Inquiry on Universal Service and Open Access Issues; Notice DEPARTMENT OF COMMERCE
Federal RegisterSep 19, 1994
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SUMMARY: NTIA is conducting a comprehensive review of universal service
and open access issues in communications. NTIA requests public comment
relevant to such a review. After analyzing the comments, NTIA may issue
a report, a series of short analyses, and/or make recommendations to
the Administration's Information Infrastructure Task Force, the Federal
Communications Commission, and to Congress.
DATES: The public should file comments on or before December 14, 1994
to receive full consideration.
ADDRESSES: Please send comments (seven copies plus one copy on
diskette, preferably WordPerfect or DOS compatible) to the Office of
Policy Analysis and Development, NTIA, U.S. Department of Commerce,
14th St. and Constitution Ave., N.W., Room 4725, Washington, D.C.
20230.
FOR FURTHER INFORMATION CONTACT: James McConnaughey or Cynthia Nila,
Office of Policy Analysis and Development, (202) 482-1880.
SUPPLEMENTARY INFORMATION:
Authority: National Telecommunications and Information
Administration Organization Act of 1992, Public Law 102-538, 106
Stat. 3533 (1992) (codified at 47 U.S.C. 901 et seq.)
I. Introduction\1\
1. The United States has a long-standing commitment to the
achievement of ``universal service''--widespread availability of
``basic'' telephone service at affordable rates. First articulated in
the early twentieth century,\2\ universal service has since been
adopted by Federal and State regulators as one of the core objectives
of U.S. telecommunications policy. For example, it was incorporated in
general terms in Section 1 of the Communications Act of 1934.\3\ More
importantly, many of the major regulatory reforms that have been
considered over the past several decades--most notably decisions
concerning whether and under what conditions to allow competition in
telecommunications service and equipment markets--have been evaluated,
at least in part, in terms of their possible impact on universal
service.
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\1\This Notice of Inquiry (Notice) and other related documents
are also available in electronic form on the NTIA Bulletin Board at
(202) 482-1199. Please set your communications parameters to No
parity, 8 data bits, and 1 stop bit (N,8,1). Commenters are
encouraged to file their comments electronically at the same number.
\2\The concept was first articulated by Theodore Vail, President
of AT&T, in 1907, although his concept of universal service was
quite distinct from modern notions of what that term means. See
Milton Mueller, Universal Service in Telephone History, 17 Tel. Pol.
352, 353, 356-358 (1993).
\3\Section 1 authorizes the Federal Communication Commission
(FCC) to regulate interstate and foreign communications ``so as to
make available, so far as possible, to all the people of the United
States a rapid, efficient, Nation-wide, and world-wide wire and
radio communication service with adequate facilities at reasonable
charges.'' 47 U.S.C. 151 (1988). Telecommunications reform
legislation pending in both Houses of Congress would make
preservation and advancement of universal service an explicit goal
of U.S. policy. See S. 1822, the Communications Act of 1934, 103d
Cong., 2d Sess. Sections 101, 102 (1994); H.R. 3626, the Antitrust
and Communications Reform Act of 1994, 103d Cong., 2d Sess. Sec. 301
(1994).
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2. Historically, universal service has meant widespread access to
voice-grade telephone service, commonly referred to as ``plain old
telephone service'' (POTS). The fundamental objective has been to give
all Americans an opportunity to pick up the telephone and, at a
reasonable cost, have a voice conversation with anyone else in the
country or, increasingly, the world. In recent years, however, many
have questioned whether traditional notions of universal service are
adequate to meet the needs of the American people, now and in the 21st
century.
3. This reassessment is prompted by two principal developments.
First is the emergence of information as a vital economic resource and
source of individual empowerment. In 1991, U.S. companies for the first
time spent more money on computer and communications equipment than on
industrial, mining, farm and manufacturing machinery--dramatic evidence
of the nation's transition from the Industrial Age to the Information
Age.\4\ Increasingly, the ability of U.S. businesses to remain
competitive in a global marketplace and to create challenging, high-
paying jobs hinges on their proficiency in creating, manipulating,
managing, and using information. Similarly, an individual's ability to
acquire, develop, and sustain marketable job skills--and, indeed, to be
an informed, productive participant in American society--will depend on
how well he or she can access, analyze, and assimilate information.
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\4\See Thomas Stewart, The Information Age in Charts, Fortune,
Apr. 4, 1994, at 75.
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4. Second, technological changes--particularly the convergence of
computers and communications and the deployment of high capacity,
digital transmission facilities--promise to make telecommunications
networks the highways of the Information Age, the principal means by
which individuals and businesses access and distribute essential
information resources. In this environment, it may be anachronistic to
continue speaking of universal service in terms of voice telephone
service. Accordingly, consensus is growing that there is a need to
redefine that concept to meet the demands of a new age.
5. Reform of universal service policies would be necessary even if
there were no redefinition issue. As described more fully below, many
experts agree that current pricing policies for voice telephone service
are characterized by extensive subsidies between and among services,
although the extent of those subsidies remains a matter of considerable
dispute.\5\ In other words, certain services (e.g., long distance,
business service) have been overpriced to maintain low cost residential
voice service. Whether or not that pricing structure was ever desirable
as a matter of policy,\6\ it could be sustained only in a market
environment characterized by monopoly provision of telephone service.
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\5\See infra Section IV.
\6\Several economists have estimated that the welfare losses
associated with the existing subsidy structure can be measured in
the billions of dollars annually. See, e.g., James Griffin, The
Welfare Implications of Externalities and Price Elasticities for
Telecommunications Pricing, 64 Rev. Econ. & Stat. 59 (1982); Lewis
Perl, Welfare Gains from Cost-Based Telephone Pricing (June 19,
1986) (unpublished paper).
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6. That environment is rapidly becoming a thing of the past.
Competition is the norm in many telecommunications services and
equipment markets; it is growing rapidly in the rest. Competition
drives prices toward the costs of providing those services and, in so
doing, undermines traditional pricing structures that incorporate
inter-service subsidies. As a result, even though competition is not
inimical to universal service goals,\7\ its emergence and expansion is
forcing a re-examination of traditional universal service funding
policies as surely as technological change and the emergence of the
Information Age are prompting changes in the way universal service is
defined. The challenge for government and service providers alike is to
find a new funding scheme that is compatible with and sustainable in a
competitive market environment.
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\7\See infra Section II.
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7. The National Telecommunications and Information Administration
(NTIA) is issuing this Notice to gather public comment on these
important issues. The Clinton Administration (the Administration) has
stated a commitment to extending the concept of universal service to
ensure that information resources are available to all at affordable
rates.\8\ This policy is a matter of fundamental fairness; if
information means empowerment, the United States ``cannot accept a
division of our people among telecommunications `haves' and `have-
nots.'''\9\
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\8\The National Information Infrastructure: Agenda for Action 58
Fed. Reg. 49,025, at 49,028 (1993) (Agenda for Action).
\9\Id.
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8. This Notice represents another stage in NTIA's continuing
investigation of universal service issues.\10\ Since December 1993,
NTIA has conducted field hearings in five locations across the country
to gather information on those issues.\11\ This Notice has been shaped
by what the agency has learned over the course of those hearings. The
Notice also seeks to supplement the record developed at those hearings
on the many questions subsumed within the concept of universal service.
At the end of this process, NTIA will work to develop a concept of
universal service that fits the challenges and opportunities of the
Information Age. As importantly, NTIA intends to identify mechanisms
that can fund an expanded version of universal service in a competitive
market environment.
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\10\The Administration's activities relating to universal
service are one facet of a comprehensive National Information
Infrastructure (NII) initiative. The Administration has established
an interagency Information Infrastructure Task Force (IITF), chaired
by the Secretary of Commerce, to address the many issues relating to
deployment of the NII. The IITF operates through a number of
subcommittees and working groups, and with the assistance of a
public/private sector Advisory Council. For further information on
the IITF and related organizations, see The NII Field Hearings on
Universal Service and Open Access: America Speaks Out 1-2 (Sept.
