# **Remarks of FCC Commissioner Gloria Tristani**

**Before the**

**New Mexico State University Regulatory Issues Conference**

**March 8, 1999**

*\[as prepared for delivery\]*

Good afternoon, and thank you, Commissioner Gillis, for the kind
introduction. I have always had great respect for you and the work of
the Washington Commission in protecting consumers in that state. So it
goes without saying that I would be glad to participate in any public
forum that he organized. But when he told me that this particular
conference would be held in New Mexico, well, I would have even skipped
a Congressional oversight hearing to be here. Actually, I suppose that's
stretching it just a bit. But I do very much appreciate the opportunity
to join you today.

And I should add that, as a New Mexican, rural telecommunications issues
are very important to me as a policymaker, because I know how much
government policies can affect life for millions of rural Americans.

That's why I was glad to see that the title of this panel is "Issues
Facing Rural Companies *and Their Customers*." At the FCC, it's easy to
forget that we work for the American people, not the multibillion-dollar
companies that lavish their attention on us. In my job, I try to remain
focused on consumers and how each decision I make will affect the
average consumer. As I confront policy decisions affecting rural
companies, it's a little easier for me to remember that my work directly
affects rural Americans simply because I'm *from* a rural state.

## Public Policy Should Reflect Unique Circumstances of Rural LECs 

Having that background, I know that federal and state policies need to
reflect the specific circumstances of rural carriers and their
customers. What I'd like to touch on today are just a few issues facing
rural companies and their customers. Not surprisingly, these issues
revolve around universal service.

What I would like to make clear is my belief that, in developing
universal service policies, the FCC needs to focus to a greater degree
specifically on rural customers served by truly rural carriers. There is
a natural temptation for policymakers to just apply large carrier
policies to small carriers as well. It saves time and resources, so why
reinvent the wheel for rural companies? They're all incumbent LECs,
right? How different can they be?

Actually, it's clear to me that rural telephone companies *are*
different from large carriers. For instance, in rural areas, there are
often just one or two businesses that are the principal buyers of
telecommunications service. If the rural company loses one of those
large customers to a competitor, that can have devastating consequences
for the rural company. And those big customers are exactly the ones that
competitors will target first. The FCC and state commissions need to be
aware of how the loss of just one major customer can change the
financial prospects for a rural carrier.

Another way that small rural carriers are different from the major LECs
is their greater reliance on support mechanisms to keep their local
rates low. That fact obviously derives from the kind of network needed
to serve more dispersed populations. Thus a greater amount of support is
needed to keep local rates affordable.

That being the case, it seems natural that policymakers would focus on
universal service as it pertains to rural LECs. Yet most of the debate
up to this point has involved not the rural LECs, but the *largest* LECs
and their competitors. Undoubtedly that is due partly to the FCC's
earlier timeframe for reforming universal service for large LECs. But
what I don't want to see happen is for the FCC to feel like its
universal service work is basically finished when it implements the new
high cost mechanism for the large carriers.

It's not enough for us to tinker with our large LEC policies and apply
them to rural LECs. Instead, we need to address the issue of universal
service reform for rural LECs with a better understanding of the nature
of rural companies. I believe the work of the Rural Task Force will be
invaluable in helping us understand what will and won't work for rural
companies. The FCC's universal service policies will have the most
direct impact on customers served by rural carriers. We need to take
care to understand rural carriers before changing the way they currently
receive high cost support.

Upcoming Universal Service Decisions That Will Affect Rural Companies

In seeking to reform universal service for all carriers, the FCC is
faced with some important procedural and substantive decisions. I'd like
to offer some observations on a couple of those matters.

The first issue is a procedural one \-- when should rural carriers begin
the transition to a new scheme of universal service support? In 1997,
the FCC said that the transition should occur no later than 2001. On
this question of timing, I would add my voice to that of Chairman
Kennard and say that the 2001 date is flexible in my mind -- *very*
flexible.

I believe it's important for the FCC not to lose sight of the fact that
*competition* is the driver for a new system of universal service.
Competition has emerged first in cities served by large LECs. So it
makes sense that the FCC would address the question of support for large
LECs first. Eventually we will need to deal with rural LECs as well. But
at this point, I don't see a groundswell of competition in rural areas.
So I would counsel against the FCC racing to "fix" a problem that hasn't
yet developed. And, as I'm sure you know, there is no shortage of issues
to keep the FCC busy in the foreseeable future.

