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74–012 PDF 2012

S. HRG. 110–1123 

THE UNIVERSAL SERVICE FUND: 

ASSESSING THE RECOMMENDATIONS OF THE 

FEDERAL-STATE JOINT BOARD 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

JUNE 12, 2007 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

DANIEL K. INOUYE, Hawaii, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

THOMAS R. CARPER, Delaware 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TED STEVENS, Alaska, Vice Chairman 

JOHN MCCAIN, Arizona 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

GORDON H. SMITH, Oregon 

JOHN ENSIGN, Nevada 

JOHN E. SUNUNU, New Hampshire 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

JOHN THUNE, South Dakota 

MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel 

LILA HARPER HELMS, Democratic Deputy Staff Director and Policy Director 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

KENNETH R. NAHIGIAN, Republican Deputy Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on June 12, 2007 ............................................................................... 1 

Statement of Senator Dorgan ................................................................................. 2 

Statement of Senator Klobuchar ............................................................................ 22 

Statement of Senator McCaskill ............................................................................. 29 

Statement of Senator Pryor .................................................................................... 27 

Statement of Senator Snowe ................................................................................... 33 

Statement of Senator Stevens ................................................................................ 1 

Prepared statement .......................................................................................... 2 

Statement of Senator Sununu ................................................................................ 3 

Letter dated April 13, 2007 to Hon. Deborah Tate ........................................ 3 

WITNESSES

Flannery, Jr., Everett B., Chief Deputy, Sheriff’s Office, Kennebec County, 

State of Maine; Representative, Maine Sheriffs’ Association ........................... 59 

Prepared statement .......................................................................................... 61 

Foxman, Jonathan D., President and CEO, Chinook Wireless ............................ 46 

Prepared statement .......................................................................................... 48 

Lubin, Joel E., Vice President, Regulatory Planning and Policy, AT&T Services, Inc. ................................................................................................................ 56 

Prepared statement .......................................................................................... 57 

Nishi, Roger, Chairman, Organization for the Promotion and Advancement 

of Small Telecommunications Companies (OPASTCO); Vice President, Industry Relations, Waitsfield and Champlain Valley Telecom; on Behalf 

of National Telecommunications Cooperative Association; Western Telecommunications Alliance; and Independent Telephone and Telecommunications Alliance .................................................................................................... 42 

Prepared statement .......................................................................................... 44 

Rooney, John E., President and CEO, United States Cellular Corporation ....... 37 

Prepared statement .......................................................................................... 39 

Tate, Hon. Deborah Taylor, Commissioner, Federal Communications Commission; and Chair, Federal-State Joint Board on Universal Service ................... 5 

Prepared statement .......................................................................................... 7 

APPENDIX

Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared statement ........... 91 

National Association of State Utility Consumer Advocates (NASUCA), prepared statement ................................................................................................... 96 

Response to written questions submitted by Hon. Daniel K. Inouye to: 

Jonathan D. Foxman ........................................................................................ 106 

Roger Nishi ....................................................................................................... 105 

Hon. Deborah Taylor Tate ............................................................................... 102 

Response to written questions submitted by Hon. Bill Nelson to: 

Jonathan D. Foxman ........................................................................................ 107 

Roger Nishi ....................................................................................................... 106 

Hon. Deborah Taylor Tate ............................................................................... 103 

Response to written questions submitted by Hon. Frank R. Lautenberg to 

Hon. Deborah Taylor Tate ................................................................................... 104 

Supplemental information supplied by ComspanUSA ......................................... 91 

(1) 

THE UNIVERSAL SERVICE FUND: 

ASSESSING THE RECOMMENDATIONS OF THE 

FEDERAL-STATE JOINT BOARD 

TUESDAY, JUNE 12, 2007 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:05 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Ted Stevens, presiding. 

OPENING STATEMENT OF HON. TED STEVENS, 

U.S. SENATOR FROM ALASKA 

Senator STEVENS. Good morning. The Chairman will be along, 

we hope, in a little while. For those of you who are interns, you 

can come up and use some of these chairs up here. 

Today, the Committee revisits—this is the Chairman’s statement—today, the Committee revisits a familiar topic, Universal 

Service. More than a decade ago, in the Telecommunications Act of 

1996, as a Congress, we made clear that we are committed to the 

principle of Universal Service. We stated that, in all regions of the 

Nation—rural, urban, and everywhere in between—consumers are 

entitled to comparable services at comparable rates. The Federal 

Communications Commission was charged with translating this 

lofty principle into concrete action. To do so, they set up the Universal Service Fund. 

Today, that Fund faces some difficult challenges. If the Fund 

continues to expand at current pace, some say we may jeopardize 

Universal Service itself. Incumbent carriers urge us to place limits 

on the ability of other carriers to access these funds. ‘‘How is it feasible,’’ they ask, ‘‘for the Universal Service Fund to support so 

many different carriers serving so few customers in rural areas?’’ 

Still other carriers, many of them, wireless providers, ask if it’s fair 

to reduce support that may be necessary to serve large swaths of 

rural America. ‘‘In order to provide comparable services at comparable rates,’’ they say, ‘‘we need to access these funds.’’ 

Last month, the Federal-State Joint Board on Universal Service 

weighed in on this matter. It recommended the Commission cap 

the amount of funds available to competitive providers as an interim measure, pending broader Universal Service reform. In the 

end, we cannot let short-term proposals free us from the need to 

address long-term reform. If comprehensive reform requires a more 

vigorous review of the identical support rule or any other aspect of 

2 

existing policy, we should proceed down that road. After all, ensuring the long-term sufficiency and stability of Universal Service 

funds means ensuring all of our citizens have communications capabilities they need to compete in the global economy. 

I’ll place my statement in the record, following the remarks of 

the Chairman. 

[The prepared statement of Senator Stevens follows:] 

PREPARED STATEMENT OF HON. TED STEVENS, U.S. SENATOR FROM ALASKA

I thank the Chairman for scheduling this hearing. Senator Inouye is my great 

friend who has become a leader with respect to Universal Service ever since we 

worked together to assure Alaska and Hawaii had the same phone rates as in the 

rest of our country. 

This Committee has heard much about problems with Universal Service which 

need to be addressed: 

• contributions only come from long distance service. 

• broadband is not explicitly supported. 

• and critics continue to raise accountability concerns. 

For me the importance of a unified and national communications infrastructure 

remains paramount and Universal Service is needed to ensure the availability of 

communications services throughout the country. I hope this hearing today will 

move the Committee forward to engage Universal Service reform in a comprehensive fashion. 

The Committee will hear today about the proposed cap on wireless Universal 

Service support. My hope is the panel will explain if and how an interim cap would 

advance the fundamental reform Universal Service needs. 

To put off such reform the more risk there is that there will be a communications 

divide in this country, a shameful outcome which would hurt jobs and small businesses throughout rural America, including my home state Alaska. 

Thank you. 

Senator STEVENS. Senator, do you have an opening statement? 

STATEMENT OF HON. BYRON L. DORGAN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. Just very briefly, Senator Stevens. 

I’m not going to be able to stay for the entire hearing, because 

of other committees, but I do want to say—it’s been obvious, for 

some long while, I think, to many of us on this Committee, that 

the Universal Service Fund issue needs attention, and needs serious attention. 

I think those of us that come from rural states understand the 

urgency of fixing this problem. The ‘‘comparable services at comparable prices,’’ represents the language that we included in 1996. 

Those of us who were on the Committee then were deliberate, in 

terms of what we wanted to do and what we intended to accomplish. We included, by the way, ‘‘advanced services.’’ At that point, 

we didn’t know much about broadband, but we included ‘‘advanced 

services’’ in that requirement. 

I acknowledge that the Joint Board has done its work. It’s now 

very important that we proceeds, and see that the FCC proceed, in 

untangling these problems, resolving them, and having a Universal 

Service Fund that does what it’s intended to do so that we are not 

left, a year or 2 or 5 years from now wondering how on Earth this 

gets fixed. 

3 

Senator Stevens, you and I, and others on this Committee, have 

introduced legislation on these issues. And my hope is that at 

last—at long, long last—we will be able to see these resolved. 

Senator STEVENS. Thank you very much. 

Senator Sununu? 

STATEMENT OF HON. JOHN E. SUNUNU, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SUNUNU. Thank you, Mr. Chairman. 

I simply want to offer a few comments about the recent decision 

by the Joint Board. 

As Senator Dorgan indicated, this is an issue we’ve been going 

around for some time. We tried to deal with it in the comprehensive telecommunications bill we marked up last year. And, unfortunately, that didn’t move forward. We had a proposal in Committee 

for an overall cap on the Fund, which I think is extremely important, because there is so much going on within the Fund for which 

it was not intended. It provides subsidies to companies instead of 

consumers. It provides subsidies to consumers in areas that aren’t 

necessarily deserving of subsidies, because they’re not areas that 

are underserved, they’re not at an economic disadvantage, or 

they’re not true rural high-cost areas. That should be the focus of 

the Fund. 

What the Joint Board has done is recommend a relatively arbitrary cap for one segment of Universal Service, the CETCs. I had, 

with other members of this Committee, written a letter specifically 

suggesting they not take this approach, that they look at a more 

comprehensive approach for capping funds. 

And, Mr. Chairman, I would ask that that letter be made part 

of the record. 

Senator STEVENS. Without objection. 

[The information previously referred to follows:] 

UNITED STATES SENATE

Washington, DC, April 13, 2007 

Hon. DEBORAH TATE, 

Chairman, 

Federal-State Joint Board on Universal Service, 

Federal Communications Commission, 

Washington, DC. 

Dear Joint Board Chairman Tate, 

The Federal-State Joint Board on Universal Service (Board) was established, in 

part, to provide recommendations on how best to preserve and advance the Federal 

Universal Service (USF) program. We arc writing today to provide the Board with 

our views on the USF program, which we believe must be substantially reformed 

to if it is to continue, and to share our serious concerns over reports of recent and 

future increases in the contribution factor, which has pushed the entire program 

closer to a boiling point. The Board has the opportunity and, in our judgment, the 

obligation, to suggest reforms and structural changes to the USF program that could 

result in long-term solvency, and ensure that only consumers who truly need the 

program’s support receive it. Failure of the Board to make the difficult decisions 

necessary at this critical juncture will reduce political support and sustainability of 

the program. We urge the Board to make the tough decisions and proposals necessary to place the program on a new course. In other words, it is time to be bold. 

We strongly request that the Board recommend an overall cap on the entire USF 

program. Last year, the four of us and others supported an amendment to a telecommunications reform bill during consideration in the Senate Commerce Committee that would have capped the overall USF program. We believe a cap would 

ensure that the administrators of the USF program spend the money more effecVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
4 

tively and efficiently, and would work to reduce this limitless and recurring tax on 

consumers. We do not support any plan that would cap only one select group of providers but 

not others, as we believe such a fix would unfairly skew the marketplace. Instead, 

we reiterate the need for capping the overall program and doing so in a manner that 

does not pick winners and losers or favor one technology over another. We also urge 

you not to use interim measures, such as a temporary cap, to address the pressing 

issues facing the USF program. Many interim measures enacted by the Federal 

Communications Commission in the past have lived far longer than intended when 

proposed. 

While a cap on all USF program funding is truly needed, a cap is only as valuable 

as the corresponding changes made to the USF distribution mechanism. Funding 

multiple providers without a reduction in the level of support for existing providers 

losing customers has put the Fund on an uncontrollable growth pattern that will 

only result in higher telephone bills for all Americans. If this is not addressed, the 

USF program will over subsidize some markets at the expense of those markets 

most in need. 

In addition, we strongly recommend the Board give significant weight to a reverse 

auction mechanism for distributing USF support. This can be done in a number of 

ways, including establishing the support level for a study area, state, or otherwise 

(i.e., maximum price support point), or establishing a sole provider eligible for support in a respective market. However accomplished, allowing all providers to take 

part of one unified auction in a market—not just a platform-specific proposal—to bid 

down support needed to serve particular consumers will reduce the total cost of the 

USF high-cost program. It will also bring much needed efficiency to the system, facilitate regulatory parity, allow for the emergence of new technologies to many markets, eliminate the distinction between rural and non-rural incumbent carriers, and 

instill necessary market-oriented solutions. 

In sum, the USF program has not kept pace with the remarkable innovation that 

has occurred in the communications industry over the last few years. It must be 

dramatically reformed to operate in a way that best serves the American people. 

The Board must transform this program into one that takes in and distributes USF 

funds in a responsible manner that ensures Americans are not subjected to limitless 

increases on their phone bills. We respectfully request that you take the steps necessary to fully reform the USF program and reject short-term solvency solutions. 

We ask that this letter be handled in strict accordance with existing agency rules, 

regulations, and ethical guidelines. 

Sincerely, 

JOHN E. SUNUNU

JOHN MCCAIN

JIM DEMINT

JOHN ENSIGN

Senator SUNUNU. I think that a piecemeal approach like this one, 

it’s not necessarily fair, it has the potential to skew the markets; 

but, two, it’s just passing these significant problems within the system down the road. And, in many ways, I think it’s going to make 

it harder for Congress to act in a comprehensive way. I think it’s 

going to create additional inequities in the system. And I find it 

somewhat disappointing. The Joint Board has said, ‘‘We’re going to 

recommend a more comprehensive approach in 6 months.’’ That 

brings us really to the heart of a 2008 campaign season, and, 

frankly, I think that is highly unlikely. I hope we hear, today, not 

just from Commissioner Tate, but from other stakeholders and participants, some very specific ideas about how to enact additional reforms, what really needs to be done to make sure this program 

works effectively for those it was intended, and how and why we 

should have confidence that the costs of the program aren’t going 

to simply continue to accelerate and continue to be passed on to 

consumers. A 10 percent or 12 percent or 15 percent surcharge on 

interstate calls is pretty significant, and that’s levied on every consumer in America. And when you’re assessing surcharges that 

high, you ought to be delivering something that’s measurable, 

5 

that’s tangible, and something that’s going to those people that 

need it most. 

Thank you, Mr. Chairman. 

Senator STEVENS. Senator Pryor, did you have a statement you 

wished to make? 

Senator PRYOR. I don’t. Thank you, Mr. Chairman. 

Senator STEVENS. Thank you very much. 

Our first witness is the Honorable Deborah Taylor Tate, Commissioner of the FCC. We’re pleased to have your statement. 

STATEMENT OF HON. DEBORAH TAYLOR TATE, 

COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION; 

AND CHAIR, FEDERAL-STATE JOINT BOARD 

ON UNIVERSAL SERVICE 

Ms. TATE. Thank you, Vice Chairman Stevens and distinguished 

Members of the Committee. 

I do welcome the opportunity to be here to testify today and to 

talk with you all as the Federal Chair of the Joint Board on Universal Service regarding our recent consensus recommendation of 

the Joint Board, that the FCC take immediate action to rein in the 

explosive growth in the high-cost Universal Service support disbursements. Like many of you all, I’m from a rural state, and I’ve 

seen and experienced, firsthand, opportunities that are provided by 

Universal Service in those rural areas. I’ve told you all before that 

I remember the day the telephone wire was rolled up a gravel road 

to my grandmother’s house in rural Tennessee, an event that likely 

would not have occurred without Universal Service. 

I now have the distinct honor and responsibility and privilege to 

help design and implement policies that will preserve and advance 

Universal Service for all Americans. 

I think we all agree a modern and high-quality communications 

infrastructure is essential to ensure all Americans, especially those 

living in rural communities, have access to the full array of educational, economic, and other opportunities that are delivered via 

advanced services. Indeed, Congress—you all—have directed consumers in all regions of the Nation have access to reasonably comparable telecommunications services, including advanced services, 

at comparable rates. 

As we look to achieve the long-term goals of the Universal Service program, as you all have mentioned, including deployment of 

those advanced services, we must recognize how technological 

changes are putting strains on the mechanics of both the contribution and distribution systems. The high-cost support mechanism 

alone has grown from about $2.6 billion in the year 2000 to approximately $4 billion in 2006, placing significant pressure on the 

stability of the Fund. 

This growth was largely due to increased support provided to 

multiple competitive eligible telecommunications carriers, CETCs, 

as illustrated in this series of charts. As you can see from Chart 

1, since 2003, incumbent LEC payments have been relatively flat, 

the dark blue—you can see how flat that line is—and actually have 

even begun to start downward. On the other hand, Chart 1 also 

shows that almost all of the recent growth in the high-cost support 

is largely as a result of distributions to CETCs. 

6 

As Chart 2 shows, the CETC high-cost distributions have been 

growing at a rate trend of 101 percent per year since 2002. Specifically, in 2000 CETCs received a million dollars, and, according to 

USAC, now receive almost a billion, in 2006. 

Chart 3 shows the rapid year-over-year dollar growth of CETC 

payments. This chart highlights another problem with the current 

system, CETCs presently receive high-cost support based on the incumbent LEC’s embedded cost, or per-line support amount that the 

LEC receives, rather than on their own costs. 

Overall, these charts illustrate our current high-cost mechanism 

is in need of repair and revision. As stewards of public funds, our 

obligation is to preserve and advance Universal Service. It mandates immediate action to stem this explosive growth in the highcost support, while doing all we can to move quickly toward fundamental reform to ensure that quality services are, indeed, available 

to all of our citizens. 

I would have preferred, and hoped, the Joint Board act more immediately to fundamentally reform the high-cost distribution mechanism. Unfortunately, I was not able to move us to a consensus on 

that point. The Joint Board was, however, able to reach a consensus on an interim step. Seven out of eight members of the Joint 

Board agreed an interim emergency cap on the amount of high-cost 

support that CETCs receive for each state, based on 2006 support 

levels, was required to stabilize the high-cost fund while the Board 

and the FCC further explore comprehensive high-cost distribution 

reform. 

The Recommended Decision and its companion Public Notice 

made clear the Joint Board is totally committed to making further 

recommendations, as the Senator noted, by November 1st, within 

6 months of our decision. Whether through reverse auctions or 

some other cost-effective mechanism, a fundamental reform plan 

will ensure that Universal Service promotes the availability of 

services at reasonably comparable rates throughout the country; 

hopefully, in a technologically and competitively neutral manner. 

Comprehensive reform also must take into account areas of our 

country that are uniquely situated. For example, any comprehensive reform plan, by necessity, must continue the Commission’s traditional recognition that there are underserved lands. Tribal lands 

in the Lower 48, in Alaska Native Regions, are uniquely situated 

and deserving of individual treatment to ensure that they are not 

left behind. 

I hope to continue to facilitate these discussions between you, 

this Committee, Congress, the Commission, and, of course, members of the Joint Board, while doing all we can to preserve the 

Fund and ensure these services are available to consumers no matter where they choose to live. 

Thank you, again, for the opportunity to discuss these important 

issues, and, of course, I’m pleased to answer questions. 

[The prepared statement of Ms. Tate follows:] 

7 

PREPARED STATEMENT OF HON. DEBORAH TAYLOR TATE, COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION; AND CHAIR, FEDERAL-STATE JOINT

BOARD ON UNIVERSAL SERVICE

Good morning, Chairman Inouye, Vice Chairman Stevens, and distinguished 

Members of the Committee. I welcome the opportunity to testify today on the recent 

recommendation of the Federal-State Joint Board on Universal Service (Joint Board) 

to the Federal Communications Commission (FCC or Commission). Like many of 

you, I have seen and experienced firsthand the opportunities provided by Universal 

Service in very rural areas. I remember the day the telephone wire was rolled up 

a gravel road to my grandmother’s house in rural Tennessee—an event that likely 

would not have occurred without a Universal Service program. As a Commissioner 

and the Federal Chair of the Joint Board, I now have the honor and responsibility 

to help design and implement policies that will preserve and advance Universal 

Service to all Americans. 

All of the Joint Board members—FCC Chairman Kevin Martin, FCC Commissioner Michael Copps, Commissioner and Joint Board State Chair Ray Baum of Oregon, Chairman Lisa Edgar of Florida, Commissioner Larry Landis of Indiana, Commissioner John Burke of Vermont, and Director Billy Jack Gregg of the Consumer 

Advocate Division of West Virginia—deserve praise for their commitment to addressing these complex issues in addition to their full time jobs as Federal or state 

government officials. I should also thank the members of the state and Federal staff 

whose dedication and professionalism reflect the highest ideal of government service. 

Congress directed the FCC to institute the Joint Board ‘‘to recommend changes 

to any of [the FCC’s] regulations in order to implement sections 214(e) and [254]’’ 

of the Act. The Commission has referred a number of issues to the Joint Board and 

relied heavily on its recommendations. Most relevant to the subject of today’s hearing, the Commission in 2002 asked the Joint Board to review Commission rules related to the high-cost Universal Service support mechanisms.1 Among other things, 

the Commission asked the Joint Board to review the Commission’s rules relating 

to high-cost Universal Service support in study areas in which a competitive eligible 

telecommunications carrier (CETC) is providing service.2 In response, the Joint 

Board recommended, inter alia, that the Commission implement a ‘‘primary line’’ restriction limiting the scope of high-cost support for each household to a single connection that provides access to the public telephone network. The Joint Board also 

made a number of recommendations concerning the designation of eligible telecommunications carrier (ETCs) in high-cost areas, but declined to recommend that 

the Commission modify the basis of support (i.e., the methodology used to calculate 

support) in study areas with multiple ETCs.3 Instead, the Joint Board recommended 

that it and the Commission consider possible modifications to the basis of support 

for CETCs as part of an overall review of the high-cost support mechanisms for 

rural and non-rural carriers.4

In 2004, the Commission asked the Joint Board to review, inter alia, the Commission’s rules relating to the high-cost Universal Service support mechanisms for rural 

carriers and to determine the appropriate rural mechanism to succeed the plan 

adopted in the Rural Task Force Order.5 In August 2004, the Joint Board sought 

comment on issues the Commission referred to it related to the high-cost Universal 

Service support mechanisms for rural carriers.6 The Joint Board also specifically 

sought comment on the methodology for calculating support for ETCs in competitive 

study areas.7 Since that time, the Joint Board has sought comment on a variety of 

specific proposals for addressing the issues of Universal Service support for rural 

carriers and the basis of support for competitive ETCs, including proposals developed by members and staff of the Joint Board and the use of reverse auctions (competitive bidding) to determine high-cost Universal Service funding to ETCs.8

Since I was named the Chair of the Joint Board in 2006, the Joint Board has continued its work to review the Universal Service policies and respond to the FCC’s 

referrals. I have been committed to keeping our work on a timetable paced to fulfill 

our statutory role in a thoughtful and deliberative manner. The Joint Board has 

held a number of face-to-face meetings, countless conference calls, issued notices 

and referrals, and reviewed hundreds of comments from interested parties. The 

Joint Board staff held a retreat for 3 days in June 2006 to review outstanding and 

new proposals, and the Joint Board met in August 2006 during the NARUC summer 

meeting. On August 11, 2006, the Joint Board issued a Public Notice and sought 

comment on primary questions, such as the overall appropriateness and legality of 

implementing reverse auctions, as well as questions about the mechanics of implementing reverse auctions, such as the role of Federal and state jurisdictional roles, 

defining quality of service obligations, and the unique questions regarding the treatVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
8 

ment of incumbent local exchange carriers (LECs). The Joint Board received numerous comments and reply comments last fall, and also received additional submissions in the record. 

In September 2006, because there were several newer members of the Joint 

Board, including myself, the Joint Board hosted a two-day meeting at the FCC focusing on training. We heard from the Universal Service Administrative Company 

(USAC), the National Exchange Carrier Association (NECA), and FCC staff experts 

about the mechanics of the Universal Service programs. The state members of the 

Joint Board and staff met again in November 2006 during the NARUC winter meetings. Further, on February 20, 2007, as a part of its en banc hearing in Washington, 

D.C., the Joint Board heard from a number of experts, including witnesses from the 

National Telecommunications Cooperative Association, Verizon, and CTIA—The 

Wireless Association, discussing specific proposals, benefits, and concerns regarding 

reverse auctions. The Joint Board also heard from experts on geo-spatial mapping 

and approaches to more effectively targeting the distribution of support, including 

witnesses from the Polis Center in Indianapolis, CostQuest Associates, and Embarq. 

We were pleased that members of your staffs attended as well. 

It became clear to the Joint Board during the course of its deliberations that highcost support has been rapidly increasing in recent years, largely due to increased 

support provided to CETCs. According to FCC and USAC data, in the 6 years from 

2001 through 2006, CETC support grew from $15 million to almost $1 billion—an 

annual growth rate of over 100 percent. Over the same time period the USF support 

to the incumbent local exchange carriers serving high-cost rural areas under the 

Fund has leveled out. 

Based on current estimates, CETC support in 2007 will reach at least $1.28 billion absent Commission action. Moreover, if the Commission were now to approve 

all 33 CETC petitions currently pending before the Commission, high-cost support 

for CETCs could rise to as much as $1.56 billion in 2007. This does not include the 

financial impact of the approximately 35 additional CETC applications that are 

pending or have been approved by the states since the beginning of 2007. High-cost 

support to CETCs is estimated to grow to almost $2 billion in 2008 and $2.5 billion 

in 2009 even without additional CETC designations in 2008 and 2009. 

This growth is not only due to multiple providers receiving high-cost support in 

many study areas, but also because CETCs receive Universal Service support based 

on the incumbent LEC’s embedded costs or the per line support amount that the 

incumbent LEC receives. But as we heard at the en banc, a CETC’s actual costs 

are likely to be very different, and perhaps lower, than the incumbent telephone carrier’s costs on a per line basis. 

In light of those facts, the Joint Board reached a consensus that immediate action 

was required to stabilize the high-cost fund. On May 1, 2007, the Joint Board issued 

a Recommended Decision advocating that the Commission adopt an interim emergency cap on the amount of high-cost support that CETCs may receive for each state 

based on 2006 support levels.9 The Commission issued a Public Notice seeking comment on the Joint Board’s recommendation on May 14, 2007. The Commission received over 60 comments on June 6, 2007, and reply comments are due June 13, 

2007. 

The Joint Board also recommended that both it and the Commission further explore comprehensive high-cost distribution reform, and sought comment on various 

reform proposals in a Public Notice released on the same day as the Recommended 

Decision.10

The Recommended Decision and its companion Public Notice make clear that the 

Joint Board is committed to making further recommendations regarding comprehensive high-cost Universal Service reform by November 1, 2007. I am committed, as 

the Federal Chair, to putting the Joint Board in a position to make those recommendations. 

As we look to achieve the long-term goals of the Universal Service program, we 

must balance the goal of encouraging competitive entry with the other challenges, 

such as the further deployment of advanced services. It is essential that we recognize how technological changes are putting strains on the mechanics of our contribution and distribution systems. As stewards of public funds, our obligation to preserve and advance Universal Service mandates that we recommend immediate action to stem the explosive growth in high-cost Universal Service support disbursements, while doing all we can to achieve fundamental reform to ensure that affordable, quality services are available to consumers all across the country. 

As Chair of the Joint Board, my goal has been to encourage discussion among my 

colleagues and facilitate consensus that will ensure that American consumers 

throughout the Nation continue to have access to an evolving level of services. Every 

member of this Joint Board supports the principles of Universal Service: to promote 

9 

the availability of quality services at just, reasonable, and affordable rates; to increase access to advanced telecommunications services throughout the Nation; and 

to advance the availability of such services to all consumers. Our recommendation 

is a step toward more fully implementing those principles. I look forward to working 

with my Federal and state colleagues and with all stakeholders as we continue to 

make progress. 

Again, I appreciate your invitation to be here with you today. I am pleased to answer any questions you may have. 

APPENDIX A 

FEDERAL-STATE JOINT BOARD OF UNIVERSAL SERVICE RECOMMENDED DECISION

Before the Federal Communications Commission 

Washington, DC 

In the Matter of High-Cost Universal Service Support 

Federal-State Joint Board on Universal Service 

WC Docket No. 05–337 

CC Docket No. 96–45 Service 

Recommended Decision 

Adopted: April 26, 2007 

Released: May 1, 2007 

By the Federal-State Joint Board on Universal Service: Chairman Martin, Commissioner Tate, Chairman Edgar, Commissioner Landis, and Commissioner Burke 

issuing separate statements; Director Gregg concurring; Commissioner Baum concurring and issuing a statement; Commissioner Copps dissenting and issuing a 

statement. 

I. Introduction 

1. In this Recommended Decision, the Federal-State Joint Board on Universal 

Service (Joint Board) recommends that the Commission take immediate action to 

rein in the explosive growth in high-cost Universal Service support disbursements. 

Specifically, we recommend that the Commission impose an interim, emergency cap 

on the amount of high-cost support that competitive eligible telecommunications carriers (ETCs) may receive for each state based on the average level of competitive 

ETC support distributed in that state in 2006.11 We also recommend that the Joint 

Board and the Commission further explore comprehensive high-cost distribution reform. As part of that effort, today in a companion Public Notice we seek comment 

on various proposals to reform the high-cost Universal Service support mechanisms.12 We also commit to making further recommendations regarding comprehensive high-cost Universal Service reform within 6 months of this Recommended Decision. Finally, we recommend that the Commission act on these further recommendations within 1 year from the date of our further Recommended Decision. 

II. Background 

2. In 2002, the Commission asked the Joint Board to review certain of the Commission’s rules related to the high-cost Universal Service support mechanisms.13

Among other things, the Commission asked the Joint Board to review the Commission’s rules relating to high-cost Universal Service support in study areas in which 

a competitive ETC is providing service.14 In response, the Joint Board made many 

recommendations concerning the designation of ETCs in high-cost areas, but declined to recommend that the Commission modify the basis of support (i.e., the 

methodology used to calculate support) in study areas with multiple ETCs.15 Instead, the Joint Board recommended that it and the Commission consider possible 

modifications to the basis of support for competitive ETCs as part of an overall review of the high-cost support mechanisms for rural and non-rural carriers.16

3. In 2004, the Commission asked the Joint Board to review the Commission’s 

rules relating to the high-cost Universal Service support mechanisms for rural carriers and to determine the appropriate rural mechanism to succeed the plan adopted 

in the Rural Task Force Order.17 In August 2004, the Joint Board sought comment 

on issues the Commission referred to it related to the high-cost Universal Service 

support mechanisms for rural carriers.18 The Joint Board also specifically sought 

comment on the methodology for calculating support for ETCs in competitive study 

areas.19 Since that time, the Joint Board has sought comment on a variety of speVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
10 

cific proposals for addressing the issues of Universal Service support for rural carriers and the basis of support for competitive ETCs, including proposals developed 

by members and staff of the Joint Board and the use of reverse auctions (competitive bidding) to determine high-cost Universal Service funding to ETCs.20

III. Recommendation for an Immediate Interim Cap on Support for 

Competitive Eligible Telecommunications Carriers 

A. Need for Immediate Action 

4. High-cost support has been rapidly increasing in recent years and, without immediate action to restrain growth in competitive ETC funding, the Federal Universal Service Fund is in dire jeopardy of becoming unsustainable.21 Today, the Uni- versal Service Fund provides approximately $4 billion per year in high-cost support.22 Yet, in 2001 high-cost support totaled approximately $2.6 billion.23 In recent 

years, this growth has been due to increased support provided to competitive ETCs 

which receive high-cost support based on the per-line support that the incumbent 

local exchange carriers (LECs) receive rather than the competitive ETC’s own costs. 

While support to incumbent LECs has been flat or even declined since 2003,24 by 

contrast, in the 6 years from 2001 through 2006, competitive ETC support grew 

from $15 million to almost $1 billion—an annual growth rate of over 100 percent. 

Based on current estimates, competitive ETC support in 2007 will reach at least 

$1.28 billion if the Commission takes no action to curtail this growth. Moreover, if 

the Commission were now to approve all competitive ETC petitions currently pending before the Commission, high-cost support for competitive ETCs could rise to as 

much as $1.56 billion in 2007.25 High-cost support to competitive ETCs is estimated to grow to almost $2 billion in 2008 and $2.5 billion in 2009 even without additional 

competitive ETC designations in 2008 and 2009.26

5. We conclude that immediate action must be taken to stem the dramatic growth 

in high-cost support. We therefore recommend that the Commission immediately impose an interim cap on high-cost support provided to competitive ETCs until such 

measures can be adopted that will ensure that the Fund will be sustainable for future years. We believe that taking this action will prevent increases in high-cost 

support due to the designation of additional competitive ETCs or line growth among 

existing competitive ETCs. While imposition of the interim cap will not address the 

current disproportionate distribution of competitive ETC support among the 

states,27 the cap will stop growth in competitive ETC support while the Joint Board 

and the Commission consider fundamental reforms to address issues related to the 

distribution of support. At this time, we do not recommend additional caps on support provided to incumbent LECs, because the data show less growth pressure from 

incumbent LECs. Moreover, incumbent LEC high-cost loop support is already 

capped and incumbent interstate access support has a targeted limit.28 Also, local 

switching support and interstate common line support provided to incumbent LECs 

have been stable in recent years.29 Accordingly, we recommend that the Commission 

immediately impose an interim high-cost support cap, but one that is limited to 

high-cost support provided to competitive ETCs. 

6. We believe that adopting an interim cap on high-cost support only for competitive ETCs would not violate the Commission’s Universal Service principle of competitive neutrality for several reasons.30 Fundamental differences exist between the 

regulatory treatment of competitive ETCs and incumbent LECs. For example, competitive ETCs, unlike incumbent LECs, have no equal access obligations. Competitive ETCs also are not subject to rate regulation. In addition, competitive ETCs may 

not have the same carrier of last resort obligations that incumbent LECs have. Furthermore, under the identical support rule, both incumbent rural LECs and competitive ETCs receive support based on the incumbent rural LECs’ costs. Therefore, incumbent rural LECs’ support is cost-based, while competitive ETCs’ support is not. 

Due to this, as discussed below, we recommend that the Commission consider abandoning the identical support rule in any comprehensive and fundamental reform ultimately adopted.31

7. We decline to recommend that the Commission adopt General Communication 

Inc.’s (GCI) proposal that we exempt wireline competitive ETCs from the cap.32 The 

growth of support to wireless competitive ETCs may indeed have been much greater 

than the growth of support to wireline competitive ETCs. However, we recommend 

a cap today largely because we conclude that the identical support rule has become 

dated and may no longer be the most appropriate approach to calculating support 

for competitive ETCs. Today wireline competitive ETCs (such as GCI) and wireless 

competitive ETCs both derive their Universal Service support from the identical 

support rule. Neither receives support based on its own costs. In addition, GCI 

would have us create an exemption based upon the ETC’s chosen technology, rather 

than its legal status. We are not aware of anything in the Commission’s current 

11 

rules that provides a precedent for such a technology-based differentiation within 

Universal Service policy. 

B. Length of Time 

8. We emphasize that the cap on competitive ETC support that we recommend 

here should be an interim measure that is used to stem the growing crisis in highcost support growth while the Commission and the Joint Board consider further reform. We remain committed to comprehensive reform of the high-cost Universal 

Service support mechanisms. Accordingly, we recommend that the Commission immediately adopt an interim cap on high-cost support to competitive ETCs, and that 

the cap expire 1 year from the date of any Joint Board recommended decision on 

comprehensive and fundamental Universal Service reform. As discussed below, we 

commit to adoption of a further recommended decision addressing fundamental 

high-cost reforms within 6 months of today’s Recommended Decision. We also anticipate that the Commission will act promptly on the Joint Board’s subsequent recommended decision in light of the interim nature of the cap, notwithstanding the 

fact that the Communications Act of 1934, as amended (the Act) imposes a one-year 

time limit on such action.33

C. Operation of the Cap 

9. We recommend that the Commission immediately impose a cap on competitive 

ETC support for each state. We believe that a competitive ETC cap applied at a 

state level effectively curbs growth but allows states some flexibility to direct competitive ETC support to the areas in the state that are most in need of such support.34 An interim, state-based cap on competitive ETC support will also avoid creating an incentive for each state to designate as many new ETCs as possible. A 

state-based cap will require newly designated competitive ETCs to share funding 

with other competitive ETCs within the state. 

10. Under the proposed state-based cap, support would be calculated using a twostep approach. First, on a quarterly basis, the Universal Service Administrative 

Company (USAC) would calculate the support each competitive ETC would have received under the existing (uncapped) equal per-line support rule and would sum 

these amounts by state.35 Second, USAC would calculate a state reduction factor to 

reduce this amount to the competitive ETC cap. Specifically, USAC would compare 

the total amount of uncapped support to the cap amount for each state. Where the 

total state uncapped support is greater than the available state cap support amount, 

USAC would divide the state cap support amount by the total state uncapped 

amount to yield the state reduction factor. USAC would then apply the state-specific 

reduction factor to the uncapped amount for each competitive ETC within the state 

to arrive at the capped level of high-cost support. Where the state uncapped support 

is less than the available state capped support amount, no reduction would be required. 11. For example, if in State A, the capped amount is $90 million and the total uncapped support is $130 million, the reduction factor would be 69.2 percent ($90/ 

$130). In State A, each competitive ETC’s support would be multiplied by 69.2 percent to reduce support to the capped amount. If in State B, however, the base period 

capped amount is $100 million and the total uncapped support is $95 million, there 

would be no reduction factor because the uncapped amount is less than the capped 

amount. Each quarter, for the duration of the cap, a new reduction factor would be 

calculated for each state. Finally, if in State C the base period capped amount is 

$0 (i.e., there were no competitive ETCs receiving support in State C as of when 

the cap was established), then no competitive ETCs would be eligible to receive support in that state. 

12. Although the competitive ETC cap retains the so-called identical support or 

portability rule in the first step of calculating capped support amounts, the Joint 

Board recommends that the Commission consider abandoning or modifying this rule 

in any comprehensive reform it ultimately adopts. The identical support rule seems 

to be one of the primary causes of the explosive growth in the fund. Most of the 

reform options that we seek comment on in today’s companion Public Notice would 

replace this approach with approaches that better reflect the economic realities of 

different technologies.36 Thus, we recommend that the Commission expressly place 

competitive ETCs on notice that identical support without cost justification may be 

an outdated approach to USF funding. 

D. Base Period for the Cap 

13. We recommend that the Commission cap competitive ETC support for each 

state at the level of competitive ETC support actually distributed in that state in 

2006. Although this approach likely results in a lower cap in most jurisdictions than 

the level of support that is being distributed in 2007, we find that the need for 

12 

adopting this emergency interim cap to stabilize support for competitive ETCs identified above justifies using 2006 support levels.37 Moreover, using 2006 data allows 

the Commission to use actual support amounts, rather than relying on USAC projections to set the cap amounts. By using actual distributions over four quarters of 

2006, the Commission will be able to smooth out any seasonal or one-time fluctuations that may be reflected in any single quarter.38 Consistent with our recommendation to cap competitive ETC support on an interim basis, we find that 

there is no need to index the cap to a growth factor. 

IV. Fundamental High-Cost Distribution Reform 

14. The imposition of an interim cap on competitive ETC high-cost support represents only a temporary solution to the problems that plague the high-cost support 

distribution mechanisms. As noted above, we are committed to making further recommendations regarding comprehensive high-cost Universal Service reform within 

6 months. So that we may accomplish that goal, we seek comment, in a companion 

Public Notice, on several proposals that have been placed in the record since the 

close of the last comment cycle, as well as other possible reforms.39 Specifically, we 

seek comment on proposals related to the use of reverse auctions, the use of geographic information systems (GIS) technology, the disaggregation of high-cost support, and support for broadband services.40 As we state in the Public Notice, we expect parties to submit comprehensive reform proposals pursuant to the pleading 

cycle set forth in the Public Notice.41

V. Recommending Clause 

15. For the reasons discussed herein, the Federal-State Joint Board on Universal 

Service, pursuant to sections 254(a)(1) and 410(c) of the Communications Act of 

1934, as amended, 47 U.S.C. §§ 254(a)(1), 410(c), recommends that the Commission 

adopt recommendations set forth herein concerning an interim cap on high-cost Universal Service support for competitive ETCs. 

