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V. DEFINITION OF UNIVERSAL SERVICE
The Joint Board has recommended that supportable services include:
[v]oice grade access to the public switched network, with the ability to place and receive calls; touch-tone or dual tone multi-frequency signaling (DTMF) or its functional equivalent; single-party service; access to emergency services; access to operator services; access to interexchange services; and access to directory assistance. In addition, the Joint Board recommends that eligible carriers receive support for the provision of toll blocking and limitation services for low income consumers and access to enhanced 911, to the extent carriers are capable of providing such access, and, with respect to enhanced 911, where local communities request such access. The Joint Board suggests that service to the initial primary residence connection should be fully supported by universal service support mechanisms and that service to single-connection businesses should be supported at a reduced rate. The Joint Board, pursuant to section 214(e)(1), also recommends that only carriers that provide all of the services within the definition of universal service be eligible to receive support, with a very limited and temporary exception for carriers that are not currently providing single-party service.
Recommended Decision at ¶ 4.
The Ratepayer Advocate recomends that the Board adopt all of the above-referenced services for support under a statewide universal service fund. Additionally, at this time, the Board should include some services that are excluded from the Joint Board's recommendation, including (1) a white page listing and directory, (2) some amount of local usage, (3) non-toll calling to community of interest (local government, schools), (4) blocking of Caller ID, Auto Callback, 900, 976 and 976-like services without any charge and (5) special services, such as toll blocking with special additional features for eligible low income customers, including prohibited disconnection for non-payment of toll and waiver of deposit requirement.
It should be noted that while the Joint Board's recommendation lists a number of essential services, it does not ensure that all customers will have all of the services that are increasingly becoming necessities. The "Separate Statement of Commissioner Susan Ness" recognizes, "The menu of services initially to be supported for high cost areas and low income consumers is limited to those services that most consumers already receive." Accordingly, in the future it will be necessary for the FCC and the Board to review the services included within the definition of universal service and subject to universal service support. For example, although currently the provision of broadband services to schools and libraries is an important element of universal service, at some point in the future, the provision of broadband services to residential customers also may be appropriate as part of universal service.
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The primary cause of the decline in New Jersey's subscribership rate is that, notwithstanding the low basic rate, the actual cost of telephone service in New Jersey is quite high and variable. For over two decades, the Board's policy has been to establish a very low basic service rate. What is now apparent is that, the very low basic residential exchange rate also buys very little actual usable telephone service. Accordingly, although the basic rate is low, customers' bills are actually high, variable and unaffordable to a significant number of potential subscribers. Toll-blocking is proposed as a means of enabling customers to control the size and variability of their telephone bills, thus increasing the true affordability of that service and reducing the incidence of disconnection for non-payment of bills.
Other jurisdictions have learned that low rates do not automatically translate into high subscribership among low income customers:
- Several states, including the District of Columbia have implemented low-income and economy services designed to improve and maintain penetration levels. The effectiveness of the services is substantially reduced, if local carriers are permitted to disconnect customers' local service for failure to pay long-distance charges. OPC-DC believes there is a correlation between DNP and lower penetration levels. For example, despite revisions to low-income offerings, the District of Columbia has suffered declining penetration rates since 1988. Following a precipitous drop in the District of Columbia's penetration rate in 1992, the District of Columbia Public Service Commission (DCPSC) revised its Economy II service, a low-income, limited-call message rate service, to allow all low-income residents access to the service at a rate of $1.00 per month with no restrictions on the number of calls. In 1994, the DCPSC approved the implementation of Message Rate "B" service, a toll restriction service that permits more liberal payment arrangements on arrearages. While Message Rate "B" service is helpful in addressing the District's low penetration levels, it is only available to those customers whose service has been denied for non-payment or whose service has been threatened.
- Even with these improved economy services, the District of Columbia's penetration level is still well below the national average. In 1995, the District of Columbia's average penetration level was only 90.9%. Clearly, the existence of economy services alone, does not adequately address the District's low subscribership, especially when local monopoly providers continue to disconnect customers for failure to pay toll charges. However, well advertised, economy service coupled with a prohibition on disconnect for non-payment, would likely improve the District's penetration levels. Policies can be implemented to segregate long and long distance bills.