1944) (Report of the Telecommunications Policy Committee of the
Information Infrastructure Task Force) (NII Field Hearings).
\11\Hearings were held in Albuquerque, New Mexico (December);
South Central Los Angeles (February); Raleigh-Durham, North Carolina
(April); Sunnyvale, California (May); and Indianapolis, Indiana
(July). At each hearing, NTIA received testimony from public
interest groups, state and local governments, labor, industry, and
academia. Summaries of each of the hearings are on the on-line NTIA
Bulletin Board. See not 1 for access information. In this Notice, we
also request comment on how best to continue and expand these public
outreach activities.
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9. Finally, we also seek comment on another issue related to the
policies underlying universal service--``open access.'' If, as noted
above, information is of increasing importance to businesses and
individuals alike, and if competition among service providers is likely
to be the norm in the future, ensuring universal service for consumers
is only part of the equation. Steps must also be taken to afford
information providers access to consumers and vice versa. Accordingly,
the Administration is also committed to ensuring that
telecommunications facilities and networks are sufficiently ``open'' so
that all information providers can transmit their wares to consumers
across those facilities reliably, efficiently, and seamlessly, without
compromising the integrity or security of the information
delivered.\12\ NTIA therefore requests comment on a variety of
questions relating to the meaning and implementation of open access.
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\12\Agenda for Action, supra note 8, at 49,027, 49,029. Open
access may also permit users themselves to develop new services and
applications or to exchange information among themselves, without
waiting for services to be offered by commercial providers. Id. at
49,029.
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10. Section II of the Notice considers the impact of competition on
universal service goals. Section III.A of the Notice addresses current
universal service policies and solicits comment on the degree to which
the nation has achieved the goal of providing basic voice telephone
service to all Americans. Section III.B considers the issue of
redefining the traditional concept of universal service and determining
what services or functions should be included in an expanded definition
of universal service. Section IV focuses on mechanisms for funding
universal service in an increasingly competitive market environment.
Section V focuses on the role of the Federal and State governments in
determining universal service policies. Finally, Section VI requests
comment on the definition and implementation of open access.
II. Competition and Universal Service
11. The Federal government and many States have made a fundamental
commitment to introducing and expanding competition in
telecommunications markets. The benefits of that commitment are
increasingly apparent and show no signs of diminishing. There is also
some concern, however, about the effects of competition on universal
service. While those concerns merit attention, there is much evidence
to suggest that competition and universal service are not incompatible
goals. Market rivalry both drives prices towards underlying costs and
reduces underlying costs by forcing competing firms to operate more
efficiently. Competition thus tends to reduce prices for goods and
services, making them more affordable for more consumers and ultimately
reducing the need for subsidies. At the same time, competition also
increases the range of services and products available to consumers
and, potentially, their geographic reach as well, further promoting
universal service goals.
12. The potential effects of competition on rates and consumer
choice can be gleaned from the recent history of the long distance and
CPE markets in the United States. Prior to the break-up of the Bell
System in 1984, most of the United States was served by a single long
distance network operated by AT&T. Today, after a decade of government
efforts to facilitate entry in the long distance market, there are more
than 500 long distance carriers in the United States, offering a wide,
ever-changing array of services and pricing options.\13\ Due in part to
this active rivalry among firms, long distance rates have declined more
than sixty percent since 1984 by some estimations, making long distance
calling more affordable for more Americans.\14\
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\13\Industry Analysis Division, Common Carrier Bureau, Federal
Communications Commission, Trends in Telephone Service, at 31 (May
1994) (Telephone Trends). AT&T now captures less than 60 percent of
all long distance revenues. Industry Analysis Division, Common
Carrier Bureau, Federal Communications Commission, Long Distance
Market Shares--Fourth Quarter, 1993 Table 6 (Apr. 1994).
\14\See, e.g., Letter from Gerald J. Kovach, MCI, to Clarence L.
Irving, Jr., NTIA, Attachment 1 at 1 (June 9, 1994) (long distance
rates, adjusted for inflation, have declined 66% since 1985). As a
result of the sharp decline in long distance rates, long distance
calling has surged in recent years, especially relative to local
calling. Toll calls (measured in minutes of use) comprised 26.6%
percent of all calls in 1992, as compared to 19.9% in 1984.
Telephone Trends, supra note 13, at 25 and Table 16.
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13. Similarly, when the Bell System controlled the CPE market,
customers could lease (but not buy) any telephone they wanted, so long
as it was a black instrument that delivered unadorned voice service.
Today, customers can choose their phones from a wide variety of colors,
sizes, shapes, and designs. Modern telephones also include a variety of
features (e.g., speed dialing, re-dial, memory programming) that
greatly increase usefulness of that equipment for many customers. In
addition, its cost has declined considerably in the last decade (as
much as 50 percent in ``real'' terms).\15\
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\15\See National Telecommunications and Information
Administration, U.S. Dep't of Commerce, NTIA Special Publication 91-
26 The NTIA Infrastructure Report: Telecommunications in the Age of
Information 204-205 and n. 707 (1991) (Infrastructure Report).
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14. The impact of competition on universal service can be examined
more directly by reviewing the development of local telephone service
after expiration of the original Bell telephone patents in 1893/94
unleashed a twenty-five year period of competition in the provision of
local telephone service.\16\ In 1895, after nineteen years of the Bell
System patent monopoly, there were only 251,994 telephones in the
United States, or one telephone for every 276 of the nation's 69.5
million people. By 1920, at the close of the competitive era, there
were some 13.4 million telephones in the United States, or one
telephone for every eight of the nation's 105.7 million people.\17\
Moreover, fifty-five percent of all telephone subscribers were
residential customers, as compared to only ten percent in 1895.
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\16\The following discussion is taken from Mueller, supra note
2, at 356-358, 360-361.
\17\In 1895, the number of telephones in the United States was
growing by five percent annually. Id. at 356. At that rate, the
nation would have had fewer than one million telephones by 1920.
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15. We seek comment on the relationship between competition and
universal service. Will competition help make new advanced
telecommunications services more readily available across the nation
and thereby reduce the need for universal service regulation? Some
argue that the universal service rationale is based on the premise that
the market alone cannot uniformly guarantee provision of
telecommunications and services. They believe that depending on the
market to provide advanced services may seriously impede access by
important segments of society to those services, particularly if the
offerings are not commercially viable in certain areas.\18\ Consumer
and civil rights groups, in particular, raise the specter of
``electronic redlining,'' in which low income and minority
neighborhoods are ``systematically underrepresented'' in the deployment
of advanced services, as has been alleged with respect to various local
telephone companies' video dialtone networks.\19\
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\18\Raymond Lawton, Associate Director of The National
Regulatory Research Institute, pointed out in his testimony at the
Indianapolis field hearings that in an unregulated market, services
are provided to rural/residential/low income service recipients last
because service to them is often more expensive and they are most
often unable to pay. See Lawton Comments, p. 2.
\19\See Center for Media Education, Consumer Federation of
America, et al., ``Information Superhighway'' Could Bypass Low
Income and Minority Communities, (released May 23, 1994) and
associated petitions filed with the FCC on the same date. Under the
FCC's ``video dialtone'' rules, a local telephone company can
construct, operate, and maintain a transport facility within its
local service area, leasing channel capacity to unaffiliated
programmers on a common carrier basis. See Telephone Company-Cable
Television Cross-Ownership Rules, Sections 63.54-63.58, Second
Report and Order, Recommendation to Congress, and Second Further
Notice of Proposed Rulemaking, 7 FCC Rcd 5781 (1992).
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16. To what extent is ``electronic redlining'' occurring or likely
to occur, i.e., the calculated exclusion of a geographic area from
deployment of advanced telecommunications capabilities or services on
the basis of income, ethnicity, race, or disability? What weight should
be assigned to those arguments that identify economic reasons for
serving certain areas on a less timely basis than others?