FEDERAL COMMUNICATIONS COMMISSION

MARLENE H. DORTCH, Secretary 

APPENDIX A 

CHARTS PRESENTED BY CHAIRMAN MARTIN AT FEBRUARY 2007 EN BANC HEARING OF

THE FEDERAL-STATE JOINT BOARD ON UNIVERSAL SERVICE

Chart 1 


612TATE1.eps
13 

Chart 2 

Chart 3 

Chart 4 


612TATE2.eps 612TATE3.eps 612TATE4.eps
14 

APPENDIX B 

State High-Cost Universal Service Support, Ranked by 2006 Total 

Support and 2006 Competitive ETC Support 

Ranked by 

2006 Total Support 

2006 Incumbent 

ETC 

Support 

2006 Competitive 

ETC 

Support 

2006 

Total 

Support 

State $ Millions 

1 Mississippi 136.4 139.6 276.0 

2 Texas 206.1 24.6 230.7 

3 Kansas 135.4 54.8 190.2 

4 Alaska 98.1 55.5 153.6 

5 Wisconsin 83.0 51.2 134.2 

6 Arkansas 101.9 30.6 132.5 

7 Louisiana 85.1 41.9 127.0 

8 Oklahoma 107.0 16.6 123.6 

9 Puerto Rico 29.5 93.9 123.4 

10 Minnesota 79.6 40.3 119.9 

11 Alabama 99.6 16.4 116.0 

12 Georgia 99.1 8.6 107.7 

13 California 105.0 1.0 106.0 

14 Iowa 63.4 42.2 105.6 

15 Washington 58.9 43.8 102.7 

16 Kentucky 73.4 25.9 99.3 

17 South Dakota 60.1 29.4 89.5 

18 Missouri 86.0 0.1 86.1 

19 Arizona 67.1 15.9 83.0 

20 South Carolina 81.9 0.0 81.9 

21 Nebraska 58.3 23.5 81.8 

22 Florida 72.2 9.4 81.6 

23 North Carolina 74.0 7.4 81.4 

24 North Dakota 41.4 39.5 80.9 

25 Colorado 71.0 8.5 79.5 

26 Virginia 65.7 13.8 79.5 

27 Montana 66.6 11.5 78.1 

28 Oregon 62.3 10.0 72.3 

29 West Virginia 59.7 10.7 70.4 

30 Illinois 67.8 0.0 67.8 

31 New Mexico 50.3 15.2 65.5 

32 Pennsylvania 64.0 1.5 65.5 

33 Indiana 57.9 5.6 63.5 

34 Michigan 43.8 15.1 58.9 

35 Wyoming 39.7 18.0 57.7 

36 Idaho 52.1 0.0 52.1 

37 Tennessee 50.3 1.5 51.8 

38 New York 45.6 3.3 48.9 

39 Ohio 41.6 0.0 41.6 

40 Hawaii 22.6 18.2 40.8 

41 Maine 23.8 13.2 37.0 

42 Nevada 24.9 6.3 31.2 

43 Vermont 24.9 5.9 30.8 

44 Virgin Islands 25.3 0.0 25.3 

45 Utah 23.9 0.3 24.2 

46 Guam 9.4 7.3 16.7 

47 New Hampshire 7.8 0.3 8.1 

48 Maryland 4.5 0.0 4.5 

49 Massachusetts 2.8 0.0 2.8 

50 American Samoa 1.3 1.4 2.7 

51 Connecticut 2.1 0.0 2.1 

52 New Jersey 1.3 0.0 1.3 

53 N. Mariana Is. 0.6 0.2 0.8 

54 Delaware 0.3 0.0 0.3 

55 D.C. 0.0 0.0 0.0 

56 Rhode Island 0.0 0.0 0.0 

Total 3,116.4 979.9 4,096.3 

Note: Numbers may not add due to rounding. Annual support amounts less than $50,000 show as $0 due to rounding. 

Source: Universal Service Administrative Company 

15 

Ranked by 

2006 CETC Support 

2006 

Competitive 

ETC 

Support 

State $ Millions 

1 Mississippi 139.6 

2 Puerto Rico 93.9 

3 Alaska 55.5 

4 Kansas 54.8 

5 Wisconsin 51.2 

6 Washington 43.8 

7 Iowa 42.2 

8 Louisiana 41.9 

9 Minnesota 40.3 

10 North Dakota 39.5 

11 Arkansas 30.6 

12 South Dakota 29.4 

13 Kentucky 25.9 

14 Texas 24.6 

15 Nebraska 23.5 

16 Hawaii 18.2 

17 Wyoming 18.0 

18 Oklahoma 16.6 

19 Alabama 16.4 

20 Arizona 15.9 

21 New Mexico 15.2 

22 Michigan 15.1 

23 Virginia 13.8 

24 Maine 13.2 

25 Montana 11.5 

26 West Virginia 10.7 

27 Oregon 10.0 

28 Florida 9.4 

29 Georgia 8.6 

30 Colorado 8.5 

31 North Carolina 7.4 

32 Guam 7.3 

33 Nevada 6.3 

34 Vermont 5.9 

35 Indiana 5.6 

36 New York 3.3 

37 Pennsylvania 1.5 

38 Tennessee 1.5 

39 American Samoa 1.4 

40 California 1.0 

41 New Hampshire 0.3 

42 Utah 0.3 

43 N. Mariana Is. 0.2 

44 Missouri 0.1 

45 Connecticut 0.0 

46 D.C. 0.0 

47 Delaware 0.0 

48 Idaho 0.0 

49 Illinois 0.0 

50 Maryland 0.0 

51 Massachusetts 0.0 

52 New Jersey 0.0 

53 Ohio 0.0 

54 Rhode Island 0.0 

55 South Carolina 0.0 

56 Virgin Islands 0.0 

Total 979.9 

Note: Numbers may not add due to rounding. Annual 

support amounts less than $50,000 show as $0 due to 

rounding. 

Source: Universal Service Administrative Company 

16 

STATEMENT OF CHAIRMAN KEVIN J. MARTIN

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

I am pleased that the Federal-State Joint Board on Universal Service recommends measures to the Commission to address the rapid growth in the high-cost 

Universal Service program. It is essential that we take actions that preserve and 

advance the benefits of the Universal Service program. 

The United States and the Commission have a long history and tradition of making sure that rural areas of the country are connected and have similar opportunities for communications as other areas. I believe our Universal Service program 

must continue to promote investment in rural America’s infrastructure and ensure 

access to telecommunications services that are comparable to those available in 

urban areas today, as well as provide a platform for delivery of advanced services. 

Changes in technology and increases in the number of carriers that receive Universal Service support, however, have placed significant pressure on the stability of 

the Fund. A large and rapidly growing portion of the high-cost support program is 

now devoted to supporting multiple competitors to serve areas in which costs are 

prohibitively expensive for even one carrier. These additional networks in high-cost 

areas don’t receive support based on their own costs, but rather on the costs of the 

incumbent provider, even if their cost of providing service is lower. The Recommended Decision emphasizes the problems of maintaining the equal support rule. 

The recommendation also caps competitive ETC funding to address the escalating 

impact of this problem. I would argue that if a competitive ETC can demonstrate 

that its costs meet the support threshold in the same manner as the rural provider, 

the competitive ETC should receive support, despite the cap. Thus, a preferable rule 

would be to cap those providers that do not receive support based on their own 

costs. 

Today’s recommendation is not an end in itself, but rather signals the need for 

comprehensive reform. Among the reform ideas the Joint Board continues to consider is the use of reverse auctions (competitive bidding for support in defined areas) 

to determine high-cost Universal Service funding for eligible telecommunications 

carriers. I believe that reverse auctions could provide a technologically and competitively neutral means of controlling the current unsustainable growth in the Fund 

and ensuring a move to most efficient technology over time. Although the use of reverse auctions is one way of limiting the growth of the fund, I will give any recommendation submitted by the Joint Board my full consideration and remain open 

to other ideas that could restrain fund growth and prioritize investment in rural 

and high-cost areas of the country. 

I look forward to working with my colleagues at the Commission to address the 

Joint Board recommendation in a timely manner. I also look forward to a continued 

dialogue with my Joint Board colleagues as the Joint Board continues to address 

comprehensive and fundamental reform. 

STATEMENT OF COMMISSIONER DEBORAH TAYLOR TATE

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

Congress directed the Commission to institute the Federal-State Joint Board on 

Universal Service so that the Joint Board could recommend necessary changes to 

the Commission’s regulations. As stewards of public funds, our obligation to preserve and advance Universal Service mandates that we recommend immediate 

changes to stem the explosive growth in high-cost Universal Service support disbursements. I am proud of the consensus achieved by this Joint Board in fulfillment 

of its duties. 

This interim action is just that: interim. As the Recommended Decision and its 

companion Public Notice make clear, the Joint Board is committed to making further recommendations regarding comprehensive high-cost Universal Service reform 

within 6 months of this Recommended Decision. I am committed, as the Federal 

Chair, to putting the Joint Board in a position to make those recommendations. 

Every member of this Joint Board supports the principles of Universal Service: 

to promote the availability of quality services at just, reasonable, and affordable 

rates; to increase access to advanced telecommunications services throughout the 

Nation; and to advance the availability of such services to all consumers. Our recommendation today is a step toward more fully implementing those principles. I 

look forward to working with my Federal and state colleagues and with all stakeholders as we continue to make progress. 

17 

CONCURRING STATEMENT OF CHAIRMAN LISA POLAK EDGAR

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

I support the Recommended Decision and the accompanying Public Notice. 

Rapid growth in the Universal Service High-Cost Fund is placing unprecedented 

financial pressure on consumers of telecommunications services and the FederalState Joint Board on Universal Service today takes a necessary step to address that 

unplanned and exceptional growth. 

The cap detailed in today’s Recommended Decision is an interim step, meant to 

create a pause in fund growth while a more equitable and comprehensive distribution mechanism can be crafted. The current support mechanisms must be reformed 

to reduce excessive support to multiple providers and better target financial support 

as envisioned by the Telecommunications Act of 1996. Funding redundant providers 

is particularly troubling for consumers in net-contributor states, who shoulder the 

burden of undue growth in the high-cost fund. Therefore, I share my colleagues urgency in addressing a comprehensive reform of the high-cost distribution mechanism 

that adheres to the goals of Universal Service. 

STATEMENT OF COMMISSIONER LARRY S. LANDIS

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

In recent weeks, the bulk of the attention by various parties offering ex parte comments in this proceeding has been devoted to certain anticipated aspects of the proposed interim emergency cap which is addressed in today’s Recommended Decision. 

I can appreciate the concern of various parties with regard to how (without knowing 

the exact parameters of the proposed cap) it might impact them. Much has been 

said and written about the need for competitively and technologically neutral policies, disregarding the fact that in some respects the current regime is anything but. 

The basic facts are inescapable, as set forth in the Recommended Decision. 

Growth in high-cost support on the current trend line is unsustainable. A number 

of proposals were offered in ex parte filings as alternatives, with the intent of ‘‘sharing the pain’’ among various groups of providers. Those proposals fail to address the 

fact that for most segments, growth has been virtually flat or even modestly negative in the short run; there is only one group of providers which have seen dramatic 

and continued growth, and that group is wireless CETCs. 

To use an analogy, if you are offering emergency medical treatment to a badly 

injured person who is bleeding profusely from the arm, you don’t address the shortterm problem by applying a tourniquet to the patient’s leg. Having said that, a tourniquet is not a long-term or permanent solution, and neither is the interim emergency cap. 

While the growth is attributable to CETCs, most of which are wireless carriers, 

they are simply operating under the current laws and rules, once they have received 

ETC designation. Over the course of the past several months, I have come to a 

greater appreciation of the extent to which there are wireless companies which operate on a business model targeted primarily to serving rural areas, and which contribute significantly to realizing the goal of providing truly Universal Service to 

areas where costs are such that no business case can be made for build-out, absent 

Universal Service support. 

At the same time, there are many rural areas where multiple wireless providers 

are active. Where there is already competition, we need to make sure we don’t inadvertently advantage one company over the others which entered that market based 

on a competitive, unsubsidized model. Indeed, it may be time to ask if the presence 

of some minimum number of competitors greater than one in a market is a prima 

facie indicator that the market is contestable and competitive, and that no Universal Service support should be rendered to the competing providers in that market. 

The states have an obligation and a growing partner role with the FCC as joint 

stewards in seeing to it that Universal Service funds are appropriately deployed, 

that legitimate needs are met, but that accountability and performance are audited 

and demanded. 

Now that the interim Recommended Decision has been approved by this body, it 

is my hope that we can move on to the far more significant and far-reaching issues 

and potential solutions addressed in the companion Request for Comment. 

The Request for Comment raises the question of whether the Joint Board and the 

Commission should consider adding broadband to the list of supported services. It 

is my hope that the parties will examine not only the threshold questions (is peneVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
18 

tration sufficient for broadband to qualify as a supported service?) but also, if they 

conclude that broadband should be a supported service, how that can best and most 

efficiently be implemented. What are the appropriate threshold funding obligations 

of providers? Of the several states, including (but not limited to) state funds and 

other incentives? And of the high-cost funds? These potential interrelationships require closer examination. 

Finally, I appreciate the concerns of those who have suggested that the interim 

emergency cap will somehow morph into an intermediate or long-term default 

‘‘patch’’ to the issues we propose to examine. By explicitly committing to making further recommendations regarding long term, comprehensive high-cost Universal 

Service reform within 6 months, and by proposing that the cap expire 1 year from 

the date when such recommendations are offered, I hope that we have convinced 

interested parties that the Joint Board is determined to address those long term 

issues in a meaningful, thoughtful and aggressive manner. 

If we are to do so, we will need to build a record which is considerably more comprehensive and provides greater granularity than that which we have today. Interested parties simply need to move with dispatch. The clock is running for all parties 

with an interest in the outcome of this deliberation. As such, the record will be only 

as robust as the parties make it. 

STATEMENT OF COMMISSIONER JOHN BURKE

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

I agree with my colleagues on the USF Joint Board as to today’s Recommended 

Decision. I would stress the need for a comprehensive solution to be finally adopted 

by the FCC at the earliest possible date. 

Some inequities could result from any cap but inequities undoubtedly already 

exist at least in part because of the identical support rule as presently applied. I 

would hope then that the cap never be extended beyond the 18 month period contemplated as the outside margin of this recommendation for development and adoption of these more comprehensive reforms 

CONCURRING STATEMENT OF COMMISSIONER RAY BAUM

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

In concurring with today’s interim decision capping the CETC portion of the fund, 

I would like to emphasize the following: 

1. I underscore that today’s decision is interim. The Joint Board intends to recommend major reform of the USF to the FCC within 6 months of the date of 

this decision. Parties should file their comments in response to the accompanying Public Notice within the comment periods. Parties who wait to put forward their proposals in ex parte submissions will jeopardize their consideration. 

The Joint Board intends to move expeditiously, and takes seriously the 6 month 

deadline for recommending major reform. 

2. My support for a cap of this nature is limited to the 18 months outlined in 

today’s decision. In several states, there are high-cost rural service areas that 

had no CETC drawing USF support during the interim cap’s 2006 base period. 

As a result of the cap, consumers in these rural areas may not enjoy the same 

quality and reliability of service that is enjoyed by rural consumers in states 

with earlier CETC designations. The CETC portion of the Fund is now disproportionately allocated among rural consumers and states. This cap does not 

remedy that inequity. 

3. Broadband is critical to telecommunications/information services of the future, for both rural and urban Americans. Rural ILECs have generally done a 

good job of making broadband available to the rural consumers they serve; nonrural ILECs generally have not. The Joint Board and commenting parties 

should address whether this inequity can be remedied by properly focused incentives to ETCs, both wireline and wireless, to provide necessary broadband 

services to all rural consumers. 

4. Due to unsustainable growth pressures on the Fund all ETCs should anticipate changes to current USF distribution mechanisms. The identical support 

rule for CETCs may not survive. Rural ILECs may no longer receive support 

based on their embedded costs. All parties should use the forthcoming comment 

periods to put forth their best ideas, describing in detail how they are to be implemented. 

19 

The Joint Board faces difficult decisions in the next 6 months. The best efforts 

of all parties in filing comments to assist the Joint Board is essential and appreciated. 

DISSENTING STATEMENT OF COMMISSIONER MICHAEL J. COPPS

In the Matter of High-Cost Universal Service Support, WC Docket No. 05–337; 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45 

Congress made clear what it expected of the Federal-State Joint Board on Universal Service in section 254 of the Communications Act: the Board shall recommend policies to preserve and advance Universal Service. Since I rejoined the 

Joint Board over 2 years ago, my colleagues and I have worked with this singular 

purpose in mind. As anyone who toils in the field of Universal Service knows, there 

are many worthy ideas on how to achieve the purposes set forth in the Act. Today 

the Joint Board recommends that the FCC impose a so-called ‘‘interim, emergency 

cap’’ on the high-cost support available to competitive eligible telecommunications 

carriers. While I commend my colleagues for their good intentions—to curb the 

growth of the Universal Service Fund—I have serious concerns that such a cap will 

be misinterpreted as a solution, even though it does not address—or pretend to address—the fundamental, comprehensive reforms needed to carry a viable and improved system of Universal Service forward in the twenty-first century. 

The clear and compelling challenge to the Joint Board and the FCC is to bring 

basic and advanced telecommunications to all our citizens and to ensure that our 

Universal Service system, which has accomplished so much, can continue to sustain 

itself. Our job is to develop strategies and programs to bring the best, most accessible and cost-effective communications system in the world to all our people—and 

Universal Service does indeed mean ‘‘all’’ our people. Every citizen of this great 

country should have access to the wonders of communications—whether they live 

on farms or rural hamlets, on tribal lands or in the inner city; whether they have 

limited income or are challenged by disabilities; whether they are schoolchildren or 

rural healthcare providers. 

Universal service has done great things for America. But its job is far—very far— 

from complete. Revolutionary changes are transforming the world of telecommunications, but not all of us will be able to benefit from them without significant Universal Service system reforms. We have studied these problems for a very long time. 

Hundreds of discussions have taken place. Ideas have been exchanged. Solutions 

have been proposed. The problem is that the solutions are not painless. Companies 

and government both get comfortable with business as usual, and when someone 

proposes to rock the boat we all get nervous. Game theory supersedes decisionmaking—and nothing gets done. Yet reality keeps knocking at the door: the system 

is stressed; down the present path it may not be sustainable; it still marches to the 

tune of 20th century telecom. And there is this: we may all be called on for shared 

sacrifice if Universal Service is going to fulfill its mission. 

I believe we have it within our ability—and within our grasp—to resolve our current Universal Service Fund problems and to deploy a system that can contribute 

mightily to economic opportunity for all our citizens and to truly expansive economic 

growth for our country. This modernized Universal Service system would ensure 

that every citizen in our country is connected to vital education, public health, public safety, employment and entrepreneurial opportunities. 

But we don’t have the luxury of time to get this right. That is why I believe today’s recommendation misses the mark—it puts too many issues off to another day. 

It’s risky business. 

The Joint Board has two major referrals before it, one dating to 2002 and the 

other to 2004. These are complicated referrals, to be sure, but it is nevertheless entirely possible to come forward with recommendations on the outstanding issues 

with which we are all familiar. Instead the Joint Board proposes an interim, emergency cap that solves no enduring problem and that will be interpreted by many 

as movement enough to justify putting the larger Universal Service reform imperative on the back-burner. I fear today’s action diminishes rather than enhances the 

prospects for near or even mid-term reform. 

In the best-case scenario under the proposed cap, even if the Joint Board acts 

within 6 months on fundamental reforms and the FCC then proceeds to adopt some 

version of those reforms in a year, it will be 18 months—autumn of 2008—before 

we even have a strategic long-term plan from the FCC for Universal Service reform. 

If the past is prologue, coming to FCC consensus may take far longer than that, 

not to mention any legislative changes that may be suggested. 

Frankly, I worry that an emergency, interim cap inflames discord and disagreement among industry sectors at a time when we should be bringing everyone to the 

20 

table to develop as much consensus as we can. I don’t see the need to poison the 

well when we could all be drinking from the same cup. Others have expressed concerns that this emergency action could lead to extended litigation and to putting 

into play concerns about the lack of technology neutrality that some see in this proposal. 

It is not just the pressure on the Universal Service Fund that compels action. It 

is even more the pressure from our country’s grossly inadequate under-performance 

in getting advanced telecommunications out to all our citizens. Just last week, the 

OECD moved the United States down three more spots in its broadband rankings— 

now your country and mine is Number 15. Some are attempting to impugn the 

rankings or to say that, even if true, it is good news that other countries are moving 

forward so quickly! These comments and claims are lame attempts to mask a national embarrassment. Universal service has a huge role to play in correcting our 

course and moving us back toward the top where the United States always belongs. 

This is why it is so incumbent upon us to get comprehensive Joint Board recommendations to the Commission expeditiously and then for the Commission to act. 

We need to act not just because informed action will move us up the rankings, but 

because of what our country’s poor performance means in terms of a continuing, perhaps even worsening, rural-urban digital gap and in terms of economic opportunities 

foregone for individuals, communities and businesses all across America. 

The Joint Board is filled with uncommon knowledge, expertise and good judgment. It has most of the information, data, and analysis that it needs, right now, 

to move ahead to propose needed repairs and modernization for Universal Service. 

I will be in the minority with my vote today. Still, I look forward to working with 

my colleagues and friends on the Joint Board and the Commission to move the ball 

forward on the new field we have designed. To them and to all the millions of stakeholders in this work, I pledge my full participation and cooperation to move ahead 

as speedily as possible to expedite and complete the Joint Board’s work. 

Endnotes 1See Federal-State Joint Board on Universal Service, CC Docket No. 96–45, 

Order, 17 FCC Rcd 22642 (2002). 2 Id. 

3See Federal-State Joint Board on Universal Service, CC Docket No. 96–45, Recommended Decision, 19 FCC Rcd 4257 (2004). 4 Id. At 4294, para. 88. 5See Federal-State Joint Board on Universal Service, CC Docket No. 96–45, 

Order, 19 FCC Rcd 11538, para. 1 (2004) (Rural Referral Order); Federal-State Joint 

Board on Universal Service, CC Docket No. 96–45, Fourteenth Report and Order 

and Twenty-Second Order on Reconsideration, Multi-Association Group (MAG) Plan 

for Regulation of Interstate Services of Non-Price Cap Incumbent Local Exchange 

Carriers and Interexchange Carriers, CC Docket No. 00–256, Report and Order, 16 

FCC Rcd 11244, 11268–70 (2001) (Rural Task Force Order); see also Federal-State 

Joint Board on Universal Service; High-Cost Universal Service Support, CC Docket 

No. 96–45, WC Docket No. 05–337, Order, 21 FCC Rcd 5514 (2006) (extending Rural 

Task Force plan). 6See Federal-State Joint Board on Universal Service Seeks Comment on Certain 

of the Commission’s Rules Relating to High-Cost Universal Service Support, CC 

Docket No. 96–45, Public Notice, 19 FCC Rcd 16083 (2004). 7See id. At 16094, paras. 36–37. 8See Federal State Joint Board on Universal Service Seeks Comment on Proposals 

to Modify the Commission’s Rules Relating to High-Cost Universal Service Support, 

CC Docket No. 96–45, Public Notice, 20 FCC Rcd 14267 (2005); Federal-State Joint 

Board on Universal Service Seeks Comment on the Merits of Using Auctions to Determine High-Cost Universal Service Support, WC Docket No. 05–337, Public Notice, 

21 FCC Rcd 9292 (2006). 9Federal-State Joint Board on Universal Service, WC Docket No. 05–337, CC 

Docket No. 96–45, Recommended Decision, FCC 07J–1 (Fed.-State Jt. Bd., rel. May 

1, 2007) (Recommended Decision) (attached as Appendix A). 10Specifically, the Joint Board sought comment on proposals, including the use of 

reverse auctions to determine high-cost Universal Service support; the use of geographic information systems technology and network cost modeling to better calculate and target support at more granular levels; disaggregation of support below 

the study area or wire center level; the methodology for calculating support for 

CETCs; and whether Universal Service funding should be used to promote 

broadband deployment directly. Federal-State Joint Board on Universal Service 

Seeks Comment on Long Term, Comprehensive High-Cost Universal Service Reform, 

21 

WC Docket No. 05–337, CC Docket No. 96–45, Public Notice, FCC 07J–2 (Fed.-State 

Jt. Bd., rel. May 1, 2007). 11The interim cap will apply to all of the existing high-cost support mechanisms: 

high-cost loop support (including safety net support and safety valve support), local 

switching support, high-cost model support, interstate common line support, and 

interstate access support. 12Federal-State Joint Board on Universal Service Seeks Comment on Long Term, 

Comprehensive High-Cost Universal Service Reform, WC Docket 05–337, CC Docket 

No. 96–45, Public Notice, FCC 07J–2 (rel. May 1, 2007) (May 2007 Public Notice). 13See Federal-State Joint Board on Universal Service, CC Docket No. 96–45, 

Order, 17 FCC Rcd 22642 (2002). 14 Id. 15See Federal-State Joint Board on Universal Service, CC Docket No. 96–45, Recommended Decision, 19 FCC Rcd 4257 (2004). 16 Id. At 4294, para. 88. 17See Federal-State Joint Board on Universal Service, CC Docket No. 96–45, 

Order, 19 FCC Rcd 11538, para. 1 (2004) (Rural Referral Order); Federal-State Joint 

Board on Universal Service, CC Docket No. 96–45, Fourteenth Report and Order 

and Twenty-Second Order on Reconsideration, Multi-Association Group (MAG) Plan 

for Regulation of Interstate Services of Non-Price Cap Incumbent Local Exchange 

Carriers and Interexchange Carriers, CC Docket No. 00–256, Report and Order, 16 

FCC Rcd 11244, 11268–70 (2001) (Rural Task Force Order); see also Federal-State 

Joint Board on Universal Service; High-Cost Universal Service Support, CC Docket 

No. 96–45, WC Docket No. 05–337, Order, 21 FCC Rcd 5514 (2006) (extending Rural 

Task Force plan). 18See Federal-State Joint Board on Universal Service Seeks Comment on Certain 

of the Commission’s Rules Relating to High-Cost Universal Service Support, CC 

Docket No. 96–45, Public Notice, 19 FCC Rcd 16083 (2004). 19See id. At 16094, paras. 36–37. 20See Federal State Joint Board on Universal Service Seeks Comment on Proposals to Modify the Commission’s Rules Relating to High-Cost Universal Service 

Support, CC Docket No. 96–45, Public Notice, 20 FCC Rcd 14267 (2005); FederalState Joint Board on Universal Service Seeks Comment on the Merits of Using Auctions to Determine High-Cost Universal Service Support, WC Docket No. 05–337, 

Public Notice, 21 FCC Rcd 9292 (2006). In February 2007, the Joint Board held an 

en banc hearing to discuss high-cost Universal Service support in rural areas, including the use of reverse auctions and geographic information systems (GIS) to determine support for eligible telecommunications carriers. See Federal-State Joint 

Board on Universal Service to Hold En Banc Hearing on High-Cost Universal Service Support in Areas Served by Rural Carriers, WC Docket No. 05–337, Public Notice, 22 FCC Rcd 2545 (2007). 21The most recent contribution factor is 11.7 percent, which is the highest level 

since its inception. See Proposed Second Quarter 2007 Universal Service Contribution Factor, CC Docket No. 96–45, Public Notice, 20 FCC Rcd 5074 (2007). 22See Universal Service Monitoring Report, CC Docket No. 98–202, Prepared by 

the Federal and State Staff for the Federal-State Joint Board on Universal Service 

in CC Docket No. 96–45, Table 3.2 (2006) (Universal Service Monitoring Report). 23 Id. 24 In 2001, much of the growth in high-cost support was attributable to removing 

implicit subsidies from access charges and the inclusion of these amounts in explicit 

Universal Service mechanisms adopted in the CALLS Order and the MAG Plan 

Order. See Access Charge Reform, Price Cap Performance Review for Local Exchange 

Carriers, CC Docket Nos. 96–262 and 94–1, Sixth Report and Order, Low-Volume 

Long-Distance Users, CC Docket No. 99–249, Report and Order, Federal-State Joint 

Board on Universal Service, CC Docket No. 96–45, Eleventh Report and Order, 15 

FCC Rcd 12962 (2000) (CALLS Order); Multi-Association Group (MAG) Plan for 

Regulation of Interstate Services of Non-Price Cap Incumbent Local Exchange Carriers and Interexchange Carriers in CC Docket No. 00–256, Federal-State Joint 

Board on Universal Service in CC Docket No. 96–45, Access Charge Reform for Incumbent Local Exchange Carriers Subject to Rate-of-Return Regulation in CC Docket 

No. 98–77, Prescribing the Authorized Rate of Return From Interstate Services of 

Local Exchange Carriers in CC Docket No. 98–166, Second Report and Order and 

Further Notice of Proposed Rulemaking, Fifteenth Report and Order, and Report 

and Order, 16 FCC Rcd 19613 (2001) (MAG Plan Order), recon. pending. 25This estimate does not include the effect of states granting any of the more than 

30 competitive ETC petitions that are pending in various state jurisdictions. 26 Recently, several parties have submitted filings highlighting the need for the 

Commission and the Joint Board to take immediate action to bring the growth of 

22 

the high-cost fund under control. See e.g., Letter from Mary L. Henze, Senior Director Federal Regulatory, AT&T, to Marlene Dortch, Secretary, FCC (dated March 22, 

2007); Kathleen Grillo, Vice President Federal Regulatory, Verizon, to Deborah Taylor Tate, Federal Chair and Ray Baum, State Chair, Federal-State Joint Board on 

Universal Service (dated Feb. 9, 2007); see also Appendix A (charts presented by 

Chairman Martin at the February 2007 En Banc Hearing of the Joint Board, demonstrating growth of competitive ETC support and its consequences). 27For example, four states and Puerto Rico receive forty percent of the total support distributed to competitive ETCs, and ten states receive almost sixty percent of 

competitive ETC support. As shown in the attached table, many states receive little 

or no competitive ETC support. See Appendix B. 28See 47 C.F.R. §§ 36.603 and 54.801(a). 29Local switching support for incumbent LECs ranged between $360 million and 

$384 million annually from 2003 through 2006. Interstate common line support (including its predecessor long-term support) for incumbent LECs, which ranged between $871 million and $953 million annually from 2003 through 2006, has remained stable at approximately $950 million annually for the last 2 years. See Universal Service Monitoring Report, Table 3.2. 30 In the Universal Service First Report and Order, the Commission adopted this 

principle as part of its effort to support more than one competitor in rural areas. 

Federal-State Joint Board on Universal Service, CC Docket No. 96–45, Report and 

Order, 12 FCC Rcd 8776 8944–45 paras. 311–13 (1997) (Universal Service First Report and Order) (subsequent history omitted). 31See infra para. 12. 32Letter from John T. Nakahata, Counsel to General Communication Inc., to 

Deborah Taylor Tate, Federal Chair, Federal-State Joint Board on Universal Service, and Ray Baum, State Chair, Federal-State Joint Board on Universal Service 

(dated Apr. 13, 2007). 33See 47 U.S.C. § 254(a)(2). 34 In addition to capping competitive ETC support by state, we considered, but declined to recommend, capping competitive ETC support nationwide or by study area. 

A nationwide cap amount would maintain incentives for states to designate additional competitive ETCs to increase their share of competitive ETC capped support 

and would result in competitive ETC support shifting to those states that aggressively designate competitive ETCs during the period of the interim cap. A cap by 

study area would foreclose the possibility of support for the duration of the cap for 

those study areas that currently have no competitive ETCs and would be administratively burdensome. We note that establishing the cap by any particular geographic area would not change the total amount of competitive ETC support available for all competitive ETCs in the nation, but the scope of the geographic territory 

for the cap affects the distribution of capped support and the administrative complexity of computing capped support. 35 47 C.F.R. § 54.307. 36See infra para. 14. 37See supra para. 4. 38For example, the annual true-up of interstate common line support (ICLS) occurs in the third and fourth quarters, but not in the first and second quarters. 39May 2007 Public Notice. 40 Id. 41See id. at para. 1. 

Senator STEVENS. Thank you very much. 

Senator McCaskill, did you have an opening statement? 

Senator MCCASKILL. No. 

Senator STEVENS. Senator Klobuchar? 

Senator MCCASKILL. No, Mr. Chairman, thank you, though. 

Senator STEVENS. Senator? 

Senator KLOBUCHAR. Yes, I do. 

Senator STEVENS. Thank you. 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you, Mr. Chairman. 

23 

I’m pleased to be here today to address the Joint Board’s recommendation regarding high-cost universal support and to consider, more generally, ways to reform Universal Service. 

I don’t think that anyone questions the important policy goals inherent in the Universal Service system. And nobody in 1934, or 

even 1996, could have predicted the importance of wireless service 

in modern life. 

I’ve talked, in previous hearings, about the importance of highspeed Internet connections in rural America, the importance of 

having telephone service and cell phone service all over our state. 

I can tell you having just recently driven in the far corners of our 

state, that it’s still a major issue. 

And, in light of this, I’m concerned that any cap on high-cost 

Universal Service support for competitive eligible telecommunications carriers, even the temporary cap proposed by the Joint 

Board, may at first delay and then hamper current efforts to buildout wireless service in rural America. At the same time, I’ll say 

that I recognize that the Universal Service system screams out for 

reform. As Commissioner Copps wrote in his dissent to the May 1 

Joint Board recommendation, we should be bringing everyone to 

the table to develop as much consensus as we can. 

I look forward to the testimony today, and questioning you, Commissioner Tate, and to learning about the ways we can achieve fundamental comprehensive reform. 

Thank you. 

Senator STEVENS. Thank you, Senator. 

Ms. Tate, these first questions are the Chairman’s questions. 

The Joint Board’s recommendation for a cap is designed to be a 

short-term fix for the growth in Universal Service demand. In order 

to ensure the long-term stability of Universal Service, what specific 

further reforms would you favor? 

Ms. TATE. I’m glad the Chairman noted that this was definitely 

an interim decision, and a consensus decision, on what action to 

take. 

My vision, obviously, in terms of being a Commissioner, I have 

an open mind on many of the proposals that have been submitted 

to the record. We have numerous comments, and reply comments, 

and I’m looking forward to the close of that comment period, to review all of those. 

My vision, as I said in my statement, was for us to move to a 

technologically and competitively neutral plan that would be based 

on the provider’s cost, and hopefully that would also have mechanisms that would control this continued growth over time so that, 

indeed, we can sustain the Fund to be used precisely as you all 

have recognized, for what it should be. 

There are a number of proposals, obviously, that you all have discussed. Chairman Martin and many others in the record have suggested reverse auctions that, indeed, would be technologically and 

competitively neutral. The Joint Board suggested in our Recommended Decision, that the FCC review the primary line restriction, which Congress has disallowed in the past; and the possibility 

of revisiting the portability rule. There are also some proposals 

about trying to utilize more granular data for the purpose of also 

better targeting the funds to the need. 

24 

Senator STEVENS. The Chairman would have asked, ‘‘In the long 

term, do you believe that Universal Service funding should be 

available to more than one carrier in a geographic area?’’ 

Ms. TATE. We did not reach a decision about that. And I think 

that is one of those decisions that, as a Commissioner, I will be 

faced with in trying to determine what fundamental reform will 

look like. Certainly, that’s going to be an important part of this, 

and that is whether we fund multiple carriers in areas that are determined to be high-cost areas. 

Senator STEVENS. Well, the Joint Board recommends Universal 

Service funds for competitive carriers be capped on a state-by-state 

basis. The recommendation omits any mention of tribal lands. In 

the light of the special jurisdictional concerns involving Indian 

country, how should the FCC apply that cap to tribal lands? That’s 

still a question of the Chairman’s. 

Ms. TATE. Yes, sir, I understand. I think that, as I said in my 

statement, certainly the FCC and the Joint Board realizes there 

are many unique circumstances for tribal lands, and we would need 

to take those unique circumstances into account as we move forward with the implementation of a cap. 

Senator STEVENS. In order to preserve sovereignty of these 

tribes, would it be best to address support for competitive carriers 

serving tribal lands on a case-by-case basis? 

Ms. TATE. Senator, I haven’t had an opportunity to think about 

looking at that. I assume that as we look at tribal lands through 

the lens of the unique circumstances that they pose, I assume 

that’s what that does mean. 

Senator STEVENS. All right. Senator Sununu preceded me, and I 

would call on him first. 

Senator SUNUNU. No, that’s all right. Please continue. 

Senator STEVENS. All right. I just have one question. Did the 

Joint Board consider the problem of paying the second carrier, the 

competitive carrier, on the basis of the primary carrier’s costs? As 

I understand it, if carrier A has been serving, and carrier B comes 

in to compete and seeks Universal Service, the reimbursement to 

carrier B is based upon the cost to carrier A, not carrier B. And, 

by definition, in almost every circumstance, carrier B has a substantially lower cost. Why the windfall? 

Ms. TATE. Yes, sir. Well, I think that that goes back to fundamental reform of the entire program. 

Senator STEVENS. It’s not in the law. The Commission did that. 

Ms. TATE. Once again, I think that that is precisely the reason 

that we need to move forward absolutely as quickly as possible toward fundamental reform. 

Senator STEVENS. Well, I agree. I just cannot believe that we 

would have the situation continue, when the Commission has the 

authority to change this without the Joint Board. We do have the 

bill Senators Dorgan and Smith have introduced, and I have a bill 

on Universal Service reforms, and Senator Inouye’s staff and mine 

are working on a way to put them all together. 

But it’s going to take time to do that. The Commission could 

solve this now. That chart you showed us of the increased cost is 

based upon a cost basis that is based primarily upon fixed cost. The 

new carriers are involved in wireless and other basic costs that are 

25 

substantially lower. I just don’t understand why the Commission 

persists in allowing that to continue. Have you reviewed it at all? 

Ms. TATE. That was not what the Joint Board particularly focused on. The Joint Board came to a consensus that we should cap 

the CETC side on the Fund only as an interim basis so we could 

move forward as quickly as possible toward fundamental reform. I 

agree with you, Senator, that the present system is fraught with 

many inequities. 

Senator STEVENS. This will be my last question. It is my understanding, what is happening now, under the Joint Board’s recommendation, is you cap the newcomers, you cap the competitors 

that are coming in, and keep that cap on for at least 18 months, 

when the problem is recognizing those newcomers come in at a 

lower cost. I’m frustrated dealing with this issue, because we’re 

getting a bill passed when FCC has the power to deal with it. 

You’re relying on this Joint Board as though it’s something we 

mandated you to follow. We have not mandated that you follow 

them. Do you agree? 

Ms. TATE. I can understand your frustration, Senator. And I 

think we’re all frustrated. I think that’s why the Joint Board came 

to a consensus decision that we needed to do something to curb the 

Fund. 

I do want to speak for a moment, though, about the new carriers 

that could be designated. The cap is at the State level, so new carriers may be designated, and they would share in—underneath 

whatever that State cap is. 

