July 18, 1997

Re: In the Matters of Changes to the Board of Directors of the National Exchange Carrier Association, Inc., Federal-State Joint Board on Universal Service, Report and Order and Order on Reconsideration, CC Docket Nos. 97-21, 96-45

I respectfully dissent to today's Report and Order and Order on Reconsideration involving changes to the Board of Directors of the National Exchange Carrier Association, Inc. (NECA). While I remain fully committed to the success of the universal service support mechanisms and specialized programs contained in our May 7, 1997 Universal Service Report and Order (Universal Service Order), I object to this order because the majority casts aside the Joint Board's November 1996 decision to entrust NECA as the temporary administrator of the universal service program.⁽¹⁾ Instead, the majority adopts a cumbersome new structure that will likely result in slower decision making and impose higher administrative costs on the Section 254(h) schools/library and rural health care programs. In addition, I have grave concerns about the implementation time necessary for the corporate structure adopted today. From a practical point of view, NECA does not have enough personnel to "loan" to USAC and the two new corporations in the short term, while it searches for high quality, full time officers and employees for the corporations. Given this late date, I fear the corporate structure chosen today may seriously endanger a timely start for our schools/library and rural health care programs.

Fiscal Responsibility for the Section 254(h) Programs Is Imperative

Throughout the implementation of the universal service provisions of the Telecommunications Act of 1996 (1996 Act), I have repeatedly said that we must not forget that "job one" is getting affordable, quality telephone service to every American household across the nation.⁽²⁾ To that end, our highest priority should be ensuring that our universal service programs encourage the highest level of subscribership, using mechanisms such as high cost assistance and low income programs, particularly for areas of chronically low subscribership.⁽³⁾

In Section 254(h) of the 1996 Act, Congress also asked that the Commission collect money from every telecommunications carrier to fund two social programs to provide discounted telecommunications service to schools, libraries and rural health care providers. The benefits of such programs are clear.

In implementing Section 254(h), however, I believe we must balance our enthusiasm for such social programs against a sober regard for how much the costs of those programs mean to the basic telephone rates of an average consumer. If basic telephone rates go up because of the Section 254(h) social programs, how does this impact our overriding goal of achieving 100% subscribership in the underserved and unserved areas of the nation? While improving telecommunications services to the education, library and the rural health care communities is clearly an important goal, it is my view that our achievement of these social programs must not come at the detriment of other consumers.

Thus, in light of these concerns, I believe we have a duty to be fiscally responsible in our administration of the Section 254 support mechanisms. As to the Section 254(h) programs, we should be conservative in the administrative procedures that we set up, and ensure that it is efficient and nonburdensome. We must guard against waste, fraud and abuse by retaining administrative oversight where necessary. And finally, it is imperative that we set up all our procedures in a timely manner that allows the program to begin on January 1, 1998, as provided for in our Universal Service Order.

Keeping It Simple

I dissent to this item because, instead of taking a conservative and cost conscious approach, the majority has instead created an elaborate structure that is breathtaking in its breadth and complexity. While I can see a few benefits to this structure, I do not find that they outweigh the detriments, including increased costs of the corporate structure, increased implementation time, and more difficult accountability due to a more convoluted structure.

My preference for the structure of the interim universal service administrator would have been to have NECA establish USAC, and then form three subcommittees under USAC for the schools/library, rural health care and high cost/low income programs. This simple proposal, which was also NECA's preferred approach,⁽⁴⁾ would have retained the benefits of having individuals administer the schools/library and rural health care programs that have "expertise" and a "direct stake in the success of the programs,"⁽⁵⁾ but without the cumbersome corporate structure mandated by the majority decision. This structure would also have operated more efficiently by avoiding duplication of functions between the corporations and minimizing the amount of coordination needed among the multiple companies. Accountability is also retained in the subcommittee structure; each subcommittee would hire staff to run the day-to-day operations and would report to the particular USAC Board members serving on that subcommittee. These USAC Board members are responsible for the functions assigned to that subcommittee and would be directly accountable to the FCC pursuant to our authority over NECA.

The majority, however, has taken a more complicated route. First, they have created a large USAC Board consisting of 17 members. On this point, I would have preferred a smaller USAC Board. A smaller board would have been vastly more efficient, because it could achieve more nimble decision-making with lower administrative costs. Although I agree that the USAC Board should be composed of a broad cross-section of interested parties, I do not see the need for multiple members of certain industry groups or beneficiary groups, especially in light of the fact that the decision makes clear that USAC's duties are limited to administrative, non-substantive functions (such as billing and collection). Broad and fair representation could have just as easily been achieved with fewer Board members.⁽⁶⁾

The Majority Plan May Be Impractical

I believe that the corporate structure adopted in this decision for operation of the schools/libraries and rural health care programs may be impractical because of two basic problems: cost and timing.