17. Various proposals address the concern that a marketplace-driven
definition of universal service may not bring comparable services to
all segments of the population or to all areas of the country at the
same rate. One proposal, for example, is for government to require
firms to provide services to community centers, such as schools and
libraries, at the same time that such services are first provided to
businesses and residences. The proponents of this approach claim that
focusing on providing service to such centralized points within a
community, as a transitional mechanism, could make desirable services
more widely available without incurring the risks and costs of
mandating universal provision of uneconomical or unwanted services.\20\
We request comment on this approach. In particular, do such public
institutions have the facilities, funds, and hours of operation to
afford individuals, especially the young, a full and fair opportunity
to explore the highways of the Information Age? If not, what mechanisms
could be explored for providing such resources?
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\20\See, e.g., Comments of Carlos Atencio, Chairman, New Mexico
Educational Technology Coordination Council at the Los Alamos
National Laboratories, New Mexico Hearing (Dec. 16, 1993).
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18. We also seek comment on the possible effects of competition on
the achievement of universal service goals in rural areas. Some argue
that competition in such areas is not only unsustainable, but
potentially destructive to universal service goals.\21\ On the other
hand, competition may spur the introduction or expansion of service in
rural areas, as suggested by the forty-fold increase in telephone
penetration that occurred in rural areas during the competitive period
between 1895 and 1920.\22\ We also solicit comment as to whether the
``rural subscriber may be just as willing to ride the information
highway as his urban counterpart,'' thereby creating a market setting
that could sustain competition.\23\
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\21\See, e.g., John Panzar and Steven Wildman, Competition in
the Local Exchange: Appropriate Policies to Maintain Universal
Service in Rural Areas (undated, unpublished paper) (Panzar and
Wildman). To gather a more complete picture of market conditions in
rural areas, we request the following data from rural telephone
companies (although additional information would be welcome): cost
of service per access line; average minutes of use per access line;
number of business lines versus number of residential access lines;
long distance calling by business customers versus residential
customers; and nature, number, and market share of competitors,
where applicable.
\22\Nearly 40% of all farm households had a telephone in 1920,
as compared to less than one percent in 1895. See Mueller, supra
note 2, at 356, 357.
\23\The Universal Service Subcommittee, Western Alliance,
Universal Service in the Nineties, Section II, at 2 (a draft report
by a consortium of western rural telephone companies released at the
National Association of Regulatory Utility Commissioners (NARUC)
Summer Meetings, San Diego, California, July 1994).
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III. Universal Service Today and in the Future
19. The record developed over the course of NTIA's five universal
service field hearings demonstrates considerable public support for
expanding the current definition of universal service beyond ``plain
old telephone service''--POTS.\24\ Accordingly, this section of the
Notice addresses the myriad issues raised by such a redefinition.\25\
Because any new concept of universal service will build on the existing
definition, it is appropriate, however, first to consider the extent to
which the nation has achieved its goal of universal POTS before turning
our attention to a new definition of universal service.
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\24\NII Field Hearings, supra note 10, at 8-9.
\25\This Notice does not, of course, contain the definitive list
of such issues. We encourage commenters to raise other important
matters not touched on in the Notice.
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A. Achievement of Universal POTS
19a. In many respects, U.S. universal service policies have been a
major success. As of March, 1994, 93.9% of all American households had
telephone service, compared to 91.4% a decade earlier, and fewer than
fifty percent at the end of World War II.\26\ Moreover, telephone
subscribership in the United States exceeds that in most other nations,
often by a substantial margin.\27\
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\26\See Industry Analysis Division, Common Carrier Bureau,
Federal Communications Commission, Telephone Subscribership in the
United States at 6, Table 1 (Aug. 1994) (Telephone Subscribership)
(citing the Census Bureau's Current Population Survey (CPS)). See
also Congressional Budget Office, The Changing Telephone Industry:
Access Charges, Universal Service, and Local Rates 55 (June 1984)
(cited in Office of Policy Analysis and Development, NTIA, Telephone
Subscribership in the United States: A Post-Divestiture Analysis
(1985)).
Basic telephone service has also become increasingly affordable
for the average American, particularly since the AT&T divestiture in
1984. Between 1983 and 1993, prices for telephone service, on
average, rose less (2.0%) than the consumer price index for all
items (3.8%) or for all services (4.7%). Moreover, since 1984,
telephone service has comprised no more than 2.0-2.1% of annual
household expenditures. Telephone Trends, supra note 13, Table 3,
Table 8. Over this same period of time, the variety and quality of
telephone services and equipment have also increased dramatically.
Devices such as touch-tone service, multiple phones, cordless
phones, and answering machines, that were once regarded as luxuries,
have now become commonplace for many U.S. citizens.
\27\For example, compared to the world's major industrial
nations--the so-called ``Group of 7''--the United States in 1992
(56.49) trailed only Canada (59.21) in terms of main telephone lines
per 100 inhabitants while surpassing France (52.13), Japan (46.74),
the United Kingdom (45.25), Germany (43.96), and Italy (41.03).
International Telecommunication Union, World Telecommunication
Development Report 1994, A-3. Canada's success in extending
universal service to its citizens (evidenced by the 98.7% of
Canadian households in 1992 with basic telephone service)
demonstrates, however, that there is room for improvement in the
United States. See Universal Service Project, NARUC Subcommittee on
Communications, Staff Draft Position Statement on Universal Service
Principles 4 (June 1994) (NARUC Paper).
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20. On the other hand, although the vast majority of American homes
have at least one telephone, approximately six million households have
none.\28\
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\28\H.R. Rpt. No. 560, 103d Cong., 2d Sess. 6 (1994).
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Household penetration rates (i.e., the percentage of households
with a telephone) vary substantially both from State to State and
within a State.\29\ Subscribership is also particularly low among
certain segments of our society. Approximately one-third of African-
American and Hispanic households with annual incomes of less than
$5,000 lack telephone service, as compared to twenty percent of white
households.\30\ Fifty-three percent of Native American households on
reservations do not have phones.\31\ Nearly three-quarters of all
phoneless households are renters, and fifteen percent of households
headed by a person under twenty-five years of age are without
telephones.\32\ Finally, in many states, some areas have no telephone
service at all--not even pay phones.\33\
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\29\In March 1994, telephone penetration ranged from 87.7% in
South Carolina to 97.2% in Pennsylvania. Telephone Subscribership,
supra note 26, at 14, Table 2. Further, while more than half of
Southwestern Bell's 550 central offices in Texas report penetration
rates of 95% or higher, some seven percent of the company's central
offices have penetration rates of 80% or less. Source: Southwestern
Bell Telephone analysis of 1990 Census data. We request comment from
other telephone companies as to whether similar variations exist in
their subscribership.
\30\Telephone Subscribership, supra note 26, at 23, Table 4. In
1989, about 50 percent of households at or below the poverty level
headed by single women with small childen did not have telephone
service. Jorge Schement, Beyond Universal Service: Characteristics
of Americans Without Telephone Service 4 (unpublished paper
presented at a conference sponsored by The Benton Foundation and The
Columbia Institute for Tele-Information, Washington, D.C., Oct. 15,
1993).
\31\Bureau of the Census, U.S. Dep't of Commerce News (Release
#CB94-127) Aug. 22, 1994, at 1.
\32\Bureau of the Census, U.S. Dep't of Commerce, SB/94-16,
Phoneless in America 1 (July 1994) (Phoneless) (1990 data).
\33\Universal Service Project, NARUC Subcommittee on
Communications, Staff Position Statement on Universal Service
Principles 4 (July 19, 1994).
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21. Statistics such as these have caused many observers to conclude
that universal service has not been fully achieved in the United
States.\34\ Low penetration rates among certain groups appear to result
from a variety of factors. For example, witnesses at NTIA's
Albuquerque, New Mexico, field hearing cited the state's low per-capita
income as an important cause of the low penetration in the area.\35\
More than sixty-five percent of the households of the Navajo Nation in
New Mexico do not subscribe to telephone service because telephone
service is either not affordable or not available.\36\ Language
barriers and the need for increased public education, at least among
certain groups, may also result in reduced telephone service
penetration.\37\
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\34\See, e.g., NII Field Hearings, supra note 10, at 8.