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VI. CONTRIBUTIONS AND PAYMENTS FROM THE FUND
The Board should distinguish between basic services that must be provided to all customers and services that are eligible for universal service fund support. For example, the Federal-State Joint Board recommends that all customers should have white page listings, but that the cost of such listings not be eligible for universal service support. (Recommended Decision at ¶ 68). In other words, there should be a difference between what LECs must provide as universal service and what they should be able to recover from a universal service fund.
The broad principles that should be adopted with regard to contributions and payments from the universal service fund include: (1) all providers of telecommunications services, including wireless, cable television, electric companies providing telecommunications services and Internet service providers should contribute to the universal service fund in proportion to their revenues from telecommunication services; (2) telecommunications service should be defined as the transmission of users' information between or among points specified by the user; (3) all telecommunications providers should be eligible to recover funding from the universal service fund, but only if they provide all services included in the definition of universal service; and (4) every customer should have access to at least one service provider that provides all of the elements of universal service.
With regard to funding, the Board's goals should be to establish a competitively neutral funding source that is as broad as possible. By adopting a broad funding source, any potential burden of supporting universal service will be spread over the widest possible base, thereby ensuring equal treatment of all competitors and rendering negligible any potential effect of such support on the overall operation of competitive telecommunications service markets. Consistent with this mandate, to the extent permissible, the Board should require contributions to the fund on the basis of all carriers' intrastate and interstate revenues.
All providers of telecommunications services should contribute toward the cost of universal service. That said, it is incumbent upon the Board to define telecommunications services and telecommunications service providers. As modified by the Telecommunications Act of 1996, Section 3, 47 U.S.C. §153, includes the following definitions:
(43) Telecommunications.--The term ''telecommunications'' means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.
(46) Telecommunications service.--The term ''telecommunications service'' means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.
(44) Telecommunications carrier.--The term ''telecommunications carrier'' means any provider of telecommunications services, except that such term does not include aggregators of telecommunications services (as defined in section 226). A telecommunications carrier shall be treated as a common carrier under this Act only to the extent that it is engaged in providing telecommunications services, except that the Commission shall determine whether the provision of fixed and mobile satellite service shall be treated as common carriage.
The Ratepayer Advocate recommends that the Board adopt similar definitions for application in New Jersey. In doing so, the Board should retain flexibility to adjust the definition of telecommunications carrier in the future, as conditions change. In addition, the present definition of telecommunications carrier should be interpreted appropriately, which means that Internet service providers, wireless carriers including cellular and PCS, LECs and IXCs would all contribute. The Joint Board has recommended that the FCC require contributions from those companies that presently are required to support Telecommunications Relay Services (Recommended Decision at ¶ 786). Such carriers include, but are not limited to, "cellular telephone and paging, mobile radio, operator services, PCS, access (including subscriber line charges), alternative access and special access, packet switched, WATS, 800, 900, MTS, private line, telex, telegraph, video, satellite, international, intraLATA, and resale services" (Id., ¶ 780). Cable television systems that offer two way capabilities, such as providing cable modems for Internet access, or voice grade services would also qualify as telecommunication carriers under this definition and would likewise be required to pay into the fund.
Payments from Fund
The Board should require that payments from the universal service fund flow to the carriers actually providing universal service, on the basis of the number of customers served. Accordingly, distributions from the New Jersey High Cost Fund and the New Jersey Low Income Fund should be on a per customer basis, flowing to the carriers actually providing universal service in eligible areas and to eligible customers. Distributions from the New Jersey Schools and Libraries Fund should be limited to those carriers providing services described in the Recommended Decision to schools and libraries, such as Internet access or wiring internally between classrooms, or advanced high-speed data services.
