The New Definition of Universal Service

And The Role for Public Interest Advocates to

Make Federal Telecommunications Policy

Work in Your State

"to make available, so far as possible, to all the people of the United States without discrimination on the basis of race, color, religion, national origin, or sex a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges..."

-The Purpose of United States Communications Law as amended by the

Telecommunications Act of 1996

Principles | Basic Service | Eligible Carriers | Affordability | Low-Income Consumers | Rural Areas | Telemedicine | Schools & Libraries | Administration | Get Involved

Federal Communications Commission Chairman Reed Hundt identified universal service as one of the three main goals of the Telecommunications Act of 1996. After months of deliberation and recommendations from the public and a board composed of both Federal and state telecommunications regulators, the Federal Communications Commission recently decided how to define universal service, who the beneficiaries will be, what it will cost, who will be responsible for contributing to support mechanisms, and who will be responsible for providing the actual services.

The Benton Foundation's Communications Policy Project is a nonpartisan initiative to strengthen public interest efforts in shaping the emerging National Information Infrastructure (NII). It is Benton's conviction that the vigorous participation of the nonprofit sector in policy debates, regulatory processes and demonstration projects will help realize the public interest potential of the NII. Current emphases of Benton's research include extending universal service in the digital age; the future of public service in the new media environment; the implications of new networking tools for civic participation and public dialogue; the roles of states as laboratories for policy development; and the ways in which noncommercial applications and services are being developed through new telecommunications and information tools.

Over the past two years, the Benton Foundation has commissioned a number of research papers on the subject of universal service and now hosts the World Wide Web's most comprehensive library of universal service and access documents.

Benton views universal service not as welfare policy, but smart economic policy that protects ratepayers from paying for stranded investments in telephone networks, adds to the value of those networks, and improves the overall productivity, health, and education of society. Universal service policies maximize the size of telephone networks, making citizens more available to education, health and safety services; to businesses; to government; and to eachother by reducing the financial burden of telephone subscribership.

This briefing summarizes the Federal Communications Commission's decisions concerning:

• the principles on which universal service policy will be based,
• the package of services that will constitute basic service,
• eligibility requirements for carriers to receive universal service funds,
• the definition of "affordable" service,
• support for low-income consumers,
• keeping service in rural areas affordable,
• making high-bandwidth services affordable for rural health care providers,
• making telecommunications services more affordable for schools and libraries, and
• administration of the universal service fund.

The briefing also describes the issues still at stake as universal service move to the state level for further implementation. Public interest groups will play a crucial role in these debates by setting high expectations for access to new technologies and making sure that information highways -- super or basic -- are available, affordable and accessible, for everyone.

The New Definition of Universal Service

Americans have long agreed that certain communications tools are so fundamental that their provision should not be left to the vagaries of the marketplace alone. Access to information and communications tools increasingly shapes our ability to manage our complex lives, participate in civic affairs, acquire learning skills needed for economic success, and enjoy social and cultural life. On May 7, 1997 the Federal Communications Commission (FCC) adopted new rules to implement the Telecommunications Act of 1996 (1996 Act) and to guarantee affordable telecommunications services are available throughout the nation. These "universal service" rules lower basic telephone rates in rural areas where service is more expensive to provide; reduce rates for low-income consumers most at risk of falling off this crucial network; provide rate parity for high-bandwidth, urban and rural telemedicine connections; and provide schools and libraries significant discounts to help them connect and remain connected to basic and advanced networks like the Internet.

Announcing the vote on these provisions, FCC Chairman Reed Hundt said, "Nothing could be more inspiring than the vision of major progress in the global fight against poverty, disease, and misery. Nothing less than that is at stake in our effort to spark sustained, significant, competition-driven growth in our communications and information sector, as ordered by Congress in the landmark Telecommunications Act of 1996. This is about opportunity for everyone." Chairman Hundt noted that the information sector of economy now makes up 1/6th of our entire economy, and job growth in that area is 2/3 greater than any other part of economy. By adopting these rules to ensure affordable access for households in all geographic areas, of income levels, for schools and libraries, and nonprofit, rural health care providers, we are taking necessary steps to guarantee that all citizens have a chance to share in the promise of the Information Age.

The rules adopted by the FCC endorse the recommendations of the Federal-State Joint Board on Universal Service (Joint Board) made in November 1996. The Joint Board recommended what services should be supported, stressed competitive neutrality, expanded programs for low-income consumers, and, for the first time, recognize the need to provide significant discounts for public schools, libraries, and rural health care providers.

