PSC Tells FCC to Permit States to Assess VOIP for State Universal Service Funds

As the New York State Public Service Commission (“PSC”) prepares to launch a major proceeding to examine the state’s existing universal service policies, it has told the FCC that it should permit states to assess nomadic Voice over Internet Protocol (“VoIP”) providers, such as Vonage, for their own state universal service funds (“USF”).

The FCC had requested input on requests made by Nebraska and Kansas to clarify their ability to add nomadic VoIP providers to the list of eligible contributors to their state universal service funds. In Comments submitted to the FCC on September 9th, the PSC wrote:

The NYPSC recently initiated a proceeding that, in part, will consider modifications to the existing state regime to ‘address issues related to the sources of financial support for the state's incumbent wireline telephone companies, and how best to maintain or modify existing support mechanisms for socially-beneficial telephone services, such as Lifeline and 911.’ That proceeding, in part, will examine whether competitive neutrality and universal service are promoted by an intrastate USF assessment on nomadic VoIP providers terminating traffic in New York. Accordingly, the NYPSC supports the adoption of a FCC ruling that acknowledges a state’s right to assess USF contributions on nomadic VoIP providers' intrastate revenues, provided there is no conflict between the federal assessment of USF contributions and the states' assessment on the remaining intrastate portion.

Back in 2006, the FCC had determined that VoIP providers must contribute to the federal USF, in addition to traditional landline and wireless providers, because their customers benefit from being able to place and receive calls over the public switched telephone network. All traditional, VoIP, and wireless providers base their payments into the USF on a percentage of their interstate revenues, a percentage which changes quarterly. The FCC found that requiring participation from VoIP providers promoted “competitive neutrality” and stated that contributions would be based on one of the following formulas: (1) a safe harbor which set 64.9% of revenue as interstate; (2) a traffic study calculating the interstate usage; or (3) the actual interstate percentage based on actual revenue allocations. By setting the safe harbor, Nebraska and Kansas argued, the FCC created an intrastate contribution factor of 35.1%.

In addition, the 8th Circuit Court of Appeals determined earlier this year in Vonage Holdings Corp. v. Nebraska Public Service Commission that before states can assess universal service contributions on the intrastate revenues of nomadic VoIP providers, the FCC must issue an order allowing them to do so. With the petition from Nebraska and Kansas, this is the opportunity for the FCC to formally make this determination.

The PSC went on to provide some insight into its positions in its universal service proceeding, slated to begin on September 16th. It noted the substantial amount of line losses Verizon and the other incumbent local exchange carriers (“ILECs”) have suffered since 2000, primarily to the fixed VoIP services offered by the cable companies. The PSC recognized that these developments have resulted in decreased revenue receipts by the state’s existing fund, the Targeted Accessibility Fund (“TAF”), which is currently supported only by traditional ILECs. It added that “[p]rograms funded by TAF support fundamental public needs and benefit all telecommunication providers in New York, not just those that pay into it.”

As a result, the PSC understands that it will become more and more difficult to assure universal service into the future unless VoIP is added to its list of TAF contributors:

This unbalanced approach is not consistent with the FCC's universal service principles (47 U.S.C. §254(b)) and the federal requirement that state efforts to preserve and advance universal service be done in an equitable and non-discriminatory manner (47 U.S.C. §254(f)). New York's experience is not unique which is why it is critical for the FCC to declare that state commission efforts to implement an appropriate intrastate funding mechanism supported by revenues from all carriers conducting business within its borders, including nomadic interconnected VoIP providers, does not frustrate federal rule or policy but are fully consistent with serving the public interest.

Now we have a better sense of where the PSC intends to take its new proceeding. It wants to bring all providers of similar services together to support the mutual goal of universal service. The days of treating VoIP differently in New York from traditional ILECs may be about to change and the PSC is counting on the FCC to provide regulatory cover for its actions.

The FCC’s proceeding may only address the narrow issue raised by Nebraska and Kansas – the ability to assess nomadic VoIP providers for state universal service fund purposes. There should be no question that the PSC already has the authority to assess fixed VoIP providers, such as the cable television companies offering voice services. This much has already been done not only in Nebraska and Kansas, but in Missouri, New Mexico, and Maine as well.

PULP agrees with the PSC that bringing in nomadic VoIP providers is important to this process, but since they make up only a small percentage of the market, the PSC’s entire proceeding should not be delayed while we wait for the FCC to act. Let’s move quickly to bring fixed VoIP and wireless into the state universal service process now. The future of affordable service for all is at stake.

Lou Manuta