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The Division of Ratepayer Advocate herein provides its proposal for a Universal Service Fund or Funds that will respond to and provide meaningful relief and assistance to the citizens of New Jersey and significantly contribute to the advancement of societal goals. We believe that the Board should establish three goals as part of its decision in this proceeding:
(1) There must be an appropriate level of service available in all areas of the state, including high cost areas, in order for there to be effective competition throughout the state for telecommunications services and for all customers, irrespective of geographic location, to receive the benefits of such competition;
(2) Assistance must be provided to low income customers with the specific goal of increasing subscribership among those citizens to a level of at least 94%. If low-income customers continue to be excluded from the network, as they currently are in ever increasing numbers today, the promise of universal service will be an increasingly remote and empty slogan having no meaning in today's society;
(3) Schools and libraries must be provided specific categories of assistance in obtaining telecommunications needs and services, including state of the art access to high-speed capabilities and internal wiring of all school facilities, as well as discounts for traditional telephone services;
First, the problem of high cost areas must be addressed, because without additional measures, the policy of the State of encouraging competition will not be achieved. The benefits of competition will not exist in high cost areas without a system to ensure that competitors are as interested in serving high cost, generally rural areas, as they are in serving the lower-cost areas of the state.
Second, the importance of assistance to ensure access to telecommunication services for low income consumers cannot be overstated. While the landscape of telecommunications service provision and regulation is rapidly changing, the one constant that has not changed and is not changing is that substantial numbers of our citizens do not have telephone service because they cannot afford it. The unique characteristic of telephony is that the value of telephone service to society as a whole increases in proportion to the number of persons who can be called and, conversely, is lessened when the penetration rates show that over seven percent of New Jersey residents are excluded from the network due to price.
If anything, the importance of telephone service increases each year. In the past, telephone service was important in order to be able to contact or be contacted by family, friends, and potential employers, to obtain emergency assistance or to speak to school teachers or local government officials. Those who did not have telephone service were unable to avail themselves of these essential services. The historic disenfranchisement that results from not having telephone service is increasing and results in even greater isolation in today's society, the advent of the information age. With the evolving definition of universal service and the increasing importance of the Internet as an avenue for education and communication, those who cannot afford a telephone will also lack an on-ramp to the information superhighway as well.
Low income customers' telecommunications needs are especially critical, since the absence of basic telephone service ensures that a resident cannot be reached by potential employers or perform any of the other basic functions that can best and most rapidly be accomplished via telephone service. If we do not ensure that low income residents have affordable telephone service, we will be taking a giant step toward ensuring that today's low income citizens continue to be disenfranchised from the economy and much of society, and relegated to low income status for the foreseeable future.
Carriers that are parties to this proceeding have expressed the view that the sole purpose of the universal service fund should be to provide a source of money to them, if they elect to provide service in high cost areas. The Board must reject the narrow and self-serving focus proposed by some parties, that universal service and this proceeding are concerned only about high cost areas. The Board's purpose should be to ensure that an appropriate array of services is provided to and made affordable for all customers, including low income consumers.
Third, discounted prices for access to advanced telecommunications services to schools and libraries is an essential element of an appropriately structured approach to universal service, because it provides a critical element for information superhighway access for all citizens, including those who cannot afford the computer and other equipment necessary for such access. Therefore, the support to schools and libraries should be viewed as integral parts of the overall goal of ensuring true universal and equal service, including Internet access, available to all citizens of the State.
New Jersey and the nation are at a critical turning point. If we fail in this and related dockets to ensure that all citizens have access to the educational and information resources provided by the Internet, we will be lowering our horizons and condemning our children and their children to a future that is less than it should be. While universal service may not be able to provide an in-home computer to every citizen who would like to make use of the Internet, it can measurably increase the ability of all citizens, including low income customers and their families, to access the Internet through schools and libraries.