I. The Principles of Universal Service

The preservation and advancement of universal service will be based on seven general principles ­ six outlined in the 1996 Act and one recommended by the Joint Board. The Joint Board also suggested that universal service policy "be a fair and reasonable balance" of all the principles listed below.

Quality and rates. Quality services should be available at affordable rates.

Access to advanced services. Access to advanced telecommunications and information services should be provided in all regions of the nation.

Access in rural and high­cost areas. Consumers in every region -- including low-income consumers and those in rural areas -- should have access to telecommunications and information services at costs reasonably comparable to rates charged in urban areas.

Equitable and nondiscriminatory contributions by providers to the preservation and advancement of universal service. All providers of telecommunications services should make contributions to universal service.

Specific and predictable support mechanisms. There should be specific, predictable, and sufficient federal and state mechanisms to preserve and advance universal service.

Access to advanced telecommunications services for schools, health care facilities, and libraries. Elementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services.

In addition to the principles above, the FCC has adopted the additional principle of "competitive neutrality" as recommended by the Joint Board: "Universal service support mechanisms and rules should be competitively neutral. In this context, competitive neutrality means that universal service support mechanisms and rules neither unfairly advantage or disadvantage one provider over another, and neither unfairly favor or disfavor one technology over another."

II. Basic Service Defined: The Package of Essential, Supported Services

In Benton's Universal Service: A Historical Perspective and Policies for the Twenty-First Century, Mark Cooper writes, "The purpose of ensuring basic service is to provide citizens with effective access to the telecommunications network." The 1996 Act defines universal service as "an evolving level of telecommunications services." While establishing the first specific definition of the "basic package" that is to be supported by Federal universal service support mechanisms, the Joint Board and the FCC considered the extent to which services:

• are essential to education, public health, or public safety;
• have, through the operation of market choices by customers, been subscribed to by a substantial majority of residential customers;
• are being deployed in public telecommunications networks by telecommunications carriers; and
• are consistent with the public interest, convenience, and necessity.
  

The FCC defines the basic package of essential services to include:

1) voice grade access to the public telephone network, with the ability to place and receive calls; 2) touch-tone service; 3) single-party service; 4) access to emergency services, including 911 and Enhanced 911 (which identifies a caller's location); 5) access to operator services; 6) access to interexchange services; 7) access to directory assistance; and 8) Lifeline and Link Up services for qualifying low-income consumers [see section V]. The FCC intends to determine the appropriate amount of local usage that should be included in the basic package by the end of 1997.

The FCC will convene a Federal-State Joint Board to review the definition of universal service on or before January 1, 2001. In the coming months, states will decide if they want to enhance the definition of universal service. Cooper, the Director of Research for the Consumer Federation of America, suggests that the basic package should also include the services already supported in a number state programs like toll blocking, a listing in a telephone directory, equitable access to long distance providers, and fax/data capability. Cooper also finds that a number of additional services are already widely deployed and should receive support: call trace, telecommunications relay service for the hearing impaired, and advanced switching technology called SS7.

Public interest should consider what services should be deemed "essential" for their communities. Should basic service in their area include equitable access to long distance providers to ensure fair competition? Are no-disconnect policies needed for all consumers in areas where providers have practiced unfair billing procedures? Should advanced switching technology and data-compatible lines be universal to ensure equitable, dial-up access to the Internet and other online information resources. Federal law and FCC rules allow for each state -- with input from the public -- to make these decisions.

III. Eligible Carriers -- Who Gets Universal Service Dollars

Universal service funding mechanisms have traditionally been paid telephone companies, not telecommunications users, based on their costs for serving high-cost customers. To promote competition for these funds, the FCC ruled that any telecommunications carrier (including, for example, wireless service providers), regardless of the technology it uses, is eligible to receive universal service support. However, as recommended by the Joint Board, a telecommunications carrier must meet three criteria to be eligible:

• they must offer each of the designated services in the basic package⁽¹⁾
• they must offer the services using their own facilities, or a combination of their own facilities and the resale of services provided by another carrier, and
• they must advertise the availability of and charges for the services.

The states will designate carriers eligible to receive support in part by establishing guidelines for carriers in regards to advertising. The FCC notes that this requirement cannot be met by carriers who place ads solely in business publications. The requirement "compels carriers to advertise in publications targeted to the general residential market."

