1JRN 930 ● Fall 2003Access and Universal ServiceBackground: Pricing and Access ReformCopyright 2003 J. M. Bauer 3Cross-subsidization FCC, PUC, and court interpretation of the CC rules contributed to:z Prices that were averaged across service territories (e.g., Michigan Bell, GTE North).z Several streams of contributions (“cross-subsidies”) between services: Long distance service local service. Urban areas rural areas. Business customers residential customers. Created gap between prices & costs.Copyright 2003 J. M. Bauer 4Traditional approach Complex system of settlements, e.g. in National Exchange Carrier Association (NECA) Pool. Total contributions unknown but high, some estimate >$22 billion.Effect of cost/priceaveragingCostUrbanMichiganCostRuralMichiganAverage PriceExtra ProfitLoss$26$19$12Copyright 2003 J. M. Bauer 5Rate rebalancing Telecom Act requires that rates in urban and rural areas remain “comparable.” Nevertheless, it facilitates some rate rebalancing to eliminate past forms of cross-subsidization and to support competition. Hidden rebalancing occurs through discounts built into carrier offers.Copyright 2003 J. M. Bauer 6Access reform Access charges used to allow full cost recovery to LECs. Reforms:z phase out per minute Carrier Common Line (CCL) Charge paid by IXCs to LECs;z keep flat Subscriber Line Charge (SLC). New subscriber line charge (SLC):z $3.50 for first line; $5.00 or actual interstate cost for non-primary residential lines.z $9.00 for multi- line businesses.2Copyright 2003 J. M. Bauer 7Access reform ... Presubscribed Interexchange Carrier Charge (PICC).z $0.53 for primary lines per month.z $1.50 for non-primary lines in 1998 (future ceiling $2.75).  Per minute access charges.z ILEC originating access from $0.028/minute to $0.025/minute.z ILEC terminating access from $0.028/minute to $0.012/minute.Universal ServiceCopyright 2003 J. M. Bauer 9Pre-1996 approach Subsidies and cross-subsidizationz Limited explicit subsidies High cost fund ($800 million per year) Life-line, link-up ($180 million per year)z High implicit contribution through rate averaging and cross-subsidies Access charges ---> local service; business ---> residential service; urban ---> rural customers Total volume estimated to $13-22 billion per year Conflict with goal of competitionCopyright 2003 J. M. Bauer 10Principles (Sec. 254(b)) Quality and ratesz Quality service available at just, reasonable, and affordable rates Access to advanced servicesz Independent of location, access to services “reasonably comparable” to services provided in urban areasz Independent of location, access at rates “reasonably comparable” to those charged in urban areasCopyright 2003 J. M. Bauer 11Principles ... (Sec. 254(b)) Equitable and non-discriminatory contribution by all TC carriers Specific, predictable and sufficient support mechanisms Access to advanced telecom services by schools, health care, & libraries Competitive neutralityz Proposed by Joint Board & FCCz Funding independent of carrier/technologyCopyright 2003 J. M. Bauer 12Process (Sec. 254(a) and (c)) Federal-State Joint Board and FCC required to develop definition and timetable Guidelines for Joint Board/FCCz Essentiality of service to education, public health, or public safetyz Subscription by majority of residential usersz Deployment in public telecom networksz In public interest, convenience, & necessity3Copyright 2003 J. M. Bauer 13Services to support “Core services” eligible for federal funding:z Single party servicez Some component of usagez Voice grade accessz DTMF signaling (touchtone)z Access to emergency services ANI (Automatic Number Identification) and ALI (Automatic Location Identification) Wireless must meet ALI by 10/1/01.Copyright 2003 J. M. Bauer 14Services to support ...z Access to operator servicesz Access to interexchange servicez Access to directory assistancez Toll limitation services for qualifying low-income consumers Joint Board will review scope of funded services in 2001 States must fund services outside of the core if desiredCopyright 2003 J. M. Bauer 15Program administration Universal Service Fund (USF) administered by Universal Service Administrative Company (USAC):z High cost fundingz Low income programsz Schools and librariesz Rural health care providers Old support system continued until new funding phased-inCopyright 2003 J. M. Bauer 16High cost funding Supports carriers in high cost areasz High Cost Local (HCL) loop support if costs >115% of national average cost per linez Local Switching Support for companies with fewer than 50,000 access linesz Long term support for ROR carriersz Interstate access support for PC carriersz Forward- looking support if state costs >135% of national average (AL, ME, MS, MO, WV, VT, WY)Copyright 2003 J. M. Bauer 17Low income consumers Lifeline support to every statez Free toll limitationz No deposit for customers with toll limitationz Prohibition of disconnection of local servicez Basic federal support $5.25/monthz Additional 50% matching funds for state programs up to $7.00 from federal USF. Support available to all Eligible Telecommunications Carriers (ETCs)Copyright 2003 J. M. Bauer 18Schools and libraries (E-Rate) For K-12, not-for-profit, schools with endowment <$50 million, & librariesz Receive discounts of 20-90% fro m p r i c e determined through competitive biddingz Level of discount dependent on percentage of students eligible for national school lunch program (e.g., 1-19% --> 40% urban, 50% rural discount; 35-49% -->60% urban, 70% rural discount) $2.25 billion per year, on first-come-first-served basis.4Copyright 2003 J. M. Bauer 19Rural health care providers Comparable access requirement:z Section 254 TC Act requires that rural health care providers have access to services comparable to urban providers Level of support:z Difference between “rural” price and “urban” price for eligible services, e.g. T1 data linez $400 million annual cap, disbursed on first-come, first- served basisCopyright 2003 J. M. Bauer 20USF obligations Contributions to USF on basis of end-user revenues of prior yearz Contributions to high cost and low-income funds based on interstate revenues.z Contributions to schools, libraries, and health care providers based on