Senator STEVENS. Yes, I’m afraid of that. With a state one-fifth 

the size of the United States, we have the new carriers come in 

with new technology, and you’re going to put a cap on what’s happened in the past, when we still have areas that don’t have any 

service at all. So, I don’t understand what’s going on. It’s just like 

someone’s putting their head in the ground. This is an ostrich approach, as far as I’m concerned. 

Senator Sununu? 

Senator SUNUNU. Thank you, Mr. Chairman. 

Commissioner Tate, you indicated that the Commission—or the 

Board wasn’t able to reach consensus on more comprehensive 

measures. And that’s frustrating to hear, especially in an environment, and on a Committee, where everyone says they’re for reform, 

and they’re for change, and they’re for the future, and they’re for 

the children. Can you be specific as to what the obstacles are, and 

what the reasons are, that have prevented consensus from being 

developed at the Joint Board? 

Ms. TATE. Well, let me start out with saying that there was consensus. Seven of eight of us determined that we needed to take this 

first step. So, in—— 

Senator SUNUNU. No, no, but consensus on—— 

Ms. TATE. I understand. 

Senator SUNUNU.—broader reform. No, but you wouldn’t be 

here—you wouldn’t have made the recommendation on the CETCs 

if there weren’t consensus, I understand that. But—— 

Ms. TATE. And—— 

Senator SUNUNU. But you were talking about more competitive 

reform—— 

26 

Ms. TATE. Absolutely. 

Senator SUNUNU.—and an—— 

Ms. TATE. And—— 

Senator SUNUNU.—obstacle there. 

Ms. TATE. And I can assure you, I wish that I could have moved 

us, faster, forward to more comprehensive reform. We discussed 

many of the recommendations that are already in the record. I 

think the good news is, I’ve never seen this much attention focused 

on these issues. People are frustrated. The Fund is growing at an 

unsustainable rate. So, I do think we are beginning to get good, 

cost-effective, cost-based—as Senator Stevens said—proposals on 

the table, and we will move forward. We are meeting in July. We 

continue to meet extremely often to try to move forward on this. 

The reply comment period, I think, closed today or tomorrow. We 

will immediately get all of those comments summarized and begin 

to work through each one of those concepts. 

Senator SUNUNU. But, in the absence of any description of what 

the specific obstacles to consensus for broader reform, it’s hard to 

believe, then, that you’ll be able to meet the goal of putting forward 

a more comprehensive plan in 6 months. And, in your statement, 

you talk about being able to advance some more comprehensive 

proposals in the near future. One, why should we feel good about 

that commitment—or why should we feel comfortable that that 

goal will be met? And, two, what deadline should Congress set to 

help ensure that that action is forthcoming? 

Ms. TATE. Well, thank you for recognizing it’s a really tough job 

trying to get people to come to consensus, especially on these 

issues. So, I thank you for recognizing that. It would be wonderful 

if you all asked the next panel some of these questions. 

Senator STEVENS. We will. 

[Laughter.] 

Ms. TATE. Ask them to come together so that we can get to fundamental reform. 

Senator SUNUNU. But why are you confident it will happen in 6 

months? And should Congress set a deadline for action? 

Ms. TATE. The Joint Board, in a consensus decision, chose 6 

months. We wanted to keep ourselves on a very tight timeframe. 

If you all would like to choose a timeframe, I’m sure that we will 

try to accommodate that. 

Senator SUNUNU. In the meantime, we have an interim cap on 

CETCs. Some of them have requests pending, or decisions pending, 

at the FCC. What happens to them? And I’m sure there are some 

in many states; I’m quite sure there are some in New Hampshire— 

and they’ve had requests and decisions pending in front of the 

FCC, not for a couple of months, but, in some cases, for a few 

years. What happens to those pending requests? And are they 

going to be just shut off from the access that would have been 

available if this decision either hadn’t been made so soon or if their 

petitions had been acted on in a more timely way? 

Ms. TATE. The state cap would provide that the amount of funding is capped at the 2006 level, which is a real amount, that we 

knew would be a firm amount. If new ETC designations are 

made—and, as you know, most of those are through Section 214 at 

27 

the State level—they will take a pro rata share of the state-capped 

amount. 

Senator SUNUNU. So, they’re out of luck. You know, if they made 

a request 2 years ago, or 3 years ago, the FCC hasn’t acted, you 

impose this cap, so it’s too late, because their petition wasn’t acted 

on in a timely way. 

Ms. TATE. No—— 

Senator SUNUNU. They can take from some other CETC, because 

they’re taking out of a capped pool at the State level. I understand 

the point you made with regard to the pro rata share. But, you 

know—— 

Ms. TATE. That’s—— 

Senator SUNUNU.—there’s obviously a very different economic 

picture and a very different economic value in that. So, they’re out 

of luck. 

Ms. TATE. They will receive funding. It will just be capped at the 

State level of 2006. 

Senator SUNUNU. But the incumbents won’t be capped. 

Ms. TATE. Yes. 

Senator SUNUNU. But there’s no cap on any other part of the program. 

Ms. TATE. Oh, the incumbent providers. Actually—well, Senator 

Sununu, you know, there are caps over on the wireline side, on the 

high-loop cost and on the interstate access rate. And then you 

know that we also have a cap on both the E-Rate fund and the 

rural healthcare fund. So, I mean, there are some caps in place. 

Senator SUNUNU. Right, but there’s no overall cap in the highcost support, which is what benefits most of the—— 

Ms. TATE. There isn’t a cap—— 

Senator SUNUNU.—most of the ILECs. 

Ms. TATE.—that—there is not a cap now on the overall fund. 

Senator SUNUNU. Understood. Thank you. 

Senator STEVENS. Senator Snowe, did you have an opening statement? 

Senator SNOWE. I did, Mr. Chairman, but I could do it later. 

Senator STEVENS. You may do it later, yes. 

Senator SNOWE. Thank you. 

Senator STEVENS. Senator Pryor? 

STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you, Mr. Chairman. 

I would like to ask about the Joint Board’s recommendation 

being interim in nature. Do you think ‘‘interim’’ means interim? I 

mean, is that a short-term, long-term—how—— 

[Laughter.] 

Senator PRYOR. What does that mean, in your world? 

Ms. TATE. Obviously, I haven’t been in D.C. as long as all the 

people behind me, but—— 

[Laughter.] 

Ms. TATE. You know, we chose—again, as a consensus decision— 

to make this an interim cap. We set very strict guidelines to act 

in the most timely way that we, as the Joint Board, felt would be 

possible. In the decision, we even used the word ‘‘emergency.’’ So, 

28 

I am hoping—I pledge to you all that I will work as hard as I can 

to facilitate the continued discussions between the Joint Board 

members so it is, indeed, an interim cap. 

Senator PRYOR. The concern I have about the use of the term ‘‘interim’’ is that the Commission adopted an interim freeze on separations factors in 1982, and an interim cap on high-cost loop support 

in 1993, and, basically, those are still in effect today. So, I think 

there have been very slight modifications to both of those, and 

there are probably other examples, too, that people in the audience 

are aware of. When you talk about ‘‘interim,’’ and you talk about 

‘‘consensus’’—now, I wasn’t part of any of those discussions, but I 

would like to know your impressions on the consensus. It sounds 

to me like it was very, very difficult to reach a consensus, and, basically, you just did the best you could under the circumstances. 

But maybe a true consensus still needs to be reached. Is that fair 

to say? 

Ms. TATE. Absolutely, Senator. We must move toward fundamental reform. 

Senator PRYOR. Well, what—— 

Ms. TATE. And—— 

Senator PRYOR.—what is it that will get you to consensus, where 

we can move to fundamental reform? What are the major sticking 

points? 

Ms. TATE. Someone has already quoted my colleague Commissioner Copps, and he said, ‘‘Well, everyone may have to sacrifice a 

little.’’ And, again, not to be trite, but you are going to have a panel 

in front of you that represents all the major industries that are 

going to be affected by whatever—whether it’s a cap or another recommendation—that the FCC may accept. So, I would ask you all, 

as we are doing, to encourage the industry to come together around 

some consensus proposal. 

Senator PRYOR. OK. There’s a lot of investment right now in 

rural broadband by the wireless industry. Do you think that this 

recommendation of the Joint Board will help or hurt deployment of 

rural broadband? 

Ms. TATE. You know, obviously, like you, I live right next door, 

and I am constantly amazed and thrilled by all the services that 

the wireless industry is providing. We want to do all we can to encourage that. I believe that rural Americans should have an evolving level of services. So, I hope the interim nature of this will be 

seen as that, and that companies will continue to invest. And, as 

you know, there are many companies that don’t seek ETC status—— 

Senator PRYOR. Right. 

Ms. TATE.—wireless companies, that do provide services. 

Senator PRYOR. Right. There again, the ‘‘interim’’ issue there, to 

me, would make it difficult for a company to know what to do, in 

terms of how much to invest, based on what the future might look 

like. They would like some certainty. 

Ms. TATE. Senator, what do you think—I mean, I’m—I’m very interested in moving toward a more competitively neutral cost-based 

system, so that’s one of the concepts, for instance, when you say, 

‘‘What’s standing in your way?’’—you know, perhaps that’s someVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
29 

thing that the wireless industry would want to come forward 

with—— 

Senator PRYOR. Uh-huh. 

Ms. TATE.—some kind of cost-based analysis, their own cost, cost 

to serve a very specific area. Alltel has a really creative suggestion 

in the record right now about providing broadband to underserved 

areas. So, you know, maybe those are some suggestions that you 

could encourage. 

Senator PRYOR. OK. Well, thank you, and I’ll try to do that. 

One last question, on the Fifth Circuit Court of Appeals. They 

stated that the Commission, ‘‘Must see to it that both Universal 

Service and local competition are realized,’’ and that you, ‘‘cannot 

flatly ignore or contravene a goal set forth in the Act.’’ Do you feel 

like this recommendation of the Joint Board—are you accomplishing what the Fifth Circuit has laid out, or do you think there’s 

still work to be done? 

Ms. TATE. Well, once again, yes, there is much work to be done. 

We have got to move toward fundamental reform. And I think that 

this cap was just in order to move us forward one step to stem 

what we see as just unsustainable growth on that side. 

Senator PRYOR. Thank you, Mr. Chairman. 

Senator STEVENS. Thank you. 

Senator McCaskill? 

STATEMENT OF HON. CLAIRE MCCASKILL, 

U.S. SENATOR FROM MISSOURI 

Senator MCCASKILL. Thank you, Mr. Chairman. 

I got to tell you that I know broad-based reform is hard, but if 

there was ever an area that needs broad-based reform, obviously 

it’s this. And I’m a little depressed, because you keep asking us to 

ask the next panel. And that’s kind of a public acknowledgment 

that, you know, the cart is driving the horse here. 

The next panel is full of people who have financial interests. This 

is about money, and they have financial interests. And what you’re 

basically saying to us is, ‘‘The FCC is incapable of moving forward 

on reform unless all the people who are making money say it’s 

OK.’’ And that’s hard for me to get my arms around. 

It seems to me that the FCC is supposed to be the body that is 

given the statutory authority, and it’s given the ability to look at 

this broad program and see whether or not it’s accomplishing its 

purpose, and see whether people are being enriched, and act, not 

waiting for the people who are making money to all join hands and 

sing ‘‘Kumbaya.’’ 

And so, I’m interested in why we have gotten to the point that, 

before the FCC can do its job, you’ve got to get all the people making money to agree with you. 

Ms. TATE. I certainly understand your frustration, and we are 

acting. I’m here today because we took a step, and there are a lot 

of people who obviously are not pleased with the consensus recommendation that the Joint Board came forward with. But we are 

moving ahead. We’ve set a tight timetable, the Joint Board has 

asked the FCC to work on a very tight timetable. I think the 

Chairman will be placing something before the full Commission in 

very short order for us to look at. So, we are moving forward. 

30 

Senator MCCASKILL. It’s my understanding that the cap will not 

cap the amount of money that taxpayers are paying into this Fund. 

Correct? In other words, the amount that consumers continue to 

pay is going to remain. 

Ms. TATE. Well, consumers will continue to pay in, but the rate 

will be capped at what the 2006 rate was. 

Senator MCCASKILL. Well, my question is simple. Will the Fund 

continue to grow, overall? 

Ms. TATE. Well, we have only capped the CETC portion, so I 

can’t answer, right now, whether the Fund—the entire Fund will 

continue to grow or not. If we did not cap this side of the Fund, 

then this side of the Fund would continue to have grown at a rate 

that’s unsustainable. 

Senator MCCASKILL. But there’s nothing in this recommendation 

that will make sure that consumers are not continuing to pay for 

this in the future. 

Ms. TATE. Consumers are continuing to pay, today, Senator. 

Senator MCCASKILL. It’s my understanding that this Fund cannot be used for broadband, but it can, kind of—wink, wink, nod, 

nod—be used for everything but DSLAM. And so, is it the knowledge of the FCC that a lot of these monies are being used for what 

you would call ancillary or connected costs of deploying broadband 

without actually spending it on the DSLAM? 

Ms. TATE. Well, I think that investment in infrastructure that 

supports broadband—certainly, some of this money is being used to 

encourage more investment in infrastructure, especially in rural 

areas. There—— 

Senator MCCASKILL. All right. 

Ms. TATE.—are also—as you know, we also are encouraging 

broadband through E-Rate, through our rural telemedicine, so we 

are encouraging broadband at the FCC. 

Senator MCCASKILL. I want to ask you, is the FCC familiar with 

what is and isn’t happening with the Rural Utilities Service 

Broadband Grants at USDA? Do you all look at that, that program, 

and what is and isn’t happening with that program, as you all consider the Universal Service Fund and the impact that it is or isn’t 

having in rural America? 

Ms. TATE. I don’t have any personal knowledge about having met 

with them. I’m sure that, at some level, our bureaus probably do 

work together. I remember that when I was a Commissioner in the 

State of Tennessee, actually there was a joint RUS, ARC, and FCC 

pilot project up in Appalachia. So, I know that, at least in the past, 

our staffs have worked together. 

Senator MCCASKILL. Well, you know, it’s another example of 

where, there’s money being spent on the same thing from two different pots of money, and the person who knows how to access the 

pots of money, and who’s got the inside track, they’re all anxious 

for everything that is currently the way it is to not change. And, 

as has kind of been referenced in previous questions, the goal 

needs to be that we continue to keep the field open for future competitors, and I’m frustrated that the Rural Utilities Service 

Broadband Grants, even though we’d authorized with leverage, you 

know, billions of dollars, and appropriated billions of dollars, it is 

not being deployed in a way that is making the kind of progress, 

31 

I think, that was anticipated by the legislation, to impact rural 

broadband. 

Let me ask you this question. Do you all feel that the initial reason this Fund was put in place, in terms of making sure that there 

were landlines available in rural America—do you feel that the 

need is the same now, for maintenance as it was for establishment? 

Ms. TATE. Well, certainly I believe that all Americans should 

have the opportunity to have an evolving level of services. And, in 

order to have those new technologies, there has to be a new investment in infrastructure for companies to keep up with the new technologies and to provide those to all Americans. 

Senator MCCASKILL. Should we open up this fund for broadband, 

then, for Internet phone? 

Ms. TATE. Well, that is certainly one of the recommendations 

that we have been asked, on numerous times. And, in fact, I believe some people on this Committee probably would like for us to 

do that. The Joint Board did include that question in our Public 

Notice that accompanied the Recommended Decision. So, we will be 

taking that into account as we move forward. 

Senator MCCASKILL. And is there any fear—if we’re frozen, without consensus, by the people who are stakeholders, from a profit 

perspective in this system, is there any fear that if we lock in a 

cap, that what we’re doing is locking in the status quo? 

Ms. TATE. I hope not. This is, indeed, a change. And what we 

hope is that—once again, this is the first step—we’re in a process, 

this is not a solution—that this is the first step, so we can get, and 

move toward, fundamental reform. 

Senator MCCASKILL. Well, Mr. Chairman, I know that you’re 

working on broadbased reform in this area, and I hope that we can 

all come together and try to, as quickly as possible, within the way 

the U.S. Senate works, get the comprehensive reform. And I hope 

we include the Rural Utilities Service Broadband Grants. With the 

farm bill coming up, I think that has to be contemplated, too. 

It seems to me that we’ve got a bunch of silos here, and that the 

people that have the mechanism to move around those silos and 

figure out how to access the money are ones that are, kind of, driving this train, as opposed to the sound public policy that ought to 

be ruling the roost at this juncture. 

But, I thank you, Commissioner Tate, for being here today, and 

I will try to, along with my colleagues, ask some of the questions 

you want asked. But I want to encourage you, that it doesn’t matter what the next panel says, if the FCC is willing to act. 

Thank you, Mr. Chairman. 

Senator STEVENS. Well, thank you, Senator. 

The Senator—you’re right, because that is a pot of taxpayers’ 

money. Our normal Universal Service is dealing with ratepayers’ 

money. And we’ve had little access, through this Committee, to 

that other pot of money. And the reform bill, we ought to find ways 

to mandate that cooperation so that the subsidy fund is used, and 

used appropriately, to advance rural communications. And I thank 

you for the comments. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

Senator STEVENS. Senator Klobuchar? 

Senator KLOBUCHAR. Thank you, Mr. Chairman. 

32 

To follow up on some of the focus of Senator McCaskill’s comments, Commissioner Tate, I mentioned that when I traveled 

through my State, I see, repeatedly, the need for more access to cell 

phones, broadband. And, in light of the proposed cap—I know, 

again, you’ve talked about listening to these other panelists, but I’d 

like to know what you propose, to reform Universal Service. 

Ms. TATE. Well, I think that my overall vision is trying to move 

forward to technologically and competitively neutral mechanisms 

that are based on providers’ cost, not an embedded cost of someone 

else, and that we will try to incent efficient technologies, and that 

we will try to incorporate some type of mechanism that will control 

the Fund growth over time so that, once again, the Fund can do 

what it was intended to do. 

I’m in a little bit of an odd position, because not only am I the 

head of the Joint Board, I’ll be voting on many of these recommendations and issues. And so, I have an open mind. I’m looking forward to even more concepts that may come forward on both 

the distribution side—like reverse auctions, for instance, which 

would be competitively neutral—as well as over on the contribution 

side—for instance, the numbers-based approach that the Chairman 

and others have suggested. 

So, I think that we can do a better job using more granular data. 

I think, now there’s incredible technology, this GPS technology that 

we haven’t had in the past, so that we can target it to places that 

you’re describing and that are in my State, as well. 

Senator KLOBUCHAR. You know, there are many places where 

multiple carriers receive the Universal Service Fund support for 

the same geographic area, and that’s especially in town centers. 

And, at the same time, as you mentioned, there’s rural areas where 

there’s no support at all. And how can we ensure—and, again, I 

want to follow up on this, the end of your comments there—that 

the USF targets these underserved areas. 

Ms. TATE. Absolutely. Well, I mean, it is the very purpose and 

essence of what Universal Service is, to target those areas. And so, 

that’s precisely what we are trying to do by getting to fundamental 

reform, so that, indeed, we can ensure—— 

Senator KLOBUCHAR. I’m just looking for your ideas on how we 

do it, because I just haven’t seen it happening in the way that we 

want to see it happening. So—— 

Ms. TATE. Well, you know, I think that, once again, if we moved 

toward something, such as reverse auctions, then we are ensuring 

that there is a carrier serving an area that is based on cost. 

Senator KLOBUCHAR. You know, we talked, before, about getting 

things under control. And, I know, in the past few years, both the 

Commission and the Joint Board have sought to limit the number 

of competitive eligible carriers that were eligible for the USF funds. 

And why didn’t this reduce the dollar amount of the competitive 

carrier support? I think it grew from—correct me if I’m wrong— 

something like $15 million in 2001 to almost 1 billion in 2006. 

Ms. TATE. Yes, those numbers are right, unfortunately. And—— 

Senator KLOBUCHAR. And so—— 

Ms. TATE.—you know, this—— 

Senator KLOBUCHAR.—what went wrong? 

33 

Ms. TATE. Well, Section 214 of the Act provides that the states 

shall designate ETCs. And so, while the Commission has tried to 

encourage more stringent—for instance, criteria, eligibility criteria—that was merely voluntary—it could be voluntarily accepted 

by the States. Some States, I think, have slowed down on their 

ETC designations. Some states have, now, more stringent requirements. But there are also others that have not chosen that path. 

Senator KLOBUCHAR. Did the Joint Board consider other interim 

measures besides a temporary cap on the amount of high-cost support that the competitive eligible carriers could receive? 

Ms. TATE. Well, of course we held an en banc. We had numerous 

comments already in the record. We reviewed all of those. But, as 

I said, I wasn’t able to pull the Joint Board together to move any 

farther toward consensus at this particular time. We all recognized 

we had to do something to stem the growth. 

Senator KLOBUCHAR. And what do you think’s going to change in 

the next few months that will get you to get the kind of consensus 

you think you need to move? 

Ms. TATE. For one thing, because there are even more comments 

and ideas and innovative projects, such as the one that I mentioned 

that Alltel had suggested. I think that there continue to be people 

coming forward, saying, ‘‘What about this? What if we did this?’’ 

And that’s precisely what we hoped would happen. So, we are continuing to, as I said, review all that’s in the record now. I think 

the record—the reply comments may close tomorrow. And, of 

course, we’ll share all of that with you all, as well, and, you know, 

welcome your input. 

Senator KLOBUCHAR. I’d just like to reiterate what you’re hearing 

from the other Senators, just our frustration that we haven’t been 

able to hear more from the FCC, in terms of reform, and get those 

ideas moving and going. We hear more and more from people 

throughout our states that we’re in this amazing technological age, 

but some of them are still left standing with just plain old telephones, and they’re not able to access this technology that other 

people in this country are sharing in. 

Ms. TATE. I understand. 

Senator KLOBUCHAR. Thank you. 

Senator STEVENS. Thank you very much. 

Maybe, Senator, we’ll—the Joint Board will have given Congress 

itself an incentive to act. 

Senator KLOBUCHAR. Very good idea, Mr. Chairman. 

Senator STEVENS. Senator Snowe? 

STATEMENT OF HON. OLYMPIA J. SNOWE, 

U.S. SENATOR FROM MAINE 

Senator SNOWE. Yes, thank you, Mr. Chairman. And I thank you 

and Chairman Inouye for your efforts in this regard. And I know 

your efforts, consistently, as previous Chair of this Committee, in 

reform legislation, with which I’ve joined on the Universal Service 

Fund, which is instrumental, undeniably. But, regrettably, we’re at 

a point today where I think that it handicaps rural America with 

the proposal that is being put forward by both the Joint State 

Board, Commissioner Tate, as well the FCC. I think it has ominous 

implications. 

34 

And you’ll, in the second panel, hear from one of my constituents, 

who is a Chief Deputy of the Kennebec Sheriff’s Office in Maine, 

and is lead spokesman for the Maine Sheriffs’ Association. And 

he’ll be very vocal, as he has in raising, I think, awareness of this 

issue throughout our state, about the implications and the consequences of the inability of rural America to have access to wireless service. And that’s essentially what it’s all about here today. 

There’s no denying we need reform. And, we should certainly do 

our part here in Congress. But it doesn’t mean that we have to accept a recommendation that disadvantages rural America. And 

that’s certainly true in Maine. And I think of the numbers, it’s 

staggering, from where we are today, in terms of wireless. People 

having, more than 600,000—my 1.3 million population of the State 

of Maine, from less than 300,000—had wireless, back in 2000– 

2001. But, as a result of this cap on the high-cost fund, what is 

going to happen is that they’re going to be fewer towers built. In 

fact, we’ll lose five towers from one carrier. Another carrier is planning to build 32 towers over the next few years, and six of which, 

last year that were built, were based on using funds from the highcost fund. So, what that means is, the rural parts of my State, as 

across America, as indicated by the comments here today of—with 

my colleagues, are going to be denied the very technology that can 

make the difference between life and death. And that’s what Sheriff Flannery will be talking about. And that’s true. It’s one thing 

to say, ‘‘Well, I’m sorry, we can’t afford this service,’’ but, at the 

end of the day, the consequences are that people in rural America 

aren’t going to get the benefits, of this service, when over half the 

calls to 9-1-1 come from wireless service. So, that’s what we’re talking about. These are life-threatening situations; in addition, obviously the economic implications when rural areas are denied the 

state-of-the-art technology. 

And so, I think the inherent unfairness, the disproportionate burden that it places, on my rural State of Maine and rural regions 

around the country, I think should lead the FCC to think about 

putting this on hold. I just think that, frankly, just because we 

haven’t been able to reach a comprehensive solution, whether it’s 

in Congress, or whether it’s within the FCC, that we shouldn’t 

place that burden on rural America at this point in time. The 

world’s revolving around wireless. And if—that being the case, we 

can no longer say, ‘‘Well, we’re just going to continue to have them 

exist on 1920s technology, with wirelines,’’ because we’re in a different world today, and I don’t think that rural areas should face 

that disproportionally. 

Finally, the point I want to make is, is that wireless carriers— 

and I’d like to have you speak to this question—pay more than a 

third of the contributions to the high-cost fund, so, therefore, they 

should reap the benefits, of being able to build-out this infrastructure in rural regions of our country, as in two of our major carriers 

in the State plan to do, but will have to postpone those plans— 

building, for example, five towers next year—because they depend 

on support from the high-cost fund. 

So, let’s start with that. We have a third of wireless carriers— 

the wireless carriers are paying a third into the high-cost funds. 

35 

Why shouldn’t they be able to continue to get the additional funds 

that they deserve, and that they have contributed to? 

Ms. TATE. Senator, I just have to say, the safety and welfare of 

citizens everywhere has been one of my highest priorities. I was a 

State official, and now I’m a Federal official. And I want you to 

know that. I am concerned. 

At the same time, I think that the premise of your question is 

based on the system being fair right now. There are so many inequities in the present system. Some of them we’ve already talked 

about, and that is the fact that the wireless carriers receive funding, not based on their own costs, which, in most cases, are much, 

much less than the ILEC cost, but they actually receive cost based 

on the embedded cost. 

The other thing is that, when we look at that cap—when we 

looked at the cap in the CETC side, that’s where the growth was. 

So, we looked for, where is the problem, and how do we try and 

provide a solution to that particular problem? 

And I guess the other thing is that, on the ILEC side, there are 

caps. There’s the cap on the high-cost fund, there’s a cap on interstate access. And we have other caps throughout the system, 

whether it’s E-Rate, that you know about, or the rural healthcare 

fund. So, this provided, actually, some parity as we made these decisions. 

They are difficult decisions, I agree with you. I’m from a very, 

very rural State. I’m concerned about these decisions, as well. 

Senator SNOWE. But this is a very piecemeal approach. And so, 

you’re asking one sector, and certain parts of America to bear the 

disproportionate burden of this decision because of the inability of 

the FCC to reach a consensus, or this Joint State Board, and even 

the U.S. Congress. But rural America should not be put at risk because within the FCC or the Joint State Board you have not been 

able to reach a consensus. An interim measure, at the minimum, 

is going to be 18 months. That’s not interim, in my view, number 

one. Second, by imposing a cap, I think, frankly, it’s going to be a 

disincentive to reaching a consensus within the FCC, because 

you’ve made your decision to control the costs until you have the 

ability to make that decision, but it’s within the FCC. The Joint 

State Board, you don’t have to accept their recommendations, 

frankly. The FCC has a responsibility, as well. It’s not because 

they’re saying, ‘‘Well, we’ll wait for the industry to reach a consensus.’’ It’s all well and good, they should try to reach a consensus 

on the question you raised about, ‘‘What are the true costs?’’ and 

so on, and we all agree with that. But that doesn’t mean to say 

that you have to accept a piecemeal approach that unfairly affects, 

one sector or one part of America. And that’s what’s happening 

now. And I think you have to look at the implications of this decision, which I think are enormous and is going to place rural America at a tremendous disadvantage. So, do you agree? 

Ms. TATE. Obviously. As I’ve said, I’m from a very rural State, 

too. I want—— 

Senator SNOWE. Well—— 

Ms. TATE.—rural areas to have evolving levels of services. The 

Joint Board—— 

Senator SNOWE. So—— 

36 

Ms. TATE. Once again, Senator, you know, the Joint Board has 

representatives on it from very rural areas, from Oregon to 

Vermont, to very rural areas. And this was, once again, seven reasonable people who came to the decision that the problem was on 

the CETC side, and that’s the step that we decided to make in 

order to sustain the Fund at this time. 

Senator SNOWE. Well, I think it’s ignoring and overlooking the 

magnitude of the impact of that decision, frankly. I mean, just in 

my State, when you’re talking about postponing five towers, this 

year, as a result of that cap, I mean, that’s just the beginning of 

this process. And so, I think that, obviously, it’s going to have enormous implications. And I don’t think that the FCC is being responsible by accepting that decision, based on what the implications 

are, frankly. And it may well be that you’re all sensitive to rural 

America, but you’re not looking at the ultimate consequences. 

That’s why I submitted a letter to the Commission. The Maine 

State Legislature has passed a resolution, you know, unanimously 

opposing, this recommendation, because it’s going to have enormous implications, and it’s going to set back rural America by 

years by the time you get around to making that decision. So, I 

don’t think it’s fair to put them in that position, because a comprehensive solution cannot be agreed to. 

And, finally, when you’re talking about the charges, I am curious 

about the nature of the charges. From the second quarter of 2005 

to the third quarter of 2006, the USF surcharge hovered between 

10.2 percent and 10.5 percent; fourth quarter 2006, the FCC 

dropped it to 9.1 percent, and then, in the second quarter of 2007, 

increased it to 11.7 percent. It hasn’t been that high since early 

2005. I mean, so what contributes to the erratic nature, of these 

increases? 

Ms. TATE. I believe the—— 

Senator SNOWE. And—— 

Ms. TATE.—particular instance that you’re noting was from onetime payments that were underpayments that came in from the 

interexchange carriers, possibly in the range of $500,000. I mean, 

I can find that and provide you the specific information. 

Once again, that was one of the reasons that the Joint Board 

came up with a recommendation regarding a State cap rather than 

caps that might be based on quarterly fluctuations because of some 

payment into the Fund. 

Senator SNOWE. Well, obviously we’re not going to reach an 

agreement here today, regrettably, but I just want to reiterate my 

opposition, my deepest opposition to this proposal, because I don’t 

think it’s fair to rural parts of America. And, as Sheriff Flannery 

will tell this Committee, what, he and others in the law enforcement community today go through to get a signal—and remember, 

half of the 9-1-1 calls come from wireless service. So people depend 

on it, they expect it. And so, the fact that we’re going to be denying 

them these additional towers over the next few years, because 

that’s what it means, because companies have to make their longterm decisions and investments, and if they don’t have the predictability and the certainty of the support from the high-cost fund, 

they’re going to postpone and defer those decisions, at obviously, 

the expense of the rural parts of my State and across this country. 

37 

I would hope that the FCC would reconsider this decision because 

of the enormity of the impact it’s going to have. 

Thank you, Mr. Chairman. 

Senator STEVENS. Thank you. No Senator has any further questions of Ms. Tate, I hope. 

Thank you very much. You’ve been—— 

Ms. TATE. Thank you. 

Senator STEVENS.—very patient. And I think you’ve represented 

the FCC very well. I’m not saying I agree with the FCC, but thank 

you for your participation. 

Ms. TATE. Thank you, Mr. Chairman. 

Senator STEVENS. We’ll now call panel 2. You want to recess for 

just a couple of minutes? 

Our next panel is John Rooney, President and Chief Executive 

Officer of U.S. Cellular; Mr. Roger Nishi, Chairman of the Organization for Promotion and Advancement of Small Telecommunications Companies; Mr. Jonathan Foxman, President and Chief Executive Officer of Chinook Wireless; Mr. Joel Lubin, Vice President 

of Regulatory Planning and Policy for AT&T; and Mr. Everett B. 

Flannery, Jr., the Chief Deputy of Kennebec County Sheriff’s Office, Augusta, Maine. 

Gentlemen, the Chairman has adopted the benign policy of urging witnesses to keep their statements short, and it seems to be 

working better than my policy of limiting them precisely to time 

limits. So, please proceed, with the idea that others are following 

you, and we would hope we’d have a chance to ask you questions. 

Our first witness would be John Rooney. 

Mr. Rooney? 

STATEMENT OF JOHN E. ROONEY, PRESIDENT AND CEO, 

UNITED STATES CELLULAR CORPORATION 

Mr. ROONEY. Good morning, Mr. Vice Chairman and members of 

the Committee. My name is Jack Rooney, and I’m the President 

and Chief Executive Officer of United States Cellular Corporation. 

I want to thank you for the opportunity to appear before you today. 

U.S. Cellular provides wireless service in nearly 200 markets 

across the country, including many of the states represented in this 

Committee, including California, Maine, Minnesota, Missouri, New 

Hampshire, Oregon, South Carolina, Texas, Washington, and West 

Virginia. The overwhelming majority of the geography we serve is 

rural in character. We currently receive Universal Service support 

in seven States, including Washington, Oregon, and Maine. 

I am here to advocate reform of the Universal Service program 

in a comprehensive and constructive manner. U.S. Cellular strongly opposes capping support to wireless carriers. Today we are using 

that support to provide rural consumers with access to essential 

services in ways that would not otherwise be possible. For example, 

in Maine we are using support to construct 21 sites in small towns, 

such as Grand Isle, Union, and Peru. In Oregon, we are using 

funds to build 11 new sites in places like Emigrant Lake, Wallowa, 

and Butte Falls. Every cell site we build provides critical public 

safety benefits. At a time when the public is increasingly concerned 

about having E–911 service, it scarcely bears mention that, without 

a cell site, E–911 is useless. 

38 

I believe that there are five factors to consider when reviewing 

the current situation. 

First, freezing support to wireless carriers harms rural customers 

by denying them the improved service that we’re ready to deliver. 

According to the FCC’s own data, between 1995 and 2005 the average cost of wireless service dropped from 43 cents per minute to 7 

cents per minute, while usage increased from 119 minutes to 740 

minutes over that same period. This is great news for people living 

in areas where network service quality is high. They see tremendous savings in their phone bills, sometimes $50 or more per 

month. However, these benefits are not available to rural Americans who live in areas with poor signal quality. 

Second, since 1996, more than $22 billion of consumer contributions to the Fund have gone to landline carriers, while less than 

$2 billion have gone to wireless carriers. Consumers have a right 

to know why they’re being asked to continue to provide $3 billion 

a year to a service that they are abandoning in droves. 

Third, U.S. Cellular’s efforts to serve customers in the States of 

Illinois and Missouri are examples of why the cap is a bad idea. 

Under a cap, these states would not draw enough funds collectively 

to put up one cell site. In Missouri, we’re poised to build 39 new 

sites in the next 2 years to accelerate our network construction. In 

Illinois, we have committed to building 121 new sites over the next 

5 years. If a cap is imposed, these investments will not happen 

anytime soon. Rural citizens are demanding wireless service, and 

if the Committee has any doubt about this, I’m told that there are 

over 2,700 comments on file at the FCC from consumers opposing 

the cap, and that the only comments favoring a cap come from our 

friends in the wireline industry who fear the emergence of highquality wireless services in their territories. 

Fourth, wireline carriers in rural areas have lost 10 percent of 

their access lines over the last 3 years. However, they continue to 

draw $3 billion annually. When we lose customers, we lost support. 

And that’s the way it ought to be. 

Fifth, the idea of a wireless-only cap is wildly unfair. I understand that all the FCC’s Universal Service rules must be competitively neutral in their effect, and there is no way that this discriminatory proposal passes muster. 

I would like to rebut a common misconception, that the wireless 

industry is not accountable. In most States, we file detailed reports 

demonstrating our accountability for what we do with these funds, 

and I assure you that this company uses Federal funds very responsibly. 

The Joint Board’s rationale for a cap is that the Fund will become unsustainable, but they don’t explain what that means. If the 

Senators believe the Board’s assessments, then why not ask the 

wireline industry to share the burden? 

Mr. Chairman and members of the Committee, I greatly appreciate the opportunity to discuss this issue with you today, and appreciate your interest. 

[The prepared statement of Mr. Rooney follows:] 

39 

PREPARED STATEMENT OF JOHN E. ROONEY, PRESIDENT AND CEO, 

UNITED STATES CELLULAR CORPORATION

Good morning, Mr. Chairman, Mr. Vice Chairman, members of the Committee, 

my name is Jack Rooney and I am President and Chief Executive Officer of United 

States Cellular Corporation—known to our customers as U.S. Cellular. Thank you 

for the opportunity to appear before you today to share with you the many benefits 

our company has been able to bring to rural America as a result of the Universal 

Service Fund, and the very harmful effects that will result if the current proposal 

regarding a cap on this Fund is adopted. 

U.S. Cellular provides wireless service in nearly 200 markets located in regional 

clusters across the country, including many of the states represented on this Committee such as California, Maine, Minnesota, Missouri, New Hampshire, Oregon, 

South Carolina, Texas, Washington and West Virginia. The overwhelming majority 

of the geography we serve is rural in character. 

You should also know that our opinions and perspectives on the Universal Service 

Fund are based on our experience in receiving Universal Service support in seven 

states that include Washington, Oregon, and Maine. 

I am here to bring you good news about what wireless carriers like U.S. Cellular 

are accomplishing in rural America with Universal Service funding. In addition, I 

am here to advocate reform of the Universal Service program in a comprehensive, 

constructive manner that promotes both the Universal Service and competition 

mandates of the Telecommunications Act of 1996; and, at the same time, holds the 

entire industry accountable for the funds it receives. Specifically, U.S. Cellular 

strongly opposes capping funding only to wireless carriers while continuing to fund 

wireline carriers without reforming the rules. 

Today, we at U.S. Cellular are using Universal Service support to provide consumers and communities with access to essential services they deserve in ways that 

would not otherwise be possible. For example, in Maine, we are constructing 21 cell 

sites in small towns such as Grand Isle, Union and Peru. USF funds are allowing 

us to provide consumers and communities with access to essential services they deserve and pay for—for the first time. In Oregon, we are using the funds to build 

11 new sites in places such as Emigrant Lake, Wallowa and Butte Falls, among others. In every state where we receive assistance, we are deploying networks in 

sparsely populated communities where there is no logical business case that can justify the cost. 

Let’s also remember that every cell site we build provides critical public safety 

benefits. In every place where we build a new cellular site, consumers receive as 

much as 144 square miles of improved coverage, including all the emergency service 

benefits of wireless, such as the ability to make a 911 call, and to access the locating 

features of E–911. At a time when the public is increasingly concerned about having 

E–911 functionality, it scarcely bears mention that without a cell site, E–911 is useless. 

I should also highlight the outstanding performance of wireless systems during 

the recent flooding in Missouri, wind storms in Washington and Oregon, and many 

other natural disasters. In each instance, our networks either continued to operate 

without interruption throughout the crisis, or were restored quickly with back-up 

battery power or generators so that service disruptions were confined to minutes or 

hours, not days or weeks. In fact, it’s worth noting that this reliability and ubiquity 

makes wireless the preferred service for displaced people and first responders. Again 

and again, our wireless networks have proven to be much more robust and reliable 

than wireline networks. 

The key issue before us today, however, is what the Joint Board has overlooked 

in its rush to throw a cap on just the wireless portion of the fund. I would suggest 

we look backward, and reflect thoughtfully on Congress’ intent in enacting the Telecommunications Act of 1996 and the successes of Universal Service funding to date, 

before we talk about what should be done going forward. 

