Public Interest advocates, universal service,
and the Telecommunications Act of 1996

"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 1996 Telecommunications Act

For years Universal Service has meant providing person-to-person voice communications through telephones to all Americans at prices made affordable through a system of subsidies. Today converging communications technologies could expand the concept of Universal Service beyond "plain old telephone service" to the benefits of new communications capabilities-including enhanced phone and computer networks-to most Americans. But growing competition in the telecommunications business, accelerated by the passage of the Telecommunications Act of 1996, is undermining the traditional funding mechanisms and making it increasingly difficult to preserve Universal Service. There are a number of Universal Service issues covered in the 1996 Act, but many details remain unclear. In the coming months public interest advocates have an opportunity to help define Universal Service in the digital age.

Federal Communications Commission Chairman Reed Hundt has identified Universal Service as one of the three main goals of the Telecommunications Act. Over the next 18 months, the FCC will be deciding what Universal Service is, 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. In establishing the definition of Universal Service, the FCC is to consider the extent to which telecommunications services:

• are consistent with the public interest, convenience, and necessity

• are essential to education, public health, or public safety

• are being deployed in public telecommunications networks

• have, through market forces, been subscribed to by a substantial majority of residential customers.

The Telecommunications Act of 1996 mandates that the FCC must follow a tight schedule to implement the legislation. The Commission has issued its implementation plan and began the rulemaking proceeding in March 1996. The memo below outlines the timetable around five Universal Service issues-definition and funding mechanisms, services for schools, libraries, and health care facilities, rural rates, support for low-income consumers, and accounting safeguards. The Benton Foundation hopes this memo acts as both a primer on FCC proceedings and as a catalyst for public interest advocates to assume their role in defining Universal Service.

Defining Universal Service and federal funding mechanisms

Traditionally, providing universal telephone service involved a web of subsidies. Commercial users subsidized residential users. Urban users, whom it costs less to serve, subsidized rural users in high cost areas. Those able to pay subsidized those unable to pay. Federal and state policies have long helped fund Universal Service through pooling arrangements and cost allocations. Today however, having many providers rather than a single provider means that paying for the full cost of Universal Service is going to be difficult and complicated. We need to identify who will pay into the system and who will receive subsidies.

The questions public interest advocates should be asking themselves and the FCC include:

• How should the discussion of Universal Service be framed? Is Universal Service about connecting phones? Connecting people with phones? Or connecting people with people? How can the discussion center around the people who need to benefit from the policy most?

• How is the value of a network-any network, phone or computer-diminished as fewer and fewer people have access to it? What can be done to identify the communities and individuals most at risk of falling off the networks that will make up the National Information Infrastructure? What strategies can be employed to add people to the networks and keep them on? How can the voices of the people who have fallen off the networks be included in the rulemaking?

• What telecommunications services should be "universal" in the information age? What flexibility should people have in picking the services they need? How might Universal Service be defined so that recipients of the services do not have to pay to protect certain rights (such as privacy)? What good is a wire without connections to the hardware, training, and support that are essential for effective use?

• What role can nonprofit organizations and other community-based institutions play in delivering access to basic and advanced services? How could centralized delivery centers reduce the costs of providing basic and advanced services in both urban and rural areas? What role could existing community-based organizations-schools, libraries, community centers, and so on-play in managing these new telecommunications centers? Also in a more complex technological environment with numerous carriers, providing universal access may not be enough to facilitate widespread use of telecommunications. The public may need ongoing consumer education so that individuals and organizations are aware of the options available to them, are able to make informed decisions about these options, understand the pricing of the services, and know how to get assistance if they have difficulties with service reliability, bills, privacy, and other problems. How might nonprofit organizations provide these educational services as well?

In the coming months, corporate leaders will be weighing in on these issues. They will argue that the marketplace will provide a more effective solution than government action. The only way advocates and their constituencies can protect and define public interest values is to voice their own viewpoints. For the first time in 60 years, public interest advocates have the opportunity to determine how our Nation guarantees that all Americans can gain access to the information networks that connect us to each other and the world. Public interest advocates need to take an active role in determining public interest, convenience, and necessity for the world in which they live.