\35\See Transcript of New Mexico Hearing at 55, 253-254
(Comments of Thomas A. Garcia, U S WEST Vice President, New Mexico;
Comments of Kenneth Solomon, Acting Director, Telecommunications
Division, New Mexico State Corporation Commission (Dec. 16, 1993)).
Another factor in affordability may be long distance charges. See
Field Research Corporation Affordability of Telephone Service 68,
Customer Survey Conducted for GTE and Pacific Bell (Oct. 1993)
(finding that, among other things, customers who find it difficult
to afford service have a higher percentage of their average monthly
bill attributable to long distance charges).
\36\Comments of Rodger Boyd, Executive Director of the Navajo
Nation, Division of Economic Development (Dec. 16, 1993).
\37\For example, research indicates that people with limited
knowledge of the English language frequently are not able to take
full advantage of the programs and services available to them. A
1992 survey of Chinese, Korean and Latino consumers in San
Francisco, Los Angeles, New York, Chicago, and Brownsville, Texas,
about their knowledge of telecommunications revealed that 43% did
not know how to begin the process of having a phone installed and
17% did not know who to call if the phone was not working. See
Comments of Bong Hwan Kim, Executive Director, Korean Youth and
Community Center, Los Angeles hearing, at 6 (Feb. 16, 1994).
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22. We seek further comment on these matters. Are there other
underserved groups besides those we have mentioned? Are the measures
used and types of data currently being collected by the Census
Department and other government agencies adequate for determining
whether universal service goals are being met in all sectors of
society? If so, parties are requested to provide that information for
the record. If not, what recommendations are there for providing more
comprehensive and targeted data on these issues?
23. We also solicit comment (particularly studies, surveys, etc.)
on why some Americans do not have telephone service. Is income the
determining or predominant factor? Does subscribership depend to any
significant degree on geography (e.g., do penetration levels differ
between rural and urban areas after controlling for factors like
income)? To what extent are cultural factors important? If such factors
are important, what steps can be taken to overcome them? Do different
considerations affect a household's ability to retain phone service
over time, as compared to its decision to subscribe initially?
24. Finally, we request comment on whether implementation of
universal service should be measured in terms of availability of POTS
rather than penetration. For example, some households may not have
telephone service simply because they choose not to subscribe. What
measure(s), applied on a regular basis for monitoring purposes, would
best enable policymakers to distinguish such households from those that
desire basic service but cannot obtain it?
B. Formulating an Expanded Definition of Universal Service
25. As the nation decides whether and how to redefine universal
service, it is important to remember that, to a large extent, the
current debate represents but a new phase in a continuing process.
Although universal service has traditionally been defined as voice-
grade POTS, the minimally-acceptable characteristics of that service
have changed over the past sixty years. Thus, direct dialing became
popular as it obviated the need to make more expensive operator-
assisted calls in many instances and regulators mandated lower rates
for directly-dialed calls. Party-line service has been replaced in
recent decades by single-line service. Some states have directed local
exchange carriers to incorporate touch-tone capability into their basic
service offerings because of its importance in accessing many
information services. In short, the current interest in redefining
universal service is consistent with past practice. The principal
differences are the ever-expanding range of services that could be
incorporated into a revised concept of universal service and the
quicker pace at which policymakers must make their decisions.
26. As noted above, there appears to be strong public support for
expanding the existing definition of universal service. There is,
however, little consensus about what services, features, and
capabilities should be included within a new definition. Witnesses at
the NTIA field hearings suggested that universal service encompass a
host of different services, including: access to a basic set of
information and telecommunications services; multiple languages,
including Spanish and Native American languages that require special,
non-ASCII\38\ characters; set-aside resources, facilities, and capacity
for public, education, and government training and use; new
technologies such as video link and cellular telephone service; and
services defined as characteristics or features, rather than
technologies.\39\ A random survey of 1,000 likely voters conducted by
the Benton Foundation found that Americans are very interested in
educational and informational services.\40\
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\38\ASCII is a uniform code used in computer and data
communications systems. It employs seven binary digits (bits) to
represent a specific set of letters, numbers, punctuation and
special characters, plus a parity bit used in checking for
transmission errors.
\39\Comments of KNME-TV (Channel 5); Prodigy Services Co.;
University of New Mexico, Department of Engineering; Alliance for
Community Media; Virtual City Network Project; Citizens Action
Coalition of Indiana; Casey Luna, Lt. Governor, State of New Mexico;
Valley Telephone; Chinese for Affirmative Action; State Senator
Douglas Hunt, Indiana. Cf. Comments of The National Regulatory
Research Institute; Hudson Institute, and GTE East Area Telephone
Operations.
\40\Mellman Lazarus Lake, What People Think About New
Communications Technologies, Communications Policy Briefing 2, at 4
(Benton Foundation 1994).
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27. If universal service is to be redefined as a group of services
or capabilities, some mechanism or set of principles must be found to
help select from the wealth of possible alternatives. We therefore
request comment on whether there is an organizing principle or set of
principles that can be used to determine whether a particular service
or feature should be included within a modern concept of universal
service. This is essential because redefinition is not without
potential pitfalls. Adding each new component to the package deemed
universally necessary increases both the societal costs of making that
package universally available as well as the chances of prematurely
mandating services or features that are ultimately proven to be
commercially undesirable.\41\
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\41\Defining universal service to include certain services may
also raise constitutional and regulatory issues. For example,
government designation of certain information services as part of a
universal service package could be challenged as violative of the
First Amendment on the ground that it compels providers to ``speak''
or because it discriminates against other information services.
Moreover, inclusion of information services within a redefined
universal service could lead to regulation of currently unregulated
services. We seek comment on these issues as well.
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28. One approach could be to allow the marketplace to identify, at
least in the first instance, services and features that warrant
inclusion in an expanded definition of universal service.\42\ Under
this approach, private firms would offer services to consumers in
competition with other companies. If some service were subscribed to by
a predesignated minimum percentage of U.S. households, government
regulators would either have the authority to consider whether to make
that service universally available or be required to do so.\43\ We seek
comment on whether government should select services to be included in
an expanded definition of universal service and, if so, on what basis
such services should be chosen? What role should the market play in
determining that mix? Should there be some threshold of market
penetration before a capability or service is added to the definition
of universal service? If so, what should the threshold be and why? Are
there disadvantages in relying on market forces even in the first
instance?
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\42\See, e.g., Comments of Neil Pickett, Director of Research
and Programs, the Hudson Institute, Indianapolis field hearing.
\43\Cf. S. 1822, 103d Cong., 2d Sess. Sec. 102(a) (1994), which
would add a new section 201A(b) to the Communications Act requiring
the FCC to incorporate within universal service ``any
telecommunications and information services which . . . have,
through the operation of market choices by customers, been
subscribed to by a substantial majority of residential customers.''
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29. An alternative to identifying particular services to be
incorporated into an expanded concept of universal service would be to
define universal service in terms of a network connection that would
enable customers to access any service available via such network. If
universal service were to be defined in such a fashion, the cost of
making it available throughout the country would likely be reduced.
Moreover, government officials would not be required to make difficult
determinations about the relative value of different services or
equipment; instead, it should allow the market to determine customer
valuation of each service or equipment item. On the other hand,
government officials may have to make equally difficult decisions as to
the type of network connection that should be provided.
30. We request comment on the notion of defining universal service
in terms of a network connection. Would such an approach effectively
spur deployment of an advanced telecommunications infrastructure? Would
it give all sectors of society a chance to participate in the
information revolution? If this approach were adopted, what sort of
connection should be specified (e.g., in terms of capacity,
transmission speed, signalling, etc.)?
