Friday, October 09, 2009

NY PSC Staff Issues Universal Service Fund Reports, Supports Need for Immediate Action

As part of the new universal service proceeding at the New York State Public Service Commission, the agency Staff issued reports on October 2nd on the status of the state’s two universal service funds – the Transition Fund and the Targeted Accessibility Fund (“TAF”). The parties to the proceeding had determined that they could not move forward with “fixing” the Funds unless there was a better understanding of the Funds, including how they are supported, what types of carriers contribute to the Funds, and the long-term viability of the Funds as currently constituted. The reports make clear that the time for action has arrived.

Both the Transition Fund and TAF help to support Universal Service, which is a concept that dates back to the original Communications Act of 1934. It was determined decades ago that the ability to be able to reach all others and to be reached by all others is a national goal that promotes public safety and community. In order to achieve this goal, two actions must occur – people residing in rural, high cost areas must be able to have local telephone rates comparable to urban rates and everyone must be able to afford the service. Today, support for both goals resides on both the federal level (through the Universal Service Fund, or USF, which provides support for low income and high cost customers, as well as to schools and libraries and rural health care centers) and the state (via TAF and the Transition Fund).

Transition Fund

For large Bell Operating Companies, charging residential customers reasonable rates in high cost areas is possible due to balancing costs with customers in lower cost urban and suburban areas. For small, Independent providers across New York State which do not have the ability to balance their local rates that way, they were able to benefit from higher access charges paid by the long distance companies in order to access their local networks as a way to keep their local rates low. The Independents’ access charges were pooled together in the Intrastate Access Settlement Pool and payments were made to carriers in need.

When access revenues began to drop (for several reasons, including the transition to cellular phone usage for long distance calls), this system became unworkable. While the federal USF assists high cost area providers, without a complementary state program, the future of affordable service in high cost areas would be seriously in doubt. So, the Transition Fund was created in 2003 to replace the to-be-phased-out Settlement Pool as the means to provide support to enable incumbent providers in rural, high cost areas of the state to keep prices down. There was a finite amount of money placed in the Fund and additional deposits were eliminated. In addition, there was an understanding in the PSC Order creating the Transition Fund that the question of what (if anything) would replace it would not be addressed until only 18 months of monies remained in the account. Now that four carriers have begun to draw from the Transition Fund in order to keep their local rates at or below the statewide $23 cap, and additional companies have put in requests to draw from the Fund, it is estimated that the Fund will run dry in the first quarter of 2011.

The imperative of addressing this issue finally brought the new universal service proceeding to the forefront.


For customers located in large and small markets, the low income programs, such as Lifeline, reduce the prices paid by eligible customers for local service. On the state level, telephone corporations have contributed a percentage of their intrastate revenues to support TAF since its inception in 1998 (which, in turn, supports Lifeline, the relay service for the deaf, and access to E-911). With the growing loss of access lines to Voice over Internet Protocol (“VoIP”) providers, such as the voice services offered by the cable companies, and wireless companies – Verizon claims to have lost over 50% of its access lines in the past decade and continues to lose upwards of 60,000 access lines a month in New York State alone – these “assessable revenues” are seeing a steep decline. Moreover, with rate increases approved for Verizon over the past couple of years, the difference between its tariffed rate for local service and the Lifeline rate charged customers is growing, placing additional strains on TAF. Under its current constitution, the long term survivability of the TAF is seriously in doubt.

This result is illustrated in the PSC Staff report, which shows in the past 10 years, the assessable revenues on a monthly basis have dropped from over $600,000 a month to under $400,000 a month and the assessment ratio is more than double it was in 2001. In fact, as recently as 2006, the assessment ratio was about 0.004% and is now over 0.01%. That means that one percent of the intrastate revenues of the regulated telephone companies (Verizon, Frontier, etc.) goes to TAF, while the cable and wireless providers are exempt from this requirement.

While the TAF report does not include company specific data, it does include a chart illustrating the steep decline in Lifeline subscribership in New York State. According to the report, the number of Lifeline customers in 1996 was 768,720 and in 2008 it was 298,790. Meanwhile, the number of households receiving Home Energy Assistance, one of the eligibility criteria for Lifeline, now tops 800,000. Of course, the number of Food Stamps households in the state (another criteria for Lifeline eligibility) now tops 1.2 million. In other words, as poor a picture as the report illustrates for Lifeline, it is actually about 400,000 households worse. The cure? Require all providers – VoIP and wireless – to contribute to TAF, as they are required on the federal level, and permit them to offer Lifeline themselves. See: Lifeline Awareness Week Begins Monday – Is There Anything for New York to Celebrate? ; All NY Phone Customers Lose Big $$ Due to PSC Lifeline Policies.

Next Steps

While the PSC Order dissolving the Settlement Pool set parameters as to when the issue needs to be examined (18 months prior to planned exhaustion), no such specificity exists with regards to TAF. However, a thorough examination of universal service requires a look at both high cost and low income support. The two reports lay out in clear language the collision course both Funds have with oblivion. Having these reports provides needed insight for all interested parties. Now, all can see the inevitable direction the Transition Fund and TAF, as currently composed, are heading. No one should question that continued universal service requires action on both counts and the discussions that will follow should focus on how to fix TAF and with what should the Transition Fund be replaced, not whether the changes are necessary. Obstructionists should be ignored.

The time to fix and maintain universal service in the state is now and no self-serving entity should stand in the way of this imperative.

Lou Manuta

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