In implementing the recommended assistance, the Board should reject any proposal to increase basic rates for customers "to pay" for the assistance. The Incumbent Local Exchange Carriers ("ILECs") will argue for explicit subsidies based upon their calculations of cost, and claim a rate increase is required to pay for them. However, as we stated in our brief in the cost of basic service phase of this proceeding, when the cost of the local loop is appropriately allocated to all of the services that are provided over the loop, it is clear that local exchange service under current rates more than recovers the cost of providing basic residential exchange service. Moreover, the substantial income which ILECs currently receive from toll, access charges, vertical services, and all categories of other services provided to both residential and business customers under the present rate structure, more than recovers the proportion of loop costs assigned to these services, and, in addition, generates a surplus sufficient for funding of a Universal Service Fund. There is no need to increase residential exchange service rates as a result of the Board implementing explicit subsidy programs, such as a Universal Service Fund. Telephone consumers of this State are willing to accept the uncertainties and confusion that will unavoidably accompany competition, particularly in its opening phases, so long as the promise of competition -- lower prices, better service and greater choice -- is at least the potential payback in the future. Any increase in residential exchange rates by the BPU as the first impact on consumers at the opening of competition, would be perceived as a breach of faith by all telephone subscribers of New Jersey. (Please see discussion beginning on page 44 for more information concerning rate rebalancing).
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II. GOALS TO ESTABLISH UNIVERSAL SERVICE IN NEW JERSEY
On November 7, 1996, the Federal-State Joint Board on Universal Service in CC Docket No. 96-45 issued its Recommended Decision ("Recommended Decision" or "Decision") , per the directives of the Federal Telecommunications Act of 1996 ("1996 Act"). While that document is useful in gauging the likely direction to be taken by the FCC with regard to the Federal Universal Service Fund, it is also possible that the FCC may modify or reject the Joint Board's recommendations. Moreover, the recommended decision for federal Universal Service Fund assistance is not spelled out in sufficient detail to provide computation of the specific support levels to be made available in New Jersey. Accordingly, New Jersey should not depend on or acquiesce to any particular program of universal service support that may be established in Washington. Instead, New Jersey should first develop its own program for universal service, based on the goals and needs that are specific to our State. Second, New Jersey should evaluate the extent to which the federal program, as ultimately funded and operated, contributes to the advancement of our goals. Third, New Jersey should then adjust the funding and other requirements of its state-specific fund or funds, based on the actual level of federal funding provided to New Jersey.
As is more fully discussed below and specifically detailed in the Appendix to this Brief, the Division of Ratepayer Advocate recommends that the Board adopt the following Universal Service policies:
1. The Board should define universal service to include the services that most residential customers have come to expect. The definition of universal service recommended by the Ratepayer Advocate includes the following services:
- voice grade access to the public switched network, with the ability to place and receive calls, and some local usage;
- touch-tone service;
- single-party service;
- access to emergency services;
- access to operator services;
- access to interexchange services;
- access to directory assistance, including white page listing and directory.
- toll blocking, with special features for low income customers
While all telecommunications carriers should be required to contribute toward the cost of providing universal service, only those carriers that actually provide all of the services included in that definition should be eligible to receive universal service assistance.
2. The ultimate plan should charge at least one carrier in each designated service area of the state with the responsibility of providing all of the services included within the definition of universal service and serving as the carrier of last resort. We believe that all of the services contained within our proposed definition of universal service are presently available throughout the state. In the future, as the competitive market develops and the definition of universal service may need to be adjusted to include more advanced services, it is possible that some such services would not be universally available without the Board action recommended herein.
3. New Jersey must substantially increase its participation in all federal universal service programs. Historically, New Jersey has had minimal participation in the Link-Up program and has not participated at all in the Lifeline program. There is no valid reason for refusing to avail ourselves and our citizens of all available assistance, particularly when statistics demonstrate that our past assumptions about the affordability of telephone service under current tariffed rates are mistaken.
4. The Board should affirmatively state that service is not affordable when telephone subscribership in New Jersey is below the national average. The Governor has declared it to be the policy of the State of New Jersey to become the "Telecommunications Mecca". We are not progressing towards that goal when significant and growing numbers of citizens cannot afford at least the minimal set of services included within the definition of universal service.
5. Universal service will exist only when affordable basic telephone service is available for all New Jersey residents, regardless of income. Furthermore, the appropriate definition of universal service contemplates readily available access to the Internet for all citizens through schools and libraries.