31. The notion of defining universal service as customer access to
a telecommunications network raises the issue of access to the
Internet, which began in 1969 as a Pentagon experiment to aid
researchers in trading information by computer. Today the Internet is a
worldwide network linking over 21,000 separately administered computer
networks. Each computer network connects tens of thousands of computers
with ten million users in the United States and fifteen million users
in sixty countries around the world.\44\ One observer recently
asserted:
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\44\About the Internet, The InfoLetter: A Monthly Roadmap to the
Information Superhighway, May 1994, at 5. Parts of the Internet are
growing at an exponential rate of 15 percent per month. See
Testimony of Dr. Vinton G. Cerf, President, Internet Society, before
the House Science Committee, March 22, 1994.
Not knowing how to use the Internet will be as grave a
deficiency as not knowing how to read. The Internet will become the
world's primary means of communication and will soon carry more mail
than the entire postal service worldwide.\45\
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\45\Mark Gibbs, Internet ABCs Essential, Investor's Business
Daily, Apr. 14, 1994, at 4.
If universal service is defined in terms of a network connection,
should that connection provide access to the Internet?
32. Another important area of inquiry is the extent to which
universal service policy should address customer premises equipment
(CPE). Without adequate equipment on the customer's premises, network
connection and the many services it affords is meaningless. CPE capable
of providing access to advanced services may be expensive at market
prices, however, and thus could serve as a barrier to the availability
of advanced services. For the same reason, however, subsidizing CPE as
part of universal service could be expensive, possibly prohibitively
so.
Including CPE in the definition of universal service could also
reverse the government's existing regulatory approach toward CPE, which
is now deregulated and subject only to market forces.\46\ Local
exchange carriers may provide CPE in conjunction with local telephone
service, subject to certain safeguards. In addition, at present,
computer manufacturers, set-top box manufacturers, and television
manufacturers are competing to develop the product or products that
could be used for receiving advanced services. It is thus not clear
which equipment the government should specify, if any, and on what
basis it should choose. Moreover, government selection of a certain
type of CPE for inclusion within the universal service definition
carries with it the risk of government picking winners and losers, a
questionable strategy.
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\46\Although CPE was detariffed and generally deregulated in the
early 1980s, the FCC still requires registration of this equipment
to ensure that its connection does not cause harm to the public
switched network. See 47 CFR part 68 (1994).
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33. We seek comment on whether CPE should be included in the new
definition of universal service, and, if so, whether a category of
providers should be obligated to supply it. Should the Government
identify specific equipment or merely capabilities if it is included in
the definition? What other alternative approaches could be adopted,
e.g., such as a voucher system, which would assure that all consumers
could purchase the type of CPE they desire from the provider of their
choice without government specification?
IV. Funding Universal Service in a Competitive Environment
34. Today, most experts agree that current pricing policies support
universal service by generating subsidies that reduce the costs of
providing POTS in particular areas and make service more affordable for
certain groups of customers. By and large, such subsidies have been
internally generated--i.e., created by setting the pricing of certain
services above the costs of providing them--rather than funded by
external sources, such as taxes.\47\ The growth of competition, which
to some extent reduces the need for subsidies and is by no means
incompatible with universal service, does put pressure on existing
funding mechanisms. Above-cost pricing creates market opportunities for
new entrants. New entry, in turn, drives prices towards costs, in the
process, eliminating excess revenues that were available, prior to
competitive entry, to subsidize universal services like POTS. The
challenge for policymakers is to develop funding mechanisms that help
achieve universal service goals, but are sustainable in a competitive
environment.
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\47\Thus, for example, rates for the local telephone facilities
used to originate and terminate long distance services--so-called
access facilities--have been set above cost to subsidize local
telephone rates. Long distance service providers pass those access
costs through to subscribers. See, e.g., Infrastructure Report,
supra note 15, at 290-291. Local service rates for business
customers typically exceed relevant costs to provide support for
local service to residential users. See, e.g., Bruce Egan and Steven
Wildman, Funding the Public Telecommunications Infrastructure 7
(unpublished paper presented at a conference sponsored by The Benton
Foundation and The Columbia Institute for Tele-Information,
Washington, DC., Oct. 15, 1993) (Egan and Wildman). Finally, the
common regulatory practice of requiring uniform rates throughout a
geographic area--so-called ``geographic rate averaging''--may result
in above-cost rates for some customers and below cost rates for
others. See, e.g., David Kaserman and John Mayo, Telecommunications
Cross-Subsidies, 11 Yale J. on Reg. 119, 130 (1994).
Although internally generated subsidies are widely used to fund
universal service, they are not the only mechanisms. For example,
subsidies to fund 911 emergency services and services for the
hearing impaired increasingly are generated directly through a
separate charge on each subscriber's bills. See Egan and Wildman,
supra, at 7.
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35. While there is widespread agreement that competition is putting
pressure on existing mechanisms for funding universal service, there is
no consensus on the amount of subsidies at risk.\48\ Thus, a study
sponsored by the United States Telephone Association concluded that
interexchange access and toll services provided by local exchange
telephone companies (LECs) are priced to produce approximately $20
billion of contribution in excess of their long-run incremental
costs.\49\ Those additional revenues are presumably needed to fund
universal service. Teleport Communications Group (Teleport), a major
provider of competitive local telecommunications services, disputes
this claim, contending that only $400 million of the LECs' $86 billion
in annual revenues goes toward subsidizing rates for basic telephone
service.\50\ A study done for MCI estimated that the subsidy is about
$3.7 billion when basic service costs are examined and extraneous LEC
revenue requirements are subtracted.\51\ Finally, the Consumer
Federation of America alleges that, far from requiring support from
other services, local telephone service produces net income for the
LECs in the amount of five to ten dollars per month.\52\
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\48\To the extent that universal service is redefined to include
additional services and features, the costs (and associated
subsidies) of making that new package of services universally
available would likely increase above current levels.
\49\Calvin S. Monson and Jeffrey H. Rohlfs, Strategic Policy
Research, The $20 Billion Impact of Local Competition in
Telecommunications 2,3 (issued July 16, 1993).
\50\Teleport Communications Group, What $20 Billion Impact? A
Reply to USTA (issued Aug. 10, 1993).
\51\See Hatfield Associates, Inc., The Cost of Basic Universal
Service 4 (July 1994).
\52\See Dr. Mark Cooper, Consumer Federation of America Local
Exchange Costs and the Need for a Universal Service Fund: A Consumer
View 1 (May 1994).
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36. We ask for comments on the amount of the subsidy today and the
basis for the estimates. What methodologies were used to derive the
estimates cited, and what are the strengths and weaknesses of each
approach? What data sources are available on which to base the
estimates? What are the implications of universal service subsidies in
terms of market inefficiencies and the positive ``externalities''
generated by the addition of subscribers to the network? With respect
to a system of subsidies, is there a threshold point at which the net
positive benefits to society are maximized?
37. There is a similar lack of agreement concerning possible new
mechanisms for funding universal service, although certain themes have
begun to emerge. The debate overwhelmingly centers on the sources and
distribution of the funding, since most parties appear to agree that
some form of universal service support should be continued.\53\ The
following discussion highlights some of the proposals that are
currently under discussion.
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\53\During the five NII field hearings on universal service and
open access, numerous witnesses set forth proposals relating to
funding sources and distribution. See NII Field Hearings, pp. 9-10.