Continued growth in Universal Service Fund payments has raised the question 

of whether the program is sustainable given the current methodology it uses to collect and distribute funds. What must be remembered is that Congress, in its enactment of the 1996 Telecom Act, intended for rural consumers to have the same access 

to advanced services and competitive prices as their urban counterparts. This access 

should come from providers in a competitive market, governed by technology-neutral 

rules. In short, the growth of the Fund is not some unintended aberration; it is the 

direct result of a conscious and enlightened public policy. 

I believe that there are five factors to consider when reviewing the current situation: 

40 

1See Exhibit 1. 

2Source: FCC Joint Board Monitoring Report. 

1. The Vast Majority of Americans Prefer Wireless Service, and Rural Consumers Want Their Cell Phones To Work Just as Much as Those Living 

in Urban America 

Freezing support to wireless carriers diminishes our ability to invest in rural 

America and harms rural consumers by denying them the improved service that 

we’re ready to deliver. 

Let me explain. According to the FCC’s own data, between 1995 and 2005, the 

average cost for wireless service dropped from 43 cents per minute to 7 cents per 

minute, while monthly usage has increased from 119 minutes to 740 minutes over 

the same period.1

This is great news for people living in areas where network service quality is 

high. They see tremendous savings in their telephone bills, sometimes $50 or more 

per month over wireline calling plans. However, these benefits are not available to 

rural Americans who live in areas with poor signal quality. The use of support to 

drive these consumer savings is exactly what Congress intended and the proposal 

to cap support only insulates wireline carriers from competition. 

2. Wireline Networks That Were Built and Paid for Decades Ago Have 

Received 90 Percent of Consumer USF Contributions Since 1996 

Since 1996, more than $22 billion of consumer contributions to the Fund has gone 

to rural landline carriers, while less than $2 billion has gone to rural wireless carriers. Consumers have a right to know where that $22 billion went and why they 

are being asked to continue to provide $3 billion per year to a service that they are 

abandoning in droves. Support should go to the service that consumers choose—not 

the service that regulators force them to choose. 

3. A Freeze Will Disproportionately Harm Consumers in Some States 

U.S. Cellular’s efforts to serve customers in the States of Missouri and Illinois are 

examples of why this is a bad idea. A freeze on funds to these states means that 

rural consumers have to pay in, but get nothing—or next to nothing—in return. I 

understand that Illinois citizens contribute roughly $265 million per year, while 

Missouri’s citizens contribute roughly $126 million.2 Yet, Illinois draws out less than 

$2,000 per year for wireless, and Missouri draws out roughly $125,000 per year for 

wireless. Collectively, these states would not draw enough funds to put up one new 

cell site. 

Assuming a cap is not instituted in Missouri, we are now poised to use support 

to build 39 new cell sites in the next 2 years to accelerate our network construction 

in underserved rural areas where our network requires significant additional investment. In Illinois, we have committed to building 121 new sites over 5 years if we 

are designated later this year as expected. This investment will improve service to 

over 2 million rural consumers. And that’s just the beginning, as we’ll continue to 

invest all available support each subsequent year. 

For consumers, this is no small matter. There are substantial underserved rural 

areas in both of these states where people are demanding wireless service, and without support they aren’t going to see that investment. If the Committee has any 

doubt about this, I am told that there are roughly 2,500 comments on file at the 

FCC from consumers opposing the cap, and that the only comments favoring a cap 

come from our friends in the wireline industry who fear the emergence of high-quality wireless service in their territories. 

4. Support Must Go to the Carrier That the Customer Chooses 

Why should wireline carriers get subsidized even when they lose customers? 

Wireline carriers in rural areas have lost 10 percent of their access lines over the 

past 3 years; however, they continue to draw $3 billion annually. When we lose customers, we lose support, and that’s the way it should be. As consumers increasingly 

choose wireless for their voice needs, we should be receiving an increasing share of 

the Fund so we can provide rural consumers with the high-quality service they deserve. If any one sector deserves heightened scrutiny, I would argue it’s the landline 

providers that continue to benefit from the program while being insulated from financial and market realities. 

5. The Cap as Proposed by the Joint Board Is Not Competitively Neutral 

Finally, the idea of a wireless-only cap is wildly unfair in that wireless contributes 

the biggest share to the Universal Service Fund, yet we draw out the smallest 

amount. All of the FCC’s Universal Service rules must be competitively neutral in 

41 

their effect, and there is no way that this discriminatory proposal passes muster. 

Nor does the unofficial freeze by the FCC on new ETC petitions. 

To be completely frank, while disappointing, the Joint Board’s decision wasn’t all 

that surprising to us. The FCC has been treating our petitions for ETC status as 

if the cap has already been in place for some time. The FCC has not acted on any 

of our petitions for ETC status, despite our obvious qualifications to be designated. 

Some have been sitting there for 3 years. So we cannot deliver the benefits described above to rural consumers in New Hampshire, North Carolina, Virginia, Tennessee, and New York. 

I would also like to rebut a common misconception I hear repeatedly about the 

wireless industry: that we are not accountable. In most states, U.S. Cellular files 

detailed reports demonstrating our accountability for what we do with these public 

funds. I can assure you that this company is using Federal support in the manner 

that Congress originally intended: to provide rural consumers with high-quality 

service that is comparable to what is available in urban areas. Make no mistake, 

we are delivering on our promise and will continue to do so in the coming years 

with support from the USF. Wireline carriers do not have the same level of accountability, and we believe the Universal Service system is significantly over-subsidizing 

their networks because the system provides support on a ‘‘the more you spend, the 

more you get’’ basis. 

The Joint Board’s rationale for a cap is that the Fund will become unsustainable. 

It doesn’t, however, explain what that means. 

Nor do the Board’s numbers add up. We calculate that even if you accept the 

Board’s unsupported projection that the Fund could increase by another $1 billion 

in the next year, this would add only 31 cents to the monthly Federal Universal 

Service charge to consumers. Can someone please tell me, how does this represent 

a crisis—especially when wireline carriers continue to lose lines but are allowed to 

draw $3 billion per year? 

If the Senators believe that such an increase is too much for consumers to bear, 

then why not ask the wireline industry to share the burden? After all, wireline carriers draw three times what we do. 

A much more responsible and competitively neutral fix is for the system to only 

provide support to the carrier that serves the customer. The FCC is fully capable 

of figuring out how much USF support is needed in a given area to provide consumers with the ability to choose the service that best suits their needs. I am told 

that’s what Congress promised. Until that happens, Fund growth is not going to be 

controlled and consumers are not going to see the benefits described above. 

Mr. Chairman and members of the Committee, I greatly appreciate the opportunity to discuss this issue with you today and appreciate your interest. I believe 

that the Joint Board’s ultimate recommendation, and the FCC’s subsequent decision, will have a profound impact on rural Americans in your states, and on the host 

of competitive service-providers that are excited about offering the best telecommunications services possible. On behalf of U.S. Cellular, we hope that you can 

help ensure that those services are deployed as quickly and efficiently as possible 

without resorting to draconian and ill-conceived solutions. 

42 

3Sources: FCC, Trends in Telephone Service, Table 19.17 (Feb. 2007); Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993—Annual Report and Analysis 

of Competitive Market Conditions With Respect to Commercial Mobile Services, WT Docket No. 

06–17, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10 

Exhibit 1 

Per-Minute Cost ($) of Wireless Service 

(Including USF Contributions) 

(1998–2005) 3

Senator STEVENS. Thank you, Mr. Rooney. 

Our next witness is Mr. Roger Nishi. 

Mr. Nishi? 

STATEMENT OF ROGER NISHI, CHAIRMAN, ORGANIZATION 

FOR THE PROMOTION AND ADVANCEMENT OF SMALL 

TELECOMMUNICATIONS COMPANIES (OPASTCO); VICE 

PRESIDENT OF INDUSTRY RELATIONS, WAITSFIELD AND 

CHAMPLAIN VALLEY TELECOM; ON BEHALF OF NATIONAL 

TELECOMMUNICATIONS COOPERATIVE ASSOCIATION; 

WESTERN TELECOMMUNICATIONS ALLIANCE AND 

THE INDEPENDENT TELEPHONE AND 

TELECOMMUNICATIONS ALLIANCE 

Mr. NISHI. Good morning, Mr. Chairman and distinguished members of the Committee. I’m Roger Nishi, from Waitsfield and Champlain Valley Telecom, in Vermont, and I’m the current Chairman 

of OPASTCO, the Organization for the Promotion and Advancement of Small Telecommunications Companies. Our company is 

also a member of NTCA, the National Telecommunications Cooperative Association. Today, I will speak on their behalf, as well as 

WTA, the Western Telecommunications Alliance, and ITTA, the 

Independent Telephone and Telecommunications Alliance. 

Thank you for inviting me here today to testify on behalf of these 

fine organizations who are the founding members of the Coalition 

to Keep America Connected. 

Let me start by emphasizing that all four organizations applaud 

what the Joint Board has done, and in recognizing that the proVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00046 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE

612ROON.eps
43 

gram is in serious jeopardy of becoming unsustainable if immediate 

action is not taken. 

The four organizations strongly support the recommendation to 

immediately impose an interim cap in the high-cost support received by competitive eligible telecommunications carriers. We urge 

Congress to also support the recommendation. 

We believe the recommendation is the most logical and equitable 

way in which to rein in the rapid growth of the high-cost Universal 

Service program while the FCC and Congress contemplate longterm reforms to sustain the viability of the whole Universal Service 

program, which includes schools and libraries, rural healthcare, 

and the low-income programs. So, the whole universe, we believe, 

needs to be looked at, in terms of making sure it’s sustainable. 

We believe that any entity or person who proclaims support for 

strong and viable Universal Service in the future should, and must, 

support the Joint Board’s recommended interim plan. 

The adoption by the FCC of an interim cap on high-cost support 

provided to CETCs is equitable. Since 1993, caps have limited the 

amount of support available to rural incumbent local exchange carriers from the high-cost loop support mechanism. Since July 2001, 

when caps were re-based by the FCC, rural ILECs have foregone 

$2.5 billion in Federal high-cost support. Waitsfield and Champlain 

Valley Telecom has lost a significant amount of high-cost loop support. 

I will share that this uncertainty in funding levels has made it 

more difficult to budget and also to plan for the long term. But our 

company, like hundreds of rural companies throughout the United 

States, has always had a community-first approach to doing business, and this means building to all, and serving all of our customers, rather than looking to only serve the lucrative and easyto-serve customers. 

In their recommendation, the Joint Board states that the identical support rule is dated, and may not be the appropriate approach to calculating support for CETCs. The four associations 

couldn’t agree more with this. The identical support rule bases the 

support received by CETCs on the unrelated costs of the rural 

ILECs providing ubiquitous service throughout their territories. 

For years, CETCs—primarily wireless carriers—have reaped windfalls of support through the illogical identical support rule. Moreover, the rules have allowed CETCs, upon designation, to immediately begin receiving the rural ILEC’s cost-based per-line support 

amount for all of their existing customers in the designated territory whom they were more than likely serving successfully without 

any such support. We advocate the elimination of the identical support rule, and believe that CETCs should be required to demonstrate their own costs in order to potentially qualify for support. 

At the same time, we need to keep in mind that this recommendation is only interim. This is only an interim cap. Dollars 

will continue to flow to the CETCs. And, most importantly, an interim cap on CETCs will not harm the availability of the Universal 

Service throughout the country, since virtually all Americans have 

access to service from at least one eligible telecommunications carrier, and, in most cases, more than one. 

44 

The organizations feel that it’s important for the FCC to adopt 

the recommendations without modification. The Joint Board has 

done an excellent job, and thought this out in a very reasonable 

manner. 

And, in the long term, Congress and the FCC should expand the 

base of contributors to Universal Service, and, as previously stated, 

the identical support rule should be eliminated, and CETCs’ support should be based on their own costs. 

To conclude, short-term action is required for long-term stability. 

And, therefore, Congress should advocate for the FCC’s immediate 

adoption of the Joint Board’s recommendation to impose an interim 

cap on high-cost support provided to CETCs without modification. 

The recommended cap would effectively and fairly stem the rapid 

growth in support to CETCs caused in large part by the identical 

support rule while Congress, the FCC, and all the parties in this 

room work together to come up with comprehensive reforms that 

will address the issues for the long term. 

The Joint Board’s recommendation is an interim step to protect 

the Universal Service Fund from exploding even further, and will 

benefit all eligible telecommunications providers, both wireline and 

wireless, in the long term. 

Once again, the organizations believe that anyone who claims to 

be a supporter of Universal Service and the Fund and its goal 

should be a strong advocate for this recommendation. 

Thank you for your time today. 

[The prepared statement of Mr. Nishi follows:] 

PREPARED STATEMENT OF ROGER NISHI, CHAIRMAN, ORGANIZATION FOR THE

PROMOTION AND ADVANCEMENT OF SMALL TELECOMMUNICATIONS COMPANIES

(OPASTCO); VICE PRESIDENT OF INDUSTRY RELATIONS, WAITSFIELD AND CHAMPLAIN VALLEY TELECOM; ON BEHALF OF NATIONAL TELECOMMUNICATIONS COOPERATIVE ASSOCIATION; WESTERN TELECOMMUNICATIONS ALLIANCE; AND INDEPENDENT

TELEPHONE AND TELECOMMUNICATIONS ALLIANCE

Mr. Chairman and members of the Committee, I am Roger Nishi, Vice President 

of Industry Relations for Waitsfield and Champlain Valley Telecom headquartered 

in Waitsfield, Vermont. Also, I serve as Chairman of the Board of the Organization 

for the Promotion and Advancement of Small Telecommunications Companies 

(OPASTCO) and am a member of the National Telecommunications Cooperative Association (NTCA). I am also speaking for the Western Telecommunications Alliance 

(WTA) and the Independent Telephone and Telecommunications Alliance (ITTA). 

Thank you for inviting me to testify today on behalf of all of these organizations 

who are the founding members of the Coalition to Keep America Connected. 

Waitsfield and Champlain Valley Telecom is a privately owned, independent company now in its third generation of ownership by the Haskins family. We provide 

local and long distance telephone service, high-speed Internet service to the Mad 

River and central Champlain Valley regions and cable television to our customers 

in the Mad River Valley. The company is proud that it has recently achieved one 

hundred percent coverage of broadband service to our telephone customers. 

All four organizations strongly support the Federal-State Joint Board on Universal Service’s (Joint Board) recommendation to immediately impose an interim 

cap on the high-cost support received by competitive eligible telecommunications 

carriers (CETCs) and we urge Congress to also support the recommendation. It is 

important that the Federal Communications Commission (FCC) adopt the recommendation without modification. The recommendation is the most logical and equitable way in which to rein in the rapid growth of the High-Cost Universal Service 

program while the FCC and Congress contemplate long-term reforms to sustain the 

Universal Service Fund (USF). 

The adoption by the FCC of an interim cap on only the high-cost support provided 

to CETCs is equitable. Since 1993, caps have limited the amount of support available to rural incumbent local exchange carriers (ILECs) from the high-cost loop supVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
45 

port (HCLS) mechanism, which is the largest of the support mechanisms through 

which these carriers receive funding. Since July 2001, when these caps were ‘‘rebased’’ by the FCC, rural ILECs have forgone over $2.5 billion in Federal high-cost 

support. My company, Waitsfield and Champlain Valley Telecom, has lost $6.23 million in high-cost loop support in the last 6 years. The capping mechanism on HCLS 

has created significant unpredictability for rural ILECs from year to year. This has 

constrained our ability to make further improvements to our local network. Yet, we 

have persevered because of our commitment to our community. Our company, like 

hundreds of rural companies throughout the United States, has always had a ‘‘community first’’ approach to doing business. And this means serving all of our customers rather than looking to serve only the lucrative and easy to serve customers 

as so many of our competitors do. We must recognize that since CETCs have come 

into existence, the high-cost loop support they receive has been permitted to grow 

unfettered as the number of CETCs has grown and as their line counts have grown. 

It is baseless to assert that an interim cap applied only to support received by 

CETCs would not be competitively neutral. 

In their recommendation, the Joint Board states that the identical support rule 

is dated and may not be the appropriate approach to calculating support for CETCs. 

The identical support rule bases the support received by CETCs on the unrelated 

costs of the rural ILEC providing ubiquitous service throughout the area. For years 

CETCs—primarily wireless carriers—have reaped windfalls of support through the 

illogical identical support rule. Moreover, the rules have allowed CETCs, upon designation, to immediately begin receiving the rural ILEC’s cost-based per-line support amount for all of their existing customers in the designated territory, whom 

they were successfully serving without any support. Imposing an interim cap on 

CETC support is a necessary measure to contain the rapid growth in unjustified distributions to these carriers while Congress and the FCC address long-term policy 

changes to the USF. We advocate the elimination of the identical support rule and 

believe that CETCs should be required to demonstrate their own costs in order to 

potentially qualify for support. 

AT&T, the largest wireless carrier in the United States, has submitted a plan for 

stabilizing the High-Cost program in the short term that proposes much bolder 

steps for addressing the growth in CETC support than the Joint Board’s Recommended Decision. Specifically, AT&T’s plan would immediately halt the approval 

of new CETCs and impose a freeze on the number of lines for which wireless CETCs 

receive high-cost support. Also, it would reduce by 25 percent the support that wireless CETCs receive through the support mechanisms designed to replace access 

charges. If the Nation’s largest wireless carrier is willing to acknowledge the source 

of the runaway growth in the High-Cost program, and recommend a strong, targeted 

interim plan to address it, the FCC should be willing to adopt the more modest recommendations of the Joint Board. And this Committee should encourage the FCC 

to support the Joint Board recommendation. 

The Joint Board points out that as a result of the rapid and excessive growth in 

support received by CETCs, the High-Cost program is in serious jeopardy of becoming unsustainable if immediate action is not taken. Support for CETCs has grown 

from $15 million in 2001 to almost $1 billion in 2006 and based on current estimates, the support received by these carriers will reach at least $1.28 billion in 

2007, almost $2 billion in 2008, and $2.5 billion in 2009 if action is not taken to 

contain it. In addition, the USF contribution factor for second quarter 2007 is 11.7 

percent which is the highest it has ever been. The chart attached at the end of this 

testimony illustrates these points. The Joint Board’s recommendation to impose an 

emergency, interim cap on the support received by CETCs is essential to stabilize 

the size of the High-Cost program until measures can be adopted that will sustain 

the program for the long term. Any entity or person who proclaims support for a 

strong and viable USF in the future should support the Joint Board’s recommended 

interim plan. 

The recommended interim cap obviously would not stop funding from continuing 

to flow to CETCs, nor would it adversely affect wireless service in rural areas. Most 

importantly, an interim cap on CETCs support would not harm the availability of 

Universal Service throughout the country since virtually all Americans have access 

to service from at least one eligible telecommunications carrier (the ILEC) and, in 

most cases, more than one. 

The organizations that I am speaking for today agree with the Joint Board’s recommendation for the duration of the interim cap to be 1 year from the date of any 

Joint Board recommended decision on comprehensive high-cost Universal Service reform. The Telecommunications Act of 1996 requires the FCC to act on a Joint Board 

recommendation within 1 year after receiving it. Therefore, by 1 year from the date 

of a Joint Board recommendation on comprehensive Universal Service reform, the 

46 

FCC will adopt an Order that provides a long term approach to addressing the excessive and unjustified growth in CETC funding. 

We are also in agreement with the Joint Board’s recommendation to impose a cap 

on CETC support for each state. This approach would encourage state commissions 

to be very judicious in their decisions regarding applications for eligible telecommunications carrier designation, because the designation of any additional eligible telecommunications carriers would not draw additional Federal dollars into the 

state; it would simply require a fixed amount of funding to be reallocated among 

all of the CETCs in the state. At the same time, a state-based cap would still allow 

state commissions the flexibility to designate additional eligible telecommunications 

carriers if they believe that it will serve the public interest. 

In the long term, Congress and the FCC should expand the base of contributors 

to the USF. And, as previously stated, the identical support rule should be eliminated and CETC support should be based on their own costs. 

As I stated previously, Congress should urge the FCC to quickly adopt the Joint 

Board’s recommendation. The recommended cap will not harm rural consumers and 

will not take support away from rural America. As I have pointed out, ILECs are 

not responsible for escalating the size of the program. Consumers are paying more 

so that a narrow class of carriers can receive support that is not based on their 

costs. The Joint Board’s recommendation is a vital step toward fixing this problem. 

In conclusion, Congress should advocate for the FCC’s immediate adoption of the 

Joint Board’s recommendation to impose an interim cap on high-cost support provided to CETCs, without modification. The recommended cap would effectively and 

fairly stem the rapid growth in support to CETCs—caused in large part by the identical support rule—while Congress and the FCC consider comprehensive reforms to 

the High-Cost program that will address the issue for the long term. The Joint 

Board’s recommendation is an interim step to protect the USF from exploding even 

further and would benefit all eligible telecommunications carriers, including 

wireline, wireless and broadband services. Once again, anyone who claims to be a 

supporter of the Universal Service Fund and its goals should be a strong advocate 

for this recommendation. Thank you. 

Rural 

High-Cost 

Support 

Program 

3rd Quarter 

2005 

Support 

3rd Quarter 

2006 

Support 

3rd Quarter 

2007 

Support 

% Change 

3Q 2005– 

3Q 2007 

Dollar 

Change 

3Q 2005– 

3Q 2007 

% of Total 

Two-Year 

Support 

Increase 

($ Millions) 

Rural ILEC $630.9 $623.8 $634.0 0.49% $3.1 3.4% 

CETC $136.2 $165.8 $225.1 65.3% $88.9 96.6% 

Total $767.1 $789.6 $859.1 12.0% $92.0 100.0% 

Source: Universal Service Administrative Company 

Senator STEVENS. Thank you, Mr. Nishi. 

Our next witness is Mr. Jonathan Foxman. 

Mr. Foxman? 

STATEMENT OF JONATHAN D. FOXMAN, PRESIDENT AND CEO, 

CHINOOK WIRELESS 

Mr. FOXMAN. Mr. Vice Chairman and members of the Committee, 

thank you for the opportunity to be here and testify before you. I 

appreciate your focus on this matter. 

Chinook Wireless is a small to mid-sized company providing 

wireless services to customers throughout Montana and northern 

Wyoming. We also recently acquired licenses to provide these services throughout the rest of Wyoming and the western Dakotas. 

We own and operate our own network of cell sites and switching 

core, call center, and retail stores all in Montana and Wyoming, 

connecting us intimately with our portion of rural America. We believe we are answering the urgent need for better telecommunications services and public safety in rural America. To date, we 

47 

have done so without any support from the Universal Service program or any other public program; however, with that support, we 

could do so much more to answer what is truly an urgent need. 

As a privately funded business, we have to build and operate as 

efficiently as possible. Our lenders and investors set very finite limits, and they won’t fund infrastructure without a business case to 

support it. In many of the rural areas where wireless is most urgently needed, particularly for public safety, we wouldn’t earn 

enough revenue to justify the necessary investment, yet those citizens deserve and demand the benefits of wireless service, too. The 

fundamental problem is that the high cost of deploying cell sites in 

these areas, while so important for public safety, economic development, and other reasons, would not generate the necessary revenue. We recognize the need, but we simply cannot meet it with 

private funding alone. 

Chinook has applied for State certification to receive Universal 

Service funds precisely so we can answer the unmet needs of rural 

America. For us, and for other CETCs like us, the Joint Board’s 

recommended cap would limit, or even eliminate, our ability to 

meet those needs. At the same time, though, it would continue to 

fund incumbent carriers in those areas. This is simply not equitable. What best serves the public interest is fair competition. Competition brings prices down, and service quality up, and increases 

the choices available to consumers. We, therefore, urge Congress to 

insist that any action taken by the Commission be fair and competitively neutral. 

We also urge Congress to reconsider whether an interim measure 

is necessary at all. Instead, greater efforts could be made to rapidly 

and diligently fix the Universal Service system. The FCC has 

worked on this issue for 11 years, and has more than enough information now to make a fair determination. It could easily adopt reforms within 1 year without using a cap. It only took a year for 

the Commission to implement spectrum auctions, and the agency 

implemented local competition under the 1996 Act in a single year. 

This is no different, just another complex undertaking that the 

agency certainly does have the staff expertise and resources to accomplish. 

Finally, we would urge Congress to consider that the issues relevant for fixing the system, in fact, highlight that what is wrong 

with it today is not the distributions that enable wireless to bring 

the benefits called for in the 1996 Act to underserved regions of 

rural America. Most significant among these are duplicative funding and distributions based on a cost-plus methodology. 

Regarding duplicative funding, the drafters of the 1996 Act knew 

the size of the Fund would increase for disbursements to competitors. They were trying to encourage competition in order to lower 

prices and increase service quality for consumers. What they did 

not anticipate was that existing carriers would not lose funding for 

lines they no longer had to maintain, lines for customers that decide to use a competitor’s services. Duplicate funding was actually 

slated for elimination by the FCC years ago. Acting on it today 

could save the Fund $300 million per year or more. 

Regarding cost-plus, it is inherently problematic to reward inefficiency by providing support on the basis that the more you spend, 

48 

the more you get. If we were serious about reforming USF, then 

this reward for inefficiency must be eliminated. 

In conclusion, I believe there’s so much to be lost by implementing the Joint Board’s recommended cap. As a tangible result, 

rural Americans would not gain the public safety, economic development, and other benefits of wireless service that they need, deserve, and demand. As an intangible result, the Commission would 

have failed to meet the competitive neutrality standard of the 1996 

Act. We view this as a very important matter. We ask of our government to level the playing field rather than picking winners and 

losers in a free marketplace. Only fair competition will bring the 

best services at the lowest prices to the most consumers. 

Mr. Vice Chairman and Members of the Committee, I greatly appreciate your time and attention to this matter. 

Thank you. 

[The prepared statement of Mr. Foxman follows:] 

PREPARED STATEMENT OF JONATHAN D. FOXMAN, PRESIDENT AND CEO, 

CHINOOK WIRELESS

Chairman Inouye, Ranking Member Stevens, and Members of the Committee, my 

name is Jonathan Foxman and I am the President and CEO of Chinook Wireless. 

I thank you for this opportunity to be here to discuss the Universal Service system. 

Chinook Wireless opposes the cap recommended by the Joint Board, and in this 

testimony provides specific proposals for rapid and actual reform of the Universal 

Service system. 

I. Chinook Wireless—Background 

Our company provides wireless services to customers throughout Montana and 

northern Wyoming, and recently acquired licenses to also provide these services in 

central and southern Wyoming and western North Dakota and South Dakota. 

We are a fully capable wireless communications company with our own network 

of cell sites and switching core, call center, and retail stores, all in Montana and 

Wyoming, representing a variety of high quality jobs in the markets we serve. Over 

the last 2 years, we have made a significant investment to upgrade and greatly expand our network and systems to bring state-of-the-art wireless voice and data communications to much of Montana. We now provide broadband wireless voice and 

data, including access to the Internet. We believe we are answering the urgent need 

for better telecommunications services and public safety in rural America. With Universal Service support, we could do so much more to answer what is truly a desperate need. 

The fundamental limitation to addressing this need is that the high cost of deploying cell sites in these areas, while so important for public safety and other reasons, 

cannot be paid back by merely a handful of customers. 

II. Universal Service Funds Are Critical for Extending Wireless Service to 

Rural Areas 

To date, unlike any wireline carrier we know, we have built our business in rural 

America without subsidies of any kind. We have built our business entirely with private investment and loans. We do not have a guaranteed rate of return, we have 

not received government funding, and we do not have an embedded subscriber base. 

As a result, we are what I would term, ‘‘business case limited’’. We have to build 

and operate as efficiently as possible. Our lenders and investors set very finite limits, and they will not fund infrastructure without a business case to support it. This 

constrains how much coverage we can provide in rural and remote areas where the 

need is greatest. Yet, citizens who live in and travel through these areas both deserve and demand wireless service, particularly for public safety purposes. We have 

had people beg us to build cell sites on their farms so they can have decent phone 

service. We have also had people tell us that they cannot understand why there is 

no wireless service on some of the highways they frequently travel. We want to 

serve these customers. We recognize the need, but we simply cannot meet it with 

private funding alone. Therefore, we have asked the Montana Public Utility Commission for authority to be eligible for Universal Service Fund (USF) support. This 

support would greatly expand our company’s ability to build systems to serve areas 

49 

that we otherwise could not reach. We urge Congress and continue to urge the FCC 

to recognize that there is a critical need in rural America for improved telecommunications services, particularly the public safety benefits that only wireless service can 

provide. 

III. The Recommended Cap Would Inhibit Competition, Contravene the 

Intent of Drafters of the 1996 Act, And Would Not Repair Actual Flaws 

in the Universal Service System 

A. Capping Funds Only to Competitive Providers Impairs the Competitive Benefits 

For Consumers Envisioned By Drafters of the 1996 Act 

We strongly oppose the Universal Service cap recommended by the Joint Board. 

This proposal would limit funding for ‘‘competitive carriers’’ (CETCs), a group that 

includes all wireless providers in the Universal Service system, but not incumbent 

landline carriers in the same rural areas. Any action taken should be balanced and 

applied equitably to all carriers, the older incumbents as well as their newer competitors. 

Among ‘‘the four critical goals set forth for the new Universal Service program’’ 

the FCC identified in implementing the Telecommunications Act of 1996, was the 

goal ‘‘that the benefits of competition be brought to as many consumers as possible.’’ 1 The cap proposed by the Joint Board in the Recommended Decision would 

directly conflict with this goal of bringing the benefits of competition to consumers. 

That would be irresponsible. Where competition exists, it has dramatically driven 

down service prices and increased quality of service.2 Universal service funding to 

competitors as well as incumbent carriers allows that beneficial competition to take 

place. 

B. The 1996 Act Was Intended To Increase Funding to Competitive Carriers—But 

it Was Also Expected To Result in Reduced Funding to Carriers That Were Less 

Efficient and Lost Customers, Whether They Proved To Be Incumbents Or Newer 

Carriers 

We understand the alarm over increases in the Fund, but those increases are 

caused by permitting surpluses and inefficiencies to remain in the program. Increased payouts to competitors were foreseen by the drafters of the 1996 legislation.3 Growth in the Fund was viewed as necessary in order to bring new technologies into rural America without materially harming rural ILECs in the shortterm.4 What legislators did not anticipate 5 was that after competitors entered rural 

markets, there would be a failure of will by policymakers to concomitantly reduce 

funding to carriers who lost customers or used funds inefficiently.6 We understand 

that regulatory decisions in these matters cannot be universally popular with all industry participants, regardless of the choices made—but consumers, not carriers, are 

the intended beneficiaries of Universal Service. 

For the short term at least, we think decreasing phone service rates 7 will ensure 

customer bills do not increase overall, despite increases in the Fund.8 But we are 

concerned that imposition of the cap might permit the Commission to again avoid 

actual reform of the Universal Service system. So-called temporary measures often 

stretch into years of prolonged renewals.9

Rather than risk infinite reduction of rural wireless services, we urge Congress 

to strongly suggest that the Commission rapidly and finally repair the Universal 

Service system, keeping in mind the goals of reducing inefficiencies and facilitating 

true competition, as mandated by the 1996 Act. It is crucial to level the playing 

field, which will improve prices, service quality and choice for consumers, rather 

than permitting cuts in funding only for newer market entrants. 

The FCC has scrutinized Universal Service reform for years, repeatedly requesting comments. The proposed cap would only permit maintenance of this cycle. Instead, it is time to fix the system. The Commission could adopt meaningful reforms 

within a year, without using a cap that would injure rural citizens’ access to wireless service. The FCC implemented spectrum auctions within a year, and drafted 

and released its Local Competition Orders under the 1996 Act within a single year 

as well. This is no different—just another complex undertaking that the agency certainly does have the institutional expertise and resources to accomplish. 

IV. Actual Flaws Should Be Repaired, In Order To Reduce Fund Size More 

Equitably 

A. Solve the ‘‘Cost-Plus’’ Problem 

Today, some carriers receive support on a ‘‘the more you spend, the more you get’’ 

basis, termed ‘‘cost plus.’’ There is no scrutiny of whether expenditures are efficient 

or appropriate. In addition, the current system guarantees a comfortable rate of return. These factors are incentives to inefficiency, motivating more spending on overVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00053 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
50 

head and marketing, rather than finding the most efficient method of delivering 

service to a customer. 

If the FCC would modify or eliminate ‘‘cost plus’’ support, that will reduce the 

Fund’s size and free up resources that instead can be invested in broadband or other 

technologies—because competition will help discourage inefficiencies that regulators 

cannot effectively excise. States including Montana do not allow CETCs to serve 

only low-cost areas. Therefore, we must be efficient in building and operating our 

network. Support for all carriers should be based on the cost of providing an efficient network, in order that any carrier that wants to make additional expenditures 

will do so only out of its own pocket, not the public purse. 

B. Make Support Fully Portable 

Portable support means support funds that travel with a customer: the carrier 

that retains a customer, receives the support for serving that customer’s line. And 

logically, when a carrier loses a customer, the support should stop arriving. This approach was upheld by the Fifth Circuit Court of Appeals in the case of Alenco Communications, Inc. v. FCC: 

. . . [T]he [FCC’s Universal Service] order provides that the Universal Service 

subsidy be portable so that it moves with the customer, rather than stay with 

the incumbent LEC . . . The purpose of Universal Service is to benefit the customer, not the carrier. ‘‘Sufficient’’ funding of the customer’s right to adequate 

telephone service can be achieved regardless of which carrier ultimately receives 

the subsidy.10

Yet, inexplicably, this course was reversed and now, the cost of USF subsidies 

that are still being paid to wireline carriers for customers those carriers have lost 

(lines that were built long ago and paid for many times over) is over $300 million 

per year. Wireless carriers, in contrast, lose support when we lose customers. The 

Commission can reduce waste in the system by requiring that a carrier no longer 

serving a customer give up its claim to funds initially relating to that connection. 

V. Conclusion: Competition Is Encouraging a Beneficial Paradigm Shift 

In the broader perspective, a nationwide paradigm shift is taking place—a shift 

toward consumer desire for the benefits of competition: lower prices, higher quality 

service, and more options. Some markets are already supporting multiple, often 

complimentary, communications technologies. To the extent government chooses to 

aid extension of these technologies to the ‘‘last mile,’’ all services should be placed 

on an equal footing, and all market participants should receive equal support per 

customer, based on the costs of building an efficient network in a particular area. 

The FCC reached these conclusions between 1996 and 2001, and they remain valid 

today. 

Universal Service improvements should be consistent with the core principles of 

the 1996 Act: that all Americans deserve the benefits of competition, and support 

should work with competition, rather than hamper the success of a free market. 

Support should be distributed efficiently, freeing up funds for investments in 

broadband. 

Government’s role is not choosing winners in the world of business. Instead, a 

level playing field can support competition for the benefit of consumers. The current 

focus on new entrants simply distracts attention from true issues threatening the 

future of USF. 

I urge Congress to oppose this inequitable cap on funds for competitive carriers. 

Instead, Chinook Wireless supports rapid and diligent reform of the underlying system, in order that the goals Congress enacted in 1996 may finally be realized. Competition can coexist with a policy of supporting service to underserved areas. By encouraging a level playing field and efficiencies in the use of funding, regulators can 

curb Fund growth while providing consumers with the benefits of Universal Service 

and competition. 

Endnotes 1Federal-State Joint Board on Universal Service, Fourth Order on Reconsideration, 13 FCC Rcd 5318, 5321–22, para. 2 (1997) (‘‘Fourth Reconsideration Order’’). 2 As an example of consumer benefits from competition: consider the wireless industry, which became highly competitive after the introduction of spectrum auctions 

in 1996. From 1995—2005, the average cost per minute for wireless service dropped 

from 43 cents/minute to 7 cents/minute. See Implementation of Section 6002(b) of 

the Omnibus Budget Reconciliation Act of 1993—Annual Report and Analysis of 

Competitive Market Conditions With Respect to Commercial Mobile Services, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10. Factoring in the current 

11.7 percent contribution factor, the cost of a wireless call for 1995 is calculated at 

51 

7.8 cents/minute, as compared to the 43 cents of 10 years earlier. In other words, 

even including customers’ contributions to the Universal Service Fund, competitive 

forces have driven down the total amounts they pay for wireless service, even as 

those customers make more and longer calls, increasing 119 to 740 average wireless 

minutes per month over the same 10-year period. Id. 3 If concern over Fund size relates to carrier receipts, consider the fact that 

wireline carriers still receive an enormous share of Universal Service funding. In 

the State of Montana, in 2006, according to the Joint Board, incumbent wireline carriers received $69.7 million in funding, and competitive carriers such as wireless received $7.2 million in funding. See Federal-State Joint Board on Universal Service, 

Universal Service Monitoring Report, Table 7.2 (2006), attached hereto (‘‘Monitoring 

Report Attachment’’). Incumbent wireline carriers still receive more than three 

times as much funding as their wireless and wireline competitors, and in some 

states, they receive 100 percent of Universal Service funding. 4 In fact, the FCC adopted a five-year transition period during which rural ILECs 

would not lose support when CETCs entered. See Federal-State Joint Board on Universal Service, Fourteenth Report and Order, Twenty-second Order on Reconsideration, and Further Notice of Proposed Rulemaking, 16 FCC Rcd 11244, 11294–95 

(2001). 5 Joint Board Member Billy Jack Gregg, in testimony before the Communications 

Subcommittee of this Committee, described legislative intent and expectations in 

1996 as follows: 

It should not be surprising that funding for competitive ETCs has increased. 

After all, before the advent of competition incumbents received 100 percent of 

high-cost funding. It was expected that as competitors gained ETC status and 

won customers in high-cost areas, their high-cost funding would rise. What is 

surprising is that incumbent support has not dropped by an amount proportionate to the increase in competitive ETC funding. . . . 

Not only was the introduction of competition expected to lower prices of telecommunications services, it was supposed to lower the cost of Universal Service 

as providers competed for the Universal Service subsidy. 

Testimony of Billy Jack Gregg before Communications Subcommittee, Senate 

Commerce, Science and Transportation Committee, at 6–7 (March 1, 2007), referencing House Report No. 104–204 (I) (1995), Arnold & Porter Legislative History 

Pub. L. 104–104 (A&P) at 60; Senate Report No. 104–23, A&P at 254 (1995). 6 In 2006, the FCC extended indefinitely the transition period during which rural 

ILECs would not lose support, without enacting any reforms. Federal-State Joint 

Board on Universal Service, Order, 21 FCC Red 5514 (2006). 7 Consumer Price Index data shows that telephone service costs are decreasing 

compared to other services, From 1995 through 2005, the annual rate of change in 

the Consumer Price Index (‘‘CPI’’) for all goods and services was 2.5 percent, while 

the annual rate of change for all telephone services was ¥0.2 percent. In 2005, CPI 

for all goods and services rose 3.4 percent, while the increase for all telephone services was only 0.4 percent. See Monitoring Report Attachment. 8The Joint Board decision did not cite any evidence that consumers would be 

harmed absent a cap. And we believe any increase in customer bills from increasing 

contributions will be offset by declining rates. According to FCC analysis, average 

monthly rates for wireline and wireless services have decreased, for wireless as 

much as 20 percent to 30 percent per year, even when the Universal Service charge 

is taken into account. Average monthly combined charges for local and interstate/ 

international long distance telephone service, approximately $42 in 1995, declined 

to approximately $28 in 2004 (the most recent year for which average bills can be 

calculated). FCC, Trends in Telephone Service, Table 3.3 (Feb. 2007) (‘‘Trends Report’’). Average monthly charges for residential local service taken from Trends Report at Table 13.3. Average monthly charges for residential interstate/international 

long distance service calculated by multiplying average revenue per minute by average monthly interstate and international long distance minutes for the same year. 