6. As part of the goal to keep telephone service affordable to all citizens, irrespective of income, the Board should direct the implementation of a toll-blocking service that should be available to all residential customers at no cost. Toll-blocking is an essential tool that will enable consumers to control the size of their telephone bills. While toll-blocking service should be available to all residential customers at no additional charge, additional features should be available to qualifying low-income customers who elect toll-blocking service, including (a) elimination of deposit requirement, (b) prohibition of denial of service for non-payment of toll bills, and (c) prohibition of disconnection of local service for failure to pay toll or long distance charges.
In addition, all customers should have available to them prepayment options to enable a customer taking toll-blocking service to make toll calls over the specified limit, when necessary.
To realize the above goals of universal service, the Board will have to create a statewide universal service fund with three distinct components:
1. A New Jersey High Cost Fund ( "NJHCF") to address the issue of high cost areas;
2. A New Jersey Low Income Fund ("NJLIF") to address the issue of low income assistance; and
3. A New Jersey Schools and Libraries Fund ("NJSLF") to address funding for telecommunications program for schools and libraries;
While these funds can be administered as a single fund, there should be separate accounting of the revenues to and disbursements from these funds.
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III. THE FEDERAL/STATE JOINT BOARD DECISION ON UNIVERSAL SERVICE
The Federal-State Joint Board on Universal Service, in its Recommended Decision adopted November 7, 1996, has made proposals that should provide some assistance toward making telecommunications service truly universal. In defining services to be included in the definition of universal service, the Joint Board was required under the 1996 Act to consider four criteria, namely, to what extent such services:
- (1) are essential to education, public health, or public safety;
- (2) have, through the operation of market choices by customers, been subscribed to by a substantial majority of residential customers;
- (3) are being deployed in public telecommunications networks by telecommunications carriers; and
- (4) are consistent with the public interest, convenience and necessity.
Recommended Decision, ¶ 30.
In deciding that issue, the Joint Board determined that services do not have to meet all four of the criteria to be included in the definition of universal service. It therefore concluded that touch tone service (DTMF) be provided universal fund support, which the Ratepayer Advocate also recommends to the Board of Public Utilities.
The Joint Board also recommended that some amount of local usage should be a component within the definition of universal service, but left it to the individual states to determine how much usage should be included (Id., ¶ 49). The Ratepayer Advocate recommends that the Board adopt a local usage component of 400 minutes per month. While that may sound like a great deal of usage, it results in a total of only 13 minutes per day, which is actually a minimal local usage allowance, suitable for the Board to adopt as the minimum threshold.
For low income customers, the Joint Board has recommended that eligible carriers receive universal service support for providing toll blocking and limitation services to low income customers (Id., ¶ 4). It has also recommended that the Lifeline program be severed from its reliance on the Subscriber Line Charge (SLC) as the means of extending a benefit, and that carriers be prohibited from disconnecting low income customers for failure to pay toll bills if those customers elect toll-blocking service (Id., ¶ ¶ 8, 387). The Joint Board found that providing voluntary toll limitation service free of charge to low-income customers should help increase subscribership among low income customers (Id., ¶ 384). Finally, the Joint Board recommended a national policy prohibiting carriers from requiring deposits from Lifeline-participating customers initiation of service if those customers subscribe to toll-blocking (Id., ¶ 389). All of these programs are designed to enable low income customers to obtain and to responsibly afford telephone service. The Board should move rapidly to implement those recommendations.
While the toll-blocking recommendation will provide immeasurable assistance to low income customers in obtaining telephone service and controlling their bills, it also limits their use of the telecommunications system. The Joint Board decided that it was unclear whether providing Universal Service Fund support for interexchange and advanced services for low-income customers was necessary at this time (Id., ¶ 391). However, in view of New Jersey's small local calling areas, the lack of support for interexchange (toll) services severely limits the value of telephone service. A critical component of that value is the ability to contact local schools that may not be in the local calling area, and to contact local governmental agencies.
The Ratepayer Advocate therefore strongly recommends that the Board also adopt a community of interest calling plan, through which customers would be able to call important parties such as schools and local governmental offices without incurring toll charges, even if those offices are located in areas that normally would be a toll call from the user's point of service. New Jersey's comparatively small local calling areas have contributed to the low residential basic exchange service rates, but these low exchange rates do not alone translate either into affordable overall bills or acceptable levels of subscribership. Customers must be able to call schools and local governmental agencies without paying toll charges. This requirement is especially important for low income customers trying to find out about assistance programs or attempting to contact their children or teachers. The purpose of the toll-blocking feature is to enable residential customers to obtain telephone service without suffering the risk of service disconnection due to non-payment of toll bills. That benefit of the toll-blocking feature is valuable and needed. However, the Board should adopt the community of interest feature as well, because toll-blocking "blocks" a significant portion of the local exchange calls that could be made in other jurisdictions, but which cannot be made in New Jersey because of New Jersey's small calling areas.