---------------------------------------------------------------------------
A. Sources of Contribution
38. Many proposals focusing on potential funding sources look to
service providers as a source of subsidies. For example, NARUC's
Universal Service Project Group contends that as markets continue to
evolve toward competition, all service providers that deliver services
over the public switched network should be required to contribute
proportionally to the universal service support mechanisms, including
enhanced service providers.\54\ Metropolitan Fiber Systems (MFS),
another provider of competitive local telecommunications services,
would require contributions from all providers of telecommunications
services.\55\ Teleport, on the other hand, suggests that all common
carriers providing facilities-based, two-way telecommunications
contribute to funding universal service.\56\ Professor Eli Noam has
developed a plan under which all entities providing ``transmission path
services'' to third parties for compensation would pay a proportionate
share, based on revenues, toward universal service funding.\57\
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\54\NARUC Universal Service Project, NARUC Committee on
Communications, Presentation of Staff Position Statement, NARUC
Summer Meetings (San Diego, California) (July 25, 1994); Universal
Service Project, NARUC Subcommittee on Communications, Staff Draft
Position Statement on Universal Service Principles, 22 (June 27,
1994) (Staff Draft Position Paper).
\55\See e.g., Inquiry into Policies and Programs to Assure
Universal Telephone Service in a Competitive Market Environment,
Petition of MFS Communications Company, Inc. for a Notice of Inquiry
and En Banc Hearing, at 5 (filed Nov. 1, 1993) (Petition of MFS).
\56\Comments of Michael A. Morris, Western Regional Director,
Regulatory and External Affairs, Teleport Communications Group,
Transcript of Los Angeles Hearing at 223 (Feb. 16, 1994).
\57\Eli M. Noam, NetTrans Accounts: Reforming the Financial
Support System for Universal Service in Telecommunications (Sept.
1993) (unpublished paper) (Noam). His scheme would apply to all
facilities-based two way transmission carriers regulated by the FCC
under Title II, including local exchange carriers, interexchange
carriers, cellular carriers, competitive access providers, and
satellite carriers. He would exclude enhanced service providers,
information providers, resellers, private networks, equipment
manufacturers, and cable and broadcast operators. A system of
credits and debits would be used to determine amounts owed and
transfers would only be made in the event of a difference owing
between providers. He would begin this program at the same time that
local competition would be fully permitted, with full
interconnection and collocation rights. He indicates that his
proposal could be implemented under existing mechanisms.
---------------------------------------------------------------------------
39. We request comment on these and other mechanisms for generating
funds to support universal service. What are the advantages and
disadvantages of deriving universal service support funding from
service providers? What criteria should be used to determine which
service providers should be required to contribute to universal service
funding? Should contributions be required only from facilities-based
service providers and, if so, why? If contributions are to be required
from non-facilities based service providers (e.g., resellers, enhanced
service providers), do steps have to be taken to prevent double
payment? How can the contribution scheme be structured so as to
minimize adverse effects on competition?\58\ Finally, should we keep
any of the existing funding mechanisms?
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\58\For example, MFS suggests that universal service obligations
be determined annually, based on competitively neutral criteria,
such as percentage of revenues or a fixed amount per access line.
See Petition of MFS, supra note 55, at 19.
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40. Some have suggested public funding as an alternative to
obtaining universal service funding from service providers. For
example, Professor Noam lists a variety of tax measures that could be
used to fund universal service (e.g., general tax revenues, a
telecommunications sales tax, a tax on telecommunications equipment, or
a property tax on carriers), while pointing to problems with each.\59\
Some witnesses at the NTIA field hearings asserted that subsidies
should be generated from tax-based funding under ideal circumstances,
with a sectoral levy on telecommunications as a second best option.\60\
Finally, at NTIA's Indianapolis hearing, an executive of Procter and
Gamble suggested that commercial advertising on the NII could be an
alternative mechanism for funding universal service objectives.\61\
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\59\Noam, supra note 57, at 17-20.
\60\Comments of Barbara A. Cherry, Ameritech 2 (Indianapolis
hearing); Transcript of Los Angeles hearing at 207 (Comments of
Timothy J. McCallion, West Area Vice President--Regulatory, GTE). A
State regulatory official testifying at the New Mexico field hearing
raised the possibility of using revenues from Federal spectrum
auctions to fund universal service objectives. Ken Solomon, Acting
Director of Telecommunications, New Mexico State Corporation
Commission, New Mexico transcript, at 256.
\61\Comments of Robert Herbold, Senior Vice President, The
Proctor & Gamble Company (Indianapolis Field Hearing).
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41. We request comment on the advantages and disadvantages of using
public funding to advance universal service goals. While that approach
would be competitively neutral, public funding would represent a sharp
departure from current funding policies and would likely encounter
stiff opposition, given the Federal deficit and other budget
priorities. We also seek comment on the efficacy of advertising as a
vehicle for funding universal service in the 21st century.
B. Distribution of Subsidies
42. The other facet of universal service funding concerns the
distribution of subsidies. Currently, universal service support is
provided in both targeted and untargeted fashions. As noted above,
government regulators historically have mandated above-cost prices for
certain services to reduce rates for residential POTS. This approach,
however, effectively subsidizes all residential customers, including
those who would be willing and able to pay cost-based rates for
telephone service. Similarly, regulators have also directed subsidies
towards high cost areas to ensure affordable POTS in those areas.\62\
Once again, this approach benefits all households in high cost areas,
whether or not they are low income or would terminate telephone service
if faced with cost-based rates.
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\62\One such subsidy mechanism is the Universal Service Fund
(USF) which provides monies to local telephone companies whose
``local loop'' costs (i.e., the cost of the facility connecting the
subscriber's home to the nearest company switching office) are more
than 15 percent above the national average. The USF grew from $445
million in 1986 to more than $700 million in 1993, sparking an
investigation by a Federal-State Joint Board and the FCC into the
causes of its rapid growth. See also Amendment of Part 36 of the
Commission's Rules and Establishment of a Joint Board, Notice of
Inquiry, CC Docket No. 80-286 (released August 30, 1994). Another
subsidy mechanism is the Rural Electrification Administration's
telephone loan program which, since 1947, has provided low-cost
loans directly to rural telephone companies and cooperatives. See 7
U.S.C. Sec. 901 et seq (1994).
---------------------------------------------------------------------------
43. Recently, government regulators have developed more carefully
targeted funding programs. For example, the FCC's Link-Up America
program allows States to reduce telephone installation charges for
qualified households by as much as $30, as well as to use installment
payments for installation charges without any interest charges to the
customer. To date, forty-eight states and the District of Columbia have
implemented Link-Up America programs. Funding of the program this year
will be approximately $15.9 million. Under the FCC's Lifeline program,
started in 1985, the FCC matches State rate discounts to eligible
subscribers (up to the maximum Federally-mandated subscriber line
charge of $3.50 per month). Thirty-five states and the District of
Columbia have implemented some form of Lifeline assistance, at a
projected cost of some $119 million in 1994.
44. Most experts contend that universal support should be provided
only to those subscribers who could not otherwise afford telephone
service. Some argue for targeting subsidies to low income users, high
cost areas, and special needs groups.\63\ NARUC's Universal Service
Project recommends continuing some support mechanisms in place today,
including targeted support in low cost areas and direct assistance to
end users through Lifeline and Link-up programs.\64\ Others also
support some form of lifeline option to assist low income customers
while avoiding subsidizing every household.\65\
---------------------------------------------------------------------------
\63\See NII Field Hearings, p. 10-11.
\64\Staff Draft Position Paper, supra note 54, at 8.
\65\Comments of Charles Smith, Vice President and General
Manager, Pacific Bell, Los Angeles region, Transcript of Los Angeles
Hearing at 55 (Feb. 16, 1994).
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45. We seek comment on how best to target universal support
funding. What criteria should be established to identify those eligible
for subsidies? Should eligibility for support be linked to the
eligibility standards associated with other social ``safety net''
programs. Should support be structured so that some defined package of
telecommunications services consumes no more than a specified
percentage of a household's annual income, or represents no more than a
designated fraction of a household's yearly expenditures?\66\ Should
subsidies be applied to a limited set of services and, if so, how
should that set of services be determined?
---------------------------------------------------------------------------
\66\As noted above, telephone service comprised no more than
2.0-2.1% of the average U.S. household's annual expenditures. See
supra note 26.