The FCC agreed with Benton and the Florida Public Service Commission that low-income subscribership could rise if there was more information available about the existence of the Lifeline and LinkUp programs for low-income consumers (see Section V below). However, the FCC said that states are in a better position to supply that information since they are more aware of the special needs of their residents.

State commissions and public interest advocates could work together to make sure this information is available and disseminated it to eligible households. In proceedings at the FCC, Benton and the Center for Strategic Communications presented a plan based on California's recently adopted universal service plan. The Commenters proposed that the administrator of the universal service fund should be charged with developing competitively neutral marketing strategies and to implement universal service marketing campaigns to make eligible individuals and institutions aware of the resulting support mechanisms.

Public interest groups should ask state commissions to create a Universal Service Marketing Group (USMG). The USMG would work with a state's universal service fund administrator to recruit a qualified advertising agency to develop print, billboard, radio, television, and online advertising for the universal service program. The USMG would also work with existing state organizations with the information infrastructures to alert eligible constituencies of universal service support mechanisms. The USMG should be comprised of representatives from consumer groups, public interest advocates, state consumer advocates, representatives from the consumer protection departments of state public utility commissions, as well as experienced marketing executives from the telecommunications industry.

The USMG offers distinct advantages over relying on individual telecommunications providers for marketing universal service benefits:

• it makes no economical sense to have multiple marketing campaigns conducted by each carrier who is trying to sign up the same customers, especially if the marketing expense of each carrier is subsidized by the universal service fund;
• multiple marketing efforts tend to indirectly subsidize a carrier's overall marketing strategy by encouraging a potential customer to sign up regardless of their eligibility for universal service support;
• universal service-targeted advertising indirectly subsidizes the marketing of other services, such as toll and enhanced services, that the carrier can sell to consumers once they have become customers;
• the USMG could target consumer groups that have lower subscription rates by coordinating efforts with community-based organizations that work with these constituencies;
• the USMG could ensure that the additional principle of competitive neutrality is adhered to by allowing potential customers to see that they have a number of providers to choose from;
• coordination of efforts could be improved; for example, the USMG could help coordinate efforts to connect schools and libraries with the consultants and trainers these institutions may need to make best use of information technologies and services; and
• need for a state commission's oversight of carriers' efforts in this area would be substantially decreased.
  

IV. Defining "Affordability" -- How Much Is Too Much for an Essential Service

The first principle of universal service in the Act introduces the term "affordable" into national telecommunications policy:

Quality and rates. Quality services should be available at just, reasonable, and affordable rates.

Congress left it to the Joint Board and the FCC to determine what an affordable rate is. The Joint Board and the FCC found that affordability has two components: absolute and relative. The absolute component takes into account an individual's means to subscribe to telephone service. The relative component takes into account whether consumers are spending a disproportionate amount of their income on telephone service.

Using 1994 Census data, Copper finds that telephone subscribership drops as the cost for local service rises above .7 percent of annual household income. Telephone penetration rates are stable at 98% for households with incomes above $35,000, but dip sharply to 90% for households earning $25,000. At $12,500, the approximate upper limit of poverty-level income for multiple-person households, an affordable telephone rate would be just less than $7.50 per month, about $11.50 less than the national average monthly phone bill.

The FCC agreed with the Joint Board, and found that there is a correlation between subscribership and affordability, and recommends further joint examination by with the states on the factors that may contribute to low subscribership levels. To ensure local telephone service remains affordable, the FCC directed states to monitor rates and non-rate factors, such as subscribership levels, the geographic and population size of local calling areas, cost of living factors, and the amount of toll calls customers have to make in order to reach essential services. Community-based organizations, human service agencies, and other public interest advocates can provide valuable information to state commissions on the subscribership levels of their constituencies, the availability of essential services within a calling area, and the extra costs of delivering services to clients that do not have phones.

V. Targeting Low-Income Consumers -- Discounts for the Households Most Likely to Lose Service

Although 94% of all households have telephone service, subscribership is still not "universal." In The Low Income Report, Benton finds that there are still sizeable pockets without basic telephone service. Richard Krieg of Chicago's Institute for Metropolitan Affairs notes, "Despite limited empirical study of technology diffusion...it is clear that computerization, telecommunications, and mass media applications are dramatically underrepresented in distressed urban areas. While we are radiply approaching the 'next cycle,' the technology of the previous cycle has already bypassed the inner city." 50 percent of female-headed households living at or below the poverty line, 30 percent of welfare and public assistance recipients, and 43.5 percent of families who depend entirely on public assistance lack the basic technology of local phone service. More than two-thirds of all households without telephone service have income levels below 125 percent of poverty (currently ~$15,000 per year).

