a court deadline to justify intercarrier compensation as it relates to dial-up Internet access.

However, about 100 members of Congress and a number of other industry participants have urged the FCC to seek more public comment on the proposal. The other FCC commissioners also reportedly decided together last week to approach Chairman Martin with the suggestion to revise the proposal and plan a vote for mid-December, but Martin reportedly didn't agree to that idea.

An update on tomorrow's agenda could be forthcoming from the FCC at any time today.

For more:
- The Wall Street Journal has a report
- Telephony's Unfiltered blog had this update Friday

100 members of Congress want FCC intercarrier compensation vote delay

Doug Mohney — Thu, 30 Oct 2008 23:04:24 -0400

There are 535 members of Congress and, at last count, 100 of them have asked the Federal Communications Commission (FCC) to delay a November 4 vote on reforming intercarrier compensation and the Universal Service Fund.

Twenty-two Senators and 78 Representatives have asked FCC Chairman Kevin Martin to put out the details - now closely held within the FCC - of the rule changes for 60 to 90 days of public comment on the specifics.

However, the protests don't appear to be postponing the FCC vote. Instead, there appears to be behind-the-scenes negotiations between the FCC commissioners themselves, the FCC and Capitol Hill as to how far the agency will go with the order when it votes.

The FCC is working under a November 5 court-ordered deadline to justify a 1999 agency decision on rules under which Internet phone companies can use traditional carrier lines. But the deadline has spurred a much larger overhaul, with Martin proposing a "dramatic" update of inter-carrier compensation, along with a review of the way phone companies receive and can spend Universal Service Fund money.

If the FCC softens its approach, as some lawmakers want, and it lays out a broad framework for policy overhaul and punts the specifics down the road, Congress is less likely to jump in with bills to "correct" the agency. However, if FCC takes a hard line, legislators are likely to rally to take action, especially Senators from rural states.

For more:
- CQ Today does a head count on Congresspeople for a delay in FCC voting. Article.

Dissecting the CenturyTel-Embarq deal

Dan O'Shea — Mon, 27 Oct 2008 12:03:24 -0400

CenturyTel's bid to acquire Embarq is surprising on at least a few levels. The companies may make a good network match, as CenturyTel's mostly rural market networks are combined with Embarq's properties in more urban, but still relatively rural, markets.

However, while Embarq has been rumored to be looking to make a sale for some time, industry watchers might have been expecting a different buyer, either a larger telco or a different peer than CenturyTel, which is actually quite a bit smaller than Embarq. Timing raises some questions, too, as the Federal Communications Commission is pushing changes to intercarrier compensation and the Universal Service Fund that could affect both companies. Those reforms have not fully played out yet, which in the eyes of some may make this a dangerous time to combine two companies that could be harshly affected by the reforms. However, Embarq CEO Tom Gerke suggested that any FCC decisions in these areas probably will be appealed, and that clarity is too far down the road to wait for while line loss, competition and market opportunities continue to move forward.

Meanwhile, CenturyTel also has some areas of interest that Embarq has not, to date, shared. One of those is TV, which CenturyTel has begun to embrace, both as a standalone service and part of a bundle. Embarq has instead focused on a strategy to push fiber deeper into its networks, with the primary intent to support growth in online video usage and however else customers want to use their bandwidth. The telco has not to date wanted to use these facilities as the underpinning for its own TV service. Will CenturyTel steer Embarq into the TV business?

Another area of notable difference is wireless. Neither company has made the cellular market a priority, but beyond that, there seem to be different future intentions. Embarq is winding down a wireless resale partnership with its former parent company, Sprint. Embarq has acted in recent months as though wireless is not a primary concern, and has not yet announced further wireless plans to kick in after the Sprint deal end in the months ahead. CenturyTel sold most of its wireless properties to Alltel about six years ago, though the company made a big spectrum investment earlier this year, buying up 700 Mhz licenses that its will use to enhance its voice and data footprint in its existing markets. In today's conference call discussing the Embarq deal, CenturyTel CEO Glen Post said the company might look for opportunities to trade spectrum and possibly build out coverage in more markets, though specifics remain unclear.

This is an intriguing deal, and more details--as well as more questions--are sure to emerge in the days ahead. Stay tuned to FierceTelecom for the latest.

-Dan

Groups lobby FCC for delays on rate reform, white space votes

Doug Mohney — Thu, 23 Oct 2008 15:55:37 -0400

More groups are urging the Federal Communications Commission (FCC) to delay votes on intercarrier compensation, universal service fund reform and TV white space currently scheduled for a November 4 meeting.