These recommendations are consistent with the requirements of the Telecommunications Act of 1996, which states:
- A common carrier designated as an eligible telecommunications carrier under paragraph (2) or (3) shall be eligible to receive universal service support in accordance with section 254 and shall, throughout the service area for which the designation is received--
- (A) offer the services that are supported by Federal universal service support mechanisms under section 254(c), either using its own facilities or a combination of its own facilities and resale of another carrier's services (including the services offered by another eligible telecommunications carrier); and
- (B) advertise the availability of such services and the charges therefor using media of general distribution.
47 U.S.C. §214(e)].
In interpreting this statute, the Joint Board stated:
Section 214(e)(1) requires that, in order to be eligible for universal service support, a common carrier must offer universal service throughout the state-designated service area either using its own facilities or a combination of its own facilities and the resale of another carrier's services, including those of another eligible carrier. We find that the plain meaning of this provision is that a carrier would be eligible for universal service support if it offers all of the specified services throughout the service area using its own facilities or using its own facilities in combination with the resale of the specified services purchased from another carrier, including the incumbent LEC or any other carrier.
Recommended Decision at ¶ 160 (Adopted Nov. 7, 1996).
For areas not served by rural telephone companies, the Joint Board ruled that State commissions maintain authority to designate the service areas throughout which carriers must provide the specified services to be eligible for universal service support. Id at ¶ 175. The Ratepayer Advocate recommends that the New Jersey Universal Service Fund also require that carriers eligible for funding should provide the specified services under the universal service definition within the specified service areas designated by the Board.
Additionally, carriers should be required to provide the designated services to any customer requesting service within the wire center located in the designated service area. Carriers should not be allowed to pick and choose the customers to which they provide services, or the result could be a hodge-podge of service capabilities that changes over time, leading to customer confusion and complaints. Moreover, picking and choosing would amount to a "gaming" situation in which carriers provide universal services to some customers in some limited areas, where it suits their financial plan, but not in others. Notwithstanding the Joint Board's recommendation to the FCC in its Recommended Decision that it urge the states to avoid the designation of unreasonably large service areas to avoid disadvantaging new entrants, the Board should take steps, before problems occur, to ensure that "universal service" is more than just a pair of words, but meaningful to customers. Id.
Consistent with the above requirement, the fundamental goal of this proceeding should be that universal service is available to all customers in all areas of the state. It also must be recognized that local exchange competition does not now exist, and meaningful competition may not exist in all areas for some time to come. Therefore, the Board must mandate that, at all times and in all areas of the state, there must always be at least one "universal service provider." Initially, that provider should be the ILECs who today provide ubiquitous service. In the future, the ILECs may be allowed, under Board-determined conditions, to provide something less than all of the services included in the definition of "universal," but only if another provider has agreed to provide and actually is providing all such services in those areas and that carrier assumes the burden of being the "universal service provider" in that area.
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VII. THREE FUNDS
The Board should define universal service to encompass not only the requirement that services must be available in all areas of the state, but also that at least a minimal level of service must be made affordable to all customers, particularly low income customers. In other words, the term "universal service" should be understood to consist of three components: (1) a component to ensure that basic service is provided in high cost areas; (2) a component to ensure that basic service is provided at rates that are affordable to low income customers meeting appropriate eligibility criteria; and (3) a component to ensure that advanced services are available to all customers through schools and libraries.
All three of the components of universal service must be considered and addressed. If any component is ignored, the result will be that substantial numbers of citizens will be deprived either of telephone service or of access to the Information Superhighway.
Thus, the Ratepayer Advocate recommends that the Board establish the three funds identified in this proposal. For administrative economy, these funds should be managed and distributed by a single entity. However, the Board's goal should be to advance telecommunications availability for three constituencies (high cost, low income, schools and libraries), and therefore there should be independent determinations of the funding requirement and distributions of the funding.
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A. HIGH COST FUND
The Board should establish a high cost fund to ensure that adequate services are available in all areas of the state. Competition without a high cost fund may produce the benefits of competition only in low cost urban areas while leaving rural customers with few, if any, competitive alternatives or benefits. Moreover, if there is competition in the low cost areas, the existing surplus of price over cost in those areas is likely to disappear, which would put pressure on the LECs to raise their rates in rural areas, where cost may be in excess of price. Thus, high cost areas could be facing a triple negative: little competition, higher rates and less service.