The 1996 Act charges the FCC "to make available, so far as possible, to all the people of the United States without discrimination on the basis of race, color, religion, national origin, or sex a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges..." The 1996 Act goes on to target low-income consumers as recipients of universal service support in one of the guiding principles:

Access in rural and high­cost areas. Consumers in every region -- including low-income consumers and those in rural areas -- should have access to telecommunications and information services at costs reasonably comparable to rates charged in urban areas.

The 1996 Act also includes a provision to preserve the Lifeline Assistance program ("Lifeline") established by the Commission over a decade ago. Since its creation, Lifeline has reduced qualifying consumers' monthly charges by waiving part of their bill and has required a matching reduction in state rates. Currently, 4.4 million consumers in 44 states, including the District of Columbia and the U.S. Virgin Islands, participate in Lifeline. The FCC's second major program targeted to low-income consumers is the Link Up America program ("Link Up"). Link Up provides federal support that reduces qualified low-income consumers' initial connection charges by up to one half and is currently funded by contributions from interexchange carriers. Lifeline and Link Up support has traditionally been available only to wireline, incumbent local exchange carriers.

The FCC adopted the Joint Board's recommended changes to Lifeline and Link Up. The new rules will:

• Expand Lifeline and Link Up to make them available in every state, territory and commonwealth; increase the federal Lifeline support amount; and modify the state matching requirement.
• Make the contribution and distribution of low-income support competitively and technologically neutral by requiring all providers of interstate telecommunications services to contribute and allowing all eligible telecommunications carriers, including, for example, wireless carriers, to receive support for offering Lifeline and Link Up service.
  

The FCC is estimating that the number of participants in the program could increase by 1.9 million.

Low-income consumers will be allowed to choose any qualified carrier using any technology to provide basic service. They will receive free toll blocking and toll limitation services and will not lose basic telephone service if they are unable to pay for toll charges. There is no restriction on the number of service connections per year for which a low-income consumer can receive Link Up support.

Each Lifeline consumer will receive $5.25 per month in federal support. $3.50 of that total will be automatic; an additional $1.75 in Federal support will be available with state consent, but without any need for state matching funds. The federal fund will also provide $1.00 of additional support for every $2.00 of support provided by the states, up to a maximum of $1.75 so that the maximum federal support would be $7.00. The total reduction in a low-income consumers bill, including full state matching funds, would be $10.50 per month[see figure 1]. In the full discount scenario, for every $3 a consumer sees in rate reduction, the state contributes only $1 -- and all of these funds remain in state.

Reductions in Low-Income Consumers' Local Monthly Telephone Bills

Figure 1

In states that do not match FCC funds to lower monthly telephone rates, the FCC adopted eligibility criteria suggested by the Edgemont Neighborhood Coalition and the Benton Foundation: participants in federal income means-tested programs such as Medicaid, food stamps, Supplementary Income (SSI), federal public housing assistance or Section 8, or Low Income Home Energy Assistance Program (LIHEAP) will be eligible for reductions in their phone bills of $5.25 per month.

States that contribute matching funds may set their own eligibility requirements as long as they are income-based. The FCC urges the states to adopt eligibility verification procedures that are as efficient as possible. Special notice is given to the program in New York which mandates the exchange of computer files between the social service agencies which administer participation in other public assistance programs and the state's local telephone carriers. Lifeline enrollment in New York is automatic and administration overhead is cut to a minimum. New York supports phone service for some for as little as $1.00 per month.

Cooper suggests an income-based self-certification system. He targets all consumers with income levels below 125 percent of poverty for eligibility. These consumers make up two-thirds of phoneless households, they are the most likely households to fall off phone networks, and they are the least expensive customers to serve because they rarely subscribe to specialized services -- like call waiting and voice mail -- that tax a systems basic purpose: to provide basic telecommunications service.

Although the FCC agreed with Benton and other commenters that low-income subscribership levels might increase if there were more information available to low-income consumers, the Commission also agreed with the Joint Board that states are in a better position to supply that information. No federal universal service support will be given for distributing such information, but eligible carriers will be required to advertise the availability of and charges for Lifeline (see section III).