See Trends Report at Tables 13.4, 14.2. Wireless prices (reflected by average cost 

per minute) have dropped as much as 20 percent to 30 percent per year between 

1998 and 2005. The overall decline in revenues per minute for wireless services 

from 1993 through 2005 was 84.1 percent. Average wireless service monthly bills 

fell by 18.7 percent from 1993–2005. See Implementation of Section 6002(b) of the 

Omnibus Budget Reconciliation Act of 1993—Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10. 9See, e.g., nn. 4 and 6, supra. 10 Alenco Communications, Inc. v. FCC, 201 F.3d 608, 615 & 621 (5th Cir. 2000). 

52 

Table 3.15—Total High-Cost Support Payments By State or Jurisdiction—ILECs and CETCs 

[Dollars] 

State or Jurisdiction 

1999 2000 2001 2002 

ILECs CETCs ILECs CETCs ILECs CETCs ILECs CETCs 

Alabama 36,318,951 0 88,214,302 0 93,882,843 0 99,840,657 21,647 Alaska 67,816,605 0 70,315,653 0 74,543,499 0 79,633,434 124,846 American Samoa 124,410 0 473,151 0 458,928 0 875,238 0 Arizona 31,174,674 0 35,577,804 0 48,845,290 1,060,306 56,758,691 4,632,839 Arkansas 73,247,163 0 71,691,402 0 75,398,793 0 101,091,641 0 California 49,657,305 0 64,070,553 0 82,347,999 0 86,503,022 24,999 Colorado 43,789,464 0 53,761,542 0 62,003,540 0 66,143,448 688,329 Connecticut 958,953 0 952,617 0 1,192,074 0 1,506,436 0 Delaware 0 0 199,512 0 385,947 0 373,665 0 District of Columbia 0 0 0 0 0 0 0 0 Florida 18,547,026 0 49,781,316 0 84,627,004 0 85,609,445 0 Georgia 71,765,064 0 79,228,268 0 91,334,696 0 110,244,701 0 Guam 2,321,256 0 3,169,872 0 2,318,838 0 1,969,968 356,718 Hawaii 1,472,913 0 2,403,015 0 5,348,833 0 7,010,380 0 Idaho 29,219,598 0 35,787,777 0 44,531,158 0 49,013,604 0 Illinois 38,898,339 0 31,342,473 0 39,137,373 0 48,479,657 5,241 Indiana 17,058,453 0 30,488,022 0 42,060,071 0 47,141,468 0 Iowa 25,802,260 0 30,643,488 0 35,233,563 66,101 43,224,375 652,816 Kansas 64,603,071 0 67,053,729 0 81,019,830 5,967 94,268,913 147,749 Kentucky 19,501,563 0 29,807,009 0 36,026,757 0 57,147,036 0 Louisiana 63,648,414 0 72,467,664 0 80,748,606 0 87,583,016 0 Maine 18,968,121 0 32,099,073 0 30,927,750 0 29,496,861 0 Maryland 596,790 0 2,580,717 0 4,657,430 0 4,704,481 0 Massachusetts 641,841 0 1,285,080 0 1,657,924 0 1,340,972 0 Michigan 34,738,875 0 39,393,036 0 40,431,984 10,688 44,477,695 800,750 Minnesota 41,442,858 0 48,130,605 0 49,698,983 94,060 65,788,105 104,776 Mississippi 26,773,044 0 132,785,751 0 141,139,843 0 149,589,072 20,997,855 Missouri 50,654,082 0 65,568,381 0 73,621,807 59,280 84,225,880 90,201 Montana 43,346,418 0 45,254,916 0 51,504,570 189,660 62,361,590 470,874 Nebraska 21,377,097 0 23,729,919 0 26,378,585 0 31,464,331 0 Nevada 10,994,325 0 15,066,537 0 22,846,950 63 22,973,633 289,777 New Hampshire 8,506,026 0 8,489,304 0 9,433,625 0 11,898,687 0 New Jersey 993,234 0 3,688,155 0 6,020,140 0 3,491,193 0 

53 

New Mexico 34,527,114 0 37,100,202 0 41,421,404 0 46,221,145 210,478 New York 37,395,060 0 51,532,557 0 59,460,149 482,043 55,659,061 523,518 North Carolina 31,719,741 0 33,997,699 0 38,944,285 0 55,742,932 0 North Dakota 21,703,062 0 25,437,877 0 28,584,627 0 31,654,811 89,341 Northern Mariana Islands 5,529,978 0 3,257,226 0 3,594,740 0 3,526,267 0 Ohio 15,056,667 0 19,503,900 0 29,246,406 0 33,911,495 0 Oklahoma 58,345,860 0 67,401,390 0 76,622,223 0 85,800,208 27,921 Oregon 36,809,835 0 47,354,850 0 60,851,409 0 67,392,263 0 Pennsylvania 21,611,712 0 28,472,919 0 35,438,459 0 42,712,402 0 Puerto Rico 132,925,644 534,012 139,946,898 1,494,642 111,508,014 6,440,727 86,185,212 10,363,326 Rhode Island 0 0 25,686 0 96,477 0 60,198 0 South Carolina 40,003,113 0 46,068,145 0 55,646,667 0 71,350,010 0 South Dakota 19,478,967 0 22,225,041 0 23,913,594 0 32,003,665 347,297 Tennessee 28,449,801 0 34,482,177 0 40,665,639 69,516 46,063,270 292,623 Texas 118,600,308 0 138,101,139 0 167,610,051 99,339 188,031,058 1,152,675 Utah 10,178,430 0 12,535,251 0 14,109,453 0 18,079,066 0 Vermont 11,248,704 0 26,244,471 0 22,593,331 0 25,804,315 0 Virgin Islands 22,973,160 0 23,786,676 0 25,253,094 0 27,525,044 0 Virginia 12,837,387 0 38,477,018 0 64,489,462 0 69,908,969 0 Washington 43,165,287 0 53,885,595 0 68,815,275 8,232,717 75,016,670 3,030,131 West Virginia 22,991,175 0 63,450,822 0 72,163,053 0 80,382,176 83,529 Wisconsin 50,982,323 0 54,591,597 0 58,828,654 90 68,344,845 203,841 Wyoming 25,954,848 0 29,896,680 0 35,057,650 137,400 41,262,316 348,567 Industry 1,717,446,369 534,012 2,233,276,459 1,494,642 2,574,679,349 16,947,957 2,888,868,695 46,082,664 

54 

Table 3.15—Total High-Cost Support Payments By State or Jurisdiction—ILECs and CETCs—(Continued) 

[Dollars] 

State or Jurisdiction 

2003 2004 2005 2006 

ILECs CETCs ILECs CETCs ILECs CETCs ILECs CETCs 

Alabama 89,293,506 2,988,331 94,588,334 6,250,779 97,678,778 11,663,899 102,251,011 14,647,370 Alaska 88,850,054 1,403,390 95,096,980 4,973,083 100,627,607 19,646,224 98,674,638 39,994,917 American Samoa 1,230,722 0 1,860,943 0 2,317,903 0 1,496,616 0 Arizona 62,265,191 5,816,508 66,572,006 13,627,513 61,804,813 12,745,645 68,565,687 15,811,998 Arkansas 112,277,219 816,659 104,291,859 30,012,436 103,476,130 37,521,103 106,173,927 29,826,012 California 92,059,403 123,276 95,186,762 52,770 98,674,387 191,115 106,390,695 131,412 Colorado 73,651,142 2,876,978 74,987,264 8,311,404 72,049,895 7,226,901 71,123,691 8,381,643 Connecticut 2,242,663 0 2,445,617 0 2,248,744 0 2,032,395 0 Delaware 320,397 0 266,283 0 259,146 0 254,508 0 District of Columbia 0 0 0 0 0 0 0 0 Florida 80,109,504 0 81,841,610 1,939,141 81,140,368 10,309,805 76,734,600 7,593,162 Georgia 110,373,162 0 105,771,772 1,656,436 102,637,923 9,055,385 99,096,693 5,551,857 Guam 4,572,924 1,382,807 7,434,786 2,143,229 11,427,375 7,737,989 7,884,885 7,349,487 Hawaii 9,967,573 0 13,889,383 249,173 17,568,456 11,956,190 22,606,476 18,579,186 Idaho 51,909,601 0 53,012,454 0 55,055,167 0 53,095,818 0 Illinois 55,080,459 2,406 57,479,277 45 63,505,452 981 65,663,013 1,971 Indiana 53,149,059 12,474 55,299,595 173,552 54,481,006 2,151,459 57,492,699 3,325,992 Iowa 54,547,156 15,891,086 55,841,707 26,729,545 55,618,671 34,717,359 60,925,257 40,373,526 Kansas 108,785,249 2,692,475 121,727,826 7,838,024 132,251,224 46,433,044 132,055,755 53,349,474 Kentucky 59,757,468 15,999 71,749,739 276,334 75,144,011 8,456,057 75,210,951 21,800,331 Louisiana 91,029,193 0 88,157,077 14,094,355 85,913,185 25,327,599 86,366,865 40,404,837 Maine 29,725,830 832,312 27,779,495 2,241,525 24,533,155 4,278,734 25,349,043 4,860,493 Maryland 3,451,702 0 2,936,899 0 4,326,582 0 4,361,691 1,098 Massachusetts 2,120,262 0 2,493,872 0 3,634,062 0 2,707,494 0 Michigan 44,379,093 1,553,320 43,022,294 6,163,546 43,744,197 9,830,363 44,631,927 14,154,780 Minnesota 78,599,334 2,039,645 75,428,194 18,903,254 81,420,327 31,931,697 82,321,251 38,474,865 Mississippi 145,961,305 24,339,170 146,413,078 41,255,118 147,106,117 62,144,436 140,588,648 109,744,027 Missouri 92,095,987 75,773 90,894,928 168,316 85,025,623 119,889 88,435,827 122,451 Montana 65,692,180 622,224 70,960,584 1,192,629 72,677,550 4,053,156 69,709,249 7,245,084 Nebraska 44,359,887 0 49,107,561 62,706 54,422,214 1,467,516 54,668,200 2,112,482 Nevada 26,224,437 3,907,911 24,211,672 3,540,695 24,451,060 5,187,803 25,630,626 6,445,818 New Hampshire 11,384,021 0 9,372,836 0 8,731,668 0 9,568,887 103,782 New Jersey 1,533,302 0 1,442,797 0 1,332,013 0 1,289,640 0 

55 

New Mexico 46,776,559 3,770,150 47,227,016 3,538,855 49,491,285 9,019,927 48,698,361 12,158,745 New York 51,104,130 729,603 49,633,569 180,316 47,160,351 4,672,277 49,473,066 4,193,142 North Carolina 71,561,647 0 79,089,350 1,180,132 72,920,918 7,258,337 76,169,451 5,181,300 North Dakota 39,959,801 11,056,151 38,869,743 14,946,255 36,413,361 26,304,977 42,433,701 37,368,354 Northern Mariana Islands 1,652,912 0 709,640 64,674 436,572 231,156 810,480 255,954 Ohio 38,248,134 0 40,738,649 0 37,754,247 0 38,602,698 0 Oklahoma 106,262,224 (18,225) 102,410,238 538,541 108,602,175 11,585,872 107,356,983 14,789,604 Oregon 70,843,149 0 66,199,436 3,973,730 64,914,449 3,554,296 64,870,959 10,060,758 Pennsylvania 55,174,266 0 58,321,676 327,750 63,459,742 2,043,871 64,707,909 1,754,400 Puerto Rico 85,955,805 13,672,345 58,567,786 22,843,398 66,047,054 67,738,447 47,407,680 75,966,315 Rhode Island 46,491 0 56,457 0 44,472 0 37,287 0 South Carolina 79,517,759 0 78,116,203 0 76,322,172 0 82,243,845 0 South Dakota 40,952,744 7,612,395 47,824,157 13,937,378 54,108,387 23,679,409 55,972,318 27,797,012 Tennessee 52,740,553 139,741 54,408,927 337,048 53,510,220 1,174,125 52,456,962 1,547,229 Texas 211,301,637 2,278,421 229,221,439 1,111,597 226,230,724 3,786,279 205,497,036 10,678,173 Utah 23,912,518 0 22,675,062 0 23,301,638 277,767 23,719,365 240,558 Vermont 27,501,079 638,436 27,158,041 3,032,809 28,418,389 6,825,562 26,045,892 5,958,141 Virgin Islands 26,869,011 0 25,972,598 0 22,617,908 0 25,185,111 0 Virginia 76,629,469 261 75,789,178 2,887,069 72,048,998 15,263,371 67,111,638 12,167,124 Washington 72,354,489 7,939,390 68,107,492 19,806,072 65,989,527 28,397,734 64,046,469 34,724,406 West Virginia 76,909,660 1,539,760 64,041,014 4,420,527 58,577,740 7,739,910 60,104,661 9,190,040 Wisconsin 83,112,053 7,835,222 82,756,156 15,664,820 90,078,586 40,146,445 87,712,566 49,767,426 Wyoming 43,036,041 5,034,146 43,156,564 15,090,302 41,935,807 14,662,256 38,708,744 16,259,942 Industry 3,129,421,116 129,620,540 3,152,615,875 315,736,881 3,185,669,531 638,516,367 3,172,731,845 820,446,678 

56 

Senator STEVENS. Thank you, Mr. Foxman. 

Our next witness is Mr. Joel Lubin. 

Mr. Lubin? 

STATEMENT OF JOEL E. LUBIN, VICE PRESIDENT, 

REGULATORY PLANNING AND POLICY, AT&T SERVICES, INC. 

Mr. LUBIN. Thank you. Good morning. Thank you, Mr. Chairman 

and Members of the Committee, for inviting us this morning to 

speak on this panel. 

AT&T is a long-term supporter of national Universal Service policy. We thank you for your leadership. 

AT&T is the single largest provider of telephone service in rural 

America. We serve more than 7 million lines in rural America, approximately one-third of the Nation’s rural lines. Other carriers 

have divested their high-cost lines or declined to serve rural areas. 

We, however, have committed to serve all customers, wherever 

they live. With proper support, this commitment could and should 

include the deployment of next-generation services. But, as AT&T 

and other carriers across America have experienced firsthand, insufficient and unstable Universal Service funding not only threatens the continued quality of today’s legacy services, it also is a 

major deterrent to investment in advanced broadband facilities and 

services. 

The current Universal Service high-cost system is broken and 

badly needs reform. For this reason, we support both the shortterm recommendations and the long-term goals contained in the 

Federal-State Joint Board Recommended Decision. High-cost funding has reached an annual high water mark of $4 billion, and is 

already racing to exceed that level. As the high-cost fund has careened out of control, it has become increasingly impossible to consider, much less implement, long overdue reform measures. The 

Joint Board proposes to rein in the explosive growth by imposing 

an interim emergency cap on support of competitive eligible telecommunication carriers, CETCs. The Board’s interim solution provides a temporary and tailored reform measure that should bring 

needed discipline to the Fund. Today, competitive ETCs received 

almost $1 billion in 2006. Five years ago, it was $15 million. And 

at this point, the funding is not targeted to underserved areas. I’m 

going to repeat that point. The targeting today is not targeted to 

undeserved areas. Consumers are, in many cases, footing the bills 

to subsidize multiple competitive ETCs vying for the same customers in the same neighborhoods, and often as many as three or 

four wireless ETC lines in the same household. Because high-cost 

support to competitive ETCs is expected to increase to $2 billion 

next year, $2.5 billion in 2009, an interim cap is important to prevent further increases due to current rules. 

We support this measure, even though there will be some adverse impacts. Many carriers, including AT&T, our wireless enterprise, will be required to shoulder at least a short-term reduction 

in otherwise certain funds. In light of this, we have provided specific comments to the FCC on ways to minimize disruptions to existing carrier investment plans. Let’s not forget, there will be 

money, still, the following year, that still could be used for cell 

sites. 

57 

In the end, however, the short-term challenge is a small price to 

pay for immediate Fund stabilization and headroom to engage in 

reasoned exploration of comprehensive reform, including the right 

way to promote broadband deployment and wireless coverage in 

rural, underserved areas without overburdening an already overburdened system. AT&T would like to share with you its vision of 

Universal Service reform, for if we don’t move to a long-term solution, we’ve not really accomplished much. 

The second aspect of the Joint Board’s recommendation is looking 

at long-term solutions. In addition to the interim cap on competitive ETC funding, comprehensive reform must embrace the following three elements: 

Number one, replacement of the existing revenue-based contribution mechanism with a telephone-numbers connections-based solution. 

Number two, reform intercarrier compensation to preserve Universal Service during the transition to a fully deployed broadband 

environment. Let me be very clear on this point. When broadband 

gets fully deployed, the current access charges vaporize. They go 

away. This needs to be addressed. 

Number three, reform of existing Federal high-cost funding 

mechanism to promote deployment of next-generation broadband 

and expanded and improved wireless service in rural areas. Let’s 

focus on the third element. We specifically propose that the FCC 

make available funding in a pilot program designed to support deployment of lower-cost higher-speed broadband alternatives in underserved rural areas. Similarly, the FCC should identify areas 

that currently lack reliable mobile wireless service. Each pilot program that we suggested should be addressed by and created by the 

Commission, a single provider would be eligible to obtain funding 

within a specific geographic area in order to provide service to the 

underserved areas. Such pilot programs would provide the FCC 

much-needed experience and information about funding levels and 

other issues that will enable the Commission to craft the right incentives to support deployment to underserved areas. 

Thank you. And I look forward to your questions. 

[The prepared statement of Mr. Lubin follows:] 

PREPARED STATEMENT OF JOEL E. LUBIN, VICE PRESIDENT, REGULATORY PLANNING

AND POLICY, AT&T SERVICES, INC. 

Good morning. Thank you, Chairman Inouye, Vice Chairman Stevens, and members of the Committee for inviting me here today. AT&T is a long-time supporter 

of our national policy of Universal Service and of recent efforts to sustain that policy 

through meaningful reform. In this regard, we salute the leadership of Chairman 

Inouye, Vice Chairman Stevens, and the work of the entire Committee. 

AT&T is the single largest provider of telephone service to rural America. We 

serve more than seven million rural access lines, nearly one-third of the rural lines 

in the Nation. At the same time, AT&T receives a disproportionately lower share 

of high-cost funding to provide this service. Under similar conditions, other carriers 

have divested their high-cost lines, or declined to serve rural areas. AT&T, however, 

remains committed to serve all customers, wherever they live. With proper support, 

this commitment could—and should—include the deployment of next-generation 

services. But as AT&T and other carriers across America have experienced firsthand, insufficient and unstable Universal Service funding not only threatens the 

continued quality of today’s legacy services; it also is a major deterrent to investment in advanced, broadband facilities and services. 

58 

The current Universal Service high-cost support system is broken and badly needs 

reform. For this reason, we support both the short term recommendations and the 

long term goals contained in the Federal-State Joint Board Recommended Decision. 

High-cost funding has increased 54 percent in the last 5 years—and is already racing to exceed that level. As the high-cost fund has careened out of control, it has 

become increasingly impossible to consider, much less implement, long-overdue reform measures. The Joint Board proposes to rein in the explosive growth by imposing an interim, emergency cap on support to competitive Eligible Telecommunications Carriers (‘‘ETCs’’). 

The Board’s interim solution provides a temporary and tailored reform measure 

that should bring needed discipline to the fund. In the past 5 years, funding for 

competitive ETCs has increased sixty-seven fold from $15 million (roughly .5 percent of the overall Fund) to $1 billion (25 percent of the overall Fund). And this 

funding is not targeted to underserved areas: consumers are in many cases footing 

the bill to subsidize multiple competitive ETCs vying for the same customers in the 

same neighborhoods and often as many as three or even four wireless ETC lines in 

the same household. Because high-cost support to competitive ETCs is expected to 

increase to $2 billion next year, an interim cap is necessary to prevent further increases due to the designation of additional competitive ETCs as well as line growth 

among current ETCs. 

We support this measure even though there will be some adverse impacts. Many 

carriers, including AT&T, will be required to shoulder at least a short-term reduction in otherwise certain funding. In light of this, we have provided specific comments to the FCC on ways to minimize disruptions to existing carrier investment 

plans. In the end, however, this short-term challenge is a small price to pay for immediate Fund stabilization and the breathing space to engage in reasoned exploration of comprehensive reform, including the right way to promote broadband deployment and wireless coverage in rural underserved areas without overburdening 

an already overburdened system. 

AT&T would like to share with you its vision of Universal Service reform, the second aspect of the Joint Board’s Recommended Decision. In addition to the interim 

cap on competitive ETC funding, comprehensive reform must embrace the following 

elements: 

1. Replacement of the existing revenues-based contribution mechanism with a 

telephone numbers/connections based mechanism. 

2. Reform of intercarrier compensation to preserve Universal Service during the 

transition to a fully deployed broadband environment. Let me be very clear on 

this point. When broadband gets fully deployed current access charges vaporize. 

They go away. This needs to be addressed. 

3. Reform of the existing Federal high-cost funding mechanisms to promote deployment of next-generation broadband, and expanded and improved wireless 

service, in rural areas. 

Let’s focus on this third element. We specifically propose that the FCC make 

available funding in a pilot program designed to support deployment of lower-cost, 

higher-speed broadband alternatives in underserved rural areas. Similarly, the FCC 

should identify areas that currently lack reliable, mobile wireless services. In each 

pilot program created by the Commission, a single provider would be eligible to obtain funding within a specific geographic area in order to build new facilities to provide service to underserved populations. Such pilot programs would provide the FCC 

much needed experience and information about funding levels and other issues that 

will enable the Commission to craft the right incentives to support deployment to 

underserved areas. 

Finally, policymakers should not be enticed by seemingly easy solutions. For instance, there has been much attention placed on the so-called ‘‘identical support’’ 

rule, which allows all competitive ETCs to receive the same per-line support in a 

particular study area that the ILEC receives, regardless of their own costs, service 

territory or circumstances. We agree that this rule is not in the public interest, but 

the problem cannot be addressed by modifying this rule alone, as the root of the 

problem runs deeper. Rather, the problem is that the rules fail to identity rural 

areas where the support is most needed to preserve Universal Service. The result 

is that many rural areas receive no funding at all, and other areas that are not particularly rural or high cost receive significant support. 

The identical support rule exacerbates this problem by allowing all ETCs that 

serve a given area to receive the same support that is poorly distributed in the first 

instance. Thus, the only places a competitive ETC can receive support are where 

the underlying incumbent LEC is already supported, regardless of the competitors’ 

59 

costs and build-out plans. But simply changing the identical support rule without 

addressing the fundamental problem of the poorly targeted support is a mistake. It 

may change the incentives facing competitive carriers interested in becoming ETCs, 

but it will not advance Universal Service goals for the consumers in rural areas. 

There are four big questions that need to be answered in order to develop a robust 

Universal Service policy: what areas need to be supported; what services do you 

want to support; who are you going to pay to deliver those services; and how much 

are you willing to pay? The identical support rule goes to the fourth and final question. Addressing it in isolation will virtually guarantee that the funds are not sent 

to the areas most in need. 

Thank you and I look forward to your questions. 

Senator STEVENS. Thank you, Mr. Lubin. 

The last witness is Mr. Everett B. Flannery, Chief Deputy of 

Kennebec County. 

STATEMENT OF EVERETT B. FLANNERY, JR., CHIEF DEPUTY, 

SHERIFF’S OFFICE, KENNEBEC COUNTY, STATE OF MAINE; 

REPRESENTATIVE, MAINE SHERIFFS’ ASSOCIATION 

Mr. FLANNERY. Thank you, Mr. Vice Chairman. 

Mr. Vice Chairman and Members of the Committee, I’m Everett 

B. Flannery, Jr., the retired Sheriff for Kennebec County. I’ve been 

a law enforcement officer in the State of Maine for almost 30 years, 

currently acting as Chief Deputy for Kennebec County—and that’s 

a story, upon itself, which I can tell you later. 

The Maine Sheriffs’ Association has designated me as their 

spokesman to provide you with a rural public safety official’s perspective on the importance of continuing, and, if possible, expanding, Universal Service Fund support for the build-out of our Nation’s wireless network into the many poorly served areas of Maine. 

My message is very simple: although wireless service appears to 

be outstanding in the urban and suburban portions of our Nation, 

there are many rural areas of the State of Maine that suffer greatly from the lack of quality wireless service. In fact, there are many 

communities that have no wireless service at all. I understand that 

this problem is common in other rural communities in the United 

States, as well. 

All of us who live and work in rural Maine struggle with the 

problem of inadequate wireless service. For example, I have no 

wireless service at my home in Clinton, Maine. Also, I understand 

from members of her staff that the Senator from Maine serving on 

this Committee has frequent difficulty staying in touch with her office and her constituents as she travels about the State of Maine. 

The absence of good wireless service prevents those of us responsible for public safety in America’s rural areas from doing our job 

properly. Poor wireless service exposes both rural law enforcement 

officers and the public to unreasonable health and safety risks. 

Poor mobile service makes it less likely that citizens will be able 

to give timely notification to public officials of an emergency, 

whether it is a car crash, an accident in a logging operation, a 

hunting mishap, an ATV or snowmobile accident, or any other 

emergency that needs to be reported. 

The nonavailability of wireless service represents a danger both 

for public safety officials and the public alike. For example, when 

our dispatch center receives a 9-1-1 domestic violence call, the deputy assigned will call into dispatch and be connected directly to the 

60 

caller. Deputies are trained to use their cell phones to call ahead 

to determine what’s going on and whether the deputy should call 

for assistance or not, looking for answers like, ‘‘Has someone made 

a threat? Are drugs or alcohol involved? Are children present? Does 

someone have a weapon?’’ Oftentimes, just speaking with a deputy 

will calm the situation down. However, poor cell service in Kennebec County means that the deputy will often be unable to get 

through to the residents. As someone who has handled rural patrol 

duties, I can assure you that you would really prefer to know 

whether someone inside the residence has a gun before you 

knocked on the door. 

Bad as this—excuse me—as bad as this is, I get even more concerned when I consider our readiness to manage a disaster like 

September 11 or a Hurricane Katrina. Maine’s public safety officials are trained, equipped, and staffed to handle major incidents, 

but the absence of quality mobile service to enable the public to 

communicate with us, and we with them, leads us to conclude that 

we may not be able to deliver the services that people need and deserve in such situations. 

I urge you to review the White Paper included as an exhibit to 

my testimony which documents the critical role played by a USFsupported wireless carrier in the recovery from Hurricane Katrina. 

The white paper explains that the FCC funded the distribution of 

thousands of mobile phones to Katrina victims. Why? Because, in 

the immediate aftermath of the storm, the Universal Service-supported wireless carrier had the only operating communications system on the Gulf Coast of Mississippi. If we, in rural Maine, were 

to be hit with such a disaster of this magnitude, I feel that we 

would have no means of communication at all. 

In Maine, the level of support going to rural wireless carriers 

from the Universal Service Fund will determine our ability to cope 

with a disastrous situation. Maine’s public safety officials cannot 

understand why the Federal Government would consider capping 

rural wireless expansion funding just as it is beginning to achieve 

the results intended by the Congress in its landmark Telecommunications Act of 1996. Avoiding a cap on wireless Universal Service 

funding is a very important issue for Maine. That is why our entire 

Congressional delegation has gone on record opposing the cap in 

the letters filed with the FCC. Also, earlier this month, the legislature of the State of Maine enacted a joint resolution memorializing 

Congress and the FCC in opposition to this cap. As this illustrates, 

achieving improved wireless service for our State is a thoroughly 

bipartisan effort. 

In closing, I want to extend my thanks to the Committee and its 

staff for providing me with the opportunity to share the perspective 

of Maine’s rural public safety officials with you at this hearing. I 

especially want to thank Senator Snowe and her excellent staff for 

their assistance in connection with my appearance here today. 

Thank you. 

[The prepared statement of Mr. Flannery follows:] 

61 

PREPARED STATEMENT OF EVERETT B. FLANNERY, JR., CHIEF DEPUTY, SHERIFF’S

OFFICE, KENNEBEC COUNTY, STATE OF MAINE; REPRESENTATIVE, MAINE

SHERIFFS’ ASSOCIATION

Mr. Chairman and members of the Committee, I am Everett B. Flannery, Jr., and 

I am a career law enforcement officer in Kennebec County, a largely rural portion 

of the State of Maine. Currently, I serve as the Chief Deputy Sheriff for the County. 

I was the elected Sheriff of Kennebec County from October 5, 2001 to December 31, 

2006, but I stepped down in January of this year in order to shift my focus from 

management and administration of the Sheriff’s Office to computer forensics and information technology. My re ́sume ́ is attached as Exhibit 1 to this Testimony. 

I am here today both in my own capacity and as a representative of the Maine 

Sheriffs’ Association (‘‘MSA’’). The Maine Sheriffs have designated me as their 

spokesman to provide you with a rural public safety official’s perspective on the importance of continuing and, if possible, expanding, Universal Service Fund (‘‘USF’’) 

support for the build-out of our Nation’s wireless network into the many poorly 

served, rural areas of the United States. On Friday of this week, the MSA will take 

up a Resolution formally opposing the cap on competitive ETC funding proposed by 

the Federal State Joint Board on Universal Service. A draft of this Resolution is 

attached as Exhibit 2. I am confident that it will be adopted, and I ask permission 

to supplement the record with the final version of the Resolution, as adopted. 

My message is very simple: although wireless service appears to be outstanding 

in the urban and suburban portions of our Nation, there are many rural areas of 

the State of Maine that suffer greatly from the lack of quality wireless service. In 

fact, there are many communities in Maine that have no wireless service at all. I 

understand that this problem is common in other rural communities in the United 

States. 

The ‘‘Wireless Gap’’ between urban and rural America was not supposed to happen. As I understand it, the 1996 Telecom Act set up the Universal Service Fund 

to ensure that telecommunications services in rural and urban areas would be ‘‘reasonably comparable’’ in terms of price and service availability. Adequate support 

from the USF remains the key to closing the Wireless Gap in America. Until the 

Gap has been closed, those of us living in the rural areas of the United States have 

a right to expect, and do expect, that Universal Service Fund will continue to provide support for rural wireless service. 

The absence of good wireless service prevents those of us responsible for public 

safety in America’s rural areas from doing our job properly. For reasons I will explain later, poor wireless service exposes both rural law enforcement officials and 

the public to unreasonable health and safety risks and greatly compromises the public safety community’s ability to carry out our homeland security duties in the event 

of a natural or man-made disaster. I will also explain why this condition stifles any 

hope of much-needed economic development in rural areas. 

Right now, our only hope of correcting this terrible situation rests on continued 

and, if possible, expanded support from the Universal Service Fund for rural wireless expansion. We in rural Maine cannot understand why the Federal Government 

would consider capping rural wireless expansion funding just as it is beginning to 

achieve the results intended by the Congress in its landmark Telecommunications 

Act of 1996. I would hope that the FCC could be convinced of the importance of expanded rural wireless funding. If not, then I would hope that Congress would take 

action to override the FCC. 

This is my third trip to Washington as the MSA’s spokesman on this issue. (On 

my two prior trips I met with FCC Commissioners and their staff and with the 

members of Maine’s Congressional delegation and their staff, in each case to discuss 

the need for expanding USF support for rural wireless expansion.) Whenever I am 

in Washington I begin to understand why it might be difficult for some policymakers 

in this city to appreciate the importance of rural wireless funding to those of us in 

Maine. Here in Washington, I notice that my mobile phone shows a strong signal 

wherever I go. The signal quality remains excellent as I travel around the city and 

I rarely drop a call here. Folks here in Washington do not experience poor wireless 

service, and I am tempted to recommend that the Congress require the FCC to move 

its offices to rural Maine, and require the Commissioners to live and try to work 

there, so that they can experience what we experience every day. I am confident 

that we would enjoy much more reasonable policy treatment should you decide to 

take this step. 

My point, of course, is that wireless service where I live and work in Kennebec 

County, Maine, is not at all comparable to what I find here in Washington. I have 

very poor wireless service at my home in Clinton, in the northern part of the County, and service is generally spotty unless you are in the Augusta area (Maine’s capVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
62 

ital) or on one of the County’s major roads. The smaller towns in the County, such 

as Albion, Benton, Mount Vernon, Fayette, Rome, and Vassalboro have very poor 

or no service. 

Now let me explain why this presents a serious public safety problem. Poor mobile 

service makes it less likely that citizens will be able to give timely notification to 

public safety officials of an emergency, whether it is a car crash, an accident in a 

logging operation, a hunting mishap, ATV/snowmobile accident or any other emergency that needs to be reported. 

Here’s a specific example. My son is a paramedic in Somerset County, another 

rural area of our State. He is often the first responder, for example, when a logging 

truck with a full load overturns on the highway. His job is to evaluate any injuries 

on the scene, do what he can to stabilize the injured party and transport the injured 

to the hospital in Skowhegan. In many cases, there is no VHF or cell service at the 

accident scene. This means that he has to flag down passing motorists and ask them 

to drive to a house with wireline service and call for assistance. The alternative is 

to climb a nearby hill and hope he can catch a signal, leaving the injured in the 

hands of a single paramedic. The delay in arranging care and/or transportation by 

helicopter can often be life-threatening. 

Poor wireless service also prevents public safety personnel from carrying out their 

day-to-day responsibilities in an efficient and effective way. For example, the dispatch center in our office frequently gets 9-1-1 calls regarding domestic violence, 

and a deputy in a cruiser will be sent to the scene. Our deputies will call into dispatch to be connected directly to the caller. Often a domestic incident will resolve 

itself when the parties involved know that law enforcement will be arriving shortly. 

Also, during the call the deputy tries to determine whether anyone at the scene 

has a weapon, whether alcohol or drugs are involved, and whether children are in 

the house. This enables the deputy to decide whether to arrange back-up both for 

his or her own safety and for the safety of the citizens at the scene. I myself handled 

rural patrol responsibilities such as this earlier in my career, and I can tell you that 

you would really prefer to know before you knock on a strange door whether anyone 

inside the house is armed. 

In the many areas of Kennebec County where mobile service is poor, our deputies 

either cannot make these calls at all, or the calls are dropped frequently. So, does 

the deputy assume the call was dropped or was the phone ripped out of the wall? 

The result is a very unsafe condition both for the citizens we are trying to protect 

and for the public safety people who are trained to deliver these vital services. 

Because modern digital technology is secure, we often rely on cell phones in our 

surveillance and undercover work. These very valuable tools are useless in rural 

towns where service is unreliable. 

These are just three examples of the kinds of problems public safety people in 

Maine face every day in our struggle with inferior wireless service. Bad as this is, 

I get even more concerned when I consider our readiness to manage a disaster on 

the scale of a September 11 or a Hurricane Katrina. We are trained, equipped and 

staffed to handle major incidents like these, but the absence of quality mobile service to enable the public to communicate with us (and we with them), leads me to 

conclude that we may not be able to deliver the services that people need in such 

situations. 

In training scenarios involving natural or man-made disasters we will deploy our 

mobile command post to the area. Often times we must place the command post not 

at the best location for the incident, but to obtain a wireless signal to have access 

to the Internet and needed information, i.e., weather and wind conditions, posting 

emergency public alerts, etc. 

Last year, I participated in the preparation of a White Paper covering the homeland security aspects of Universal Service Fund support for rural wireless expansion. The White Paper, which is attached as Exhibit 3 to this testimony, focused on 

the impact of Universal Service Fund support for a wireless service provider serving 

the Gulf Coast of Mississippi. The White Paper found that although Hurricane 

Katrina knocked out much of the wireline network in this area for several weeks, 

the wireless network, supported by steady infusions from the Universal Service 

Find, proved remarkably resilient. Indeed, the FCC, which today seems poised to 

limit funding for wireless carriers, exercised its emergency authority over the USF 

to fund the distribution of hundreds of thousands of free mobile phones to storm 

victims, since no other means of communication was available in the area. 

The White Paper also found that public safety personnel relied on the wireless 

network almost exclusively in the aftermath of the storm and for some time thereafter. For example, here is a quote from a dispatcher in the Gulf Coast area: 

63 

I work as a dispatcher for the Ocean Springs Police Department. During the 

storm my Cellular South [mobile] phone was the only phone I could count on 

to be working at all times. I never lost a signal and was able to use the phone 

as needed. Also, the police officers were able to use the phone to check on family 

and loved ones. 

As this shows, USF support for rural wireless build-out will not only help public 

safety officials in our day-to-day task, but will permit us to deliver critical services 

in disaster situations. 

At a time when we are considering whether to implement an Emergency Alert 

System that will enable us to text message citizens with disaster reports or warnings of imminent weather or other emergencies, it should be obvious that these tools 

will be useless in areas where there is poor cell service. Likewise, for all of the investment that is going into 9-1-1 and E–911 technologies, both at the carrier level 

and on the public safety side, the lack of service availability will make these technologies useless in many rural areas. 

Although my field is public safety, I am also very aware that poor mobile service 

hamstrings rural areas in our efforts to attract new businesses vitally needed to 

counteract the departure of our traditional manufacturing industries. I discussed 

this frequently with Sheriffs in other parts of Maine and the story is the same all 

over: no business wants to locate to an area with poor mobile service. The Sheriff 

of Oxford County in Maine told me a story that makes this point better than anything I could say. He told me that an economic development official in his County 

was taking a businessman to a location to try to interest him in relocating his business. On the way there, the prospect took out his cell phone, noticed that he had 

no service, and asked to be taken right back to the airport. 

Aside from the significant public safety and business development concerns posed 

by poor mobile service, I would hope that the Committee would consider the countless daily frustrations that this condition inflicts on the people of rural America. To 

try to make this point, I would refer you to Exhibit 5 of United States Cellular’s 

Comments filed on the issue of the cap with the FCC. (A copy of these Comments 

were submitted to the Committee with Mr. Rooney’s testimony.) This Exhibit consists of the testimony of thirty-six people from three small Maine towns: Bingham, 

Fort Fairfield, and Jonesport. This testimony was submitted in 2004 by United 

States Cellular Corporation to the Maine Public Utilities Commission in support of 

its Eligible Telecommunications Carrier application. Here you will find the stories 

of common, every day rural people struggling to cope with poor mobile service: 

• the mussel farmer who cannot contact his customers while harvesting, 

• the business consultant who cannot make calls as he travels around the State, 

• the shop owner who has to share his store’s phone five times a day with passing 

travelers, 

• the ambulance service operator who has trouble communicating with his drivers, 

• the operator of a hydro-electric plant who cannot communicate with crew members working in dangerous areas away from the office, 

• the wood fuel purchaser who cannot communicate with his power plant customers or with his truck drivers, 

• the potato farmer who cannot communicate with his wife from his tractor, 

• the operator of a horse feed operation who cannot communicate with her employees in satellite facilities, 

• the hardware store owner who cannot call his store or his customers from the 

road, 

• the contractor who cannot call his workers, his customers, his suppliers, or the 

local building inspector from the job site, 

• the husband who worries when his wife, who works the night shift 20 miles 

away, has to drive home in the pitch dark of a January night in an ice storm 

over roads where cell service is unavailable, 

• the fisherman who cannot order a part or call his wife from his boat, 

• the fisherman’s wife who would like to be able to call her husband when his 

boat is overdue, or to tell him that the new grandchild has arrived. 

I also understand from members of her staff that a Maine Senator serving on this 

Committee frequently has difficulty in staying in touch with her office and her constituents as she travels around Maine. 