On March 8, 1996, the FCC appointed a Federal-State Joint Board on Universal Service. The board is comprised of three FCC commissioners (Chairman Reed Hundt, Andrew Barrett1, Susan Ness), four commissioners from the states (Sharon Nelson of Washington, Laska Schoenfelder of South Dakota, Julia Johnson of Florida, and Kenneth McClure of Missouri), and one state utility consumer advocate nominated by the National Association of State Utility Consumer Advocates (Missouri Public Counsel Martha Hogarty). Through the recommendations of the Federal-State Joint Board and the comments filed in the Notice of Proposed Rule Making mentioned below, the Commission will:

• Redefine services that will be funded by Federal Universal Service support mechanisms

• Periodically review the definition based on advances in telecommunications and information technologies and services

• Decide which telecommunications carriers should contribute and be eligible for support.

Also on March 8, 1996, the FCC issued a Notice of Proposed Rulemaking (NPRM)-the proceedings that invite public comment for an FCC rulemaking-on Universal Service. Comments on the NPRM are due on April 8, 1996 and replies to the comments are due May 3, 1996. Although the timetable for comments in this initial NPRM is quite short, public interest advocates should recognize that this is a long process. "It looks like a sprint, but it's really a marathon," says one longtime advocate, Andy Schwartzman of the Media Access Project. The Federal-State Joint Board will use the NPRM comments as it forms its own recommendations which will be delivered to the FCC by November 8, 1996. The FCC will initiate and complete a single proceeding to implement the board's recommendations by May 8, 1997. Proceedings will be handled through the Common Carrier and Wireless Telecommunications Bureaus. Within the Common Carrier Bureau, primary responsibility will fall to the Accounting and Audits Division. The proceeding is referred to as Common Carrier Docket #96-45.

The 1996 Act directs the Federal-State Joint Board to base the preservation of Universal Service on six general principles and allows the Board to consider additional principles in making its recommendations. The Commission solicits comment on how each of these principles should influence Universal Service policies. The principles and related questions are:

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

The Commission seeks comment on how it can assess whether quality services are being made available. The Commission also seeks comment on whether there are appropriate measures that could help it assess whether "affordable" service is being provided to all Americans.

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

The Commission seeks comment on how to design policies to foster access to advanced telecommunications and information services for all regions of the Nation. While in the past, the Commission has focused on bringing basic telecommunications services to as many American homes as possible, this principle instructs them to focus specifically on advanced telecommunications and information services. The Commission seeks comment on which advanced telecommunications and information services should be provided, and how to provide access effectively to Americans in various geographic regions. The Commission also seeks comment on the cost of providing such access.

Access in rural and high-cost areas. Consumers in every region should have access to telecommunications and information services at costs reasonably comparable to rates charged in urban areas.

The Commission believes that its goal should be to ensure that consumers in all regions of the Nation and at all income levels, including low-income consumers, enjoy affordable access to the range of services available to urban consumers generally. The Commission recognizes, however, that the range of services is not likely to be identical for all urban areas, and may, as a practical matter, vary according to the demographic characteristics of consumers located in a given urban area. The Commission seeks comment on how best to incorporate that variation in its use of urban area service as a benchmark for comparative purposes.

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.

The Commission seeks comment on what standards they might use to help determine which, if any, providers of telecommunications services might be treated differently than others for "equitable" reasons.

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

The Commission seeks comment on the best approach to administer the universal service mechanisms fairly, consistently, and efficiently. The Commission seeks comment on how financial responsibility should be divided between local and long distance carriers for the costs associated with the Universal Service support mechanisms. The Commission also seeks comment on whether the public interest requires that we extend support obligations to any other providers of telecommunications services, and, if so, what categories of providers, other than telecommunications carriers, should be so obligated (That is, if Internet access is deemed a part of Universal Service, should Internet service providers be required to contribute?).

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.