In upcoming state proceedings, the participation of public interest advocates is crucial to:

• at a minimum, convince state regulators to approve the additional Federal support that requires no state matching funds;
• convince state regulators to match Federal funds and set local phone rates as low as possible for low-income households;
• set eligibility requirements that are reasonable and guarantee that the people that need these discounts most get them; and
• establish clear advertising criteria for carriers so that consumers know of the available services and what they costs.
  
  

Public advocates should remember that benefits for the poor are not just welfare policy -- they are good economic policy. Lifeline and Link Up decrease the likelihood of stranded telephone facilities that all ratepayers must pay for, they add income for providers, they reduce the fixed cost of the network, they help consumers connect to businesses while seeking jobs and shopping, and they reduce the costs of delivering social services to these households. They also make communities safer by connecting more people to essential services like emergency health care, fire and police stations.

VI. Rural, Insular, and High Cost Areas -- Affordable Service No Matter Where You Live

The 1996 Act contains two principles that outline the commitment to making basic telephone and advanced services available and affordable to all Americans, no matter where they live:

Access to advanced services. Access to advanced telecommunications and information services should be provided in all regions of the nation.

Access in rural and high­cost areas. Consumers in every region -- including low-income consumers and those in rural areas -- should have access to telecommunications and information services at costs reasonably comparable to rates charged in urban areas.

The FCC will provide subsidies for small, rural telephone companies -- which serve anywhere from a few hundred to a few thousand lines -- that incur highest costs for servicing lightly populated areas. The $1.3 billion in annual high cost support will be raised by charges on:

• second lines into residences;
• business phone lines; and
• long distance providers for the completion of long distance calls
  
  

FCC Chairman Reed Hundt says that the Commission took a moderate step with respect to universal service because "no one right now can represent a true consensus on the size of the fund." Hundt says that it is imperative to work with the states in order to "strike the right balance "regarding the size of the universal service fund and distribution of money. There is enough money, Hundt argues, in interstate access to cover all of universal service, and can, in some way, fund the historic costs of carriers -- the money they have already invested in building their networks. The FCC and the states will determine together 1) a fair amount to pay for the cost of access, 2) a fair amount to pay for universal service, and 3) sizing of historic cost. Hundt emphasized that universal service costs and historic costs are two different things and need to be dealt with separately. Universal service costs refer to the actual costs of providing service. The historic costs refer to the investments carriers have made to build their networks.

The FCC found that support for high cost areas should be based on a forward-looking economic costs. The various cost methodologies presented to the FCC thus far are not sufficiently reliable and, in June of this year, the Commission shall issue a Further Notice of Proposed Rulemaking seeking further information. The states may elect to use the Commission's forward looking mechanisms or their own forward-looking cost studies for determining universal service support. States must indicate their intent to use the Commission's or their own methodology by August 15, 1997.

As recommended by the Joint Board, the Commission will also continue to explore the use of competitive bidding as a mechanism to provide universal service.

VII. Telemedicine in Our Future -- Support for Rural Health Care Providers

The Act directs the FCC to discount telecommunications services for rural health care providers:

Access to advanced telecommunications services for schools, health care facilities, and libraries. Elementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services.

In particular the 1996 Act says that telecommunications providers shall supply services to public and nonprofit health care providers that serve rural residents at rates reasonably comparable to rates charged in urban areas. This includes "services which are necessary for the provision of health care," as well as instruction related to those services.

In a Louis Harris poll, Americans listed "obtaining information on staying healthy, on diseases or related topics" as their first choice when asked what they would most like to see on information networks.

In Benton's forthcoming What's Going On in Health, we report that 111 counties in the US had no physicians at all. Half a million residents live in a county where there is no doctor trained to provide obstetrics care, 49 million live in counties with no psychiatrist. States overwhelmingly rate health personnel as one of their most pressing problems and a major focus of state rural health activities.

Telemedicine is a tool that may help address those challenges by improving the ability of providers to communicate by providing them with access to current information, consultation with specialists, and professional support. The use of telecommunications to deliver health care is not new -- since the 1960's, telecommunications have been used to exchange medical information between sites in rural areas. But recent technological advances -- fiber optics, integrated services digital networks (ISDN), and compressed video -- have eliminated or minimized some of the problems that limited earlier applications. Telemedicine is not a single technology, but the means of providing health services at a distance using medical computer science. It spans every aspect of health care, from emergency medical systems to medical specialists to home care.