64 

I am very pleased to say that the Maine PUC granted ETC status to United 

States Cellular, that U.S. Cellular has begun receiving proceeds from the USF, and 

that with those proceeds, it has expanded its mobile network into Bingham, Fort 

Fairfield and Jonesport, Maine, improving the lives and livelihood of citizens in 

these areas. The Maine PUC has certified to the FCC (most recently in October of 

last year) that U.S. Cellular and Unicel, the only other wireless ETC in Maine, are 

complying with all USF requirements. This shows that USF support for rural wireless can really work just as Congress intended. 

But in fact the work is just beginning. We still have many areas in our State that 

the wireless infrastructure does not reach, and thus continued and expanded USF 

support is imperative if we are to create a safe and modern environment to attract 

business and keep our young people in the State of Maine. 

Avoiding a cap on wireless USF funding is a very important issue for Maine. Illustrating this is the fact that our entire Congressional delegation has gone on record 

opposing the cap in letters filed with the FCC. (These letters are attached as Exhibit 4.) Governor Baldacci has likewise written to Senator Snowe urging her to continue her much appreciated efforts in this regard. Also, earlier this month the Legislature of the State of Maine enacted a Joint Resolution memorializing Congress and 

the FCC in opposition to the cap. I have attached this Resolution as Exhibit 5 of 

my testimony, and I have an original of the Resolution here to present to Senator 

Snowe at the conclusion of this hearing. 

As this illustrates, achieving improved wireless service for our State is a thoroughly bipartisan effort. 

In closing, I want to extend my thanks to the Committee and its staff for providing me with the opportunity to share the perspective of Maine’s rural public safety officials with you at this hearing. I especially want to thank Senator Snowe and 

her excellent staff for their assistance in connection with my appearance today. 

EXHIBIT 1 

Re ́sume ́ of Everett B. Flannery, Jr. 

(This is retained in the Committee’s files.) 

EXHIBIT 2 

Maine Sheriffs’ Association 

Resolution in Opposition to Proposed Limitation on Federal Universal 

Service Funding for Rural Wireless Expansion 

WHEREAS, the Maine Sheriffs’ Association finds that in at least a portion of each 

County of the State of Maine, and in significant portions of the rural areas of the 

State of Maine, wireless service is either non-existent or unreliable, and 

WHEREAS, due to the large size and largely rural character of the State of 

Maine, this lack of reliable cellular service puts the health and safety of Maine citizens at great risk, and 

WHEREAS, the Telecommunications Act of 1996 provides that telecommunications services in rural areas of the United States shall be reasonably comparable 

in price, availability, consumer choice and quality of service to that available in the 

non-rural portions of the United States, and for that purpose established the Federal Universal Service Fund (‘‘USF’’), and 

WHEREAS, the lack of adequate wireless service in Maine’s rural areas indicates 

that the promise of ‘‘reasonable comparable service’’ included in the Telecommunications Act of 1996 has not been met, at least in much of rural Maine, and 

WHEREAS, according to the Public Utilities Commission: 

(a) wireless subscribership has in Maine grown from 368,000 to 630,000 between 2001 and 2006, and 

(b) in 2006, approximately fifty percent (50 percent) all E–911 calls were placed 

by wireless subscribers. 

Based on this, the Maine Sheriffs’ Association concludes that Maine’s inadequately served rural areas are falling farther and farther behind the non-rural 

areas of the state both in services and in the basic capacity to meet public safety 

requirements, and 

WHEREAS, the continued expansion of cellular service throughout rural Maine 

is therefore of vital importance to the ability of the sixteen sheriff’s departments of 

Maine to adequately protect the health and safety of the citizens we serve, and 

WHEREAS, on May 1, 2007, the Federal-State Joint Board on Universal Service 

issued a Recommended Decision recommending that the Federal Communications 

65 

Commission (‘‘FCC’’) impose a cap on USF support for competitive carriers, almost 

all of whom are wireless carriers, and 

WHEREAS, the proposed cap would limit USF funding for wireless expansion in Maine by an estimated amount of $2 million per year in 2007 and more in succeeding years, and 

WHEREAS, in the opinion of the members of the Maine Sheriffs Association the 

Joint Board’s proposed cap would be harmful to the health, safety and welfare of 

Maine’s citizens, 

NOW, THEREFORE, the MAINE SHERIFFS’ ASSOCIATION hereby unanimously adopts the following resolution: 

(A) That the Maine Sheriffs’ Association hereby finds that the continued expansion of cellular service is in the best interest of the health and safety of Maine citizens. The current lack of dependable cellular service in rural Maine often 

(1) Prevents Maine law enforcement officers from carrying out their Homeland 

Security responsibilities and other large-scale operations; 

(2) Prevents Maine law enforcement officers from calling for back-up assistance 

when confronting a violent offender, 

(3) Prevents Maine law enforcement officers from contacting complainants prior 

to arriving at a scene to determine the seriousness of the situation and the need 

for back-up or other emergency services, 

(4) Prevents Maine law enforcement officers and other ‘‘first responders’’ from 

contacting either physicians or LifeFlight of Maine when dealing with a lifethreatening injury requiring immediate attention, and 

(5) In general, hampers the efficient and safe discharge of the duties of law enforcement officers in rural Maine; and 

(B) That the Maine Sheriffs’ Association hereby unanimously opposes the May 1 

Recommended Decision of the Federal-State Joint Board and instead urges the FCC 

to reject the proposed cap on funding for rural wireless expansion so as to redeem 

the promise of the Telecommunications Act of 1996 to provide telecommunications 

services in rural areas of the United States that are reasonably comparable in price, 

availability, consumer choice and quality of service to that available in the non-rural 

portions of the United States; and 

(C) That the Maine Sheriffs Association directs its officers to take such action as 

they may deem appropriate to bring this Resolution to the attention of the Maine 

Congressional delegation and the FCC, and to undertake such other actions as they 

deem appropriate to effectuate the purposes of this Resolution. 

IN WITNESS WHEREOF, I hereby certify that the above Resolution has been 

unanimously adopted by the Maine Sheriffs’ Association. 

SHERIFF JAMES P. MADORE, 

President, 

Aroostook County 

EXHIBIT 3 

White Paper 

Federal Universal Service Fund Support for Rural Cellular Carriers: A 

Homeland Security Perspective Based on the Experience Gained from 

Hurricane Katrina 

October 2006 

This White Paper will review the homeland security implications of continued 

Federal Universal Service Fund (‘‘USF’’) support for wireless carriers serving the 

rural portions of the United States. The Paper discusses the remarkable performance of the rural wireless infrastructure in the areas affected by Hurricane Katrina 

and the vital role played by rural wireless carriers in meeting the short- and longterm communications needs posed by that disaster. The paper also reviews the 

FCC’s use of its emergency powers to make USF funds available to provide wireless 

handsets to hundreds of thousands of low-income storm victims. The Paper concludes, based on this experience, that USF funding for rural wireless carriers serves 

an important homeland security function, and urges policymakers in the homeland 

security area to strive to ensure continued USF support for rural wireless carriers. 

A Congressional affirmation that qualifying rural wireless carriers will have predictable, ongoing, and guaranteed access to USF support until they can complete the 

build-out of America’s rural areas will allow Federal, state and local public safety 

66 

1 In other words, the wireline carriers and their state regulators treat wireline USF funds as 

an operating subsidy, resulting in rates for local exchange service that are lower than they 

would be without the USF subsidy. 2 As of December 21, 2005. 

3 Report on an Economic Development Strategy for Washington County, Prepared by David 

Flanagan, Governor Baldacci’s Special Representative to Washington County, November 17, 

2005, at p. 52. (http://www.maine.gov/Governor/baldacci/issues/washingtonlcounty/WC 

Report.doc). 

officials to design their disaster response plans on that basis. This will help them 

to achieve the elusive goal of developing interoperable communications systems for 

use in disaster situations. 

I. Universal Service Support for Rural Wireless Carriers 

The Telecommunications Act of 1996 (the ‘‘Tel Act’’) reaffirmed the ‘‘Universal 

Service’’ policy of the United States, which, at that time, had been a hallmark of 

American telecommunications policy for over sixty years. To accomplish the Tel 

Act’s goal of ensuring that the rural portions of the United States have a level of 

telecommunications service comparable in quality and price to that found in the 

urban portions of the country, 47 U.S.C. § 254(b), Congress included provisions in 

the Tel Act establishing the Universal Service Fund. America’s rural wireline carriers promptly secured Eligible Telecommunications Carrier (‘‘ETC’’) status under 

the Tel Act, allowing them to obtain USF funding. Since the passage of the Tel Act, 

rural wireline carriers have received almost $20,000,000,000 in USF support payments. As almost all of these carriers have fully built-out land-line systems, the 

wireline carriers have used USF support payments primarily to improve the affordability of rural wireline service.1

Over the past 5 years, many rural wireless carriers have obtained ETC status, 

most in contested case proceedings at state public utility commissions, with local 

wireline carriers actively participating. Wireless ETCs have been certified in all but 

one rural state. Unlike their wireline counterparts, most rural wireless carriers 

have immature networks that require substantial additional capital expenditures to 

develop fully built-out systems. Consequently, Wireless ETCs use most of their USF 

funding to expand service in the rural areas that they serve. These carriers typically 

file build-out plans with state public utility commissions, which must re-certify the 

carriers annually in order to maintain their ETC status and, hence, their USF funding. 

Although wireline carriers have taken in almost $20 billion in USF support payments since the passage of the Tel Act in 1996, Wireless ETCs over the same time 

period have taken in just over $1 billion in the aggregate.2 The severe under-funding of Wireless ETCs serving rural America (as compared to their wireline counterparts) has undermined the Tel Act’s objective, as embodied in Section 254, of having 

service in rural areas that is ‘‘comparable’’ in quality and price to that found in 

urban America. Thus, although urban and suburban America enjoy virtually ubiquitous wireless service, today, 10 years after the enactment of the Tel Act, many 

portions of rural America suffer from poor or non-existent wireless service. For example, a report on rural Washington County, Maine, commissioned by Maine Governor John E. Baldacci found that 

For any business engaged in interstate and/or international commerce, a comprehensive network of broadband and wireless interconnection is as necessary 

as the telephone—as the computer and cell phones have become indispensable 

to business. Such infrastructure, however, has established only a tentative toehold in Washington County.3

Although USF support has enabled Wireless ETCs to expand their service into 

many rural communities, the above-quoted Washington County Report, issued in 

the fall of 2005 (nine years after the Tel Act became effective) describes conditions 

that are typical in many portions of rural America. For these communities, continued USF support for Wireless ETCs is the only realistic hope for building the wireless infrastructure needed to allow them to remain economically viable in the 21st 

century. 

Lack of adequate wireless service also creates adverse public safety conditions in 

rural America even in non-disaster situations: to cite just a few examples, emergency medical technicians cannot place wireless calls to arrange for medical care 

and transportation for injured motorists, deputy sheriffs responding to a domestic 

violence report cannot call ahead to determine whether someone in the house has 

a gun, and ordinary citizens enduring a landline phone outage during a flood or blizzard are completely cutoff from any assistance. Obviously, should a terrorist inciVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00070 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
67 

4 Report and Recommendations to the Federal Communications Commission, Independent 

Panel Reviewing the Impact of Hurricane Katrina on Communications Networks, June 12, 2006 

(‘‘FCC Katrina Panel Report’’). The Report and additional information regarding this panel’s 

work can be found at: http://www.fcc.gov/eb/hkip/. 5FCC Katrina Panel Report at 9. 

6These consisted of about 100 ‘‘cellular on wheels’’ (or ‘‘COWs’’) facilities and 427 ‘‘cellular on 

light trucks’’ (or ‘‘COLTs’’) installations. Statement of Peter Fonash, Deputy Manager, National 

Communications System, to Senate Homeland Security and Government Operations Committee, 

February 6, 2006, available at http://kyl.senate.gov/legislcenter/subdocs/030805lfonash.pdf. 7Fonash Statement at 4. 

8 Id. at 5. 

dent or a natural disaster, such as a hurricane, occur in an under-served rural area, 

the public safety implications of inadequate wireless service would be catastrophic. 

The service provided by wireless carriers in the wake of Hurricane Katrina, discussed below, demonstrates the positive impact, from a public safety standpoint, of 

adequate wireless service in coping with the disruption caused by a disaster. 

II. The Role of Wireless Carriers in Hurricane Katrina 

Despite the widespread devastation caused by Hurricane Katrina, the wireless infrastructure in the Gulf Coast demonstrated a remarkable resiliency. An independent panel convened by the Federal Communications Commission (‘‘FCC’’) reported that although more than 1,000 wireless base stations were affected by 

Katrina, only about 1 percent (1%) of the cell towers in the area affected by all of 

the storms that wracked the Southeastern and Gulf Coast in 2005 (including both 

Katrina and Rita) suffered any significant damage.4 In general, the cell sites that 

ceased to function as a result of Katrina lost service either due to a power outage 

or to the loss of connectivity to the landline telephone network. Within a week after 

Katrina hit, approximately 80 percent of the cell sites within the affected area were 

operating.5 Wireless carriers restored service to many areas on a temporary basis 

using over 500 mobile cellular base stations.6

On the landline side of the equation, Katrina and the floods it caused knocked 

out service to over 3,000,000 landline customers. Although Bell South and the other 

affected landline companies restored service to about 90 percent of these lines within 10 days after Katrina’s landfall, the hardest-hit areas suffered prolonged outages 

(weeks or months without service) due to flooded switches, multiple fiber breaks and 

chronic power outages. In these areas, wireless service was virtually the only means 

of communications available to public safety personnel and the general public. (See 

Section III below.) 

Many first responders and other public safety workers involved in Katrina-related 

operations took advantage of Wireless Priority Service (‘‘WPS’’), which was developed following 9/11 to address wireless network congestion problems encountered in 

emergency situations. In the World Trade Center incident, as in Katrina, many people in the affected area found themselves displaced from their homes and places of 

work. They and their loved ones flooded the wireless network trying to contact each 

other, often causing delays in completing wireless calls. Consequently, public safety 

personnel encountered substantial difficulties in completing emergency calls on the 

wireless network during these congested periods. 

The WPS program is administered by the National Communications System 

(‘‘NCS’’) a Federal agency with various communications-related public safety responsibilities. Dr. Peter Fonash, an NCS official, explained in his statement to the Senate Committee on Homeland Security and Government Operations that, ‘‘The need 

[for a priority program] was recognized after 9/11 because many Federal and State 

and local Government and industry leaders utilize wireless as a primary means of 

mobile communications.’’ 7 In the WPS program, public safety and other critical personnel can enter a pre-assigned WPS number when making wireless emergency 

calls during congested periods and get priority service: they are ‘‘moved to the head 

of the line,’’ and are assigned the next channel opening up on the wireless system. 

The NCS provided WPS service to over 4,000 emergency workers during Hurricanes 

Katrina and Rita.8

III. The FCC’s Use of Universal Service Funding To Provide Wireless 

Service to Low-Income Storm Victims 

Hurricane Katrina displaced thousands of Gulf Coast families. As a result, the 

restoration of landline phone service in a given area made little or no difference in 

the lives of the families whose homes in that area had been destroyed and who were 

living in a series of temporary quarters. As the FCC observed in an Order issued 

6 weeks after the storm, ‘‘Thousands of people—many evacuated to neighboring 

68 

9FCC Hurricane Katrina Order, October 14, 2005 (‘‘FCC Hurricane Katrina Order’’), at 2. The 

FCC noted that ‘‘Unless addressed, this lack of access to telecommunications will lengthen the 

already-long period of time anticipated for recovery from the damage caused by Hurricane 

Katrina.’’ Id. at 4. 10 ‘‘We estimate that this will have approximately a $39 million impact on the low-income 

fund, based on an estimated $130 per approximately 300,000 eligible evacuee households without telephone service.’’ FCC Hurricane Katrina Order at n. 23. 11 Id. at 8. 12FCC Extension Order at 5. 

states—remain without telecommunications service, unable to contact loved ones, 

make new living arrangements, or find post-hurricane employment.’’ 9

Recognizing that many of the storm’s victims were low-income families, the FCC 

exercised its emergency powers to make $39 million available from the Universal 

Service Fund to reimburse wireless carriers willing to provide a free wireless 

handset and 300 free minutes to low-income storm victims. The FCC estimated that 

about 300,000 households would be eligible for this benefit.10 The FCC’s Order underscores both the role played by the Universal Service Fund in making wireless 

service available to low income consumers and their extraordinary need for wireless 

service: 

We note that this relief, combined with the action we took earlier with regard 

to waiver of the geographic porting requirements, would allow evacuees to 

maintain their home phone numbers, and promote continuity with regard to 

personal contacts, employment, education, and housing. Under the unique and 

devastating circumstances caused by the hurricane and its aftermath, we conclude that provision of this support, including a free wireless handset, is consistent with the purpose of section 254 [of the Tel Act] because it is reasonably 

necessary to ensure that low income consumers have immediate access to telecommunications services. We further find that this support fulfills the Commission’s broader mandate to make wire and radio communication service available 

to all people of the United States, and to promote the safety of life and property.11

Under the terms of the FCC’s Hurricane Katrina Order, the temporary relief afforded under that Order originally expired on March 1, 2006. In advance of that 

date, the Louisiana Public Service Commission and T-Mobile successfully petitioned 

the FCC for an extension of the program. T-Mobile’s Petition noted that it had distributed over 25,000 handsets under the program. (By the time T-Mobile filed its 

Comments with the FCC’s Hurricane Katrina Panel in May of 2006, the number of 

handsets distributed by T-Mobile alone exceeded 44,000.) The FCC’s March 1, 2006 

Order extending the term for USF funding of wireless service for low-income 

Katrina victims (‘‘FCC Extension Order’’) observed that: 

The purpose of the original relief was to provide some stability and continuity 

of access to telecommunications for Hurricane Katrina victims while they were 

away from their destroyed homes and transitioning to a more permanent living 

situation. Because many of the hurricane victims remain displaced, we find that 

it is in the public interest to extend the provision of the Federal Lifeline 

Katrina relief until June 1, 2006.12

The FCC’s October 2005 Hurricane Katrina Order and its March 1, 2006 Extension Order exemplify the compelling need for continued USF funding to support 

wireless service under disaster conditions. In the case of Katrina, USF-funded wireless service proved invaluable not only in meeting the public-safety-related communications needs of first responders and personnel involved in storm clean-up activities, but also to afford some means of communications for the hundreds of thousands of average Americans displaced by the catastrophe. For these people, a USFfunded wireless handset was the sole means of communications with other family 

members, employers and government relief agencies. Continuing and prudent investment of high-cost support funds for wireless infrastructure in rural areas will 

improve the availability of these important health and safety benefits. 

IV. Cellular South: Portrait of a Wireless ETC’s Role in Katrina and its 

Aftermath 

Located in Jackson, Mississippi, Cellular South provides wireless service to 5.8 

million customers in both rural and urban portions of the State of Mississippi. It 

also provides service in four other states in the southeastern United States. The 

State of Mississippi certified Cellular South as an ETC in 2001, and the company 

began receiving USF support shortly thereafter. 

69 

13 Article: Cellular South: An Honest Approach & No Excuses, Wireless Week, April 1, 2006 

(Wireless Week Article) at 3. 14Testimony of Carson Hughes (CEO of Cellular South’s parent company) before the Subcommittee on Communications, Committee on Commerce, Science, and Transportation, U.S. 

Senate, at 2–3, April 2, 2003. 15Wireless Week Article at 3. 16 Blog: Eyes on Katrina, a South Mississippi Hurricane Journal, September 8, 2005. 17 Cellular South website: ‘‘Storm Stories’’ http://www.cellularsouth.com/hurricane/storm 

Stories.jsp. 18 Id. 

The USF support has allowed Cellular South to convert much of its network to 

modern CDMA technology, increase substantially the capacity of its system, and expand its service through the construction of numerous new cellular sites in many 

rural communities that would otherwise not have high-quality mobile service. In 

2006 alone, Cellular South plans to add approximately 225 new cell sites at a cost 

of $126 million, a significant portion of which will be funded through USF support.13

As an ETC, Cellular South has provided Federal Lifeline and Link-Up benefits 

to low income customers. Consequently, eligible low-income rural customers living 

within Cell South’s ETC territory have a choice of providers, and can obtain Cellular 

South wireless service for as little as $7.00 per month.14

Thanks to careful planning and the extraordinary dedication of its workforce, 

sixty percent (60%) of Cellular South’s Gulf Coast network was operational 1 day 

after Katrina hit, and full service was restored to the entire network within 2 weeks 

after landfall. In many of the hardest hit areas, Cellular South had the only operational communications network in the weeks following the storm’s coming ashore. 

Remarkably, Cellular South did not lose a single tower on the Mississippi coast, and 

never lost wireless service at any time in some of the hardest-hit areas such as Hattiesburg, Biloxi and Bay St. Louis.15 On the day after the storm hit, Cellular South 

handled a record 1,000,000 calls, and over the next few weeks its daily volume 

surged to 2,600,000 calls per day. 

In the first week after the storm, Cellular South assisted over 7,000 storm victims 

and evacuees at various phone banks it established, and offered free cellular calling 

and free handset charging to all wireless customers regardless of the customer’s carrier. More than 90 percent of the company’s retail locations were open after the 

storm, with storefronts in Biloxi, Bay St. Louis and Hattiesburg operating out of 

tents.16 Realizing that it had the only operational communications network available on the Gulf Coast, the company distributed over 500 handsets at no charge to 

public safety personnel in the Gulf Coast region.17

Cellular South’s ability to maintain the continuity of its service despite the 

storm’s wholesale destruction enabled public safety officials to carry out their disaster relief responsibilities in a remarkably efficient manner, given the wholesale 

disruption of the region’s landline telecommunications infrastructure. George Scholl, 

the Director of the Jackson County (Mississippi) Emergency District, explained: 

Throughout the worst of the storm, I used my Cellular South phone to stay in 

touch with Bell South to coordinate 9-1-1 coverage and with Motorola officials 

to coordinate repair of our primary 800 MHz radio system. After the storm, 

even with the 800 MHz system restored to full capability for operational use 

by first responders, there was a continuing need by county and city command 

structures for an ‘‘administrative’’ system to either replace destroyed landline 

phones or to enable workers to move immediately into alternate facilities that 

had no communications capabilities. Cellular South was vital in helping to fulfill this need and continues to do so.18

Likewise, Jim Catchot, the E-911 Dispatcher for the Ocean Springs, Mississippi, 

Police Department stated: 

I work as a dispatcher for the Ocean Springs Police Department. During the 

storm my Cellular South phone was the only phone I could count on to be working at all times. I never lost a signal and was able to use the phone as needed. 

Also, the police officers were able to use the phone to check on family and loved 

ones. 

Mr. Catchot’s remark regarding the average citizen’s need for Cellular South’s 

highly resilient wireless service for communicating with loved ones was echoed over 

and over again throughout the beleaguered Gulf Coast. For example, a Biloxi 

woman who was evacuated to Hattiesburg wrote to Cellular South thanking the 

company for its outstanding service and provided the following typical story: 

70 

19 Id. 20The full text of the Resolution is attached to this White Paper. 21 Article ‘‘Cell Companies Beefing Up In Preparation For Hurricane Season,’’ San Diego 

Union-Tribune, June 1, 2006. 22 Comments of Cellular South, Inc. and Cellular South Licenses, Inc. to FCC Katrina Panel, 

May 11, 2006, http://www.fcc.gov/eb/hkip/PubCom/ACT3066.pdf. 

I never lost cell phone service through the entire storm and after. I was able 

to stay in contact with my father on the coast on his Cellular South cell phone— 

although he did lose his ability to call out I could still call him. After the storm 

while walking down the streets of what was left of my town I came across crying people standing on what used to be their homes. So many people were able 

to use my cell phone to call their families in other states to let them know they 

were okay. I came across a 79 year old woman crying on the side walk. I offered 

to let her use my phone to call her family. She was amazed that my phone 

worked, she lost her house and was able to call her family in LA to come and 

get her. She hugged me and cried and thanked me. Of all the cell phone services I am so happy to have Cellular South. Without my working cell phone I 

would have not known if my family or friends were okay. Thank you.19

Recognizing the extraordinary performance of Cellular South, its management 

and its employees, in providing outstanding wireless service through the Katrina 

disaster, the Mississippi Legislature enacted a Resolution commending: 

the executives and employees of Cellular South for their exemplary service, conduct and performance rendered prior to and subsequent to Hurricane Katrina’s 

unprecedented destruction on and near the Mississippi Gulf Coast in August 

and September 2005, and we offer our thanks to these individuals for their assistance in providing communications during this critical time, as we endeavor 

to rebuild our state and restore its economy.20

Based on the lessons learned from Katrina, Cellular South plans to invest an additional $8 million to enhance the resiliency of its network even further through the 

installation of measures such as microwave links that will allow it to bypass the 

landline network to complete calls in the event of another disaster and a mobile 

command center.21

In its Comments filed with the FCC’s Katrina Panel, Cellular South emphasized 

that its status as an ETC, and its receipt of USF support, was a critical factor in 

its ability to provide vital wireless service during and after Katrina. 

Cellular South has used USF to deploy and operate Cellular South’s CDMA network in rural, high-cost areas of Mississippi and Alabama, including many of 

the areas affected by Hurricane Katrina. Without USF, Cellular South’s response to Hurricane Katrina and the access and capacity that Cellular South 

provided to first responders and CDMA users would have been significantly reduced.22

V. Conclusion: Homeland Security Considerations Alone Warrant 

Continuation of USF Support for Rural Wireless Carriers 

This White Paper has demonstrated that: 

(a) wireless carriers provided a critical communications service during and after 

Hurricane Katrina. Specifically, Cellular South, a rural wireless carrier ETC, 

had the only operational communications network in many portions of the Gulf 

Coast in the period during and after landfall; 

(b) first responders and other public safety personnel rely extensively (and in 

many cases solely) on wireless service, including the service provided by Wireless ETCs, to meet their emergency and administrative communications needs 

in the wake of Katrina; 

(c) the widespread availability of wireless service in the areas hit by Katrina 

effectively mitigated the ‘‘interoperability problem’’ that plagued public safety 

personnel in the World Trade Center and other disasters, since wireless service 

was virtually the only telecommunications service available in many areas; 

(d) the FCC’s Wireless Priority System, implemented after the World Trade 

Center disaster, further enhanced the effectiveness of wireless service as the 

primary communications mode for public safety personnel working in the Gulf 

Coast area; 

(e) Federal high-cost USF support for Cellular South and other ETCs serving 

the areas affected by Katrina enabled the supported carriers to install a broad 

71 

23See Section 1 above at n. 1. 

and resilient network in many rural areas that would not otherwise have the 

benefits of mobile service; 

and 

(f) Supplemental low-income USF support provided by the FCC for wireless 

ETCs was critical in making free handsets and 300 minutes of wireless network 

time available to hundreds of thousands of low-income Katrina victims. 

These facts alone should be sufficient to compel the conclusion that continued 

Federal USF funding for rural wireless ETCs should be an urgent homeland security priority. 

The FCC’s actions in making millions of USF dollars available to wireless carriers 

to furnish Katrina victims with the means to purchase and use wireless telephones 

also underscores the fact that in disaster situations, commercial mobile wireless 

service is the best reasonably available means of communications for the general 

public. The FCC recognized that people displaced from their homes and businesses 

and moving from place to place must have good mobile service to provide the continuity of communications needed to function in today’s world. 

The Gulf Coast region was fortunate in that it enjoyed a fairly robust wireless 

network—thanks, in significant part, to the USF funding previously provided to 

rural Wireless ETCs such as Cellular South. Should a powerful and disruptive 

storm, or a terrorist incident, strike an area of the United States that suffers from 

limited or no mobile service, the absence of adequate wireless communications 

would leave public safety personnel, such as first responders, and the general public 

in a communications vacuum. A Katrina-level storm hitting Washington County, 

Maine, for example, where mobile service ‘‘has established only a tentative toehold,’’ 23 would be devastating. 

Continued USF funding of rural wireless carriers will ensure that over time, the 

Universal Service promise of the Tel Act will be achieved: rural areas will have a 

mobile communications system comparable to that enjoyed in non-rural areas. This, 

in turn, will ensure that the people living in rural areas will likewise have a communications system adequate to see them through the kind of man-made and natural disasters that have struck the more settled areas of the United States. With 

roughly $7 billion of Federal USF being distributed annually, Federal policies that 

accelerate wireless infrastructure development in rural areas must be pursued. 

On the other hand, discontinuing this funding will consign communications in 

rural America to permanent second-class status, with obvious implications for rural 

America’s economic vitality as well as its ability to survive significant natural or 

man-made disasters. 

Public safety in America’s rural areas, both in disaster and non-disaster situations, requires Congressional action, in the homeland security context, reaffirming 

that USF support for rural Wireless ETCs will continue at least until the build-out 

of America’s wireless network has reached all of the rural portions of the United 

States. 

Mississippi Legislature 

2006 Regular Session 

By: Senator(s) Hewes, Browning, Butler, Carmichael, Chaney, Clarke, Dearing, 

Frazier, Gollott, Harden, Hyde-Smith, Jackson (11th), Jackson (15th), Jackson 

(32nd), Jordan, King, Mettetal, Pickering, Posey, Ross, Simmons, Thames, Thomas, 

Walls, White 

Senate Concurrent Resolution 538 

(As Adopted by Senate and House) 

A Concurrent Resolution Commending Cellular South Network for 

Performing Exemplary Service on the Mississippi Gulf Coast During 

the Hurricane Katrina Crisis. 

WHEREAS, founded in 1988, Cellular South is the Nation’s largest privately held 

wireless company and the only wireless company headquartered in Mississippi; and 

WHEREAS, Cellular South announced that its wireless network in South Mississippi, including the Mississippi Gulf Coast, was fully operational as of Friday, 

September 9, 2005, 3 days earlier than previously estimated. Despite Hurricane 

72 

Katrina’s destruction, the Mississippi-based company never lost service in parts of 

the most storm-ravaged areas, particularly in Hattiesburg and Biloxi and had teams 

in place that began immediate repairs of cell sites and infrastructure following the 

storm; and 

WHEREAS, on Monday, August 29, 2005, Hurricane Katrina, a Category Four 

Hurricane, crashed with unrelenting and violent force onto the entire Mississippi 

Gulf Coast, making landfall at or around Waveland, Mississippi. In 1 day, the worst 

natural disaster in our history struck us a grievous blow, leaving a 90-mile swath 

of destruction along the coast and causing severe damage throughout central and 

north Mississippi; and 

WHEREAS, the reliability of the Cellular South network after the storm is reflected in the fact that the company has seen a 256 percent increase in the number 

of minutes carried on behalf of other carriers’ customers since the storm in the affected area. The increase equates to more than 8.5 million minutes of usage (MOUs) 

from other carriers’ customers, following the storm; and 

WHEREAS, ‘‘Cellular South employees, some of whom were dealing with their 

own personal losses, knew that communication was critical for hurricane victims 

and evacuees and they did everything they could to fully restore our customers’ ability to reach loved ones or call for emergency help in the aftermath of the storm,’’ 

said Hu Meena, company President. ‘‘As just one example, The Washington Post 

noted in one of its stories a Cellular South network technician in Biloxi who literally 

crawled out of his home that had been destroyed by a fallen tree, got his family to 

safety and then traveled to the nearest cell site to begin repair work;’’ and 

WHEREAS, Cellular South utilized 300 generators and 20,000 gallons of fuel, as 

well as over 400 employees dedicated to restoring the network as quickly as possible. Through the dedication and hard work of the team, the network was restored 

ahead of schedule, and reported record minutes of use upon restoration of service. 

Cellular South donated over 1,000 phones to local, state and Federal officials who 

worked and are still working to rebuild Mississippi, as well as to many Red Cross 

Shelters so that hurricane victims would have a way to communicate with their 

loved ones. Cellular South donated a total of 50 million free relief minutes to customers in the hardest hit of areas; and 

WHEREAS, while it is still early to complete a full assessment, estimates indicate 

the financial impact of Hurricane Katrina on Cellular South are likely to be in the 

range of $8 to $12 million; and yet, the company’s goal was to do whatever it took 

to restore service for customers and take care of employees—both those affected by 

Hurricane Katrina and those working to restore wireless service: 

NOW, THEREFORE, BE IT RESOLVED BY THE SENATE OF THE STATE OF 

MISSISSIPPI, THE HOUSE OF REPRESENTATIVES CONCURRING THEREIN, 

That we do hereby commend the executives and employees of Cellular South for 

their exemplary service, conduct and performance rendered prior to and subsequent 

to Hurricane Katrina’s unprecedented destruction on and near the Mississippi Gulf 

Coast in August and September, 2005, and we offer our thanks to these individuals 

for their assistance in providing communications during this critical time, as we endeavor to rebuild our state and restore its economy. 

BE IT FURTHER RESOLVED, That this resolution be forwarded to Mr. Hu 

Meena, President of Cellular South, and be made available to the Capitol Press 

Corps. 

EXHIBIT 4 

LETTERS FROM MAINE PUBLIC OFFICIALS IN OPPOSITION TO PROPOSED CAP

June 6, 2007 

Hon. KEVIN J. MARTIN, 

Federal Communications Commission, 

Washington, DC. 

Dear Chairman Martin: 

I am writing to express my concern regarding the recent recommendation by the 

Federal-State Joint Board on Universal Service that the Commission impose a temporary cap on the amount of support that competitive eligible telecommunications 

carriers (ETCs) may receive through the Universal Service Fund (USF). 

While I understand the Joint Board’s concern that the rapid growth in high-cost 

support is unsustainable and places the Fund in jeopardy, I believe that the impact 

of the proposed interim cap would be felt disproportionately by Maine. 

73 

Two wireless ETCs serve high-cost rural areas of Maine with the assistance of 

USF support. These companies have told me that they had planned to invest a total 

of $15 million in new service towers and other infrastructure in Maine this year. 

If the cap is implemented, these companies may be forced to curtail investments by 

$2 million, and will likely forego construction of five cell towers, sacrificing desperately needed coverage in hard to reach areas of my home state. 

I am hopeful that the Commission can find an alternative means of reforming the 

Universal Service Fund without adopting the interim cap proposed by the Joint 

Board. 

Thank you for your attention to this matter. 

Sincerely, 

SUSAN M. COLLINS, 

United States Senator. 

June 5, 2007 

Hon. KEVIN J. MARTIN, Chairman, 

Federal Communications Commission, 

Washington, DC. 

Dear Chairman Martin: 

I understand that the Federal Communications Commission is currently considering whether to adopt the recent recommendations of the Federal-State Joint 

Board on Universal Service that would place a cap on payments from the Universal 

Service Fund (USF) for competitive eligible telecommunications carriers (CETCs). 

Most CETCs are wireless carriers serving rural areas of the country, including 

much of my home State of Maine, and have used USF funding to expand wireless 

infrastructure in regions which continue to suffer from cellular telephone coverage 

that is far below the quality experienced in urban areas of the United States. Because the proposed cap would unduly deter continued investment in expanding wireless service in rural America, I urge the Commission to reject the Joint Board’s recommendations. 

The Telecommunications Act of 1996 established the USF in order to ensure that 

our rural areas would have a level of telecommunications service reasonably comparable, in terms of prices and availability of modem services, to that found in 

urban areas of the United States. Most Maine residents and visitors would agree 

that this promise has not been kept with respect to wireless service, which is either 

spotty or non-existent throughout many of the state’s rural communities. This is not 

a mere inconvenience. Poor mobile telephone service undermines the ability of 

Maine’s law enforcement officers to deliver basic public safety services. Moreover, 

the public increasingly relies upon wireless service to contact public safety officials 

during an emergency: according to the Maine Public Utilities Commission, nearly 

50 percent of 9-1-1 calls placed in 2006 were dialed with a cellular telephone. The 

inability to get a signal on one’s mobile phone could very well be a matter of life 

and death. 

Maine’s substandard wireless coverage also hinders our rural communities’ efforts 

to attract new economic development. A cap on funding for wireless service expansion, as proposed by the Joint Board, will have a disproportionately negative impact 

on these endeavors. In today’s world, telecommunications means more than just a 

landline telephone connection. The technological advancements of the past decade, 

as well as those expected in the decade to come, have long been viewed as a key 

mechanism for reducing the economic competitiveness gap between urban and rural 

areas. The Joint Board’s recommendations, if adopted, could very well have the reverse effect, and exacerbate this gap. 

As an author of USF legislation in each of the last three Congresses, I am keenly 

aware of the financial strains the Fund is experiencing and the need for a solution 

to provide it long-term stability. The Joint Board’s recommendation, proffered as a 

short-term solution, is also short-sighted. If implemented, investment in the wireless 

infrastructure so desperately needed in rural America will almost certainly be curtailed. If belt-tightening is truly warranted, it should be done in a manner that 

equally affects all segments of the industry and regions of the country, not imposed 

solely on wireless carriers who serve rural customers. 

In stabilizing and strengthening the USF, the Commission’s goal should be to 

craft equitable and permanent solutions that reflect Congressional intent as embodied in the 1996 Telecommunications Act, to develop Universal Service mechanisms that provide rural consumers with choices in advanced telecommunications 

74 

services, and to develop strategies that encourage all stakeholders to meaningfully 

contribute to the process. The Joint Board’s recommendations do not measure up 

to these standards, and I therefore urge you to reject them. 

Sincerely, 

OLYMPIA J. SNOWE, 

United States Senator. 

cc: Commissioner Jonathan S. Adelstein 

Commissioner Michael J. Copps 

Commissioner Robert M. McDowell 

Commissioner Deborah Taylor Tate 

June 5, 2007 

Hon. KEVIN MARTIN, 

Chairman, 

Federal Communications Commission, 

Washington, DC. 

RE: WC DOCKET NO. 05–337 

Dear Chairman Martin: 

I am writing in opposition to the proposed cap on Universal Service Fund support 

to competitive eligible telecommunications carriers (CETCs) as recommended by the 

Federal-State Joint Board on Universal Service. 

The Universal Service Fund faces a fiscal challenge, and I appreciate the FCC’s 

attention and commitment to comprehensive reform of the Fund. However, I am 

concerned that approval of a cap on CETC support, though meant to be a temporary 

measure, could further delay needed reform. Though the Joint Board has stated its 

intention to make further recommendations within 6 months, I am concerned that 

a cap, even if temporary, would set a precedent of singling out one sector of the telecommunications industry. 

Maine has two wireless ETCs that have productively used Universal Service funds 

to expand service to remote areas in our largely rural state. The growth in Maine’s 

support has been moderate, not explosive. I believe the cap as proposed would negatively impact the expansion of modern telecommunications services of all types to 

residents in rural Maine. 

I appreciate your attention to this matter and look forward to your response. 

With warmest regards, 

MICHAEL H. MICHAUD, 

Member of Congress. 

May 22, 2007 

Hon. KEVIN MARTIN, 

Chairman, 

Federal Communications Commission, 

Washington, DC. 

RE: WC DOCKET NO. 05–337 

Dear Chairman Martin: 

I am writing to voice my opposition to the proposed cap on Universal Service support to competitive eligible telecommunications carriers (CETCs) as recommended 

by the Federal-State Joint Board on Universal Service. 

I appreciate the fiscal situation facing the Universal Service Fund and understand 

the desire to institute urgent measures to address the financial issues. While the 

cap on CETC support is proposed as a temporary measure, I am concerned that its 

approval could act as a pressure valve that could lead to further delay of comprehensive reform. 