---------------------------------------------------------------------------
46. We also request comment on the current practice of providing
support to firms providing service in high cost (predominantly rural)
areas. Some have argued that rural telephone companies have higher
average costs only if one considers the fixed costs of their telephone
networks. When operating expenses (e.g., labor costs, taxes, interest
expenses) are factored in, total costs for some rural companies are
lower than the costs incurred by companies operating in non-rural
areas.\67\ Commenters should address these analyses and their
implications for universal service policies in rural areas.
---------------------------------------------------------------------------
\67\See Joseph Fuhr, Jr., Should the U.S. Subsidize Rural
Telephone Companies?, 12 J. of Pol. Analysis and Mgmt 310 (1993);
Thomas Armstrong and Joseph Fuhr, Jr., Cost Considerations for Rural
Telephone Service, 17 Tel. Pol. 80 (1993).
---------------------------------------------------------------------------
47. In a related vein, MFS suggests that subsidies for high cost
areas be based on objective criteria such as population density,
geography, and other subscriber statistics rather than actual telephone
company costs to reduce any incentive of LECs to inflate costs so they
can keep receiving subsidies.\68\ Is that a viable funding strategy?
Would it be more efficient to direct support to rural households,
thereby subsidizing only those subscribers who could otherwise not
afford telephone service?
---------------------------------------------------------------------------
\68\See Petition of MFS, supra note 55, at Attachment I, p. 4.
---------------------------------------------------------------------------
48. Finally, we solicit comment on the appropriate recipients of
universal service support. As noted above, subsidies are directed
towards the providers of telephone service, in return for their
commitment to provide below cost service to certain subscribers or in
certain areas. Some observers have suggested providing subsidies
directly to subscribers, either as a complement to or in place of
transfers to carriers. There is growing interest, for example, in a
voucher system to allow subsidies to be distributed directly to
eligible subscribers who would choose their own providers.\69\
Similarly, there is a proposal to give eligible customers credits on
their monthly bills to reflect reductions in the price of basic
service.\70\
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\69\Comments of Mark T. Bryant, MCI Telecommunications 13, New
Mexico Hearing (Dec. 16, 1993). See also Noam at 36-37.
\70\See Petition of MFS, supra note 55, at 20. Carriers that
provide basic exchange service would grant credits to eligible end
users, and these credits would apply against the carriers' universal
service obligations.
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49. Directing support to end users, rather than to carriers, could
give customers more control in choosing their providers, while
continuing to ensure that all have access to affordable service. It
might also stimulate competitive entry in some areas. Others have
argued, however, that providing support to subscribers would encourage
inefficient entry by new firms, jeopardize incumbent providers' ability
to serve remaining customers, and actually increase universal service
support requirements.\71\
---------------------------------------------------------------------------
\71\See Panzar and Wildman, supra note 21, at 20-25.
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50. Should universal service support payments be made to service
providers, to subscribers, or in some other fashion? Would directing
subsidies to carriers encourage inefficient entry in some areas? If so,
under what conditions? Could a subscriber-based subsidy program be
structured to avoid such problems? How much would such a program cost
to establish and operate? If support payments are made to service
providers, should they be limited to certain categories of providers,
such as ``carriers of last resort'' (i.e., firms that agree to provide
universal services throughout an entire geographic area)? If so, would
it be feasible or efficient to designate (and provide subsidy payments
to) multiple carriers of last resort in a particular area? What rules
should dictate when carriers of last resort can enter or exit
geographic areas? What is the most effective way to establish service
in currently unserved areas? For example, would it be possible to award
a franchise to service an unserved area via competitive bidding? What
minimum franchise requirements would be necessary to make such an
auction fair and attractive to potential bidders?
C. Transition Measures
51. Establishing a new funding scheme will likely necessitate
transitional measures. For example, if any rate rebalancing occurs, it
will be necessary to address potential ``rate shock'' to local
ratepayers. One commenter contends that any transition should be aimed
at achieving two goals: (1) developing a level playing field for
competitors and (2) continuing to protect consumers. Ameritech proposes
to use what it calls the ``Customers First Plan,'' based on what
Ameritech labels ``bulk billing.'' In effect, Ameritech would collect
the necessary subsidy amount by billing long distance carriers
according to their share of the total toll revenues reported to the FCC
for all of Ameritech's interstate access customers. Ameritech urges
this approach as a transition to long-term reform of universal service
funding mechanisms.\72\ We request comment on this approach, as well as
on other transitional proposals. How should these mechanisms be
structured so as not to distort competitive markets?
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\72\See Petition for a Declaratory Ruling and Related Waivers to
Establish a New Regulatory Model for the Ameritech Region, DA 93-
481, Attachments to Ameritech's Reply Comments: Customers First:
Ameritech's Advanced Universal Access Plan, Attachment G (filed July
12, 1993).
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V. Role of the Federal and State Governments in Developing Universal
Service Policies
52. Traditionally, FCC and state regulators have worked in tandem
to promote universal service goals, but responsibility for defining the
precise components of universal service has resided primarily with the
States. The telecommunications reform legislation pending in Congress
would specify differing degrees of Federal-State cooperation. The
Senate bill, S. 1822, would charge the FCC with defining universal
service, ``based on recommendations from the public, Congress, and the
Federal-State Joint Board,'' although it would authorize the States to
prescribe requirements over and above the federally-established minimum
as long as such regulations are not inconsistent with those prescribed
by the FCC.\73\ The House bill, H.R. 3626, would delegate the task to
the FCC and the States, based on recommendations from the Joint
Board.\74\
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\73\S. 1822, 103d Cong., 2d Sess. Section 102(a) (1994).
\74\H.R. 3626, 103d Cong., 2d Sess. Section 302 (1994).
---------------------------------------------------------------------------
53. Similarly, most funding proposals recognize the joint role of
the FCC and the states, given the bifurcated regulatory jurisdiction
over telecommunications. For example, both bills now pending in
Congress, H.R. 3626 and S. 1822, require the involvement of the FCC and
the States in determining new universal service funding mechanisms,
although the final distribution authority between the two levels of
government will turn on the specific legislative language enacted. Many
parties stress the need for administration of a funding mechanism by a
neutral third party from the private sector.\75\
---------------------------------------------------------------------------
\75\See Petition of MFS, supra note 55, at 17; See also Comments
of Michael Morris, TCG, supra note 56, at 222.
---------------------------------------------------------------------------
54. There are numerous arguments for allowing more or less federal
or state authority over universal service policies. Defining universal
service on a nationwide basis, for example, could facilitate network
planning and service deployment, thereby reducing the total costs to
society of implementing universal service. On the other hand, giving
individual states flexibility to adopt differing definitions and
funding mechanisms, as is the case today, would allow them to craft
policies more in line with local conditions. Allowing for state
experimentation might also reduce the risks of mandating provision of
services either unnecessarily or prematurely, and or leave room for
creative funding mechanisms that might reduce the total subsidy
requirement. We request comment on the appropriate role of the Federal
and State government in defining and funding universal service. What
role should be played by the private sector?
VI. Open access for Telecommunications and Information Systems
55. The development and convergence of new telecommunications and
information technologies are also leading to changes in the way people
think about access to the ``network.'' The concept of ``open access''
has come to represent technical, regulatory, and empowerment
components. This section examines these evolving concepts of open
access and the policies that can help make them a reality.
56. Historically, access has focused on issues such as physical
access to a seamless and transparent web of monopoly local exchanges,
equal access to long distance carriers,\76\ and availability to and
ease of use by consumers, among others. As a result, any telephone
customer can initiate as well as receive phone calls, regardless of the
local exchange and long-distance carrier serving the caller and the
call recipient. This ``open system'' that we all take for granted has
been achieved through a framework of policies designed to promote
interconnection and interoperability, such as expanded interconnection
and a uniform system of ``addresses'' (i.e., telephone numbers).\77\
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\76\Equal access for long-distance carriers has not yet been
fully achieved for all local exchange carriers or for non-BOC
cellular operators.