The Joint Board also noted that the present federal Lifeline program requires state participation in order for low income customers to receive a benefit. (Id, ¶ 417). The Joint Board has recommended that the existing Lifeline program, which mandates state participation, should be replaced with a baseline level of support for low income customers, plus an optional level of support through which federal support would match 50% of state funding, up to a total federal level of support of $7.00 per month (Id., ¶ 419). As noted before, New Jersey has in the past elected not to participate in the Lifeline program. The Ratepayer Advocate supports the Joint Board's recommendation to provide support irrespective of State participation in the Lifeline program, but also recommends that the Board provide for State support for low income customers. It would indeed be ironic if New Jersey's low income customers were able to look only to Washington, but could not look to Trenton and Newark, for support in obtaining telecommunications services.
With regard to assistance for schools and libraries, the Joint Board recommended that eligible schools and libraries be able to purchase at a discount any telecommunications services, internal connections among classrooms and access to the Internet. Additionally, assistance to individual schools will be made on the basis of need with poorer school districts obtaining the greatest assistance and the greatest discounts, ranging from a minimum of 20% to a maximum of 90%. The Joint Board also imposed a $2.25 billion per year cap for total expenditures for universal service support for schools and libraries. (Id., ¶ ¶ 555, 556). The Ratepayer Advocate supports the Joint Board's recommendation for the provision of funding for telecommunications services for schools and libraries. However, since it is unclear from the Recommended Decision what level of funding would be received by New Jersey under the proposed program, the Ratepayer Advocate additionally recommends that the Board institute a New Jersey Schools and Libraries to ensure the funding needs of the State's schools and libraries are met.
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IV. THE NEED FOR A STATEWIDE UNIVERSAL SERVICE FUND
The Recommended Decision issued by the Federal/State Joint Board offers many meaningful measures to be used in meeting the goals outlined under the 1996 Act for the provision of universal service. But the broad scope of these goals do not lend themselves readily to fit the individual circumstances of each state, thus leaving the states with primary responsibility for ensuring that the promises of universal service will be realized for all of itsrespective citizens. In order to truly ensure that the residents of New Jersey receive the benefits of universal service, the Ratepayer Advocate recommends that the Board adopt a New Jersey-specific Universal Service Fund in order to assure that the needs and goals of this State are met, irrespective of developments in Washington. While the recommendations of the Joint Board would help facilitate the provision of actual universal service, in particular by mandating low income support without any state matching requirement, establishing a federal baseline level of support and mandating toll blocking for eligible customers, the FCC may amend or fail to implement these recommendations (Recommended Decision at ¶ ¶ 419, 384).
There are several areas which point out the need for a Universal Service Fund in New Jersey. First, as the Ratepayer Advocate has previously noted, subscribership in New Jersey has declined, despite Bell Atlantic's oft-cited low residential local exchange rates. Table 1 (see page 60) shows that as of November 1983, (before divestiture) New Jersey was above the national average in terms both of the unit penetration of telephones and the availability of telephone service. However, by 1992, telephone availability in New Jersey had fallen to below the national average, a condition that continues to this date. In 1994, New Jersey's telephone penetration trailed the nationwide average, which it also did in 1995. Table 1 also shows that New Jersey's telephone availability and penetration trails our neighboring states of New York, Pennsylvania and Delaware.
Table 2 (see page 61), which shows changes in penetration rates throughout the country from 1984 to 1995, highlights an even more serious concern: not only has New Jersey's penetration rate continually declined, but 1) it has declined more than any other state, and 2) New Jersey is only one of two jurisdictions whose penetration rate did not increase. Clearly, these indicators that there are increasingly large numbers of New Jersey citizens without telephone service are unacceptable and cannot continue to be ignored. The Recommended Decision points out the need to address the population of citizens throughout the nation without telephone service; however, the Board is better equipped to resolve the individual problems of New Jersey and its citizens. A New Jersey Universal Service Fund can be used as an essential tool in providing assistance to low income customers who may currently be unable to afford telephone service. The growing importance of telecommunications as a lifeline resource makes the void experienced by those unable to afford telephone service ever more critical.