The Commission seeks to identify the services to be supported by federal Universal Service support mechanisms for schools, libraries, and rural health care providers. The Commission seeks comment on the additional services that carriers must make available to schools and libraries. As the legislative history makes clear, Congress "expects the Commission and the Joint Board to take into account the particular needs of . . . K-12 schools and libraries" in determining which services should be provided at a discount.

Additional principles. Principles that the Joint Board and the Commission determine are necessary and appropriate for the protection of the public interest, convenience, and necessity and are consistent with the Telecommunications Act.

The Commission invites interested parties to propose additional principles relevant to the choice of services that should receive Universal Service support. In addition, the Commission specifically asks that commenters address whether and to what extent concerns for low income consumers or those in rural, insular, or high cost areas can or should be articulated as additional Universal Service principles or should be considered in determining whether a particular service is "consistent with the public interest, convenience, and necessity."

Inclusion of "additional principles" reflects a great departure from previous Commission proceedings. Public interest advocates are being asked not only to identify the needs of their constituencies, but to help write and define the principles that will guide this policy for years to come.

The Federal-State Joint Board, the FCC, and state utility commissions are to promote in all regions of the nation services "that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas."

Individual states may also enact their own rules in regards to Universal Service. A state's definition of Universal Service must include the federal definition and can only enhance the definition if the state can maintain funding without burdening the federal support mechanisms. Every telecommunications carrier that provides services within a state can be required to contribute to a statewide Universal Service funding mechanism.

Services for schools, libraries, and health care institutions

Linking schools and other public service institutions to emerging telecommunications networks has become one of the hottest topics of the 1990s. The Congress and the President have included their commitment to it in the Telecommunications Act. In the past year AT&T, Microsoft, and other corporations have announced large commitments to connecting schools and libraries.

There is a clear logic to these goals. Advanced communications technologies are increasingly shaping how we work, play, and communicate with one another. According to the Department of Labor, almost 50 percent of all workers use computers on the job (double the rate of just 10 years ago), and those who do earn 43 percent more than other workers. Some 37 percent of US households have computers, and although the number connected to networks remains relatively small, it is growing exponentially. Indeed, the importance of computer networks is likely to grow enormously in the years ahead, as they become the means for delivering not just text and data, but video, audio, and graphical information as well.

While telecommunications technologies have enormous potential to help students and others prepare for the demands of the twenty-first century, merely providing the wire that connects the school or library or health clinic will not be sufficient. These institutions will need additional support for hardware, software, and training to make best use of the wires that connect them to the rest of the world.

Questions in the NPRM aim to clarify the provisions of the Telecommunications Act for schools, libraries, and health care providers. The FCC will establish rules to provide both basic and advanced telecommunications and information services to public and nonprofit schools, health care providers, and libraries. The FCC will define the circumstances under which a carrier may be required to connect these public institutions to its network and at what rates. This proceeding will decide which, if any, services will be designated for support for these institutions. This proceeding will be coordinated by the Office of Policy and Planning, the Common Carrier Bureau, the Wireless Telecommunications Bureau, the Cables Services Bureau, and the International Bureau. Institutions and services to be considered include:

• Health care providers in rural areas. Telecommunications providers shall supply services to health care providers that serve rural residents at rates reasonably comparable to rates charged in urban areas. These rates are yet to be determined. The provision includes "services which are necessary for the provision of health care," as well as instruction related to those services.

• Educational providers and libraries. Telecommunications providers shall provide to schools and libraries services defined in Universal Service proceedings "at rates less than the amounts charged for similar services to other parties. The discount shall be an amount that the FCC, with respect to interstate services, and the states, with respect to intrastate services, determine is appropriate and necessary to ensure affordable access to and use of such services by such entities." The amount of the discount has not been determined. Rates could be a dollar less or a penny less. Or rates for these institutions could be flat payments independent of usage. These rates will ultimately determine how these institutions get to use these services.

• Advanced services. The FCC shall establish competitively neutral rules to enhance access to advanced telecommunications and information services for public and nonprofit classrooms, health care providers, and libraries.