The high cost fund should provide funding to any LEC that provides all the services included in the definition of universal service. It should go without saying that LECs that do not provide universal services should not be able to receive funding for universal services.
Support from the fund should be available on a per-customer basis. While the funding should flow to the LECs, it should not flow to an LEC for theoretical services or customers. LECs should receive upport only on the basis of actual customers served, and only when they provide universal service.
Finally, the Board must establish a mechanism for determining the level of universal service fund support. As discussed more fully in the following section of this brief, there is significant controversy concerning the appropriate treatment and recovery of local loop costs in cost studies. The Ratepayer Advocate's position, which is supported by U.S. Supreme Court decisions, the Telecommunications Act of 1996 and precedents in numerous other states, is that the local loop is a joint cost incurred in providing numerous services, only one of which is local exchange service. For purposes of determining which wire centers are high cost, the Board should include only one-half of the cost of the local loop, which is the share that the Advocate's cost study in the first phase of this proceeding proposed as the appropriate assignment to local exchange service. In those areas where a wire center's cost, including only one-half of the loop cost, exceeds the statewide average price for residential basic exchange service, a subsidy should be provided to the LECs for each of their customers served by such wire center. Using data obtained from Dr. Johnson's testimony in an earlier phase of this docket, preliminary estimates indicate that the high cost fund would be less than $3 million per year using the one-half loop cost criteria discussed above. On the other hand, if 100% of the loop costs are included in the determination of high cost areas and the cost of universal service, then the fund likely would be in excess of $35 million (see Table 5 on page 64).
In conclusion, the Board should establish a high cost fund that is consistent with an appropriate treatment of the costs of the local loop for purposes of determining the cost of universal service.
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B. LOW INCOME FUND
The earlier discussion makes clear the compelling need for a low income fund. The importance of telephony in our society and the close relationship between low income and low subscribership have been the subject of significant analysis by Rutgers University, and the conclusions reached are disturbing:
But regardless of point of view all telecommunications researchers accept the assumption that the telephone represents functional membership in the information society. [emphasis added] For example, people living without television or radio might appear rebellious, or to be adopting an alternative lifestyle. But people without telephones are seen as truly isolated from basic communication. Consequently, nearly all policy researchers agree that the remaining 6% of households without telephone service (estimated at 5.8 million households, and 15.3 million individuals) involves an excessive number of Americans.
The social circumstances surrounding the absence of a telephone in the home reveal a view of American society not easily visible. And they are key to our understanding of the progress of the Information Age.
. . .
Income predicts telephone penetration for most groups (as with the elderly). When households are examined by income, the disparities become clearer (table 1, table 2). For example, 31% of all families receiving food stamps have no telephones. When households on food stamps contain four or more persons, about one-third do not have telephones (Belinfante 1989). Of households on food stamps for one month, 35.9% do without phones, suggesting that in the first shock of unemployment, many families give up telephone service. Although families recover some equilibrium once they adjust to living on food stamps, only a few regain telephone service -- of households receiving food stamps for 12 months or more, 30.6% remain without phone service (Belinfante 1989). The recession has put a range of families -- from farm workers to middle managers -- on food stamps and the effect on telephone penetration appears widespread.
When telephone penetration is viewed through the lens of welfare assistance, a similar pattern emerges. Of households receiving public assistance, 34.7% lack telephones; whereas, 27.9% of households on welfare lack telephones (Belinfante 1989). The penetration rate drops even further, to 43.5%, for households completely dependent on public assistance (Belinfante 1989). Households receiving energy assistance from the local utility company also indicate poverty. In households receiving energy assistance, 21.4% lack telephones (Belinfante 1989).