It is true that payments to CETCs are the fastest growing element of the highcost fund By its nature, freezing CETC contributions improves the fiscal outlook of 

the overall fund. My worry is that this action will act as a pressure valve and decrease the urgency for broader reform. While I appreciate the Joint Board’s intention to make further recommendations within 6 months, if it does not, we could see 

a ‘‘new norm’’ within the high-cost fund that leaves one sector of the industry unfairly singled out. 

Maine has two wireless ETCs that have productively used Universal Service funds 

to expand service to remote areas in our largely rural state. The growth in Maine’s 

support has been moderate, not explosive. It is not fair that residents in rural 

75 

Maine should lose the access to modern telecommunications services under a onesize-fits-all cap. 

Again, I urge the Commission to reject the proposed cap on CETC and work toward comprehensive solutions to control cost growth in Universal Service funds. 

Sincerely, 

TOM ALLEN, 

Member of Congress. 

cc: The Honorable Michael J. Copps 

The Honorable Jonathan S. Adelstein 

The Honorable Deborah Taylor Tate 

The Honorable Robert M McDowell 

May 8, 2007 

Hon. OLYMPIA J. SNOWE, Russell Senate Office Building, 

Washington, DC. 

RE: PROPOSED CAP ON UNIVERSAL SERVICE FUNDING

Dear Senator Snowe: 

Last July, I wrote to you asking your help in ensuring that telecommunications 

reform legislation then before the Senate would not have an adverse impact on 

much-needed Federal Universal Service Fund payments. As my July 24, 2006 letter 

indicated (copy attached), Unicel and United States Cellular, Maine’s two wireless 

Eligible Telecommunications Carriers (‘‘ETCs’’), are moving aggressively to implement their ambitious build-out programs in Maine using these funds. Public understanding of the role of Federal Universal Service involvement in rural wireless infrastructure improvement is growing, as demonstrated in the attached editorial, 

which appeared in the January 30 edition of the Bangor Daily News. 

I was pleased to learn of your successful efforts on last year’s bill—I understand 

that the final version of Sen. Stevens’ legislation was benign, if not favorable, in this 

regard. Unfortunately, I again need to request your assistance on an issue relating 

to wireless ETC funding. 

As I understand it, hearings recently conducted by the Senate and House committees overseeing the Federal Communications Commission (‘‘FCC’’) revealed that the 

Federal-State Joint Board may recommend that the FCC ‘‘cap’’ Universal Service 

funding—but only to competitive ETCs (CETCs) operating in rural areas—pending 

a reform of the FCC’s Universal Service distribution mechanism. I am advised that 

this rural funding cap would stay in place for as long as 2 years while the Joint 

Board and FCC consider possible changes to the distribution mechanism for Universal Service support. 

Given rural Maine’s significant need for infrastructure development, I am deeply 

troubled by the notion of capping rural CETC funding just when our two wireless 

ETCs are aggressively building new rural network facilities. I certainly understand 

the need for proper stewardship of the Universal Service mechanism. However, even 

if FCC Chairman Martin’s estimate—that funds to CETCs will grow by $300 million 

in 2007—comes to pass, the projected growth would be less than 5 percent of the 

total $7 billion fund—hardly an emergency situation. 

Also, I cannot understand why rural people should bear the full brunt of any cap, 

especially in light of the enormous health, public safety and economic development 

disadvantage that rural areas suffer due to the lack of wireless infrastructure. 

Accordingly, I urge you to advise the Joint Board that funding to CETCs should 

not be capped, even on an interim basis. There are other ways to control Fund 

growth and ensure competitive neutrality without impeding the investment in our 

rural infrastructure that Maine citizens so desperately need. 

Sincerely, 

JOHN E. BALDACCI, 

Governor. 

EXHIBIT 5 

RESOLUTION OF THE LEGISLATURE OF THE STATE OF MAINE IN OPPOSITION TO CAP

Joint Resolution Memorializing the U.S. Congress and the Federal 

Communications Commission to Forego Imposing a Cap on Federal 

Universal Service Fund Support for Maine’s Rural Wireless Carriers 

WE, your Memorialists, the Members of the One Hundred and Twenty-Third Legislature of the State of Maine now assembled in the First Regular Session, most reVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00079 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
76 

spectfully present and petition the U.S. Congress and the Federal Communications 

Commission as follows: 

WHEREAS, the Federal Telecommunications Act of 1996 through the establishment of the Federal Universal Service Fund was intended to promote the availability of quality services at just, reasonable and affordable prices, increased access 

to advanced telecommunications services throughout the Nation and the availability 

of quality services to all consumers, including those in low-income, rural, insular 

and high-cost areas, at rates that are reasonably comparable to those charged in 

urban areas; and 

WHEREAS, the intended goals of that legislation have not been met in the State 

of Maine, and many of Maine’s communities have no wireless services or inadequate 

wireless service; and 

WHEREAS, the failure to achieve the goals of improved and high-quality services 

has, and will continue to have, a direct and substantial negative impact on the 

health and safety of the people living and working in Maine’s rural areas; and 

WHEREAS, the failure to achieve this goal of high-quality wireless services at 

just, reasonable and affordable rates to everyone is a very significant barrier to the 

economic development of much of rural Maine; and 

WHEREAS, there are 2 rural wireless carriers in Maine that have successfully 

sought certification as eligible telecommunications carriers and have used the Federal Universal Service funding they have received to construct significant additional 

wireless infrastructure in rural Maine; and 

WHEREAS, the Maine Public Utilities Commission has certified that these Maine 

rural wireless carriers have used the funds received from the Federal Universal 

Service Fund in a manner consistent with all laws and regulations governing the 

funds; and 

WHEREAS, the Federal-State Joint Board on Universal Service has recommended 

that the Federal Communications Commission impose a cap on funding for competitive eligible telecommunications carriers; and 

WHEREAS, this recommended cap would limit Federal Universal Service Fund 

support for Maine’s rural wireless carriers currently receiving these funds; and 

WHEREAS, the proposed cap on funding would serve to undercut the purpose and 

objective of the Federal Telecommunications Act of 1996 by impairing the ability of 

Maine’s wireless eligible telecommunications carriers to expand infrastructure into 

rural Maine so that rural and urban wireless service is equal, as promised by that 

Act; now, therefore, be it 

RESOLVED: That We, your Memorialists, on behalf of the people we represent, 

take this opportunity to request that the Federal Communications Commission reject the cap proposed by the Federal-State Joint Board on Universal Service; and 

be it further 

RESOLVED: That We, your Memorialists, respectfully urge and request that the 

United States Congress take action to repeal the cap if it is adopted by the Federal 

Communications Commission; and be it further 

RESOLVED: That suitable copies of this resolution, duly authenticated by the 

Secretary of State, be transmitted to the Honorable Kevin J. Martin, Chairman of 

the Federal Communications Commission, to the President of the U.S. Senate, to 

the Speaker of the U.S. House of Representatives and to each Member of the Maine 

Congressional Delegation. 

STATE OF MAINE

June 6, 2007 

Hon. MARLENE H. DORTCH, 

Secretary, 

Federal Communications Commission, 

Washington, DC. RE: DOCKET NO. 96–45 

Dear Secretary: 

Forwarded herewith are Comments of the Maine Public Utilities Commission in 

the above docket with regard to the Recommended Decision of the Universal Service 

Joint Board. 

Should you have additional questions, you may contact Trina M. Bragdon, the primary staff person in this docket. 

Sincerely, 

TRINA M. BRAGDON

Maine Public Utilities Commission. 

Enclosure 

77 

Before the Federal Communications Commission 

Washington, DC 

In the Matter of Federal-State Joint Board on Universal Service 

High-Cost Universal Service Support 

CC Docket No. 96–45 

WC Docket No. 05–337 

Comments of the Maine Public Utilities Commission 

The Maine Public Utilities Commission (MPUC) is a state regulatory agency 

charged with ensuring that there is a regulatory system consistent with the public 

interest and with State law. It is the policy of the State of Maine to ensure that 

access to advanced services be made available to all communities without regard to 

geographic location, 35–A M.R.S.A. § 7101. With these duties in mind, the MPUC 

files these initial comments in response to the Notice of the Commission published 

in the Federal Register on May 23, 2007. 

We recognize that the existing Universal Service Fund mechanism for providing 

support to competitive carriers is causing the Federal Universal Service Fund to 

grow substantially in some areas of the country. We also recognize that the ‘‘equal 

support rule’’ which bases support payments for Competitive Eligible Telecommunications Carriers (CETCs) on the support payments of the incumbent carrier is causing the Fund to grow dramatically. The ‘‘equal support rule’’ is also providing more 

total support than is needed in some states because in those states the incumbent’s 

costs are much greater then those incurred by the wireless CLEC to provide full 

rural area wireless coverage. Furthermore, in some states the CETC support is not 

being used by carriers for rural ‘‘build-out’’ purposes. 

Nevertheless, there are states, such as Maine, where the current CETC support 

is not excessive. This occurs because the costs of rural wireless build-out are higher 

than the national average and in many cases are higher than the costs for providing 

wireline service. The MPUC also requires that all CETC support be used to buildout rural systems and it monitors compliance with that requirement. 

The capping of the CETC support at 2006 average payment level will likely cause 

delay in the construction of towers in Maine that have been planned for the next 

year, even if Maine designates no additional CETCs. These planned towers would 

generate little if no revenue for the wireless carrier because the areas they serve 

have very few fixed customer locations. Nevertheless, the public health and safety 

requires remote areas to be provided with mobile wireless service and Universal 

Service support for such service should be continued. 

Instead of capping the CETC fund nationally at average 2006 levels for each 

state, the MPUC suggests capping the Fund only in those states where growth has 

been excessive and where state commissions have not established mechanisms to insure that all CETC support is used for rural build-out purposes. If the growth in 

CETC support for each state were limited to provide funds needed to cover planned 

rural build-out projects and states were required to certify that the support was 

both needed and being used for rural build-out purposes, the growth in the Fund 

should be controlled. Rural wireless build-out could then continue at a moderate 

price while support mechanisms for CETCs are reexamined. 

The solution to controlling rapid growth of the CETC USF should focus on those 

areas causing the problem and not penalize those areas, such as Maine, where the 

growth in the Fund has been moderate and all funds have been used for their intended purpose. Since the FCC has not acted on meaningful Universal Service reform since 2001, we are very skeptical that the proposed emergency cap will, in reality, last for a short time as the concept’s advocates suggest. Rather, we believe 

an extended moratorium will occur that will significantly delay rural infrastructure 

investment in advanced services. Therefore, a cap at average 2006 levels is likely 

to irreparably harm rural residents of Maine. 

Accordingly, the MPUC respectfully suggests that the Commission give serious 

consideration to the approach suggested above so that wireless rural build-out may 

continue in Maine and other similarly situated areas. 

Respectfully submitted, 

TRINA M. BRAGDON, Esq., 

Maine Public Utilities Commission. 

Senator STEVENS. Thank you very much. 

On behalf of the Chairman, let me ask you his questions. 

78 

This first question would be to all members of the panel. One 

criticism of the so-called ‘‘identical support rule’’ for Universal 

Service is that it results in an overly generous support to wireless 

carriers because levels of support are based on the cost of providing 

wireline services. In light of this, Chairman Inouye wants three 

questions answered. ‘‘Do you believe that Universal Service should 

support both wireline and wireless service in rural America? Would 

it be possible to construct a model for wireless carriers that would 

calculate support based upon the cost of wireless carriers? Third, 

what effect would tying wireless support to wireless cost have on 

the size of the Fund?’’ 

Mr. Rooney? 

Mr. ROONEY. Let me take it in order. First of all, I would say 

that it would be in the interest of the government, the U.S. Government, and good policy, to have the lowest-cost provider of service being the primary provider of service in the area. I think technology has overtaken things that have taken place in the past. If 

wireless service provides service in the most economical and reasonable fashion—those costs should be used, but they should be 

used for everyone that is providing that service in those areas. In 

other words, this is to use the highest cost to justify recompense 

is sort of turning the whole idea of competition upside-down. 

So, yes, this whole thing needs to be reworked. And we’re not at 

all opposed to a complete review of this particular situation. I’ve 

been on both wireless and wireline sides of this thing, and basically 

you go back to the days where, you know, wireline service was the 

only dependable service. Wireless service now is as dependable as 

any service in the world. And it can be delivered at a much lower 

cost. And to continue to subsidize the provision of the high-cost provider, rather than the low-cost provider, seems to me contrary to 

everything that we stand for. And, yes, I’m pushing wireless, because I happen to be in the wireless industry, but I also know the 

capabilities of the wireless carrier. 

Senator STEVENS. Thank you. 

Mr. Nishi? 

Mr. NISHI. We believe that the services—wireless and landline 

service—they’re complementary in nature. So, yes, we believe that 

there should be support for both types of services so that both networks are sufficiently built out. And in the long-term, we believe 

that will benefit all the citizens of the U.S. 

As to the second question, whether a model can be developed for 

wireless support, we believe that one can be developed. Our models 

for wireline companies today are based on our cost of doing business. And we do come up with our costs, and the funds are adequately distributed from those costs. 

So, I do believe the wireless industry can come up with a plan. 

And, when they do come up with a plan or a costing type of model, 

I believe that their costs will be less, given the fact that they have 

not had carrier-of-last-resort obligations and they have not been 

regulated in the same fashion we have been through all the years. 

So, I think that is a possibility. 

Your third question, as to what effect it would have on the size 

of the Fund, I think the Fund for the wireless industry would be 

less than what they’re receiving today, based on the identical supVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00082 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
79 

port rule. As I’ve said, the identical support rule is illogical, it’s 

based on our costs, not on the costs of the wireless companies and 

their cost of doing business. 

Senator STEVENS. Mr. Foxman? 

Mr. FOXMAN. Yes. To your first question, ‘‘Should both wireless 

and wireline be supported?’’ I think the perspective on that should 

be that it’s not so much about the delivery mechanism as it is 

about the supported service, because, just as we’re having this discussion here today, a year from now, 2 years from now, there may 

be a new technology that’s able to deliver those services to customers, too, and they shouldn’t be excluded from the public interest, for the benefit of the end-user, there shouldn’t be a restriction 

based on what our technology and delivery mechanism is. So, yes. 

And tying in, I guess, with the second question, too, about, ‘‘Is 

it possible to do a model for wireless?’’ I think the issue of competitive neutrality comes up in that. If we have a different model for 

each different kind of company that comes and proposes to deliver 

a service, how long does that take? When is the right stage, when 

a new technology is offered, to build that model? I think that would 

get very challenging to be able to manage. 

That said, we certainly could come up with a model. You know, 

we, as operators, know our own costs, and I don’t think we would 

have problems sharing that information. 

As it relates to what that actually means for the size of the 

Fund, and what our costs would be, I think a complicating issue 

there is, it really depends on what stage of development. So, if the 

public-interest benefit that we’re trying to get to is building networks in places that are underserved and have a great need today, 

the cost of doing that for any service provider can be very high. The 

cost of, for example, edging out a new network into more rural 

places is one thing, the cost of deploying new service, wireless or 

any other technology, in a completely underserved area is going to 

be much greater than that. 

Senator STEVENS. Mr. Lubin? 

Mr. LUBIN. Thank you. 

With regard to the first part of the question, ‘‘Should Universal 

Service support both wired and wireless?’’ from my point of view, 

I would say that is a clear public policy question that the public 

policymakers must answer. If the answer is yes, then AT&T Wireless will be very eager to serve those rural areas. Just as we are 

an ETC in five states today, we will be very eager. 

The question gets to be somewhat more complicated once a policy 

decision is reached if you want to support wireless, and that is, 

what is most critical. I believe there are four questions to be answered. Do you want it supported? If the answer is yes, which I 

assume it is, given this discussion, the next question is, what areas 

do you want to serve? And I assume it’s the underserved rural 

areas. And so, then you would have to make sure that we have a 

plan that’s designed to support, truly, the underserved areas. The 

third part of that question is, am I going to support one CETC or 

multiple CETCs? It’s a critical question to be answered. And the 

final question is, the identical support rule, do you want to use the 

same cost structure as the incumbent? Probably the same cost 

structure is not appropriate, but the point is, once you answer all 

80 

four questions, the final point is, do we have any idea how big the 

size of the Fund will be? Well, depending on how you answer these 

questions, the size of the Fund could become extremely large. That 

is why AT&T has put a pilot on the table, to say, ‘‘Let’s begin to 

learn, specifically, answering your specific questions.’’ 

And the final point here is, not only is this addressing wireless, 

but there was a panel here about a month or two ago before you 

talking about broadband deployment. So, now the issue is, how 

much funding can we have, and how much are customers ultimately going to pay? Because it’s all about what is seen on the customer’s line of their bill. And so, ultimately, we’re going to have to 

answer these questions, but we’re going to have to ultimately 

prioritize, depending on how big the size of the Fund gets, if we 

are truly interested in serving underserved areas, which AT&T is, 

and that’s why we’ve put the two pilots on the table. 

Thank you. 

Senator STEVENS. Chief Flannery? 

Mr. FLANNERY. Well, Mr. Vice Chairman, I’m certainly not a policymaker in this discussion, but I will tell you how this looks from 

the law enforcement standpoint in the rural State of Maine. 

Should there be support for both in the Universal Service Fund? 

I definitely think the formula needs to be adjusted to take care of 

the underserved wireless parts of rural areas. I think that your 

comments, made earlier, at the beginning, that the FCC had the 

power beforehand to—Ms. Tate had said that she knows the issues 

and the problems that need to be addressed, but yet, there was no 

action taken to do that, but just to make this cap on primarily the 

wireless carriers. 

How does this affect us in the State of Maine to accomplish our 

homeland security initiatives? It pretty much handcuffs us to do 

that. We’re currently, right now, working on being able to establish 

different training sessions to carry out mass casualty and mass disasters in the area of central and northern Maine. And we’re having 

a problem right now identifying areas of where there’s wireless 

service to implement and place our command posts for communications to be able to get weather broadcasts and Internet access. So, 

you can see that that portion of it is a very crucial aspect for the 

State of Maine and other rural areas. 

So, I guess the question is—the model to calculate should be 

based more on what Mr. Lubin had said about where the actual 

need is, and identify that. Things change in law enforcement, day 

in and day out, as much as they do at the FCC. And it’s important 

for you to prioritize and to recognize where your priorities are, and 

take action toward resolving these. I haven’t seen that done. 

Senator STEVENS. Well, thank you. 

I just want to ask one of my questions and then let the other 

Senators ask questions, and I’ll come back to the Senator Inouye’s 

questions later. 

One of the problems I have with this situation is that we have, 

in these small communities, legacy carriers that are basically fixedwire distribution hooked into satellite communications, in many instances. The new wireless services are—those services, by the way, 

are primarily local people who started these small systems, and 

have improved them as much as they could under the cirVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00084 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
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cumstances of the income that they’re receiving plus the Universal 

Service support they get—when the wireless services come in and 

compete, they get the money from the Universal Service Fund 

based upon the legacy carrier’s costs. And there’s a windfall there. 

But with the windfall comes a situation where they destroy the 

local legacy carrier and local employment is gone, the local investment’s gone, and we find that there’s a distant carrier—in terms 

of emergencies, they’re not there. 

How do you answer that? Somehow or other, I think we have to 

find some way to preserve the local carriers, where they perform 

more of a service than just delivering a hookup. They are part of 

the emergency system, the local legacy carrier, resident in the area, 

and I think that it’s the worst problem that we face, along comes 

a new carrier, primarily from a company miles away, and there’s 

no attempt to restore service in the local area in the event of an 

emergency, as there would be from the people who are resident 

there and trying to restore service. Am I getting across, Mr. Rooney? 

Mr. ROONEY. Well, with all due respect, Senator, wireless service, 

at least in the experience that I’ve had, generally speaking, has responded to emergencies better than the wireline services. 

Senator STEVENS. How far away is your wireless service compared to where the people are? 

Mr. ROONEY. Well, can I talk about a prior life for a minute? 

Senator STEVENS. Sure. 

Mr. ROONEY. Because Senator Inouye would be very, very familiar with this. But in a prior life, when Iniki hit Kaua‘i—the company that I was president of was headquartered in Chicago—we effectively were the only telecommunications supplier up and operating in Kaua‘i through the hurricane and through its recovery period. The landline service went down, and the other wireless service went down. 

In the case of Missouri, back in the 1990s, when they had the 

flooding that basically broke down every dam and berm in the area, 

our wireless service was serving the Red Cross and other places 

when the landline service was down. 

Excuse me, but there’s one more point. In current service, in 

New England, when they had the flooding last year, and in Missouri again this year, when the services went down, we operated, 

because we’re now building what they call ‘‘hardened sites.’’ And 

our engineers live in the communities that they work in, so the repair people, the people that service these places, are part of the 

communities we serve. This isn’t like having guy come in with a 

satchel and put up a terminal and then walk away from the area 

that they serve. I think wireless basically has demonstrated, time 

and time again, its viability and its ability to operate quickly and 

over a period of time in service areas where there is trouble. 

Senator STEVENS. Well, I don’t want to prolong it, but I have the 

vision that the wireline services have local people involved, local investment, and the newcomers are basically from outside those communities. I understand what you’re saying, during an emergency, 

but during just routine operation, I have the vision that, with these 

new situations, they just come in and put up an automated thing 

somewhere on a hill near the community, and that’s the commuVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00085 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
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nications service, there’s nobody that goes with it, there’s no one 

local at all. 

Mr. ROONEY. With all due respect, that’s not the way we operate. 

Senator STEVENS. Is that true, Mr. Nishi? 

Mr. NISHI. I can’t speak to Mr. Rooney’s company, but I do know 

that, for the rural ILECs, we are in the communities we serve, we 

are part of the community. We’re proud to be a part of the community, and we make contributions to the communities. 

Senator STEVENS. Well, I won’t prolong this, but I’ll get back to 

Senator Inouye’s questions. I believe we have to have modernization, and I don’t understand this cap, on the CLECs, because 

they’re bringing in new service, and not having any caps at all on 

existing service. On the other hand, I do not understand why we 

should take away from the smaller communities their local investment and their—the people who have pioneered communications 

simply because someone else comes in under the existing rules and 

gets paid the same thing that the wireline service carrier gets, in 

terms of Universal Service support where their costs are so much 

lower. It’s not really a fair competitive advantage that they have 

when they come into the community. 

Senator McCaskill? 

Senator MCCASKILL. Thank you, Mr. Chairman. 

I’d like to ask the representatives—Mr. Rooney and Mr. Nishi 

and Mr. Foxman—if any of your companies are taking advantage 

of the RUS program in USDA, the program to expand broadband 

service that is available, the loan program that is available there. 

Mr. ROONEY. I’m not aware that we are. 

Mr. FOXMAN. We’re not, either. 

Senator MCCASKILL. Mr. Nishi, is your company? 

Mr. NISHI. I know that there are various rural exchange carriers 

throughout the U.S. They are taking advantage of the plan. We are 

currently reviewing a lot of the rules and regulations with the plan 

to see if there are ways that can enhance rural carriers to make 

it more of a value to them. 

Senator MCCASKILL. Could any of you explain why you are not 

utilizing the RUS program within USDA that we have appropriated hundreds of millions of dollars to support? 

Mr. ROONEY. To be very honest with you, I wasn’t aware of it. 

Senator MCCASKILL. Yikes. OK. 

Mr. FOXMAN. I’ve spent a little bit of time, and we’re investigating it. But, frankly, one of the challenges we’ve had is that it’s 

extremely complicated to navigate, so, with some assistance, we’re 

trying to do that now, but, frankly, struggling with it. 

Senator MCCASKILL. Let me ask you, Mr. Nishi, if we got rid of 

the identical support rule, would you then oppose this cap? 

Mr. NISHI. I think getting rid of the identical support rule is key. 

And if we did get rid of the identical support rule, I’m not sure we 

would need a cap at this point in time. I do believe that a cap will 

spur people to really work on this issue. I think people are working 

on this issue very seriously now, given everything that’s been said 

in this hearing and in other hearings dealing with Universal Service funding. We’re taking what you’re saying very seriously, and 

what the Joint Board is saying very seriously. 

May I add one thing—— 

83 

Senator MCCASKILL. Sure. 

Mr. NISHI.—in terms of what Mr. Rooney said regarding wireless 

networks? One thing that we do—all networks are interconnected. 

And anytime there is an emergency, for wireless service to be 

working, our networks are also working. And I do need to note that 

is because we do provide backhaul for many, many of their wireless 

cell sites. 

Senator MCCASKILL. I think the points Mr. Rooney made were 

good about wireless being there in times of natural disaster. I think 

a lot of people think of the 9-1-1 system when they think of an 

emergency, they think of the individuals that are calling for help 

in an individual law enforcement setting. 

I would also point out that the wireless has become very important in terms of law enforcement because of the tracking capability 

of cell phones. We just had a horrendous abduction and murder of 

a young woman in the Greater Kansas City area, on the Kansas 

side of the line, and it was too late, but they were able to find her 

body quickly and apprehend the suspect because they were able to 

ping her phone. So, I think it’s important to remember that the 

wireless world is a contributor, in terms of the law enforcement 

community. And I think, with technology, it’s going to continue to 

be an even bigger player as it relates to the more traditional role 

of law enforcement, aside from the kind of natural disasters that 

you referred to, Mr. Rooney, in terms of hurricanes or floods or 

things of that nature. 

Mr. ROONEY. If I fell into a ditch in the middle of Missouri, I’d 

sure as heck be very grateful that I had E–911 service that could 

help find me. 

Senator MCCASKILL. They can find you, in terms of a GPS system. I think a lot of Americans don’t realize that there is a builtin GPS capability on their cell phones at this point. 

You’ve got my attention, Mr. Foxman, when you said ‘‘cost-plus.’’ 

That’s like for me, as a former auditor, that’s like fingernails on a 

blackboard. 

[Laughter.] 

Senator MCCASKILL. And that term, in and of itself, will bring 

my attention back to whatever is being said. And so, I would like 

to ask questions of the other representatives of the companies that 

are in this for ultimately—I mean, we have to be honest here—I 

know all of you want to talk about serving community first, but all 

of you have to make a profit, you’re in business to make a profit, 

you wouldn’t be in business if you weren’t making a profit. And so, 

I want to talk to the other reps about the fact that we have no 

downward pressure whatsoever on the average cost to deploy, the 

way this is set up. Do you all agree with Mr. Foxman’s analysis 

that the way this is set up right now, we are not incentivizing anyone to try to do this at the lowest cost in the most efficient way? 

Mr. Rooney? 

Mr. ROONEY. I think my understanding of landline accounting is 

that it’s completely upside-down. You can go back a few years ago, 

when the Congress was trying to work out access to landline service, and deal with accounting for local loops and TELRIC and all 

that kind of stuff. Instead of having a nice simple generally accepted accounting principle definition of costs, you went through treVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00087 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
84 

mendous law readings, and then, you know, you’d come up with an 

answer, and then it went to the appellate courts. And, you know, 

landline accounting is all convoluted, and I mean, when you look 

at the accounting that we use for our cellular business, it’s GAAP. 

So, what you see is what you get. And I’m perfectly willing to have 

everybody use GAAP accounting to try and determine what the 

cost of deployment is. And, yes, it should be lowest-cost winner. 

Senator MCCASKILL. Mr. Nishi? 

Mr. NISHI. When Mr. Foxman referred to ‘‘cost-plus,’’ I’m assuming that he means an adequate return on our investment. I can say 

that when we build networks, we build them as efficiently as possible, as we try to get advanced services out to the customers we 

serve. I will add that, since the cap was reindexed in 2001, and 

when $2.5 billion didn’t come to the rural ILECs, that that did directly impact our bottom line at Waitsfield and Champlain Valley 

Telecom. We had to make hard decisions on where we were going 

to deploy our new networks. And, in fact, that’s one thing which— 

I think many people fail to realize that there’s the whole issue of 

sections 201 and 254, and the sufficiency principle, and affordable 

and comparable rates. The high-cost loop-support mechanism—in 

Vermont, on an annual basis, we send out a letter to our consumers, saying, ‘‘Without such high-cost support funding, your rate 

would be such-and-such dollars higher.’’ So, that amount we have 

received from the Fund has gone to help keep local rates lower. So, 

it has impacted our operations over time. 

I’m not sure I got to the heart of your question, but—— 

Senator MCCASKILL. I think you danced a little, but I’m not 

going to hold you responsible for that. 

Yes, Mr. Lubin? 

Mr. LUBIN. Thank you. 

I’d like to take your question apart a little bit, because a lot of 

things get said, and generalizations are being made, and I’d like to 

unpack it. 

Right now, the ILECs, incumbent local exchange carriers, are 

generating roughly $3 billion of the $4 billion, using 2006 values. 

Of that $3 billion, there’s something known as, let’s say, ‘‘nonrural 

companies,’’ who are getting access to the Universal Service, but 

under a different set of rules. These are generally what is known 

as price-cap companies. For those companies, it is not cost-plus. It 

is not. Even further, if one of those companies loses a line, they 

lose money. Again, a point that was somewhat misleading here 

today. 

Then, there’s $2 billion of the $3 billion that go to rural companies. 

Senator MCCASKILL. Right. 

Mr. LUBIN. Of that $2 billion, $1 billion of it, approximately, is 

from the high-cost loop fund. That fund is capped. And if lines decline, the aggregate dollars decline. And what we’re seeing today 

in rural America, generally, is rural lines are declining, and the aggregate is going down. 

The rural lines may be declining for a couple of reasons, one of 

which is second lines are declining because of broadband. 

Senator MCCASKILL. Right. 

85 

Mr. LUBIN. And you have some wireless substitution, albeit possibly not as great as people think, because the growth of wireless 

is really another service, called mobility. We can debate that point, 

but that’s OK, because if people want mobility, right now that is 

being allowed. But there’s another point of why mobility is growing 

so much. In this country, 21 percent of the households have probably three or four wireless connections. So, the identical support 

rule does have a problem. It has a problem, because it’s created off 

of an incumbent LEC that doesn’t have 21 percent of their households with three or four lines, causing the overall cost to potentially go up. How much higher, we can debate all these things. Now, what about the remaining $1 billion, right? Because I said there’s $3 billion, and I’ve now said, hey, there’s $1 billion. 

Senator MCCASKILL. Right. 

Mr. LUBIN. That $1 billion is something known as ‘‘cost-plus,’’ 

which is rate-of-return regulation. And I want to give you the plus 

and the minus of that. 

The minus could be, well, hey, there’s a mentality of you can put 

in more dollars. 

Senator MCCASKILL. Right. I get the minus part. Give me the 

plus part. That’s what I’m asking—— 

Mr. LUBIN. I’ll give you the plus part. The plus part again, it all 

depends where you stand or where you sit whether it’s a plus or 

not, but the rural companies have been doing a pretty good job— 

and I think you alluded to it in your opening statement, whereby 

they’re deploying more and more infrastructure that potentially 

could help them for broadband deployment. Some people would call 

that a plus, some people may say that’s not a plus. But the point 

here is, if we think broadband deployment is a good national goal, 

then they’ve got a mechanism in place that, in fact, is encouraging 

them to do that. Now, whether it’s gold plating, that issue always 

comes about, and, from my observation—I’ll let Roger Nishi speak 

to it—these companies are trying to figure out how to survive in 

the new world as we move from a circuit-switched world into a 

broadband world with VoIP application and many other applications. 

Senator MCCASKILL. Well, thank you for that. 

And thank you, Mr. Chairman. There is a little irony, that the 

plus part of the billion that you referred to is actually not part of 

the legislative intent of this Fund, which is kind of what I alluded 

to before. Your explanation as to why the cost-plus part of the program, the billion dollars, which is, you know, a lot of money that 

consumers are paying—is helping something that, frankly, the 

RUS program is supposed to be helping, but this money wasn’t 

even designed to help. So, that just goes to the point that we’ve got 

to get at this broadbased reform in the whole area. 

Thank you all very much. 

Thank you, Mr. Chairman. 

Senator STEVENS. You’re absolutely right, Senator, and I don’t 

think it can be solved without legislation. I’m not sure the FCC has 

the power to reach over to the other Department and say, ‘‘You’ve 

got to coordinate with us and do it the way we say.’’ 

Senator Snowe? 

Senator SNOWE. Yes, thank you, Mr. Chairman. 

86 

Sheriff Flannery, I thank you for being here today, and I want 

to thank you, as well, for your 29 years of service to the State of 

Maine law enforcement. And I appreciate your views here today, 

because I think it does give the dimension of the realities, you 

know, on the ground in law enforcement and homeland security, 

which is of, obviously, our national interest. 

Can you speak to some of the realities of this technology gap, you 

know, between accident responses and domestic violence responses, 

for example? I know you’ve included that in some of your filed testimony, but I think it also is illustrative of the problems that we 

face in the areas that have neither subsidy in a nonexistent wireless service. 

Mr. FLANNERY. Right. I have three sons, and they’re all in some 

type of public service or another—one, the Army; one, the Navy; 

and one’s a paramedic in Somerset County, which, as you’re aware, 

is just north of Kennebec County. Just before I came down to D.C., 

I spoke with my son, who is the paramedic up in Somerset County, 

and asked him ‘‘What is one of the biggest impacts on you, involving wireless service, and the lack thereof?’’ And, of course, he talks 

about Route 201 coming right up from Skowhegan all the way up 

into Jackman and the Canadian border, having accident scenes 

there—and some of them are quite horrific, between tractor trailers 

with logging trucks and severe recreational accidents—not being 

able to call the hospital to speak with the doctor in the emergency 

room to be able to provide them with information on the injured 

party so that they can treat the patient the way the patient needs 

to be treated at that time. So, what they have to do is, they do the 

best they can at the ground level, load the patient up, and drive, 

if possible, to an area where they have cell service, so that they can 

communicate with the hospital as to what’s going on with the patient. And I will tell you that, at times, he has said that that has 

made a difference in life and death. And we should be resolving 

that problem when these people—there’s no reason not to. 

Senator SNOWE. Well, I—go ahead. 

Mr. FLANNERY. We’ve had numerous hostage situations lately, 

where the hostage negotiator wants to be able to establish a view 

of the residence or building where the hostages are located, so that 

he or she can see the scene as it’s playing out, while they’re negotiating with the subject on the phone. Many times, we have to send 

that hostage negotiator off, you know, 2 or 3 miles up and down 

the road to be able to get a signal to talk to the person to be able 

to commence with negotiations. That’s kind of a ‘‘haphazard’’ way 

of doing things, because it now takes that hostage negotiator out 

of seeing what’s going on, and now you have a radio in one ear, 

telephone in the other, to try to see what’s going on, on the scene, 

with—you have to mute, and as you can see, it creates a major 

problem when things are happening at lightning speed. 

What’s going on in the State of Maine right now with this, is 

that the legislature has made new laws allowing for private business to negotiate and work with the State government on working 

with private property, their own property, and State property, to 

be able to utilize putting up wireless information systems so that 

the entire Department of Public Safety system is based on their 

MDTs, mobile data terminals, are based on wireless communication 

87 

through the cell phone service, and they have never had yet to get 

it to work because of the inefficiencies in the wireless system in the 

State of Maine. So, for us to be able to fulfill our obligations of 

homeland security, we have reached an obstacle where we can’t do 

it that way. Some of us have gone with radio frequency to try to 

get over that hurdle for now; but what that does, it limits you into 

your own system, not being able to get into outside systems, as far 

as the Internet goes. So, it helps with going over the state’s communication system to check on wants and warrants for individuals, 

but we’re also starting to eat up that bandwidth, because the only 

way we can access other services in the system—we can’t use wireless, so we have to go through the state’s metro system to be able 

to do that, so there’s a big caution right now of eating up all that 

bandwidth. So, we’re trying to get around it, but yet, we’re going 

to hit a wall here eventually on that. And that’s only for those 

areas that have decent wireless service in their communities. 

Aroostook County, as you well know, doesn’t. And they have a very, 

very difficult problem, as well does Somerset County, where I was 

talking about my son. He’s had opportunities where they’ve been 

off-trail into ATV or snowmobile accidents, and had to send his 

partner up a hill to get a signal so that he could tell LifeFlight the 

GPS coordinates, so they could fly in to a particular area to pick 

up the patient. And, of course, all that takes time. 

One that really sticks in my mind, he told me about, was a rafting accident on Kennebec River. The raft turned over, everybody 

went in the water. One person had swallowed a lot of water, and 

the rafting guide got the person onshore, began CPR, and sent another rafter off to the—there’s no cell signal there on the water— 

so, sent him off to the road. No cell signal on the road. Stopped the 

first car coming by to have him give him a ride to the next house 

to get to the phone line, make the phone call. My son got a call 

45 minutes later, after the incident happened, arrives there 20 

minutes later, and was unsuccessful in reviving the person. 

Senator SNOWE. Well, I appreciate that. And, obviously, I think, 

your examples, I think, illustrates the point, frankly, that the lack 

of wireless service is not just mere inconvenience, it’s a matter of 

life and death. And, obviously, even, you know, creating perilous 

circumstances for our country with respect to homeland security, as 

we are trying to integrate that national response, as well, and that 

includes the rural areas of America. 

Mr. Rooney, your plans for Maine—I know—and I think this is 

indicative of the other states in which you serve—obviously, are 

going to be put on hold as a result of this cap, as I understand, 

from what I’ve—— 

Mr. ROONEY. The new service would be. And one of the inequities 

of the cap is Maine gets hurt, going forward. But we have three 

states that we serve—Illinois would be eligible—if they froze the 

cap—ineligible to—competitive communications operation would be 

eligible for $2,000 of funding, because that’s what they’ve got right 

now. And in Missouri it would be $120,000. This is the total. 

Senator SNOWE. Total. 

Mr. ROONEY. And in New Hampshire, where Senator Sununu’s from, it’s $103,000. So, there’s inequity between the states. Each 

one of these three states, by the way—when we look at going into 

88 

these areas, we’re going into what I call ‘‘virgin territory.’’ There 

isn’t anybody—we’re talking about where there is no cell service. 

In some of the other States, like Washington and Oregon, it’s going 

to get complicated when analog service goes away, because a lot of 

the areas in Maine, when we built the system, back in the 1980s, 

were set up for 3-watt bag phones. We don’t use 3-watt bag phones 

anymore. The phones that we have are six-tenths of a watt. Analog 

service isn’t being supported by anybody anymore, so that goes 

away next year. And, effectively, now, to fill in those areas and provide any kind of service that would be called reasonable, we have 

to build another group of towers to effectively fill in the areas 

where these little six-tenths-of-a-watt phones wouldn’t reach. So, 

there’s the capital requirements to sustain, and, especially in rural 

areas, build further, are very significant, and I think you know 

some of the areas in Maine. There’s not enough traffic on an ongoing basis to justify a $350,000 investment. 

Senator SNOWE. I appreciate that, and I appreciate the panel 

here today. And I’d say that this is a matter of public interest, as 

well. I know that Commissioner Tate indicated that—hope that the 

industry would reach a consensus on some of the questions, and, 

obviously, the dimensions on identical support rule and so on. And 

I think that’s a real issue, as to whether or not the industry is in 

a position. But I happen to think that the cap is going to be a disincentive to doing that, because it’s going to affect, singularly, one 

sector of the industry. 

Is it possible to reach a consensus within the industry on this 

question, between wireless and wireline? Mr. Lubin, finally? 

Mr. LUBIN. Thank you. 