Rural rates

Access to information is key to a wide range of social and economic activities. The rates we pay for telecommunications services increasingly affect our ability to access information. Telecommunications infrastructure provides a way to transmit and share information, thus opening up the developmental benefits of information.

Transitions in the US economy show declines in primary industries and manufacturing, and rapid growth in the service industry. Rural economies mirror this structural shift-public and private services now dwarf agriculture and manufacturing. Yet the shift to services is only part of the change. Information activities account for the largest part of the growth in services, and other sectors are becoming increasingly information-intensive. Thus access to information is an important requirement for rural economic development.

The NPRM includes questions on rates for rural and other high-cost area subscribers. The FCC is to adopt rules that require rates in these areas be no higher than the rates for subscribers in urban areas. Rules will also be adopted that require carriers to set equal rates for each of the states within its service area. This proceeding will be handled by the Common Carrier Bureau. Within the Common Carrier Bureau, primary responsibility will fall to the Policy and Tariff Divisions.

The Commission seeks comment regarding whether the following services should be included among those core services receiving Universal Service support: voice grade access to the public switched network, with the ability to place and receive calls; touch-tone; single party service; access to emergency services (911); access to operator services; relay services, directory listings, and equal access to interexchange services.

The Commission invites parties to discuss advanced services that may warrant inclusion, now or in the future, in the list of services that are supported by Universal Service support mechanisms. For example, within the context of the criteria discussed in the Act, commenters may wish to discuss Internet access availability, optional Signalling System Seven features (such as caller-ID) or blocking of such features, enhanced services, and broadband services.

The 1996 Act makes explicit that Universal Service policies should promote affordability of quality telecommunications services. The Commission seeks comment proposing standards for evaluating the affordability of telecommunications services. The Commission notes that the Act specifically provides that telecommunications services-not just the narrow category of telephone service-be affordable. The Commission seeks comment on whether the Act requires that all regions of the country must have access to all telecommunications and information services and, if so, how this can best be put into effect in a "pro-competitive, de-regulatory environment." The Commission asks commenters to identify the criteria or principles that should guide this determination.

Support of low-income consumers

The Commission proposes that the same services available to rural consumers should also be services supported by federal Universal Service support mechanisms with respect to low-income consumers. The Commission seeks comment on designation of additional services that would be specifically appropriate for low-income users. The Joint Explanatory Statement2 added persons with low income "to the list of consumers to whom access to telecommunications and information services should be provided." Through the Commission's monitoring of subscribership levels and census data, we know that subscribership levels for low-income individuals fall substantially below the national average.3 For example 31 percent of all families receiving food stamps have no telephones. Telephone penetration for households headed by women with children, living at or below the poverty line, is around 50 percent. Even above the poverty line this group suffers low telephone penetration rates.

The Commission requests comment regarding its overall responsibilities to low-income consumers. The Commission invites commenters to address whether there are any particular services, technical capabilities, or features that would benefit low-income consumers and that meet one or more of the criteria for inclusion among the services that should receive Universal Service support. Consistent with the Act's principle that support mechanisms should be "specific, predictable, and sufficient," they ask commenters to address potential costs associated with such support.

Public interest advocates should submit comments to the FCC that identify the needs of low-income people and the organizations that serve them. A policy which guarantees affordable rates for rural subscribers, but ignores the low subscription rates in America's inner cities, will fail a population most at risk of falling off important networks and will fall short of truly being universal.

Nonprofit organizations may also present strategies by which they might offer aggregated basic and advanced telecommunications services to at-risk communities.4 Telecommunications Centers might serve the communications needs of low- and no-income people just as food and warming centers attend to their physical needs.

Accounting safeguards

Historically the social policy goal of Universal Service has been served through a system of massive intra-industry transfers of funds, with the primary flows being from business and toll service users to basic residential subscribers, and from urban to rural exchanges. Before divestiture these transfers were accomplished largely within the corporate umbrella of AT&T. Since then they have been maintained by a complex set of rules governing transfers among carriers. This system, rooted more in political compromise than economic logic, was sustainable when there was a single monopoly network. However competition is the natural enemy of cross-subsidy, and the emergence and continued growth of competitive suppliers makes it doubtful that current mechanisms for managing these transfers can be maintained much longer.