A fourth, but far less direct, measure of income can be derived from comparing renters with homeowners. Only 2.2% of homeowners live without telephones, compared with 10.7% of renters (U.S. Bureau of the Census 1990). Furthermore, 21.7% of those in public housing are without phones (Belinfante 1989). Finally, Americans living in hotel rooms or boarding houses have the least access of all -- 40.2% live without telephones (Belinfante 1989).
Telephone service has a history of vulnerability. The decision by families to give up telephone service during economic hardship parallels household decisions made during the Depression when telephone penetration declined significantly in the first half of the 1930s (figure 1). Thus, it does not follow that those without telephone service constitute some kind of hard-core underclass for whom no policies can provide assistance. Telephone penetration directly correlates to income (table 1). Although income is not the only contributing variable, staying above the poverty line significantly increases a family's chance of maintaining telephone service. [emphasis added]
The positive effect of income might be obvious, but it needs reiteration. In households receiving income from interest, dividends, rents, or estates, telephone penetration averaged between 97.3% and 98.7% (Belinfante 1989). The income threshold for telephone service seems to be about $20,000. Households with incomes above $20,000 have telephone penetration at the national average or above. But once a family fails to earn at least $20,000, the rate of telephone penetration drops off (Belinfante 1989). About 50 million households, or 55% of the total number of households in the U.S., earn below $20,000 (Belinfante 1989). [emphasis added]
Beyond Universal Service: Characteristics of Americans without Telephones, 1980-1993, Jorge Reina Schement, Department of Communication School of Communication, Information and Library Studies, Rutgers University (Communications Policy Working Paper #1 published by the Benton Foundation.)
A February 27, 1996 release of the FCC also emphasizes the importance of telecommunications in enabling a low income household to grow out of the ranks of low income customers:
In November 1995, the telephone subscribership rate was only 75.0% for households with annual incomes below $5,000, while the subscribership rate for households with incomes over $60,000 was 99.1%. The statistics may seem obvious, but they also point to a significant problem. The increasing importance of the public switched network in connecting households to the economy means an increasing disconnect from the economy for those not on the network, making it harder for those households to escape poverty.
FCC Press Release announcing release of telephone subscribership report of November 1995 (FCC, February 27, 1996) [emphasis added].
The Board should find that, if anything, the need for a low income fund is more compelling than ever and is increasing daily. The technology gap experienced by low income households is not diminishing. It may increase in the future, if local exchange providers are allowed to and decide to increase their rates, particularly the rates charged to low income and/or residential customers. In every telecommunications proceeding for the last two years in New Jersey, the constant claim has been that local exchange service is priced below cost. As discussed below, the Ratepayer Advocate strongly disagrees with these claims. However, the form of regulation to be applied to the new LECs is not known at the present time, and those LECs may decide to price residential service high in order to subsidize their efforts to grow business market share.
Not only must the Board implement a low income fund, but it also must be especially careful with regard to rate increases for residential customers. As indicated above, over one-half of the households in the U.S. have an income below $20,000, which seems to be the dividing line between high and low levels of telephone subscribership. Rate increases for residential customers could have the negative effect of increasing the number of customers forced off of the telephone system due to high rates. This is true for low-income and for other customers who may not qualify for low income assistance, but which do not have high incomes.
To address the problems of qualifying low income customers and to maintain the ability of other low income customers who may not qualify for low income support, the Board should make toll blocking available to all residential customers at no cost. As indicated earlier, qualifying low income customers who elect toll blocking service should also receive additional support, through elimination of the customer deposit requirement, waiver of service connection charges and elimination of denial of service for non-payment of toll bills.