The Coalition for Affordable Communications - an association of rural phone and broadband providers - took out ads today urging the FCC to "Stop the Vote" on intercarrier compensation and universal service fund reform in a number of Capital Hill news publications, including Roll Call, Congress AM Daily and Politico. The Coalition says it is worried that the FCC order could result in higher phone rates for millions of customers, cause job losses and impede the development of critical broadband infrastructure.

Only yesterday, AT&T came out in favor of the order. By some accounts, the bill would raise some consumer bills by $1.50 per month, while also actually bringing faster Internet service to rural areas.

Under current rules, phone companies pay one another to carry calls that cross service area boundaries in a complex accounting scheme. FCC Chairman Kevin Martin wants to lower intercarrier compensation rates to almost nothing, while allowing companies receiving a loss from the change to raise subscriber rates by $1.50 for residential phone lines. In addition, universal service funding would change so that subsidies for rural areas would be given to companies that promise to deliver high-speed Internet service to all of their customers and can prove they are losing money by providing the service.

Meanwhile, the CEOs of the four major broadcast television networks have lined up to push for a delay on a November 4 vote on TV white space usage. In a letter to the FCC, News Corp., ABC/Disney, CBS, and NBC Universal executives say they want more time for their engineers to study a recently released FCC report on white space usage.

However, the broadcast industry has to square off against the lobbying might of Microsoft, Google, and HP, among others. On Monday, Bill Gates was on the phone to Martin and Democratic FCC commissioner Michael Copps to urge them to approve the white spaces move next week.

For more:
- Coalition for Affordable Communication asking FCC to delay vote on USF, intercarrier compensation. Release.
- Dallas Morning News reports AT&T in favor of FCC intercarrier & USF reform. Article.
- Wall Street Journal reports on broadcasters against FCC white spaces vote. Article.

NARUC urges FCC to postpone reforms

Dan O'Shea — Wed, 22 Oct 2008 09:30:52 -0400

The National Association of Regulatory Utility Commissioners has called for the Federal Communications Commission to postpone action on reforms to the intercarrier compensation and Universal Service Fund programs to allow for more public comment on the reform proposals. NARUC is asking for a 90-day comment period, which would push the FCC's consideration of the matters from the current schedule of Nov. 4 (Election Day, if such a thing still exists in the age of early voting) to early next year.

NARUC said in a letter to the FCC that it fears the agency, "is rushing to resolve a $13 billion problem based on insufficient information, an inadequate record, and an incredibly compressed deliberative period." It actually took the FCC almost a year to get this far with an original USF reform proposal, though the discussion on both intercarrier compensation and USF reforms actually has lingered for years. However, there are also lingering questions with the latest reform proposals, including the question of how the changes may track with future reform action by Congress.

And, guess what else would happen during a 90-day comment period? The nation will elect a new president, new Congressional representatives, and probably get a new FCC chief or at least see the current one step down. How likely would it be that the current reform proposals would emerge intact after all of those changes?

For more:
NARUC urged action via this press release

Bye bye public property pay phones

Doug Mohney — Mon, 20 Oct 2008 15:16:37 -0400

Pay phones may soon join the crank phone and pulse dialing in the dustbin of telecommunications history, if trends in San Diego and other areas continue.

Coronado tore out more than half of the pay phones it had on city property. Other small municipalities around San Diego area are getting rid of their pay phones, some due to cut down on drug dealing. Coronado's look at the city's 16 pay phones discovered they were rarely used - and costing the city money. The phones used to pay for themselves, but as cell phones proliferated, usage dropped and the city started picking up the difference.

Private companies supplying pay phones report it's a "slow market," while AT&T announced it was exiting the pay phone business in 2007. There were about one million pay phones last year, down from 2.6 million in 1998.

Pay phones remain popular in areas where citizens can't afford cell phone service and in public areas such as libraries and along transit corridors. Still, the business is down nearly 60 percent from 1984.

For more:
- San Diego Union-Tribune mourns the loss of public property pay phones. Article.

FCC considers intercarrier fee, USF changes

Dan O'Shea — Wed, 15 Oct 2008 09:38:14 -0400

Intercarrier compensation and the Universal Service Fund are making their semi-annual visits to the top of the Federal Communications Commission's to-do list. This time around, FCC Chairman Kevin Martin reportedly is proposing (if the proposal met an overnight deadline) that the complex and crowded menu board of intercarrier compensation fees be dropped for a uniform rate policy.