\77\In contrast, cable television franchises are not
interconnected with other networks. Each customer is served by a
local provider who provides access solely to the services that cable
operator wishes to provide and the set-top box is principally a
receive-only device. In the cable context, access generally refers
to customer access to cable service (measured in homes passed) and
to carriage requirements imposed on cable providers such as Public,
Education and Government channels, leased access, and must carry
channels.
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57. The Administrations's open access goals are broader and more
multi-faceted than the traditional approach. In the evolving
competitive marketplace, open access will require that multiple
telecommunications and information providers as well as users can
interconnect transparently and be interoperable. This will in turn
promote even more competition among information providers and service
options for consumers. Thus, as the NII evolves, the Administration
seeks to ensure that consumers and service providers will be able to
transfer information across disparate networks easily and accurately,
with seamless, interactive, user-driven operations. Also, to be truly
useful, an advanced information infrastructure must allow service
providers to offer a full range of educational material, health
information, and home and business services, and it must make those
services truly accessible without unreasonable technical or regulatory
barriers, particularly to disabled individuals.\78\
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\78\See generally Agenda for Action, supra note 8.
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58. We solicit comments on how open access should be defined at
this time. How should an open access policy be shaped to accommodate
the changing needs of our information society? What impact will open
access have on competition and ultimately on the extent of the need for
universal service regulation? How can policymakers ensure that the NII
fulfills its promise for education, economic growth and job creation?
How will the new entrants in the market affect open access? What steps
can be taken to facilitate or ensure access by Americans with
disabilities?
59. The Administration also envisions open access to a two-way
system of broadband communications as a means of individual
empowerment. The idea is that improved access to information will build
and promote the values of democracy.\79\ Open access in this new
environment creates opportunities for potential service providers as
well as users to be providers of information, thereby promoting an
enhanced concept of community involvement and competition in the free
flow of ideas. Thus, open access to the NII could spur development of
community-driven grass-roots networks or ``electronic commons.'' In
addition, the NII will enhance the ability of the Federal government
and state and local governments to deliver information and services to
citizens more effectively, and for citizens to communicate their views
on legislation and policy initiatives back to government officials just
as easily.
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\79\Id. at 49,029.
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60. How can the ``electronic communities'' envisioned by the
Administration be fostered? How can access to the NII be assured for
individuals, small and large businesses, non-profit institutions (in
particular, schools, libraries and health care facilities) and state
and local governments? How can access be assured in rural areas? Should
there be different access opportunities and prices for profit and non-
profit entities? Large and small entities? How can society ensure that
our citizens are sufficiently ``computer literate'' to utilize the NII?
61. The critical question facing policymakers is how to ensure open
access to the NII.\80\ NTIA's field hearings revealed a general
consensus among witnesses that significant issues such as
interconnection,\81\ interoperability and standard open interfaces,\82\
and reasonable prices and tariffs\83\ need to be addressed before open
access can be assured.\84\
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\80\The telecommunications reform bills being considered by the
103rd Congress contain numerous provisions to promote open access.
These include, for example, requirements for interconnection
capability among telecommunications carriers; non-discriminatory
access to network facilities, services, functions and information on
an unbundled basis under certain conditions; the development of
interconnection standards; joint planning among telecommunications
and information service providers for interoperability of private
and public networks; the elimination of restrictions on resale or
sharing of network facilities and services; and the provision of
advanced services, possibly with preferential rates, to various
governmental and non-profit institutions. The nature and extent of
these provisions will depend on final passage of telecommunications
reform legislation in Congress and implementation actions by the
FCC.
\81\See Comments of The News & Observer; North Carolina State
University; M. Strata Rose, Virtual City Network Project; and NC
Electronics & Information Technologies Association.
\82\Comments of NC Rural Economic Development Center; First
Pacific Networks; Prodigy Services Company; SAGRELTO Enterprises;
GTE West Area Telephone Operations; Pacific Bell; Virtual Valley
Inc.; Multimedia Design Corporation; Adamation, Inc.; MCNC; and
State of New Mexico, GSD/ISD Office of Communications.
\83\Comments of First Pacific Networks; Prodigy Services
Company; Adamation, Inc.; Communications Resources, Inc.; Hooked,
Inc.; and NC Electronics & Information Technologies Association.
\84\A number of commenters also noted that resolving security,
privacy, and intellectual property issues over the NII is also
critical. The Administration is currently addressing these issues
through several IITF committees and working groups. These include
the NII Security Issues Forum, the Network Reliability and
Vulnerability Working Group, and the Privacy Working Group.
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62. The NII will integrate and build upon many different hardware
and software components, some of which already exist and many of which
are still in development. These components must be interoperable, i.e.,
able to work together. Interoperable components would allow distinct
networks to communicate with each other and allows users to access
various products and services through standard software and
hardware.\85\ An NII comprised of interoperable networks will create an
infrastructure that is accessible to all providers and users.\86\ What
critical points in today's infrastructure must be interoperable if the
NII vision is to be successfully implemented? What role, if any, should
open or standard interfaces and protocols play? What role can
government play in facilitating interoperability, both in the short
term (e.g., two years) and in the long term.
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\85\Computer Systems Policy Project Perspectives on the National
Information Infrastructure: Ensuring Interoperability 5 (Feb. 1944).
Familiar examples of interoperability include standard size nuts and
bolts, telephone jacks and telephones, and computers and modems.
\86\Many believe that the Internet is an excellent model for
such interoperability, since it allows users all over the world to
access information and talk to each other easily over the network.
We request comments on whether the Internet is, indeed, a good model
for interoperability for the NII.
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63. Interoperability can be accomplished in a number of different
ways. Equipment can have open protocols and interfaces that permit a
physical connection (as is the case of a plug and socket) or logical
connection (message format and exchange procedure).\87\ Equipment built
with open architecture will also permit interoperability. Additionally,
standards for voice, video, data and multi-media services are also
crucial to interoperability.\88\
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\87\Protocols are the set of rules governing the operation of
functional units of a communication system that make communication
possible. Open interfaces are specifications for interconnection
compatibility made available to all vendors.
\88\See, e.g., Comments of Alan R. Blatecky, Vice President,
Information Technologies, MCNC, North Carolina Hearing (Apr. 27,
1994). ``It is essential to have regulatory guidelines which ensure
interoperability across networks through the rapid adoption and
encouragement of open standards. If standards are not adopted, the
marketplace becomes a battleground for proprietary solutions which
penalize users until one of the standards finally become[s] a de
facto standard.'' Id. at 2.
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64. While there have been times when the U.S. government has
promoted particular standards, industry adoption of voluntary
standards, working with government officials, is now the norm. Various
commenters have argued that either approach can be too slow given the
fast pace of change in the industry. In addition, some argue that the
industry standard-setting process is costly and requires large amounts
of employee time, which creates hardships for smaller companies.
65. How should standards develop for the NII? Do standards affect
the ability to innovate? How can standards be developed that are
flexible and adaptable enough to meet user needs at affordable costs?
If voluntary, industry-set standards are the favored approach, what
procedures should be followed in establishing standards, and what fora
should be used? What role, if any, should the government play?
66. Competition is one of several means of ensuring that innovation
and the provision of information and transport services will flourish
on the NII. At the same time, there is a recognized need for government
intervention in the case of market failures, for example, to protect
new entrants from the market power of incumbent operators when
necessary. Will greater competition in information and transport
markets alone be sufficient to achieve open access goals? If not, what
other actions are necessary? What regulations or policies need to be in
place to guarantee reasonable and nondiscriminatory interconnection and
reasonable cost-based pricing and tariffs for the NII? What technical
or regulatory barriers must be overcome?
VII. Conclusion
67. NTIA hereby requests comments in this inquiry to be filed on or
before December 14, 1994.
Dated: September 13, 1994.
Larry Irving,
Assistant Secretary of Commerce for Communications and Information.
[FR Doc. 94-23033 Filed 9-14-94; 8:45 am]
BILLING CODE 3510-60-P
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