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C. DISCOUNTS TO SCHOOLS and LIBRARIES
Currently New Jersey ranks 38th in the nation in the number of computers available to students. Clearly measures must be taken to raise our rankings and ensure that New Jersey's students are not disadvantaged with the ever increasing importance of technology in today's society. To address these concerns, the Ratepayer Advocate is currently developing a comprehensive report for the New Jersey Legislature concerning the technology needs for schools and libraries. This report will include proposals with the goal of ensuring that New Jersey's schools and libraries meet the educational needs of our state in the information age. Recognizing that the needs are great, it is incumbent upon the Board and the telecommunications industry to reduce the telecommunications costs of our schools and libraries to the maximum degree possible, thus increasing the funding available for the considerable costs associated with equipment and training that must be resolved. The goals of this program include: (1) establishing a sufficient technological capability within schools so that students and school districts obtain the benefits of distance learning and are not just exposed to, but are actually able to make extensive use of such technologies; (2) to provide an appropriate number of computers in the classrooms so that computers are fully integrated into all aspects of the curriculum and computer access is more than just a dream to the majority of New Jersey's students; (3) establish local libraries as technology centers that can be used by all citizens to access the Internet and other information.
A quantification of the overall cost of the schools and library program will be identified in the report that the Advocate is currently preparing for the New Jersey Legislature. When the report is finalized, its conclusion and analysis will be submitted to the Board, hopefully with the Advocate's reply comments in this phase of the local competition docket. While the program will require significant expenditures, the consequences of not undertaking the program will be incalculable in monetary terms, through reduced capabilities of our students and diminished career opportunities for decades to come. In the current proceeding, the Board has an opportunity to partner with the Legislature and our schools and libraries in creating integrated solutions and comprehensive public policies in several public areas. By sharing the common burden and absorbing a measure of these costs through the New Jersey Universal Service Fund, thereby reducing the costs which taxpayers, schools and libraries would otherwise have to bear, the Board can be a catalyst for fundamental improvement to education throughout the State. For many of the state's citizens, schools and libraries will be the only access they have to the Internet.
The Ratepayer Advocate recommends that the Board adopt a telecommunications discount program for schools and libraries that is consistent with that recommended by the Federal-State Joint Board while avoiding certain fundamental limitations that represent potentially serious defects in that program as it may apply to New Jersey. Specifically, Paragraph 555 of the Joint Board decision provides for potential discounts for schools as follows:
|COST OF SERVICE (estimated percent in category)|
|low cost (67%)||mid-cost (26%)||highest cost (7%)|
|< 1 (3%)||20||20||25|
While the above program represents significant potential needs-based discounts, it is not clear (1) the extent to which NJ's schools will qualify for a very significant discount, or (2) whether the FCC will adopt the Joint Board decision, or (3) the extent to which the national cap of $2.25 billion will additionally impact on New Jersey. New Jersey needs to decide what is required, and make it happen.
The Board must take actions that ensure, not by chance or depending on other circumstances, that all schools and libraries in this State have the ability to afford the advanced communications capabilities necessary to improve the education of our young citizens, and not leave this vitally important societal goal subject to the vagaries and uncertainties of the federal program. This must be a priority for the Board and for the State. Consistent with that goal, the Ratepayer Advocate proposes that, as an initial measure, the Board adopt the discounts proposed by the Joint Board, without the cap, as the level of discount to be afforded to New Jersey's schools and libraries. In addition, the Board should require that schools and libraries receive local exchange service and all other services tariffed separately for residential subscribers at rates that are no higher than those at which equivalent services are provided to residential customers on a statewide basis. This latter recommendation recognizes not only the fiscal pressures of schools and libraries, but also that, for many users, the only practical vehicle for accessing the Internet will be through schools and libraries. In other words, for many citizens, school and library telecommunications represents telecommunications that, for others, is residential service.
Finally, the Ratepayer Advocate recommends that, if a school, due to unique local conditions finds that the level of funding for which it is eligible under the federal and State programs is insufficient, then it should have an opportunity to seek additional support from the telecommunications fund. The Board should cooperate with the State Department of Education in determining any reallocation of the fund in response to such requests.
It is clear that there are many unknowns with regard to the schools and library program recommended by the Joint Board. While the ultimate level of funding for any given state is unknown, it is also not known whether the benefits of that program will enable schools and libraries to actually afford distance learning and Internet access for most students. It must be recognized that the total cost of Internet service includes not only telecommunications access, but also a substantial hardware cost. In view of the unknowns, the Board should review the results of the school and library fund after two years, to ensure that the fund is working to achieve the State's goals.
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