The FCC, consistent with the Joint Board recommendation, provides for all public and not-for-profit health care providers located in rural areas to receive universal service support, not to exceed an annual cap of $400 million. A health care provider may obtain telecommunications service at a transmission capacity up to and including the bandwidth equivalent of a T-1 line at rates comparable to those paid for similar services in the nearest urban area within the state with more than 50,000 residents.

Rural health care providers will receive support for both distance-based charges and a toll-free connection to an Internet service provider. Each health care provider that lacks toll-free access to an Internet service provider may also receive the lesser of 30 hours of Internet access at local calling rates per month or $180 per month in toll charge credits for toll charges imposed for connecting to the Internet.

VIII. Telecommunications and Learning Centers -- Support for Schools and Libraries

In The Learning Connection: Schools in the Information Age, Benton examines the huge effort to meet President Clinton's goal of wiring every school in the nation to the Internet by the year 2000. Benton also explores the financial, technological, and human factors that must be met to make the investment worthwhile. Estimates say that over the next 10 years, we will have to spend $47 billion to create useful school networks, and spend another $10 billion per year to maintain those networks.

In Local Places, Global Connections: Libraries in the Digital Age, Benton and Libraries For the Future explored the crucial role libraries are playing in carving out public spaces in the new information networks -- and in ensuring that people have access to them regardless of income. Libraries have long been pivotal community institutions, public spaces where people can come together to learn, reflect, and interact. But today, information is rapidly spreading beyond books and journals to digital, governmental archives, business databases, electronic sound, image, and film collections, and the flow of electronic impulses over computer networks. Local Places reports that nearly 45 percent of all US public libraries are connected to the Internet -- although the extent to which they provide public access varies widely. While connecting the rest will be a challenge, those that have made the leap show that it is worth the effort. They are tapping into vast new stores of information, and in the process they're adding value to that information in numerous ways.

The FCC's new universal service rules allow K-12 schools and libraries to receive discounts on the purchase of all commercially available telecommunications services, Internet access, and internal connections. Discounts will range from 20% to 90%, with the higher discounts being provided to the most disadvantaged schools and libraries and those in rural areas. Total expenditures for universal service support for schools and libraries is capped at $2.25 billion per year. Funding for the discounts will be assessed based on the interstate and intrastate revenues of long distance carriers.

Discount Methodology Schools and libraries will be required to apply for discounts for the telecommunications services they want to use. As part of the application process, the school or library must first conduct a technology inventory and assessment that will provide information on the applicants current capacity and future plans regarding:

• the availability of computer equipment and modems;
• internal network connections and volunteer efforts ­ like NetDay ­ to install these connections;
• the software necessary for computer communications;
• the experience level and training programs available for staff that will be making use of the technology;
• computer maintenance contracts;
• the institution's electrical system;
• specific plans for using the technology and for integrating it into their curriculum.

Schools and libraries will be required to submit their requests for services to the universal service fund administrator, who would then calculate the discount the school or library is eligible to receive (see matrix below) and post that information along with a description of the services sought on a website for all providers of services to see. The school or library will then have to wait four weeks to allow time to get a number of competitive bids. The companies that bid to provide services are required to offer their lowest corresponding price⁽³⁾ and no more. After four weeks, the school or library may enter into a contract contingent on them receiving their universal service support. A copy of the contact will be sent to the universal service fund administrator for final approval and to determine if there are enough available funds.

Schools and libraries may not resell any discounted services. The prohibition on resale, however, will not prohibit either computer lab fees for students or fees for Internet classes.

Discount matrix: targeting the schools that need the most support The discount a school or library will receive on telecommunications services is based on the matrix below. For example, an urban school serving a school population with 20% of the students eligible for the school lunch program would receive a 50% discount on the bid to meet its telecommunications needs. A rural library serving a school district in which 70% of the students are eligible for the school lunch program would receive a 80% discount.

^*(Children from families whose incomes are 130 percent or less of the poverty level qualify for a free lunch, while children from families whose incomes are between 130 percent and 185 percent of the poverty level qualify for a reduced price lunch. See 47 U.S.C. § 1758(b).

The FCC's discount matrix is for interstate services. For states to participate, they must match the discount schedule for services within the state.

