**SEPARATE STATEMENT OF**

**CHAIRMAN MICHAEL K. POWELL**

In many ways, our action today is the ultimate truth-in-billing measure.
In 1996, Congress recognized that the amalgam of implicit support
mechanisms that had creaked along in a monopoly environment would no
longer function in a competitive market for the simple reason that
companies would abandon the artificially unprofitable markets and swarm
the artificially profitable ones. In adopting the 1996 Act, Congress
directed the Commission and the states to stop doing what they had done
for sixty years. Rather than require companies to artificially lower
prices on high-cost residential lines, Congress directed this Commission
to meet the goals of affordability and ubiquity by providing consumers
with explicit discounts for supported telecommunications services. And
rather than permitting companies to recoup costs for unprofitable lines
through higher prices for business services Congress directed us to take
steps in furtherance of a regulatory regime where retail rate structures
reflect the cost of providing service.

In the face of years of hidden costs, uneconomic pricing and
cross-subsidies, Congress gave the Commission the difficult task of
determining the "real" cost of service in all parts of the country,
maintaining a fund sufficient to provide reasonably comparable rates and
distributing money in an equitable manner. Today's *Order and Further
Notice* moves the nation one step closer to dismantling the system of
false pricing information that regulators have imposed on the public.
Admittedly, our action today does not eliminate all implicit support in
local rate structures. However, I remain convinced that in a competitive
market, we can only achieve Congress' universal service goals by
creating an explicit support fund to benefit consumers who need it and
by eliminating the vestiges of implicit support that misallocate
resources and distort competition.

Over the last seven years, the Commission has adopted several measures
to establish explicit universal support mechanisms that remain resilient
to intense competition, including a federal high-cost universal service
support mechanism for non-rural carriers based on forward-looking
economic cost. Consistent with the Act, the Commission's 1999 *Ninth
Report and Order* chose to determine the amount of federal support given
to non-rural carriers in each state by comparing the statewide average
cost per line, as estimated by the Commission's forward-looking cost
model, to a nationwide cost benchmark of the national average cost.
Non-rural carriers whose costs exceed the benchmark would receive
universal-service support.

I voted in favor of the *Ninth Report and Order*, because I believed it
is "imperative that we introduce some notion of economic cost into
universal service support."[^1] While I questioned the adequacy of the
Commission's rationale, I said then that, without some type of a
forward-looking economic cost model, states and carriers would have had
no objective way of knowing how much money they needed, much less where
they should spend the money they got.[^2]

In the appellate litigation that followed the *Ninth Report and Order*,
the Tenth Circuit largely agreed with the Commission's ruling. It upheld
the Commission's cost model, though it remanded the methodology for
determining the precise level of non-rural support for further analysis.
Specifically, the Tenth Circuit directed us to define the statutory
terms "reasonably comparable" and "sufficient" more precisely and then
to assess whether and how the non-rural mechanism we choose would prove
sufficient to achieve the statutory principle of making rural and urban
rates reasonable comparable. The Tenth Circuit also told us to do more
to induce states to ensure local rate comparability and to create
positive incentives for them to abandon their long-standing practice of
permitting implicit cost subsidies based on little more than
back-of-the-envelope perceptions of need.

Today's order fulfills the Tenth Circuit's directives. We have taken
this opportunity to define our goals more precisely and we have done a
better job in determining that support which is "sufficient" to achieve
"reasonably comparable" rates. We have also adopted a rational threshold
to determine when non-rural, high-cost support should become available
by balancing legitimate state need against the risk of excessive
support. And we have reviewed our comprehensive plan for supporting
universal service in high cost areas and sought comment on how to adapt
the overall plan to meet changing conditions. I support fine-tuning our
forward-looking cost model by comparing statewide average costs to a
nationwide cost benchmark closely tied to relevant market data. I also
support measures such as the expanded rate-review and certification
processes that should induce states to achieve reasonably comparable
rates in response to the court's remand. I look forward to working with
my colleagues in the states to achieve the long-term goal of dismantling
the system of cross-subsidies that persists in many of the nation's
telephone rates.

The creation of a rational, economically sound support mechanism, of
course, is only one half of the solution to the problem of cross
subsidies in the telecommunications market. The other half of the
solution lies in the *Triennial Review Order*. No matter how rational
and well reasoned, an economic support mechanism will prove meaningless
if states remain able to avoid its strictures simply by offering
suppliers the option of buying essential telecommunications inputs at
super-efficient prices -- untethered from the realities of providing
that wholesale service. While I therefore support today's decision, true
reform will prove elusive as long as the other half of the problem --
the pricing of wholesale inputs -- goes unaddressed. For this reason, we
should redouble our efforts along a number of different regulatory
vectors. We should seek out new ways for federal and state regulators to
work together and rationalize state support mechanism to achieve
Congress' twin goals of universal service and sustainable local
competition. At the same time, the Commission's universal service focus
will turn to the Joint Board's recommendation in the *Portability*
proceeding and the Commission's efforts to ensure that wholesale rate
structures more accurately reflect the forward-looking economic costs of
providing service to competitors.

[^1]: Separate Statement of Commissioner Michael K. Powell, Concurring
    in Part, *Federal-State Joint Board on Universal Service*, Ninth
    Report and Order and Eighteenth Order on Reconsideration, CC Docket
    No. 99-45, 14 FCC Rcd. 20432 (1999).

[^2]: *Id*.