Another issue that may greatly affect both rural and non-rural carriers
alike is the 75/25 issue. For those of you unfamiliar with this issue --
is there *anyone* in this room unfamiliar with 75/25? -- it refers to
the plan for the federal government to fund no more than 25 percent of
the cost of universal service in the future.

When the 75/25 approach was first adopted, many Members of Congress and
many state commissioners told us flat out that it wouldn't work. So I
was very pleased that the FCC referred this issue back to the Joint
Board. And, as a member of the Joint Board, I was also pleased to
support the Joint Board recommendation that the FCC move away from the
75/25 approach.

Under the leadership of FCC Commissioner Susan Ness and Florida
Commissioner Julia Johnson, the Joint Board recommended that the FCC
discard the 75/25 approach, and instead rely on a more flexible model
that considers the unique circumstances of each state in funding
universal service. Essentially, the Joint Board said that the FCC needs
to recognize that some states simply cannot be expected to bear 75
percent of high cost funding. I think that is a very sensible approach,
and I will be a strong supporter of the more flexible approach when the
full Commission takes up the Joint Board's recommendations.

I see the Joint Board's recommendations as a sign of the growing
cooperation among federal regulators, state regulators, and Members of
Congress. I hope that spirit of cooperation will continue in many other
areas of telecommunications policy.

The final universal service issue I want to mention is also common to
both rural and non-rural carriers. It's the issue of connecting unserved
areas.

The problem of unserved areas has traditionally been handled at the
state level. However, the 1996 Act codified, renewed and extended the
FCC's universal service obligations. I think it is appropriate at this
time to consider how the federal government can assist in connecting
unserved areas.

As you have undoubtedly heard many times before, the 1996 Act directed
the FCC not only to *preserve* universal service but also to *advance*
it. That means to me that the FCC needs to be proactive in looking for
ways not just to maintain the status quo, but to *improve* the current
system. I believe the most immediate way we can actually advance
universal service is to figure out ways to connect unserved areas.

Today, when a person in an unserved area wants to order service, that
person often must pay the local phone company what are called "mileage
charges" in order to have a line run to their property. Mileage charges
can amount to thousands of dollars for a single line. That seems like a
real problem to me. Most consumers are in no position to pay that kind
of money just to get telephone service installed. That is particularly
true in most rural areas where household income tends to be lower than
in urban areas.

The unserved area problem is particularly acute for Indians living on
reservations. We have to find ways to address the problem of unserved
areas in the context of the federal system of universal service support.
I don't think it's wise to immediately charge ahead with using federal
money to instantly fund connections to unserved households who request
service. But I do think the FCC and states need to develop a workable
solution to this critical problem. The FCC also needs to look beyond
wireline and explore wireless, satellite, and other spectrum-based
options to address this.

Chairman Kennard and I were in New Mexico just a month ago for field
hearings and site visits on telephone service to Indian reservations. We
learned a great deal about the dire consequences when a person lacks
access to basic telephone service. I know the Chairman shares my concern
regarding unserved areas, particularly with regard to Indian
reservations. I commend the Chairman's leadership on Indian
telecommunications issues, and I know we will find a way to make a dent
in the unserved areas problem.

Prospects for Success of FCC's Universal Service Policies for Customers
of Rural Carriers

All of these issues I've just mentioned are complex and controversial.
Come to think of it, there's not much relating to universal service that
*isn't* complex and controversial, but that's what makes my job so
challenging!

Nonetheless, I am actually quite optimistic that the FCC will ultimately
do the right thing for all parties affected, including rural companies
and their customers. I say that for two reasons. First, if the Joint
Board's recommendation is adopted, the FCC will use a cost proxy model
to determine the amount of support for non-rural LECs. At this point,
it's safe to say that developing and implementing the model continues to
be a real learning experience. For rural companies, the good news is
that the FCC will gain valuable experience with the model it establishes
for the large carriers. Based on that experience, we will have a better
idea of whether or not the model would be right for rural carriers as
well.

The second reason I'm optimistic about the ultimate success of our rural
universal service reform is the composition of the Rural Task Force.
Under the very able leadership of Bill Gillis, and the participation of
Chris McLean among others, I am quite confident that the Task Force will
present the Joint Board with sound and workable recommendations for
preserving universal service in rural areas. I strongly encourage those
of you interested in rural universal service issues to work closely with
the Rural Task Force. Their recommendations will carry great weight with
the Joint Board and the FCC.

There are many other issues that are important to rural carriers and
their customer, but none more crucial than universal service. Thank you
once again for inviting me to be with you today.