********************* ********************* ************** NOTICE ********************* ********************* ************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ********************* ********************* ********************* ** PUBLIC NOTICE FEDERAL COMMUNICATIONS COMMISSION 445 12th STREET, S.W. WASHINGTON, D.C. 20554 DA 99-455 News media information 202/418-0500 Fax-On-Demand 202/418-2830 Internet: http://www.fcc.gov ftp.fcc.gov Released: March 4, 1999 Proposed Second Quarter 1999 Universal Service Contribution Factors CC Docket No. 96-45 In this Public Notice, the Common Carrier Bureau announces proposed universal service contribution factors for the second quarter of 1999. The Commission adjusted the 1998 and 1999 collection amounts for the schools and libraries support mechanism in the Fifth Order on Reconsideration released on June 22, 1998. Specifically, the Commission directed the Universal Service Administrative Company (USAC) to collect only as much as required by demand, but in no event more than $325 million per quarter for the third and fourth quarters of 1998 and the first and second quarters of 1999 to support the schools and libraries universal service support mechanism. The Commission also directed USAC to collect for the rural health care support mechanism only as much as required by demand, but in no event more than $25 million per quarter for the third and fourth quarters of 1998. In the Eighth Order on Reconsideration released on November 20, 1998, the Commission directed USAC to assume responsibility for the schools and libraries support mechanism and the rural health care support mechanism effective January 1, 1999. These programs were previously administered by the Schools and Libraries Corporation and the Rural Health Care Corporation, respectively, which have since been merged into USAC in accordance with the Eighth Order on Reconsideration. Pursuant to section 54.709(a)(3) of the Commission's rules, USAC has submitted the following projections of second quarter 1999 demand and administrative expenses: ($ millions) Program Projected Program Support Administrative Expenses Interest Income Periodic True-Ups Total Program Collection Schools and Libraries 318.2 6.8 (35.4) (5.8) 283.8 Rural Health Care (see text below) (see text below) (3.3) (0.5) (3.8) Subtotal 318.2 6.8 (38.7) (6.3) 280.0 High Cost 433.3 1.1 (0.6) 5.4 439.2 Low Income 124.8 0.5 (0.8) (5.0) 119.5 Subtotal 558.1 1.6 (1.4) 0.4 558.7 TOTAL 876.3 8.4 (40.1) (5.9) 838.7 The rural health care support mechanism has received approximately 2,500 initial applications for support, but only a small percentage of those applicants have completed the application process. Consequently, collections for the rural health care support mechanism prior to the first quarter of 1999 have exceeded disbursements, and USAC reports that the support mechanism had a balance of $87 million at the end of 1998. In the First Quarter 1999 Contribution Factors Public Notice released on December 4, 1998, the Commission directed that excess contributions be credited back to contributors. Specifically, the Commission applied half of the balance in the rural health care account to reduce the amount of contributions collected during the first quarter of 1999 for support mechanisms with the same contribution base as the rural health care support mechanism. The Commission directed that, once USAC has completed its evaluation of rural health care funding needs, the balance remaining in the rural health care account, net of expected 1999 funding requirements, should be used to reduce subsequent contribution factors. USAC requests that no contributions for the rural health care support mechanism be collected during the second quarter of 1999. USAC reports that no more than $2.0 million will be necessary to fund completed applications for the second quarter of 1999. USAC estimates administrative expenses associated with the rural health care support mechanism will be $1.2 million for the second quarter of 1999. We do not include these expected funding requirements in calculating contribution factors here because these amounts are not being collected in the second quarter of 1999, but instead are being funded by the remaining balance in the rural health care account. USAC projects accumulated income interest of $3.3 million for the second quarter of 1999. USAC also reports that over-collection in the 1998 calendar year requires a periodic true- up of $0.5 million to the rural health care account. Consistent with section 54.709(b) of the Commission's rules, we will apply these amounts to reduce the contribution factors for support mechanisms with the same contribution base. Proposed Contribution Factors USAC submitted end-user telecommunications revenue for January through June 1998 based on information contained in the September 1998 Universal Service Worksheets, FCC Form 457. The amounts are as follows: Total Interstate, Intrastate, and International End-User Telecommunications Revenues from January 1, 1998 - June 30, 1998: $98.672 billion Total Interstate and International End-User Telecommunications Revenues from January 1, 1998 - June 30, 1998: $36.979 billion We estimate quarterly revenues by dividing the six-month revenue estimates by two. In addition, we decrease the revenue estimates by one percent to account for uncollectible contributions. Accordingly, the contribution bases for the second quarter of 1999 are as follows: Contribution Base for Schools and Libraries and Rural Health Care: (Interstate, International, and Intrastate / 2) - 1% = Contribution Base ($98.672 billion / 2) - 1% = $48.843 billion Contribution Base for High Cost and Low Income: (Interstate and International / 2) - 1% = Contribution