Buying Consortia

The FCC encourages schools and libraries to enter buying consortia to aggregate demand so that they can benefit from volume discounts as well as the federally supported discounts. The FCC believes that service providers will enjoy economies of scale and scope and pass those discounts on to the buying consortia. The consortia can consist of eligible and noneligible entities including universities, state agencies and networks, and private organizations. The consortium's volume discount will apply to all members, but federal support will only go to eligible entities based on the matrix above. The FCC recommends that state commissions should take measures to enable consortia to aggregate purchases of telecommunications services.

Timeline

Administration of the program for schools and libraries will begin on July 1, 1997. At that time, the fund's administrator will begin to accept requests from eligible schools and libraries for support. However, no funds will be collect or distributed until January 1, 1998.

Public interest advocates should be mobilizing to make sure state regulatory commissions clarify rules for mixed buying consortia and consider implementing discounts on intrastate services that match or better the FCC discounts on interstate services. The majority of services schools and libraries use will be intrastate, so these discounts are of great importance. The Connecticut Department of Public Utility Control (CPUC), for example, has already completed its proceedings on discounts for schools and libraries.⁽⁴⁾ Although CPUC matched the FCC's discount matrix, its decision did not clarify rules on buying consortia.

IX. How to Raise It, How to Disperse It -- Administration of the Universal Service Fund

The task at the FCC was to preserve affordable local rate in rural areas, expand its programs for low-income consumers, and provide new discounts for schools, libraries and rural healthcare providers without raising residential telephone rates in urban areas and promoting competition everywhere. Traditionally, universal service funds were raised by usage fees when you make a long distance call. A long distance carrier would have to pay a per minute fee to the local service providers that completed those calls.

In the new plan, per minute long distance fees will drop and these reductions will be reflected in long distance bills. Flat-rate fees will be raised, however, on business lines and second lines into residences.

The FCC has adopted the Joint Board's recommendation that all telecommunications carriers that provide interstate telecommunications services contribute to universal service. In addition, providers of interstate telecommunications on a non-common carrier basis and payphone aggregators will also contribute to the support mechanisms.

Consistent with the Joint Board, the FCC has adopted a contribution assessment methodology that is competitively neutral and easy to administer. Contributions will be assessed against end-user telecommunications revenues.

The FCC has appointed the National Exchange Carriers Association as the temporary administrator of the support mechanisms. Consistent with the Joint Board, the FCC will also create a Federal Advisory Committee to recommend a neutral, third-party, permanent administrator of the support mechanisms. The administrator, in turn, will name a special subcontrator, to manage the programs for schools and libraries.

The FCC and the states will continue to team to solve universal service problems. Federal contributions to high cost support mechanisms will only be 25% of what is needed -- states will have to contribute the other 75%. The FCC will be working with the states to resolve three numbers necessary for full implementation of universal service: 1) the true cost for universal service, 2) the cost of access for interstate calls and 3) the right amount of money for the historical cost issue to obtain a balance between states paying out and states taking in. With those three figures in place, the FCC and the states can further examine the 25 percent/75 percent split.

X. The Role for Public Interest Groups

"This is not just an issue for the telephone industry," says Andrew Blau, Director of the Benton Foundation's Communication Policy and Practice project. "Universal telecommunications service is in the strategic interests of public interest groups and they need to jump into the debate." Public interest groups -- and the constituencies they serve -- have the most to gain from effective telecommunications policy. There is no public voice without their input.

To identify the issues and players in your state, see Benton's State and Local Strategies for Connecting Communities, a survey of telecommunications issues in each of the 50 states. The survey is also available on our web site at <http://www.benton.org/Library/State/> with convenient links to state regulators and local consumer advocates. Or, for more background information on the importance of this issue in low-income communities, libraries and schools, order the publications mentioned in this report:

Universal Service: A Historical Perspective and Policies for the Twenty-First Century

Local Places, Global Connections: Libraries in the Digital Age

The Learning Connection: Schools in the Information Age (Available Soon)

The Low Income Report (forthcoming)

What's Going On in Health (forthcoming)

For information about following about how to follow proceedings at the federal level, see Benton's policy toolkit at http://www.benton.org/Policy/Toolkit/.

Endnotes

1 Transition periods will be available for carriers currently unable to provide single-party service, Enhanced 911 service, and toll limitation services.

2. Transition periods will be available for carriers currently unable to provide single-party service, Enhanced 911 service, and toll limitation services.

3. The lowest price charged to similarly situated non-residential customers for similar services.

4. See http://www.state.ct.us/dpuc/telcom.htm

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www.benton.org/Update/summary.html
Created: 10 June 1997 kjt
Last updated: 19 July 1999 jss