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The Federal-State Joint Board today took the first major step to realize the mandate for universal service set forth in the Telecommunications Act of 1996. The 1996 Act requires the Commission and the states to ensure that the goals of affordable service and access to advanced telecommunications services are met by means that enhance rather than distort competition. The recommendations adopted by the Joint Board today are designed to ensure that affordable quality telecommunications services are available to all consumers, including low-income consumers, in all regions of the nation. In addition, for the first time in history, the Act requires that all eligible schools, libraries, and rural health care providers receive telecommunications services at a discount.

The 1996 Act directs the Federal-State Joint Board to adopt new universal service support mechanisms that are specific, predictable, and sufficient to advance the universal service principles enumerated in the Act. The Act enumerates principles upon which the Joint Board members have based their recommendations. The principles enunciated in the Act are as follows:

1) Quality services should be available at just, reasonable, and affordable rates;

2) Access to advanced telecommunications and information services should be provided in all regions of the Nation;

3) Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information 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;

4) All providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service;

5) There should be specific, predictable and sufficient Federal and State mechanisms to reserve and advance universal service; and

6) Elementary and secondary schools and classrooms, health care providers, and libraries, should have access to advanced telecommunications services.

Today's recommendations are based upon eight months of deliberation over a 40,000-page record, in a proceeding marked by unprecedented participation by industry, education, consumer, health care, and individual commenters.

The Joint Board's recommendations, in summary, are as follows:

Services included in Universal Service Support

The Joint Board recommends that support be provided for these services:

1) voice grade access to the public switched network, including, at a minimum, some usage;

2) dual-tone multi-frequency (DTMF) signalling or its equivalent;

3) single-party service;

4) access to emergency services, including access to 911, where available;

5) access to operator services;

6) access to interexchange services; and

7) access to directory assistance.

The Joint Board recommends, as described more fully below, providing support for access to additional services for low-income consumers, including toll blocking and toll limitation to help low-income consumers control their long distance phone bills.

Affordability

Whether local telephone service is affordable depends upon several factors apart from local rates. Local calling area size, income levels, cost of living and other socio-economic indicators help in assessing affordability. The Joint Board recommends that the states, in their rate-setting roles, make the primary determination as to whether rates are affordable and for taking any necessary actions should they determine the rates are not affordable. The FCC will also assess affordability by continuing to monitor subscribership levels.

Carriers Eligible for Support

The Joint Board recommends that any telecommunications carrier, including, for example, cellular or PCS providers, regardless of the technology that it uses, that meets the criteria for eligibility spelled out in the Act, be eligible to receive universal service support. The statutory criteria for receiving universal service support are as follows:

1) the telecommunications carrier must be a common carrier; and

2) the carrier must offer, throughout a designated service area, all of the services supported by universal service support as described above.

Programs for Low-Income Consumers

Over ten years ago, the Commission established two programs that are currently available to assist low-income consumers. The Lifeline program reduces qualified low-income consumers' monthly phone charges with matching federal and state funds. A state may choose not to participate in the Lifeline program. Currently, 41 states, the District of Columbia, and the U.S. Virgin Islands participate in Lifeline.

The Link Up program provides federal support that reduces qualified low income consumers' initial local telephone connection charges by up to one half. Link Up is currently funded by contributions from interexchange carriers. Support is currently available only to incumbent wireline local exchange carriers.

The Joint Board recommends revising the Lifeline and Link Up programs in the following manner:

(1) Expand both the Lifeline and Link Up programs so that eligible low-income consumers in every state and territory would be able to receive support. Every carrier deemed eligible for universal service support would be required to participate;

(2) For each eligible consumer, federal support would be $5.25. The federal fund would also contribute an additional $1.00 for every $2.00 a state contributes to Lifeline support. The maximum amount of these federal matching funds would be $1.75. Consequently, federal support would be capped at $7;

(3) Eligible low-income consumers would receive access to the same designated services identified for support in rural, insular, and high cost areas. In addition, these consumers would pay no charge for access to toll blocking and toll limitation, but only to the extent that the carrier has the technical capability to provide these services;

(4) Reduced service deposits if a low income consumer accepts toll blocking; and

(5) Carriers could not disconnect a Lifeline customer's local service for non-payment of toll charges (a limited waiver of this requirement will be available for some carriers).

The Joint Board recommends that support for carriers with high costs (except rural carriers) be based on the difference between cost estimates generated by a cost proxy model minus a nationwide benchmark. The Joint Board also states that it is desirable that the benchmark be based on the amount the carrier would expect to recover from other services to cover the cost of providing supported services in rural, insular, and high cost areas, but final determination of the methodology for selecting the benchmark must also consider the revenue base for universal service contributions.