As to cost, I note that the Joint Board gave NECA the job of interim administrator because NECA has past expertise in billing and collecting money for our existing low income and high cost programs. The Joint Board (and subsequently the FCC) chose NECA because we believed it could get the job done quickly, efficiently and by our deadline.⁽⁷⁾ But today, the majority changes the Joint Board's wise decision to give NECA the full responsibilities of interim administrator and instead, sets up two new corporations to handle the majority of the functions of the schools/library and rural health care programs.⁽⁸⁾ I fear this unnecessary corporate structure will prove to be costly at ratepayer expense.

Moreover, setting up and operating two separate corporations unquestionably will be more costly than my proposed alternative of having a single USAC Board, with specialized subcommittees directing the Section 254(h) programs. Typically, nonprofit corporations have a Board of Directors and officers. Corporate officers often include a Chief Executive Officer (CEO), a Chief Financial Officer (CFO), and a Corporate Secretary.⁽⁹⁾ Moreover, a corporate structure generally requires bylaws, articles of incorporation, the filing of annual reports, and other corporate activities required by law.

In light of all the above, I believe that the significant expenditures necessary to establish and maintain these two corporate structures may subject our programs to undue criticism, and may eat up funds that could better be used towards discounts on telecommunications services, Internet access, and internal connections by the schools, libraries and rural health care providers.

The second problem with this structure is time. Time is of the essence given our firm January 1, 1998, start date for the Section 254 programs.

At the outset, I must note my great disappointment that, even though the Commissioners were promised this draft decision by mid-February, 1997, in order to have time to consider these implementation issues carefully and still meet our start date for the Section 254(h) programs, it was not until June 20, 1997, that the Chairman's Office released the draft item for the full Commission's consideration. This delay has put significant time pressure on the Commission to put out this decision, and unreasonable time pressures on NECA to implement these changes, and put the mechanisms in place by our deadline.

In light of this delay on our part, it seems untenable that we are ordering NECA to establish this complex corporate structure at this time, because this structure will probably take more time to fully implement than we have at this moment. For example, I do not see how qualified officers for the corporations can be located, hired and brought on board quickly enough to begin our schools/library program by January 1, 1998.⁽¹⁰⁾ With a $2.25 billion program at stake, a top quality CEO and CFO must be carefully selected from among qualified candidates. At a minimum, this executive search process will likely take several months. I see no reason to create this problem and I fear that it may result in the program being delayed from the current start date.

Given the importance of the Section 254(h) programs, this structure could be detrimental to the programs' success. Thus, I think we should have remained faithful to the recommendation of the Joint Board to give NECA the job of interim administrator, and we should have adopted a simpler structure utilizing subcommittees.

1. In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Recommended Decision, 12 FCC Rcd 87, paras. 832-33 (1996)(Joint Board Recommended Decision); In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, para. 866 (released May 7, 1997).

2. Separate Statement of Commissioner Rachelle B. Chong, Concurring in Part, Dissenting in Part, Re: In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, at 6 (released May 7, 1997).

3. E.g., Native American tribal lands, very remote areas such as the Alaskan Bush, and insular areas such as Hawaii, the Commonwealth of the Northern Marianas Islands, Guam and Puerto Rico.

4. NECA ex parte letter, filed June 23, 1997.

5. Majority decision at para. 58.

6. It is unclear to me why information service providers (ISPs) are included on the USAC Board when ISPs are not mandatory contributors or beneficiaries to the universal service mechanisms, but are merely possible service providers to the Section 254(h) social programs. Others in a like position -- such as internal connection or "inside wire" providers -- were not given a seat on USAC, but have just as much interest in the proceeding as the ISPs.

7. Universal Service Order at para. 866; Joint Board Recommended Decision at paras. 832-33.

8. For example, the corporations have the functions of reviewing school and library applications and technology plans, creating and maintaining a web site, performing outreach and public education functions, reviewing bills for services, and submitting quarterly projections of demand and administrative expenses to the Commission.

9. Corporations also often retain an executive director to oversee day-to-day operations, not to mention a general counsel.

10. ¹⁰ To find a qualified CEO of the schools/library corporation, USAC will need to conduct an executive search, interview numerous candidates, extend an offer, and if the candidate accepts, wait for the new officer to transition from his or her current job, and then give the officer time to come up to speed on the Commission's relevant orders and other USAC implementation actions.