If a monopoly market with low basic exchange rates results in unacceptable and declining levels of subscribership, particularly among poor customers, there is no reason to believe that a market that is making the transition to competition will do a better job. Particularly when, as some parties to this proceeding have contended, residential exchange rates will need to be increased by several levels of magnitude, at the very opening of competition. The Board's role should be to promote competition for the benefits it will provide, while also mandating certain societal goals that must be achieved. Accordingly, the Board should establish a New Jersey Universal Service Fund to ensure that all customers, not just some customers who have market power (large businesses) or who are situated in favorable locations (high-density urban areas) obtain the benefits of competition.
Second, the importance of providing affordable access to telecommunications services for New Jersey's schools and libraries will almost certainly require more assistance than is proposed under the Joint Board Recommendations. The Joint Board's recommendation for discounts to be provided to schools and libraries is subject to a $2.25 billion per year nationwide cap. At this time, it is impossible to calculate the extent to which New Jersey's schools will qualify for such assistance in competition with the schools and libraries of other states, or the degree to which the "cap" will further limit that assistance. Again, it is incumbent upon the Board to determine what is needed in New Jersey, and to provide for all the funding that may be necessary to achieve societal goals, without considering the level of funding that may eventually be made available to New Jersey under federal programs.
Additionally, even if New Jersey were to receive a pro rata share of the national Universal Service Fund cap amount proposed by the Joint Board, which must be considered speculative at best and unlikely at worst, the annual funding would be only about $45 million. Preliminary studies indicate that the needed amounts to achieve a fully functioning advanced telecommunications and educational network in New Jersey will be far in excess of $45 million per year. It should also be noted that the federal support program takes little note of the particular needs of any school or library. Instead, assistance is allocated on the basis of economic disadvantage. While that disadvantage likely will correlate somewhat with the needs of schools, it is also possible that older school buildings, such as many in New Jersey, will require a greater than average level of assistance, apart from their own particular economic disadvantage, because of the age of the physical plant. Thus, New Jersey may not receive the funding required for the delivery and enhancement of advanced telecommunications educational technology for all New Jersey schools and libraries. A New Jersey Universal Service Fund is needed to make our students and our State competitive in this constantly evolving technological age.
Third, the implementation of the Telecommunications Act of 1996 and the Board's own efforts to promote telecommunications competition in New Jersey place the Board at an important cross-road. The laissez-faire path assumes that competitive markets will provide some level of service to all customers, regardless of income and that, accordingly, no intervention is appropriate. For example, as stated by the Joint Board:
Sprint contends that competitors will strive to meet the needs of the marketplace and will respond by developing programs to encourage customers to use their services. Sprint argues that telecommunications service providers have an inherent incentive to keep customers on the network, and that this incentive will increase as competition develops in the local exchange marketplace.
Recommended Decision at ¶ 372.
The Ratepayer Advocate recommends that the Board reject the above notion until vigorous competitive markets actually exist and have been shown to meet the needs of all customers. While lower rates for all customers should be the promise of competition, the actual effects of competition could equal increases in rates for residential and low income customers, who do not have significant market power, while large business customers and others who have such power will have their rates reduced. The Board must recognize that, in competitive markets, funding for incremental investments and services flows to the highest return. It is doubtful that low income customers will receive the appropriate level of service unless the Board mandates that service be made available to them at affordable rates. Similarly, schools and libraries, which are experiencing substantial budget pressures at the very time that they must increase their technological capabilities, are not likely, without Board support and intervention, to be early recipients of the services that they must have for New Jersey to become the "Telecommunications Mecca"
For all of the above reasons, and because the situation in New Jersey cries out for prompt action, the Ratepayer Advocate recommends that the Board look to the Joint Board decision for ideas, regulatory approaches and, ultimately, for potential assistance. But the Advocate also recommends that the Board act independently of the Joint Board recommendations in adopting programs that are right for New Jersey. Ideally, a New Jersey Universal Service Fund should be available to address these concerns as we evolve into a new competitive telecommunications marketplace.
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