June 18, 1999

**Separate Statement**

**of**

**Commissioner Susan Ness**

*Re: Federal-State Joint Board on Universal Service (CC Docket 96-45);
Access Charge Reform (CC Docket 96-262).*

The Telecommunications Act of 1996 embraces universal service as one of
its

fundamental goals. In addition to promoting competition and eliminating
regulation, one of our other main responsibilities is to ensure that all
Americans have access to telecommunications and information services at
affordable and reasonably comparable rates.

*Every* subscriber benefits from each new subscriber added to the
system. Because unbridled competition, standing alone, will not suffice
to meet all the special needs of discrete population segments, Congress
directed us to give special attention to the needs of low-income
consumers, consumers in rural, insular, and high-cost areas, schools,
libraries, and rural health care providers, and people with
disabilities.

The Commission has made considerable progress toward these goals. For
low-income consumers, we have expanded Lifeline and Link-Up support to
jurisdictions where it previously was unavailable and increased the
amount of federal support in those jurisdictions that previously
participated. Consumers in high-cost areas continue to receive
affordable, high-quality telephone services due to a variety of implicit
and explicit subsidies that are still in transition. The support
mechanisms for schools, libraries, and rural health care providers have
been implemented and funded. The Commission soon will adopt measures to
promote accessibility of communications and information services for
people with disabilities.

None of this work is complete. Each of these objectives will continue to
require time and attention. This is especially true of high-cost reform,
where efforts to craft a regime that is more consistent with the
increasingly competitive nature of the industry run into severe legal,
practical, and political constraints.

At the suggestion of members of Congress, the Federal-State Joint Board
on Universal Service (Joint Board), and state public utility commissions
from high-cost areas, the Commission decided very early in the process
to distinguish rural carriers from the large companies. We recognized
that one size does not fit all and that the financial structure of rural
carriers differs greatly from that of large carriers.

Nothing we do today implicates rural carriers. The Telecommunications
Act is clear that we should not hamper the ability of rural telephone
companies \-- some 1300 strong \-- to serve their communities. Thus, the
Joint Board established a Rural Task Force to examine the unique
circumstances of rural carriers. I look forward to receiving its
recommendations, and want to assure rural carriers that I will not
support changes in their funding mechanisms until we have consulted with
the Rural Task Force and are satisfied that the changes make sense for
small rural carriers.

In the meantime, we are pressing forward with universal service reform
for non-rural companies. In November, 1998, the Joint Board set forth a
framework to "preserve and advance" universal service without
overburdening consumers across the nation. I commend my colleagues on
the Joint Board for designing a coherent universal service regime that
will serve us into the 21st century. Today the Commission inserts yet
another piece into the universal service puzzle by adopting the
framework set forth by the Joint Board. I write separately to highlight
several aspects of our decision.

First, we reject an earlier decision by the Commission to limit federal
universal service support to 25 percent. Instead, we adopt the more
balanced approach recommended by the Joint Board. Thus, to the extent a
state's resources are inadequate to maintain affordable and reasonably
comparable rates, the federal mechanism will provide the necessary
support. We also adopt the hold-harmless and portability principles
recommended by the Joint Board. As Chair of the Joint Board I supported
these recommendations then, and I support them now without reservation.

We also reaffirm the notion of using a forward-looking economic cost
model. We cannot rely on the historic costs of a variety of carriers,
because those costs are not derived uniformly throughout the country. We
want to avoid locking in legacy systems or hindering the emergence of
new technologies. To meet the challenge of competition and portability,
we need a uniform, consistent method to determine the cost of providing
service nationwide.

Our staff has worked tirelessly with the industry and staff from state
commissions to design a workable cost model. To paraphrase Winston
Churchill, cost models are the worst form of cost calculation except for
all those other forms that have been tried. Indeed, nobody has proposed
a better method for estimating forward-looking costs. But I view the
cost model as merely a tool. It is only one piece of the puzzle. And we
will not use this tool unless it has achieved a level of accuracy,
predictability, and openness that garners widespread acceptance. I look
forward to hearing from all interested parties during this next phase of
comments on the inputs.

We also recognize that we need to move ahead with identifying the
implicit subsidies in our universal service system and make them
explicit. This is a top priority for me. Universal service and access
charge reform are inextricably linked; they must move forward in tandem
because interstate access currently provides implicit universal service
support that is necessary to support rates. While I would have preferred
to complete the process earlier, one result of the lag in the expected
level of competition is that implicit subsidies do not appear to have
been eroded. The revenues and cash flows of carriers that serve rural
areas remain healthy. Current rates also remain affordable. As we move
forward with universal service reform, we must ensure that there is
sufficient explicit support to avoid unwarranted rate increases.

While I support the bulk of today's decision, I dissent from that
portion of the item that seeks comment on whether universal service
funds should be distributed through block grants to the states. This is
an issue that has been fully presented, fully debated, and fully
rejected. The Joint Board does not support state-block grants, the
states do not support such an approach, and neither do those who filed
comments in response to the Joint Board's recommendation. If we are ever
to complete our restructuring of universal service, we need to take
concepts off the table.

Finally, I would require that both the assessment and collection of
federal high cost funding be based on both inter**-** and intrastate
revenues. I have no objection to the states doing the same for their own
universal service funds. I believe that such a policy comports with the
law and has the advantage of eliminating the temptation for companies to
game the process by categorizing revenue streams so as to reduce
universal service obligations.

Solving the puzzle of universal service is no easy task. The challenge
is to reform high-cost support mechanisms in a way that ensures that
consumers will continue to have access to affordable, quality
telecommunications services while being economically efficient,
compatible with competition, and fair to both high-cost and low-cost
states. I care deeply about preserving affordable telephone service for
rural areas, but this does not make it easy to work out the details of a
new regime. Nevertheless, I remain optimistic. Today we take an
important step by adopting a workable framework. I look forward to
continuing the dialogue with all interested parties as we move to the
next stage of universal service reform.