June 16, 2005

In separate actions Tuesday, the Federal Communications Commission lowered the universal-service contribution factor to 10.2 percent and said it would begin examining the USF subsidy program, perhaps dramatically changing the way the E-rate is administered.

"I fully support the universal-service program and the critical function it serves to ensure access for consumers in rural and high-cost areas and to promote access to advanced services for schools, libraries and healthcare providers in rural areas," said FCC Chairman Kevin Martin.

"Managing the universal-service fund in an efficient, effective manner is one of the FCC's core functions. It is incumbent upon us to take the steps necessary to improve the operational efficiency of the program while providing greater certainty to the recipients."

The 10.2-percent contribution factor is a reduction from 11.1 percent, but still is above 10 percent-a threshold many felt was too high.

The contribution factor is a percentage of long-distance and international revenues. Because it is often difficult in the mobile world to distinguish between in-state and out-of-state calls, wireless carriers generally use a safe-harbor percentage of all of their revenues-set at 28.5 percent-to determine how much they owe to the universal-service fund. Mobile-phone customers are charged a percentage of their bills to recover this assessment.

The USF was created to allow rural Americans to have comparable services at comparable rates to those paid by people living in cities. As part of its examination of the universal-service program, the FCC is examining whether the support to schools and libraries-commonly known as the E-rate-should be distributed according to a formula rather than by the current grant application process.

The universal-service system was set up in the 1930s to bring telecommunications services to high-cost areas by using long-distance revenues. The system was complicated when the Bell system broke up in the 1980s, but was codified into the Communications Act in 1996. Congress at that time made it possible for all telecom providers to receive funds if they served high-cost areas.

Now with many consumers using mobile phones and Internet telephony to make long-distance calls, less money is going into the system at the same time that additional providers-mostly wireless carriers that have taken the second-line business from wireline carriers-have begun taking money from the fund.

"Using a formulaic approach to distribute support directly to schools, libraries and rural healthcare providers, the FCC may be able to address the concerns raised by beneficiaries about the growing complexity of the application process while still ensuring that the programs' funds are used appropriately, said Martin.

FCC Commissioner Michael Copps saw it differently, however, wondering whether a formula would leave behind parochial and small rural schools.

"Distributing funds directly to schools could conceivably exclude Catholic and other private and parochial schools from the E-rate program.

Tying funds to school size could conceivably result in our rural and insular schools being denied funds they need for the extraordinary cost of services in these areas, just because they have fewer students.

And if schools are given a sum of money to be used for unspecified purposes rather than for specified and verifiable services and equipment, it could be much more difficult to identify fraud. Without assurances that parochial schools and rural schools would not be disadvantaged, and fraud detection would not be undermined, I must express my concern," said Copps.

Source: RCR News