Rural carriers would not immediately use a proxy model to determine their cost of service. This support would be frozen at current levels based on their embedded per-line costs for a three-year period. Most rural carriers will then move to the use of a proxy model over a three-year period. Rural carriers in Alaska and insular areas will continue to use frozen embedded per-line costs until further review.

The Joint Board further recommends that the FCC continue to work with the states to develop an adequate proxy model for determining costs. The Commission will identify the chosen proxy model when it adopts final rules implementing the Joint Board's recommendations.

Subscriber Line Charge and Carrier Common Line Charge

The Joint Board finds that Long Term Support (LTS) payments, which currently serve to equalize carrier common line (CCL) charges among incumbent local exchange carriers by lowering some and raising others, constitute an impermissible implicit support mechanism. The Joint Board recommends that rural local exchange carriers currently receiving Long Term Support instead receive a comparable payment from the new universal service support mechanism.

The Joint Board recommends that the prescribed interstate subscriber line charge (SLC) for primary residential lines and single-line business lines not rise. In the event that the Commission implements a rule assessing carriers' universal service contributions based on all telecommunications revenues regardless of jurisdictional classification, we recommend that the benefits from CCL reductions due to elimination of the payphone element and moving LTS to a different collection base be apportioned equally between primary residential and single-line-business subscribers to local exchange service, on the one hand, through a reduction in the SLC cap for those lines, and interstate toll users, on the other hand, through lower CCL charges.

Schools and Libraries

The Joint Board recommends that eligible schools and libraries be able to purchase at a discount any telecommunications services, internal connections among classrooms, and access to the Internet. The Joint Board recommends providing higher discounts for economically disadvantaged schools and libraries and those entities located in high cost areas. Discounts are a minimum of 20% and range from 40-90% for all but the least disadvantaged schools and libraries. Total expenditures for universal service support for schools and libraries is capped at $2.25 billion per year, although any funds not disbursed in a given year may be carried forward and also disbursed.

Services for Health Care Providers

The Joint Board estimates that approximately 9,600 health care providers in rural areas in the United States will be eligible to receive telecommunications services supported by the universal service mechanism. Health care providers include teaching hospitals, medical schools, community health centers, migrant health centers, mental health centers, not-for-profit hospitals, local health departments, rural health clinics and consortia or associations of any of the listed providers.

The Joint Board recommends that the Commission seek further information before designating the exact scope of services to be supported for rural health care providers. The Joint Board also recommends that the Commission seek further cost information on the cost to rural health care providers of Internet access and infrastructure development needed to bring to rural health care providers telecommunications services available to urban health care providers.

Administration of the Universal Service Support Mechanisms

The Joint Board recommends that the FCC appoint a universal service advisory board, including state and FCC representatives, to select a neutral, third-party administrator to administer the collection and distribution of the support mechanisms. Because support for schools and libraries will be implemented sooner than support for high cost areas or low-income consumers, the Joint Board also recommends the appointment of a temporary administrator of support for schools and libraries and rural health care providers.

The Joint Board recommends that all telecommunications carriers that provide interstate telecommunications services be obligated to contribute to universal service. Internet and on-line service providers would not have to contribute to universal support mechanisms unless they provide telecommunications services, in which case they would contribute an amount proportional to the revenues they receive from telecommunication services. The Joint Board recommends that contributions be based on carriers' gross revenues from telecommunications services net of payments to other carriers for telecommunications services.

Finally, the Joint Board recommends that universal service support mechanisms for schools, libraries, and rural health care providers be funded by assessing both the intrastate and interstate revenues of providers of interstate telecommunications services. The Joint Board makes no recommendation concerning the appropriate funding base for the modified high cost and low income assistance programs, but does request that the Commission obtain additional information, particularly from the states, regarding the assessment method for these programs.

Action by the Federal/State Universal Service Joint Board on November 7, 1996, by Recommended Decision (FCC 96J-3). Chairman Hundt, Commissioner Ness, Commissioner Chong, Commissioner McClure, Commissioner Schoenfelder, Commissioner Nelson, Commissioner Johnson, and Ms. Hogerty, Consumer Advocate.

News Media Contacts: Mindy J. Ginsburg at (202) 418-1500 and Susan Lewis Sallet at (202) 418-0500.

Common Carrier Bureau Contacts: John Morabito at (202) 418-0800 and Anna Gomez at (202) 530-6001.