The growth of competitive suppliers of telecommunications services means that the working definition of the telecommunications infrastructure must be expanded to incorporate the facilities and functionalities of new, increasingly diverse and competitive industry players. Most components of the traditional public telephone network either are, or soon will be, competitively supplied.

In March 1996 the Commission will issue another NPRM on accounting safeguards. The FCC is to establish allocation rules, accounting safeguards, and guidelines to ensure that providers of services included in the Universal Service package bear reasonable shares of cost for providing these services. The proceeding will be handled by the Common Carrier Bureau. Within the Common Carrier Bureau, the Accounting and Audits Division will have primary responsibility. An order is expected in May 1997.

In devising a new system to fairly distribute the costs of Universal Service, public interest advocates should keep in mind:

Contributory and distributive fairness. The current system has a large number of internal transfers, both among industry segments and among groups of consumers. Political viability requires that recipients of the transfers be deserving and that the levies required to maintain these transfers be fairly distributed. A funding system will lose political support if there is a widespread belief that some are unfairly profiting at the expense of others or that some are unfairly able to avoid contributory obligations that then fall more heavily on others.

Political sustainability. Any new infrastructure funding mechanism must represent a politically stable coalition of interests. While not sufficient by themselves, contributory and distributive fairness are both necessary to political sustainability.

Promotion of economic efficiency. To promote static efficiency-the efficiency with which current services are provided-it is important that the infrastructure funding mechanism not create purely financial incentives for service providers to engage in activities that exist solely so providers can avoid participating in intra-system transfers. To serve the goal of dynamic efficiency, it is critical that the funding mechanism not discourage investments in and experiments with new technologies and services.

Following the FCC

The FCC maintains a site on the World Wide Web that is updated regularly. The URL is http://www.fcc.gov. Check the site to keep abreast of the FCC's activities. All NPRMs and NOIs referred to in this memo will be available at this site. Or visit the Benton Foundation's site at http://www.benton.org for continuing updates on Universal Service and other public interest issues related to the new Telecommunications Act.

To file formally in this proceeding interested parties must file an original and four copies of all comments, reply comments, and supporting comments with the FCC. Comments and reply comments will be limited to 25 pages apiece, not including appendices of factual material. Interested parties should send comments and reply comments to:

Office of the Secretary
Federal Communications Commission
Washington, DC 20554

Parties must also submit comments on the Federal-State Joint Board in accordance with the service list (see back). Parties should send one copy of any document filed in this docket to the Commission's copy contractor at:

International Transcription Service
1990 M Street, NW, Room 640
Washington, DC 20036

Comments and reply comments will be available for public inspection during regular business hours at:

FCC Reference Center
1919 M Street, NW, Room 239
Washington, DC 20554

Parties are also asked to submit comments and reply comments on diskette. Such diskette submissions would be in addition to and not a substitute for the formal filing requirements addressed above. Parties submitting diskettes should submit them to:

Ernestine Creech
Common Carrier Bureau, Accounting and Audits Division
2000 L Street, NW, Suite 257
Washington, DC 20554

Such a submission should be on a 3.5 inch diskette formatted in an IBM compatible form using WordPerfect 5.1 for Windows software. The diskette should be submitted in "read only" mode. The diskette should be clearly labelled with the party's name, proceeding, type of pleading (comment or reply comment), and date of submission. The diskette should be accompanied by a cover letter.

Notes:

1. Commissioner Barrett has announced that he may be leaving the FCC as soon as May 1, 1996. It is uncertain who will sit on the Joint Board when he steps down.

2. Senate Conference Report No. 104-230, 104th Congress, 2nd Session. 131 (1996).

3. See FCC Subscribership Notice at 13003-4.

4. See Why Telecenter? © 1995 & 1996, by Allen S. Hammond, IV. New York Law School.