Martin reportedly further wants to use the Universal Service Fund to help compensate rural carriers for the money they would likely lose from a uniform-rate intercarrier compensation policy, and have them invest the USF money specifically in broadband expansion strategies. The FCC earlier this year voted to cap the Universal Service Fund and change the contribution policy, changes that were seen as a first step toward a broader reform of the fund policies.

Intercarrier compensation has routinely been a controversial issue because the largest telcos in the U.S. would stand to save the most from a change to uniform fees, while the smallest rural carriers would see a dip in what is a major revenue segment for them. The proposed changes may be subject to an FCC vote on Nov. 4

For more:
- see this Associated Press story

Congress returns to mull telecom issues

Doug Mohney — Mon, 08 Sep 2008 17:07:46 -0400

Lawmakers return to Capitol Hill this week to posture over Net neutrality rules and other telecommunications issues. But with a "lame duck" fall session and the 2008 Presidential elections, few expect legislation to be passed.

Net neutrality is expected to stir up quite a discussion as Comcast battles the Federal Communication Commission in U.S. District Court, challenging the FCC's authority to pass judgment in the matter. Lawmakers are expected to hold hearings and write letters to the Commission to either support or denounce the agency.

The Universal Service Fund may be another topic for discussion. Congressman Henry Waxman sent letters to two dozen phone companies in July asking them to account for billions of dollars in Universal Service money. Critics say the fund is plagued with waste and fraud while rural carriers are making their case for the value of the program.

Deep packet inspection (DPI) and its use in targeting advertising and data mining is also likely to get hearing time from the House Energy and Commerce Committee. Last month, the committee sent letters to more than 30 telecom and Internet companies to discover if they target online advertising based upon consumer search queries and web surfing habits.

However, most of the action is expected to be a prelude to bills and laws to be reviewed and enacted in the Spring of 2009, think analysts.

For more:
- CNN Money.com and the return of Congress. Article

Related articles
Congress wants info on web data mining
NebuAd CEO gets grilled on The Hill

California Dem wants USF accounting from telcos

Jim O'Neill — Mon, 28 Jul 2008 22:00:04 -0400

With AT&T and Verizon delivering strong second quarters and Embarq poised to release its results after market close today, you knew there had to be some bad news for telcos on the horizon.

It arrived in the form of a demand from Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee. He wants an accounting from 24 telcos on how they’re using the billions in Universal Service Fund subsidies. His Top 10 list: AT&T ($1.3 billion in subsidies), Alltel ($967 million), Verizon ($915 million), CenturyTel ($870 million), Telephone and Data Systems, Inc. ($558 million), Embarq ($310 million), Citizens Communications Company ($300 million), Sprint Nextel ($282 million), Windstream ($250 million), Qwest ($233 million), and America Movil ($140 million).

The USF monies are supposed to help telcos recover loses they sustain in providing telephone service in underserved communities.

Although small rural carriers insist that Universal Service provides a lifeline to places where it is simply too expensive for the private sector to go, many in Congress and at the Federal Communications Commission warn that the current program is not sustainable.

According to FCC data provided to the House committee, Beaver Creek Telephone Co., which serves parts of the Pacific Northwest, received a per-line subsidy of $13,660 last year, while Sandwich Isles Communications Inc. in Hawaii received $13,535 per line. Waxman also sent letters to those companies.

For more:
- See the AP story at CNNMoney

Related articles:
FCC caps USF--for the moment. FCC report
FCC recommends USF cap. USF cap report

Nebraska plans to limit Universal Service Fund outlays

Jim O'Neill — Thu, 05 Jun 2008 22:09:23 -0400

The good news for telcos: Nebraska gave out $71 million in Universal Service Fund cash to 48 phone companies in the state last year. The bad? Regulators want to track more closely how it’s being spent.

Qwest, for example, received $32.6 million last year, ostensibly to offset its costs for providing service to low-income Nebraskans and in high-cost rural areas. Some of the money was used to help hospitals establish a statewide network. The state’s Public Service Commission said it doesn’t believe the money is being misspent, but it wants a more detailed accounting of where the money—which is funded through a 7 percent surcharge of phone and cellphone bills—is being spent.

Regulators haven’t set the caps yet, but they have approved the idea of caps, which would go into effect next year.

State Auditor Mike Foley, concerned about lack of USF oversight, said the new restrictions were a move in the right direction.

"When you see tens of millions of dollars flowing to telephone companies and a general lack of oversight ... you have to question where the money is going,” he said, “and whether it's serving customers or being channeled off for higher salaries."

For more:
- See the Associated Press report on Forbes

Related articles:
FCC caps USF for now FCC report
Nebraska exempts VoIP from USF USF report