Base ($36.979 billion / 2) - 1% = $18.305 billion Using these contribution bases, the proposed contribution factors for the second quarter of 1999 are as follows: A. Contribution Factor for Schools and Libraries and Rural Health Care: Total Program Costs / Contribution Base = Contribution Factor $0.280 billion / $48.843 billion = 0.0057 B. Contribution Factor for High Cost and Low Income: Total Program Costs / Contribution Base = Contribution Factor $0.559 billion / $18.305 billion = 0.0305 These factors are the proposed second quarter of 1999 universal service contribution factors. If the Commission takes no action regarding the proposed factors within the 14-day period following release of this Public Notice, the proposed factors shall be deemed approved by the Commission. USAC shall then use the factors to calculate universal service contributions for the second quarter of 1999. For further information, contact Jack Zinman, Accounting Policy Division, Common Carrier Bureau, at (202) 418-7400. March 4, 1999 DISSENTING STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH Re: Proposed Second Quarter 1999 Universal Service Contribution Factors; (CC Docket No. 96-45). Today, the Common Carrier Bureau releases a Public Notice announcing the proposed universal service contribution factors for the second quarter of 1999 that will automatically go into effect if the Federal Communications Commission takes no action within 14 days. For the reasons described below, I object to the proposed contribution levels. First, I continue to object to the excessive administrative expenses of the schools and libraries program. Under today's Notice, the administrative expenses of the schools and libraries program will be $6.8 million for the second quarter alone. These administrative expenses are considerably higher than the administrative expenses of any and all of the other universal service programs. For example, the high cost/low income program demand is significantly greater ($558 million which is almost twice the schools and libraries demand), but the corresponding administrative expenses are considerably smaller (only $1.6 million, more than $5 million less than the schools and libraries expenses). I cannot endorse the disparity - - and certainly not one of this magnitude -- between the administrative expenses of the schools and libraries program and those of the other universal service programs. Indeed, section 2005(b)(2)(A) of Senate Bill 1768, which prompted several universal service corporate structural revisions, provides for an extremely limited administrative entity: [T]he entity proposed by the Commission to administer the programs -- (i) is limited to implementation of the FCC rules for applications for discounts and processing the applications necessary to determine eligibility for discounts under section 254(h) of the Communications ct of 1934 (47 U.S.C. 254(h)) as determined by the Commission; (ii) may not administer the program in any manner that requires that entity to interpret the intent of Congress in establishing the programs or interpret any rule promulgated by the Commission in carrying out the programs, without appropriate consultation and guidance from the Commission. In light of this more limited administrative function, I fail to see the need for such excessive administrative expenses. I cannot help but wonder whether the overly bureaucratic structure adopted by the Commission, with its formal divisions and multiple committees overseeing them, has contributed in some way to these expenses. I believe there is a need for more adequate safeguards and Commission oversight to protect against such excessive administrative spending by this program. While still excessive, I do note that these expenses are considerably less than those proposed for the first quarter of 1999. Once again, I credit Cheryl Parrino's leadership in beginning to address these issues. While further work remains, I am pleased that administrative costs seem finally to be headed in the right direction. In addition, as I have described on several occasions, the size and scope of the current schools and libraries program is far in excess of what was envisioned by Congress and thus beyond the Commission's authority to establish. I believe that the universal service contributions, at least to the extent they are providing support for non-telecommunications services to non-telecommunications carriers, may not be fairly characterized as mere "fees." Some have argued that there is only one section of the act that provides funding for universal service and that any challenge to universal service necessarily sweeps in all of the programs. I point out, however, that the contributions for the schools, libraries, and rural health care support mechanisms are based not only on interstate but intrastate revenues, while the contributions for the high cost program are based solely on interstate revenues. Thus, there are separate rates to fund separate programs. As I have described on several occasions, the legality of this approach to calculating contributions is highly questionable. As I read the Communications Act, it does not permit the Commission to assess contributions for universal service support mechanisms based on intrastate revenues. Rather, the Act makes clear that the power to collect charges based on such revenues rests within the exclusive province of the States Conclusion I reiterate my desire to reconsider some of our legal conclusions related to the implementation of this new program, as I believe we must do. At the very least, however, we must become more involved in the oversight of this program and the burden its administrative expenses are placing on the telecommunications ratepayers.