Universal Telephone Service Reform Slowly Begins in New York

In the telephone world, Universal Service means that for every location, telephone service can be had by all at a reasonable rate. In order to accomplish this goal, which dates back to the original Communications Act of 1934, carriers providing service in "high cost areas" (such as rural and remote locations) can receive financial support so that their end user customers pay about what people in urban and suburban areas are charged. In addition, low income customers, regardless of where they are located, can receive assistance to ensure they can afford to pay the "reasonable rates" charged by the phone companies. It is considered to be a national priority that every citizen be able to reach every other citizen and that they themselves can be reached.

Funding mechanisms on both the federal and state levels function to better ensure that these two aspects of Universal Service continue to be a reality. In New York, local exchange carriers providing service in high cost areas are eligible to receive funds from the Transition Fund. When this fund was created in January 2004, the New York State Public Service Commission ("PSC") announced that when it determines that the Transition Fund only has about 18 months worth of funds remaining, a proceeding would be initiated to determine what, if anything, should replace it. That time is now upon us, so the PSC launched a new proceeding to examine Universal Service, including the future of the Targeted Accessibility Fund ("TAF")> , which provides support for, among other things, the Lifeline discount telephone service.

With the advent of wireless and Voice over Internet Protocol ("VoIP") service (primarily offered by the cable television companies), the concept of Universal Service has certainly changed since 1934.

The Administrative Law Judge assigned to develop the record in the case issued a ruling directing Department of Public Service Staff to draft a status report on "the availability and extent of deployment of various platforms, technologies, and opportunities in the telecommunications industry and provision of telecommunications services in New York." The purpose of this request was to ascertain the level of competition in high cost areas as a threshold issue to resolving the future of the Transition Fund. On November 16th, Staff filed a letter listing potential topics stating it will request data on geographic locations where wireless and/or cable modem service is not available. Depending on when the wireless and cable companies provide the requested data, Staff believes the report should be complete by December 31st. Parties to the case were then directed to file comments by November 20th on Staff's recommended topics. Several parties filed comments, including PULP.

PULP's comments question why Staff did not also include the availability of Digital Subscriber Line ("DSL") and fiber optic service (such as Verizon's FiOS) offered by local exchange carriers ("LECs") in its discussions. We believe that identifying DSL deployment is a necessary component of the ALJ's requested analysis. PULP argued that the intermodal competition offered by wireless carriers and cable VoIP providers is undoubtedly important to measure, but a complete picture requires inclusion of "nomadic" VoIP providers, which ride on top of cable modem service or DSL connections, as well as fiber optics deployment. Thus, the entire market can not be adequately analyzed without inclusion of DSL and FiOS.

PULP noted that Phase I of the proceeding as envisioned by the ALJ would only encompass Transition Fund issues and may not be complete until towards the end of 2010. Should this occur, it is not anticipated that a Phase II discussion of TAF would even begin until 2011.

As a member of the TAF Board of Directors, PULP is well aware of the ever increasing dire financial situation facing TAF and the services it supports (Lifeline, E-911 access, and the relay service for the deaf). This information has been shared with the parties to this proceeding via a Department Staff Report released on October 2nd. According to this report, in the past 10 years, the average monthly contributions to TAF have dropped by over $200,000 a month, while the assessment ratio which the companies must pay has doubled from .005% to .01% of their intrastate revenues. Moreover, in 1999, the total assessable revenue was $7.2 billion and in 2008 was $4.5 billion. During this same time period, the demand for TAF resources to support Lifeline (by far, the largest percentage of TAF) has jumped from $19.5 million to $28.5 million a year. This demand is only going to accelerate as carrier rate increases are approved and rates charged to Lifeline customers continue to be frozen. Consideration of how to begin to address these issues regarding TAF's solvency and assessment ratio should not be delayed at all, especially not for a year or more. Further, the population eligible for Lifeline is growing and prompt reforms are needed to ensure that Lifeline assistance will continue to be available to all who are eligible. We requested that consideration of the future of both funds be considered simultaneously and that the discussions begin immediately.

On the other hand, the Cable Television Association of New York argued in its comments that Phase II should be kept separate from Phase I and not be considered until after Phase I.

The small Independent local exchange carriers, which are the recipients of the high cost support from the Transition Fund, stated that the proceeding should not look to the level of intermodal competition in the Independent territories as a measurement about what to do about the Transition Fund, but rather to "the regulatory environment under which the other classes of carriers operate in the State of New York." They believe this is a much more accurate gauge of "the provision of telecommunications services in New York" because of the lack of regulation on wireless and VoIP providers. While they also requested that discussion of TAF be delayed until the future of the Transition Fund is settled, they expressed optimism that the Transition Fund issues can be "resolved quickly," even though they recognize that it is impossible to work for consensus on the issues and prepare for litigation with rival parties all at the same time.

Sprint argued in its comments that the Transition Fund should not be replaced because the high cost companies receive other revenues from their customers via unregulated lines of business.

Finally, Verizon's comments recognized the need for complete and accurate data in determining the level of competition for purposes of the future of the Transition Fund, but what happens if some non-regulated providers (i.e., VoIP and wireless) refuse to submit data?

While the process of updating the Universal Service system in New York State has begun, we are far from a consensus on how to proceed and when to address key issues.

Lou Manuta