AT&T possibly is in a unique situation, both a wired company 

and a wireless company. And, as I said before, we’re currently in 

five States, as a competitive ETC and we have applications in five 

other States. And so, on one hand, we’re very eager to try to figure 

out how to get this done so that we can go in and put in the right 

infrastructure, be it for wireless. On the other side, the reason why 

AT&T is supporting the cap, which means we’re going to take 

money away, and we’re going to have the problem that Mr. Rooney’s highlighting in selected areas—by the way, it doesn’t mean, 

since we’re going to still get some money—there are some places 

where we still could invest, but not as much as we otherwise 

would. And so, the only reason AT&T, in my opinion, is supporting 

the cap is to figure out a long-term solution. So, now the issue that 

you’re asking is, will there be the ability to reach consensus? I 

think it’s going to be, (a) difficult, because there’s obviously a lot 

of money on the table, and (b) if there is no cap, my fear is, we 

lose an opportunity, because we don’t get the parties to come to the 

table with real passion to try to figure out a compromise. And 

that’s my fear, with it being uncapped. 

Bottom line is, if we don’t figure out a long-term solution, we’ve 

just lost one super opportunity to try to figure out how to really 

get the money, as Mr. Flannery highlights, into the underserved 

areas, if that’s what the public policy decisionmakers elect to do. 

Senator SNOWE. OK. 

Yes, Mr. Foxman, yes, very quickly. 

Mr. FOXMAN. Very—sorry, I just—— 

89 

Senator SNOWE. Yes, thank you. 

Mr. FOXMAN.—wanted to respectfully disagree that I think that 

the nature of the cap accomplishes the exact opposite. If we wanted 

to fix the problem properly, then—everyone works best with a 

deadline—put the pressure on the Commission, on the industry, 

whoever, to get it done. 

Senator SNOWE. Yes, because it’s not balanced, as it stands. And, 

frankly—hopefully, the industry would, but certainly FCC’s action 

shouldn’t be predicated on that, and should, defer this rule and try 

to reach an agreement. 

Senator STEVENS. We’re going to have to call it off. I don’t know 

if you realize it, the President’s coming up. The halls will be closed 

soon. And we have to get back to the Capitol before the doors close. 

So, I do appreciate very much your appearances here today, and 

I think we all have a better understanding of the problem. I’m not 

sure we’ve got the solution, but we understand the problem. 

Thanks for your courtesy in coming and joining us today. 

We will submit the Chairman’s questions and the ones I would 

ask. They’re very few. I would ask you to respond to them, if you 

will, please. 

Thank you very much. 

[Whereupon, at 12:20 p.m., the hearing was adjourned.] 

(91) 

1 In the Matter of High-Cost Service Support Federal-State Joint Board on Universal Service, 

WC Docket No. 05–337, CC Docket No. 96–45, Notice of Proposed Rulemaking, FCC 07–88, (rel. 

May 14, 2007) (NPRM). 2Federal-State Joint Board on Universal Service, WC Docket No. 05–337, CC Docket No. 96– 

45, Recommended Decision, FCC 07J–1, (rel. May 1, 2007) (Recommended Decision). 

A P P E N D I X 

PREPARED STATEMENT BY HON. DANIEL K. INOUYE, U.S. SENATOR FROM HAWAII

Today the Committee revisits a familiar topic: Universal Service. 

More than a decade ago, in the Telecommunications Act of 1996, as a Congress, 

we made clear that we are committed to the principle of Universal Service. We stated that in all regions of the nation—rural, urban and everywhere in between—consumers are entitled to comparable services at comparable rates. The Federal Communications Commission was charged with translating this lofty principle into concrete action. To do so, they set up the Universal Service Fund. 

But today, that fund faces some difficult challenges. If the Fund continues to expand at its current pace, some say we may jeopardize Universal Service itself. Incumbent carriers urge us to place limits on the ability of other carriers to access 

these funds. How is it feasible, they ask, for the Universal Service Fund to support 

so many different carriers serving so few customers in rural areas? 

Still other carriers, many of them wireless providers, ask if it is fair to reduce 

support that may be necessary to serve large swaths of rural America. In order to 

provide comparable services at comparable rates, they say they need access to these 

funds. 

Last month, the Federal-State Joint Board on Universal Service weighed in on 

this matter. It recommended that the Commission cap the amount of funds available to competitive providers as an interim measure, pending broader Universal 

Service reform. 

In the end, we cannot let short-term proposals free us from the need to address 

long-term reform. If comprehensive reform requires a more vigorous review of the 

identical support rule or any other aspect of existing policy, we should proceed down 

that road. After all, ensuring the long-term sufficiency and stability of the Universal 

Service Fund means ensuring that all of our citizens have the communications capabilities they need to compete in the global economy. 

Before The Federal Communications Commission 

Washington, DC 

June 6, 2007 

In the Matter of High-Cost Universal Service Support 

Federal-State Joint Board on Universal Service 

WC Docket No. 05–337 

CC Docket No. 96–45 

Comments of ComspanUSA 

ComspanUSA (‘‘Comspan’’) files the following Comments in response to the Federal Communications Commission’s (the ‘‘Commission’’) Notice of Proposed Rulemaking issued on May 14, 2007.1 Specifically, the Commission has requested and 

Comspan offers these comments on the recommendation of the Federal-State Joint 

Board on Universal Service (‘‘Joint Board’’) that the Commission impose an interim 

cap on the amount of high-cost support that competitive eligible telecommunications 

carriers may receive.2

92 

3 47 U.S.C. § 251 et seq. 4 Id. 

5See generally, id. § 254(b). 6 Comspan is also certified to and does receive support from the Oregon Universal Service 

Fund. 7 In the Matter of Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96–98, First Report and Order, 11 FCC Rcd 15499, (rel. August 8, 1996) (‘‘Local Competition First Report and Order’’), ¶ 4. 

I. Introduction and Summary 

Comspan is a wireline competitive local exchange carrier (‘‘CLEC’’) and a competitive eligible telecommunications carrier (‘‘CETC’’) delivering broadband voice, data, 

and video services to rural communities and small towns in the State of Oregon. 

Through its state-of-the-art fiber-to-the-home (‘‘FTTH’’) networks, Comspan is fulfilling the central goals of the Telecommunications Act of 1996 (the ‘‘Act’’) 3 by bringing competition, higher quality services, lower prices, and the rapid deployment of 

innovative telecommunications technologies to Oregon markets.4 And significantly, 

Comspan is directly addressing the Universal Service goals of the Act by delivering 

these services to those high-cost areas of the state that have largely been ignored 

by the incumbent local exchange carriers (‘‘ILECs’’) and the local cable companies.5

Comspan has already completed FTTH networks in two Oregon cities and has 

plans to build networks in an additional ten small towns and rural communities 

throughout the state within the next year. However, Comspan cannot fund the substantial capital needs of these fiber builds without support from the Federal Universal Service Fund (the ‘‘Fund’’).6 Accordingly, if the temporary caps recommended 

by the Joint Board are adopted by the Commission, Comspan’s expansion plans will 

be stopped in their tracks, and citizens in Oregon’s underserved communities will 

be denied precisely those benefits and services that the Act was intended to promote. 

It is a fundamental premise of the Act that competition and Universal Service are 

mutually supportive and reinforcing goals.7 With this understanding, the Commission has held ‘‘competitive neutrality’’ as a guiding principle in implementing Universal Service. In the face of the pressure of a growing Fund, the Joint Board is 

now asking the Commission to abandon the principle of competitive neutrality by 

adopting caps that favor the incumbent local exchange carriers and are likely to put 

many CETCs out of business. 

Comspan recognizes that the Fund is growing at an unsustainable pace and that 

reform is necessary. However, wireline broadband CETCs such as Comspan are the 

solution—not the problem. These carriers are serving high-cost communities in efficient and effective manners. If the FCC adopts a permanent solution that eliminates 

carriers such as Comspan from the marketplace—if the FCC denies carriers such 

as Comspan equal access to the same high-cost support as is available to the incumbents—it will have sacrificed the goals of the Act in order to achieve a quick, and 

ultimately ineffective, fix. 

Comspan therefore urges the Commission to reject the Joint Board’s proposed 

caps and instead act to adopt mechanisms for reforming the Universal Service that 

preserve the ability of CETCs to continue to draw support from the Fund on the 

same terms as the ILECs, and by so doing, to continue to encourage the provision 

of advanced services to all citizens. 

II. ComspanUSA 

A. History of the Company 

Comspan is a wireline competitive local exchange carrier headquartered in 

Roseburg, Oregon—a small town in southern Oregon. Comspan was formed in 2002 

by a group of local business people intent on providing a competitive alternative to 

the incumbent local exchange carrier, Qwest Communications (‘‘Qwest’’). Five years 

later, Comspan provides local exchange and long distance service to a significant 

percentage of the households in Roseburg, and in the neighboring communities of 

Sutherlin and Winston as well. 

Based on its experience in Roseburg, Comspan became convinced that it could 

offer advanced telecommunications services to Oregonians living in small towns 

throughout the state, and that it could offer these services at affordable prices. In 

order to realize its plan, Comspan teamed up with the LTS Group of Companies 

(‘‘LTS’’), which serve the telecommunications, utilities, and industrial sectors in 

Canada and the United States. LTS’s network development arm specializes in system designs and development of ‘‘triple play’’ networks, delivering voice, data, and 

television services. Together, the two companies have embarked on an ambitious 

plan to construct, deploy and manage FTTH networks in small towns and rural 

93 

8Since that time, the cable company is now estimating it will be in a position to provide 

broadband services in 3, not 20, years. 9 Comspan’s network offers commercial data speeds of up to 7 mbps, with technical capabilities of 100 mbps. 10 47 U.S.C. § 254(b). 

areas throughout Oregon. LTS has since purchased Comspan, lending the company 

LTS’s significant financial strength and technical expertise. 

B. Bandon and Coquille 

After some preliminary market research, Comspan chose to deploy its first FTTH 

network in Bandon, Oregon. Bandon is a town with a population of approximately 

3,100 residents located on the Southern Oregon coast, and Comspan’s preliminary 

market research revealed that it was an underserved area. Although the local ILEC 

did advertise DSL services, Comspan received reports that approximately 50 percent 

of the households lived too far from the ILEC central office to be eligible for DSL. 

And the local cable company made it known that it had no plans to upgrade its network to allow it to offer broadband services to Bandon for another 20 years.8 For 

these reasons, Comspan determined that Bandon was a perfect spot to test its market strategy. 

Comspan broke ground on the project in February 2006, and turned up its first 

customer in August 2006. The Bandon network is built around a central office and 

video head-end located in Bandon, connected to approximately 90 percent of the 

households in Bandon via Comspan’s passive optical network (‘‘PON’’). Over this 

state-of-the-art architecture, Comspan offers Bandon’s citizens not only basic local 

exchange and long distance service, but high-speed data 9 and video as well. And 

Bandon’s citizens have welcomed Comspan’s services with open arms. In less than 

a year, Comspan now serves a full 35 percent of the households in Bandon, and is 

gaining new customers every day. The company expects to achieve a 50 percent 

market share by mid summer and a 65 percent market share within 2 years. 

Once the network in Bandon was completed, Comspan immediately began building in Coquille—a slightly larger town of approximately 5,000, located about 17 

miles away. Like Bandon, Coquille residents had few choices when it came to 

broadband services. The local ILEC offers DSL but only to those households close 

in to the central office, while the local cable company neither offers nor has plans 

to offer broadband services in the foreseeable future. It is not surprising, then, that 

Comspan has had remarkable success ‘‘preselling’’ its services in Coquille. The company expects to turn up its first customers in Coquille this month. 

Based upon its success in Bandon and Coquille, in the next 12 months Comspan 

is planning to begin building FTTH networks in an additional 10 small towns located across the state. 

C. The Role of Universal Service Funding in Comspan’s Plans 

Small towns like Bandon and Coquille are significantly less dense than mid-tolarge cities, and are therefore costlier to serve. Moreover, because the customer pool 

is small, it is impossible to achieve the same economies of scale associated with cities with larger populations. Thus, from the beginning, Comspan has depended on 

anticipated support from the state and Federal Universal Service funds in order to 

build its FTTH networks. Accordingly, Comspan applied for and received Federal 

ETC status in Bandon and Coquille in order to use the relatively modest, but not 

insignificant, funding to help to pay for the infrastructure essential for the delivery 

of basic voice services in those communities. It has also applied for ETC status in 

the nearby communities of Reedsport, Veneta, Myrtle Creek and Oakridge, and will 

file additional applications as it prepares to build-out additional cities. 

The continued availability of Fund support is critical to Comspan’s ability to deliver its advanced services to underserved communities throughout Oregon. Indeed, 

if Universal Service funding becomes unavailable to Comspan, or if it is significantly 

diminished from current levels, Comspan will be unable to complete its expansion 

plans beyond those communities it is currently serving. The elimination of CETCs 

such as Comspan—who are providing advanced broadband services—would constitute a real loss to consumers in small towns and rural communities who will otherwise have only limited (if any) access to broadband. Indeed, wireline broadband 

CETCs like Comspan, more than those of any other class of ETC, serve the goals 

of the Act and should be ensured continued Fund support: 

• First, Comspan is bringing new technologies to small towns and rural areas. 

The Act specifically declares: ‘‘Access to advanced telecommunications and information services should be provided in all regions of the Nation.’’ 10 By providing 

94 

11Local Competition First Report and Order, ¶ 1. 12Telecommunications Competition, S. Rep. No. 104–23 at 26 (1996). 13Federal-State Joint Board on Universal Service, CC Docket No. 96–45, Report and Order, 

12 FCC Rcd 8776 (rel. May 8, 1997) (‘‘First Report and Order’’). 14First Report and Order, ¶¶ 46–47. 15The Commission also noted that section 254(h)(c) requires the Commission to establish competitively neutral rules relating to advanced telecommunications and information services for eligible schools, healthcare providers and libraries. Id. ¶ 48. 16 Id. ¶ 48. 

state-of-the-art, fiber-based voice, video and high-speed data, Comspan is doing 

precisely that—and importantly, Comspan is delivering these new technologies 

in areas of the country that would not otherwise receive these services. And the 

benefits of these services can make a remarkable difference in these communities. The availability of true broadband brings with it opportunities for advances in healthcare through telemedicine applications, educational opportunities through e-learning applications, and economic development. 

• Second, Comspan encourages competition in small towns and rural areas. In 

adopting the Act, Congress did not call for a two-tier society that promotes competition in large urban markets, while monopolies retain their grasp on Americans living in small towns. On the contrary, Congress envisioned that all Americans would reap the benefits of competition in local telecommunications markets. Comspan is fulfilling the Act’s vision of competition for rural Americans. 

• Third, Comspan services compete head-to-head with and serve as complete substitutes for ILEC services. That is, when a consumer purchases Comspan service, that consumer will drop the ILEC service. Thus, the support provided to 

CETCs such as Comspan would not cause the Fund to increase at all if the current system did not provide continued support to the ILEC even after the ILEC 

loses the customer. 

III. The Joint Board’s Proposed Caps 

The Joint Board’s proposal to cap high-cost support to CETCs represents an extreme and unwarranted departure from the Commission’s principle of competitive 

neutrality in the implementation of Universal Service, and should therefore be rejected. 

A. The Proposed Caps Violate the Act’s Principle of Competitive Neutrality and 

Thereby Subvert the Act’s Pro-Competitive Goals 

The Act expressly rejects the previously-held belief that telecommunications services are natural monopolies, best delivered by a single incumbent carrier.11 In drafting the Act, Congress instead offered the vision of a vibrant marketplace in which 

carriers compete with one another to bring to customers the latest technological innovations at the lowest cost. And while Universal Service remains an equally important goal, it was never intended to be furthered at the cost of competition. On the 

contrary, competition and new technologies were expected to further the goals of 

Universal Service as they would ‘‘greatly reduce the actual costs of providing Universal Service over time.’’ 12

In implementing the Act, the Commission has remained true to this vision. In its 

First Report and Order,13 the Commission declared ‘‘competitive neutrality’’ a ‘‘guiding principle’’ for the preservation and advancement of Universal Service. The Commission stated: 

‘‘Universal Service support mechanisms and rules should be competitively neutral. In this context, competitive neutrality means that Universal Service support mechanisms and rules neither unfairly favor nor disfavor one provider over 

another and neither unfairly favor one technology over another.’’ 14

The Commission not only adopted competitive neutrality as ‘‘an additional principle’’ under 254(b), but it also found the principle to be embodied in several of the 

Act’s explicit requirements—including 254(e)’s requirement that Universal Service 

support be explicit, section 254’s requirement that state Universal Service contributions be equitable and nondiscriminatory, and section 214(e)’s requirement that any 

carrier can become an eligible telecommunications carrier if it meets certain statutory criteria.15 Accordingly, the Commission found that ‘‘an explicit recognition of 

competitive neutrality in the collection and distribution of funds and the determination of eligibility in universal support mechanisms is consistent with Congressional 

intent and necessary to promote a ‘pro-competitive, deregulatory national policy 

framework.’ ’’ 16

95 

17 Id. 18 Recommended Decision, Appendix B. 19 Eagle Telephone received ETC certification in Oregon on December 21, 2006. See In the 

Matter of Eagle Telephone Systems, Inc., Application for Designation as an Eligible Telecommunications Carrier, OPUC Docket UM 1237, Order No. 06–680. Cingular received ETC certification in Oregon on March 29, 2007. See, In the Matter of Cingular Wireless, LLC, Application for Designation as an Eligible Telecommunications Carrier, OPUC Docket UM 1253, Order 

No. 07–111. 20See In the Matter of Wantel Inc.’s Application for Designation as an Eligible Telecommunications Carrier in the Bandon Wire Center, OPUC Docket UM 1255, Order No. 06–681 (Dec. 

21, 2006); see also In the Matter of Wantel Inc.’s Application for Designation as an Eligible Telecommunications Carrier in the Coquille Wire Center, OPUC Docket UM 1307, Order No. 07–210 

(May 29, 2007). 21 CETC forecasts are found on the USAC website as HC01. The CETCs listed for Oregon (not 

including Sprint Spectrum, which has not even applied for CETC status as of this date) forecast 

that, under current support levels, they will receive over $22 million in USF support. 

The Commission certainly recognized that strict adherence to the principle of competitive neutrality would be difficult to achieve, even suggesting that there would 

be times when disparities between types of carriers would exist. However, the implication was that these disparities would be small and would exist only where they 

could not be eliminated. The Commission explained: 

‘‘Our decisions here are intended to minimize departures from competitive neutrality, so as to facilitate a market-based process whereby each user comes to 

be served by the most efficient technology and carrier. We conclude that competitively neutral rules will ensure that such disparities are minimized so that 

no entity receives an unfair competitive advantage that may skew the market 

place or inhibit competition by limiting the available quantity of services or restricting the entry of potential service providers.’’ 17

In contrast, the Joint Board’s recommended caps are like throwing a hand grenade at a kidnapper. You may stop the kidnapper, but at too great a cost. Similarly, 

the caps may halt the growth of the fund, but they are also likely to inflict severe 

damage on CETCs such as Comspan. And, in so doing, they will subvert the Act’s 

pro-competitive goals. 

B. The Proposed Caps Are Likely to Drastically Reduce the Amount of Support Available to CETCs Such as Comspan 

The Joint Board proposes to cap total support to CETCs, by state, at the amount 

distributed in 2006. So, as the number of lines served by CETCs grows in any state, 

the amount of per-line support will decrease. It is impossible for Comspan to calculate with precision how much the caps may reduce the support available to it in 

Oregon. That said, Comspan has analyzed publicly available information in order 

to make a good faith estimate. The results are alarming. 

According to the Universal Service Administrative Company (‘‘USAC’’), Oregon CETCs were the recipients of approximately $10 million in high-cost support in 

2006.18 However, two new carriers—Cingular and Eagle Telephone—were certified 

by the Public Utility Commission of Oregon (‘‘OPUC’’) in late 2006 and early 2007; 19

in that same time period, Comspan received ETC certification in two new wire centers in the state.20 In forecasts provided to USAC, Oregon CETCs have projected 

that by the third quarter of 2007 they will receive over double the amount received 

by CETCs in 2006, assuming current support levels.21 In other words, Oregon 

CETCs are projecting that they will more than double their number of lines over 

the first three quarters of 2007. If the caps are adopted and the total amount distributed remains constant, then the per-line support received by the CETCs in Oregon will be less than half of what it is now. And if history is any predictor, the 

disparity will continue to grow as these CETCs gain a foothold in the high-cost markets. 

As discussed above, a significant level of support is necessary in order for 

Comspan to fund the substantial initial cash outlay required for building its FTTH 

infrastructure in new markets. Comspan’s decision to enter new markets depends 

on the availability of that support. Comspan certainly cannot sustain its business 

plan with the cuts in support that these estimates suggest. 

Moreover, even if the amount of funding under the caps were sufficient to allow 

Comspan to move forward, the market would be tilted more steeply against it. Competitive local exchange carriers always face an uphill battle, as they compete against 

ILECs who enjoy all of the advantages of incumbency. If, in addition to all of the 

natural advantages, the incumbent LECs were also entitled to twice as much USF 

support than the CETCs, then Comspan’s ability to compete will be burdened further. 

96 

22 Recommended Decision, ¶ 8. 

The Joint Board has attempted to minimize the harm that its proposed caps 

might produce by pointing out that the caps are intended to be temporary.22 However, in view of the complexity of the issues involved, it seems unlikely that the 

Commission will have lifted them in favor of permanent mechanisms within the 18 

months projected in the Recommended Decision. Given what would be an at-best uncertain situation, it is reasonable to imagine that, if the caps are adopted, many 

CETCs will either halt their expansion plans, as projected by Comspan, or exit highcost markets altogether. 

C. Customers Will Lose if the CETCs Are Eliminated 

It should be abundantly clear that competition in high-cost areas is good for consumers. Competitive ETCs such as Comspan are bringing a variety of advanced 

services to underserved areas—thereby introducing new technology and innovative 

services to customers who would otherwise have no such access. Moreover, 

Comspan’s own experience in Bandon illustrates just how effective competition can 

be, even in rural areas, at spurring the incumbent LECs and cable companies to 

upgrade their own networks. As mentioned above, before Comspan announced its 

intention to enter the Bandon market, the local cable provider had no intention of 

upgrading its facilities to allow it to offer broadband services for twenty years. After 

having lost significant market share to a competitor, that same company is now estimating that it will be able to provide Bandon with cable modem services in 3 years. 

If the Commission adopts the caps proposed by the Joint Board in its Recommended Decision, Comspan and other CETC’s like Comspan will be damaged. 

However, the real losers will be the customers in those Oregon communities that 

Comspan plans to serve—customers who now have a chance to enjoy the same technological advantages as customers in larger cities—who instead will have to wait 

up to 20 years to come into the 21st century. 

IV. Conclusion 

Comspan appreciates this opportunity to comment on the Recommended Decision 

and looks forward to providing additional comments in the future. 

Respectfully submitted this 6th day of June, 2007. 

MCDOWELL & RACKNER PC, 

LISA F. RACKNER, 

Counsel for ComspanUSA. 

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER

ADVOCATES (NASUCA) 

NASUCA Supports a Cap on the High-Cost Universal Service Fund 

The National Association of State Utility Consumer Advocates submits for the 

record of this Committee’s hearing scheduled for June 12, 2006, the attached copy 

of comments filed at the Federal Communications Commission on June 6, 2007, regarding the proposal of the Federal-State Joint Board on Universal Service for a cap 

on the Federal high-cost fund as it applies to competitive eligible telecommunications carriers, including wireless carriers. 

Before The Federal Communications Commission 

Washington, DC 20554 

June 6, 2007 

In the Matter of High-Cost Universal Service Support 

Federal-State Joint Board on Universal Service 

WC Docket No. 05–337 

CC Docket No. 96–45 

Comments of the National Association of State Utility Consumer Advocates 

Supporting a Cap on the High-cost Universal Service Fund 

Table of Contents 

I. Introduction and Summary 

II. The Joint Board Recommendation and Issues for Comment 

III. Capping the Fund as an Interim Step Is Necessary 

97 

IV. Applying the Cap Only to CETCs Is Reasonable 

V. The Proposed Period for the Cap Is Reasonable 

VI. The Cap Should Apply on a State-by-state Basis 

VII. The Cap Should Be at the Level of Support Awarded in 2006 

VIII. A Cap on the Entire High-cost Fund Would Be Feasible 

IX. Conclusion 

I. Introduction and Summary 

The National Association of State Utility Consumer Advocates (‘‘NASUCA’’) 1 files 

these comments to support the recommendation of the Federal-State Joint Board on 

Universal Service (‘‘Joint Board’’) that the Federal Communications Commission 

(‘‘Commission’’ or ‘‘FCC’’) take immediate action to impose an interim, emergency 

cap on the amount of high-cost support that competitive eligible telecommunications 

carriers (‘‘CETCs’’) may receive.2 This is necessary, in the Joint Board’s words, ‘‘to 

rein in the explosive growth in high-cost Universal Service support disbursements.’’ 3 The Commission seeks comment on the Joint Board’s recommendation.4

The NPRM is on an extremely tight timeline.5 But that is justified by the ‘‘emergency’’ in which the USF finds itself.6 Unfortunately, the emergency is, in part, 

caused by the failure of the Commission and of the Joint Board to act in a coordinated fashion on many of the issues that have previously been put out for comment.7 But that does not alleviate the need for a cap on the high-cost Universal 

Service Fund (‘‘USF’’) like that recommended by the Joint Board. 

II. The Joint Board Recommendation and Issues for Comment 

The Joint Board recommended that the Commission cap the amount of support 

that CETCs may receive for each state based on the average level of CETC support 

distributed in that state in 2006.8 The Joint Board further recommended that the 

interim cap apply until 1 year from the date that the Joint Board makes its recommendation regarding comprehensive and fundamental high-cost Universal Service reform.9

The Commission seeks comment on the Joint Board’s recommendations.10 The 

Commission asks commenters to ‘‘address whether the Commission should control 

the growth of high-cost support by capping support on CETCs as recommended by 

the Joint Board.’’ 11 The Commission also asks ‘‘parties to address the Joint Board’s 

recommendation to limit the cap to CETCs only, and whether there are public interest concerns that warrant modifying the application of the recommendation to providers of certain services.’’ 12

The Commission also asks for comment on the Joint Board’s recommendations regarding the ‘‘operation of any interim cap, including the duration of the cap, its application, and the base period for the cap.’’ 13 The Joint Board had recommended 

that the duration of the cap be 1 year from the date of any Joint Board recommended decision on comprehensive Universal Service reform, which the Joint 

Board committed to issue within 6 months of May 1, 2007.14 The Commission also 

seeks comment ‘‘on the Joint Board’s recommendation to impose the cap on a stateby-state basis . . .’’ 15 The Joint Board had recommended that the cap be set at the 

level of support received by CETCs in 2006 . . .’’ 16

III. Capping the Fund as an Interim Step Is Necessary 

The Joint Board presents more-than-adequate justification for placing an emergency cap on the fund: 

High-cost support has been rapidly increasing in recent years and, without immediate action to restrain growth in competitive ETC funding, the Federal Universal Service Fund is in dire jeopardy of becoming unsustainable. Today, the 

Universal Service Fund provides approximately $4 billion per year in high-cost 

support. Yet, in 2001, high-cost support totaled approximately $2.6 billion. In 

recent years, this growth has been due to increased support provided to competitive ETCs which receive high-cost support based on the per-line support 

that the incumbent local exchange carriers (LECs) receive rather than the competitive ETC’s own costs. While support to incumbent LECs has been flat or 

even declined since 2003, by contrast, in the 6 years from 2001 through 2006, 

competitive ETC support grew from $15 million to almost $1 billion—an annual 

growth rate of over 100 percent. Based on current estimates, competitive ETC 

support in 2007 will reach at least $1.28 billion if the Commission takes no action to curtail this growth. Moreover, if the Commission were now to approve 

all competitive ETC petitions currently pending before the Commission, highcost support for competitive ETCs could rise to as much as $1.56 billion in 2007. 

High-cost support to competitive ETCs is estimated to grow to almost $2 billion 

98 

in 2008 and $2.5 billion in 2009 even without additional competitive ETC designations in 2008 and 2009.17

The impact on consumers across the Nation of this growth in the Fund is substantial. The current USF contribution factor is 11.7 percent.18 All other things being 

equal, if the disbursements to CETCs grew to the cited $1.56 billion for 2007, the 

contribution factor would grow to 11.9 percent.19 The Joint Board’s estimate does 

not take into account all of the CETC designations pending in the various states,20

which likely outweigh those pending at the Commission. Consumers cannot be 

asked to bear this burden. 

IV. Applying the Cap Only to CETCs Is Reasonable 

As quoted above, the Joint Board correctly notes that in recent years the growth 

in the Fund is almost entirely attributable to CETCs: ‘‘While support to incumbent 

LECs has been flat or even declined since 2003, by contrast, in the 6 years from 

2001 through 2006, competitive ETC support grew from $15 million to almost $1 

billion—an annual growth rate of over 100 percent.’’ 21 Therefore, the most direct 

way to deal with the growth in the Fund as an interim measure is to limit the 

source of growth: CETCs. 

We are likely to hear, and we have already heard, from those who would be impacted—namely wireless carriers—that capping the Fund for CETCs is not competitively neutral.22 We have also heard that capping the Fund for CETCs would discourage wireless carriers’ deployment of services in rural areas.23

With regard to the first point, it should first be recalled that the principle of competitive neutrality is not found in Section 254. It was derived by the Commission 

based on its ability to adopt ‘‘additional principles’’ pursuant to 47 U.S.C. 

254(b)(7).24 Depending on the context, one principle may be important enough to 

trump any or all the other principles.25 In this situation, the need for ‘‘specific, predictable and sufficient’’ support 26 can override the derived principle of competitive 

neutrality. As the Joint Board has found, ‘‘sufficient’’ also implies ‘‘no more than sufficient.’’ 27 Further, incumbent LECs have had their support from the high-cost loop 

fund capped since the 1990s. Thus additional support for CETCs can be put temporarily ‘‘on hold’’ without violating the Act. 

Likewise, with regard to the second point, while it is likely that the receipt of Universal Service funds eases wireless carriers’ deployment of services in rural areas, 

many carriers were and have been deploying wireless facilities without such support. The impact of a temporary cap on wireless funding while other USF issues are 

being resolved is speculative; the impact on consumers of the increased funding that 

will occur without a cap is definite. 

The speculative impact of a cap is reinforced by the fact that the Joint Board recommended that the Commission consider ‘‘abandoning or modifying’’ the so-called 

identical support or portability rule.28 The Joint Board correctly notes that the rule 

‘‘seems to be one of the primary causes of the explosive growth in the fund.’’ 29

Further, as the Joint Board has noted: 

Fundamental differences exist between the regulatory treatment of competitive 

ETCs and incumbent LECs. For example, competitive ETCs, unlike incumbent 

LECs, have no equal access obligations. Competitive ETCs also are not subject 

to rate regulation. In addition, competitive ETCs may not have the same carrier 

of last resort obligations that incumbent LECs have. Furthermore, under the 

identical support rule, both incumbent rural LECs and competitive ETCs receive support based on the incumbent rural LECs’ costs. Therefore, incumbent 

rural LECs’ support is cost-based, while competitive ETCs’ support is not.30

For all of these reasons, limiting the cap to CETCs makes sense and is within 

the Commission’s discretion.31

The D.C. Circuit has recently reaffirmed that, with regard to the Commission’s 

interpretation of Section 254, where Congress has not spoken directly to an issue 

(as it has not here), the ultimate test is whether the Commission’s ruling is reasonable under the circumstances.32 Imposing a temporary cap on CETC funding is, 

under these circumstances, eminently reasonable. 

V. The Proposed Period for the Cap Is Reasonable 

The Joint Board recommends that ‘‘the cap expire 1 year from the date of any 

Joint Board recommended decision on comprehensive and fundamental Universal 

Service reform.’’ 33 To place a definite outer limit on when the cap will end, the Joint 

Board ‘‘commit[s] to adoption of a further recommended decision addressing fundamental high-cost reforms within 6 months of today’s Recommended Decision.’’ 34

Taken together, this means that the cap will expire within 18 months of May 1, 

99 

2007, the day the Recommended Decision was released, in other words November 

1, 2008. 

The entire premise behind the cap is that it is to be interim, ‘‘until such measures 

can be adopted that will ensure that the Fund will be sustainable for future years’’ 

and ‘‘while the Joint Board and the Commission consider fundamental reforms to 

address issues related to the distribution of support.’’ 35 It appears that another 18 

months to resolve issues, some of which have been pending since the passage of the 

1996 Act, is sufficient (and probably not more than sufficient).36 Clearly, though, the 

Commission should attempt to resolve these issues even more expeditiously, after 

giving the stakeholders an adequate opportunity to present their views. 

VI. The Cap Should Apply on a State-by-State Basis 

The Joint Board ‘‘recommend[s] that the Commission immediately impose a cap 

on competitive ETC support for each state.’’ 37 The Joint Board further notes ‘‘that 

a competitive ETC cap applied at a state level effectively curbs growth. . . .’’ 38

NASUCA agrees. A state-by-state cap means that no state will receive less support 

for CETCs than it currently receives, no matter what happens in other states. 

The appropriateness of a state-by-state cap is best seen by comparison to other 

possibilities. The Joint Board states that it: 

considered, but declined to recommend, capping competitive ETC support nationwide or by study area. A nationwide cap amount would maintain incentives 

for states to designate additional competitive ETCs to increase their share of 

competitive ETC capped support and would result in competitive ETC support 

shifting to those states that aggressively designate competitive ETCs during the 

period of the interim cap.39 A cap by study area would foreclose the possibility 

of support for the duration of the cap for those study areas that currently have 

no competitive ETCs and would be administratively burdensome.40

NASUCA agrees with the Joint Board’s assessment of the problems with using 

a national cap and with using a study area (or smaller) area.41 Placing the cap per 

state also keeps the responsibility with state commissions, which under the Act 

have primary responsibility for designation of ETCs.42

VII. The Cap Should Be at the Level of Support Awarded in 2006 

The Joint Board ‘‘recommend[s] that the Commission cap competitive ETC support for each state at the level of competitive ETC support actually distributed in 

that state in 2006.’’ 43 The Joint Board correctly points out that ‘‘using 2006 data 

allows the Commission to use actual support amounts, rather than relying on USAC 

projections to set the cap amounts.’’ 44 NASUCA agrees with this approach. 

If the Commission orders a cap as expeditiously as appears may happen,45 more 

recent data—for 2007—will be limited to the first, second and possibly (but hopefully not) third quarters of the year. That data will not be representative: As the 

Joint Board points out, there are ‘‘seasonal or one-time fluctuations that may be reflected in any single quarter.’’ 46 Using actual data for the year 2006 will ‘‘smooth 

out’’ these fluctuations.47

Using the 2006 data does not capture the increases in CETC support that have 

occurred in the past year. But that increase is part of the problem, of course: Comparing USAC’s HC01 appendices for the second quarter of 2007 to the second quarter of 2006 shows an increase of 24 percent in total CETC support just in that 1 

year.48 And comparing the first quarter of 2007 to the first quarter of 2006 shows 

an increase of 37 percent in total CETC support.49 The composite increase (comparing both quarters in 2006 to both quarters in 2007) is almost 30 percent. If there 

is a compulsion to ‘‘true up’’ the 2006 numbers, an increase of 30 percent could be 

applied. Truth be told, any cap is better than no cap; consumers will suffer if the 

increases in the high-cost fund are allowed to continue. 

VIII. A Cap on the Entire High-Cost Fund Would Be Feasible 

The Joint Board did ‘‘not recommend additional caps on support provided to incumbent LECs, because the data show less growth pressure from incumbent 

LECs.’’ 50 This is largely because ‘‘incumbent LEC high-cost loop support is already 

capped and incumbent interstate access support has a targeted limit’’ while ‘‘local 

switching support and interstate common line support provided to incumbent LECs 

have been stable in recent years.’’ 51 As stated above, NASUCA agrees with the limitation of the cap to only CETCs; any lack of competitive neutrality is offset by the 

benefits to the public interest. 

If, however, the Commission insists on maintaining competitive neutrality, then 

the cap could be applied to the entire high-cost fund.52 NASUCA proposed such a 

cap in an April 6, 2007 ex parte letter. 

100 

The cap would work just like the CETC cap, but would also cover incumbent LEC 

ETCs. To paraphrase the description in the Recommended Decision: 

First, on a quarterly basis, the Universal Service Administrative Company 

(‘‘USAC’’) would calculate the support each ETC would have received under the 

existing (uncapped) equal per-line support rule and would sum these amounts 

by state. Second, USAC would calculate a state reduction factor to reduce this 

amount to the ETC cap. Specifically, USAC would compare the total amount of 

uncapped support to the cap amount for each state. Where the total state uncapped support is greater than the available state cap support amount, USAC 

would divide the state cap support amount by the total state uncapped amount 

to yield the state reduction factor. USAC would then apply the state-specific reduction factor to the uncapped amount for each ETC within the state to arrive 

at the capped level of high-cost support. Where the state uncapped support is 

less than the available state capped support amount, no reduction would be required.53

The example used by the Joint Board also applies: 

If in State A, the capped amount is $90 million and the total uncapped support 

is $130 million, the reduction factor would be 69.2 percent ($90/$130). In State 

A, each ETC’s support would be multiplied by 69.2 percent to reduce support 

to the capped amount. If in State B, however, the base period capped amount 

is $100 million and the total uncapped support is $95 million, there would be 

no reduction factor because the uncapped amount is less than the capped 

amount. Each quarter, for the duration of the cap, a new reduction factor would 

be calculated for each state.54

A state-by-state cap on all high-cost payments should also have a one-year duration and should also use actual 2006 payments as the amount of the cap. 

IX. Conclusion 

The Commission cannot stand by as consumers continue to pay ever-increasing 

amounts into the USF while the Commission figures out ways to constrain the 

growth in the fund.55 A cap on payments to CETCs will, for the short term, address 

the ‘‘explosive growth’’ in high-cost support disbursements. 

The proposed cap is reasonable because the known benefits of such a cap far exceed the known costs of failing to do so. Under current rules, there is no assurance 

that high-cost support for CETCs results in service deployment that would not have 

been made without such support. There is also no assurance that the current 

amount of support (over $1 billion annually and rapidly growing) is subsidizing investments that will not generate substantial profits in future years. Moreover, 

under current rules, there is no assurance that the amount of support is reasonable 

given that it is based on the costs of wireline carriers rather than the costs of wireless carriers. Therefore, until the Commission has an opportunity to reform the current funding mechanism, it would be prudent to adopt the recommended cap as an 

immediate interim measure, and thereby limit the risk that public support is being 

converted to private profits through the high-cost support mechanism. 

The Commission should expeditiously adopt the proposal of the Joint Board. 

Respectfully submitted, 

DAVID C. BERGMANN, 

Assistant Consumers’ Counsel Chair, 

NASUCA Telecommunications 

Committee, 

NASUCA. 

Endnotes 1 NASUCA is a voluntary, national association of consumer advocates in more 

than forty states and the District of Columbia, organized in 1979. NASUCA’s members are designated by the laws of their respective states to represent the interests 

of utility consumers before state and Federal regulators and in the courts. See, e.g., 

Ohio Rev. Code Chapter 4911; 71 Pa. Cons. Stat. Ann. § 309–4(a); Md. Pub. Util. 

Code Ann. § 2–205(b); Minn. Stat. Ann. Subdiv. 6; D.C. Code Ann. § 34–804(d). Members operate independently from state utility commissions, as advocates primarily 

for residential ratepayers. Some NASUCA member offices are separately established 

advocate organizations while others are divisions of larger state agencies (e.g., the 

state Attorney General’s office). Associate and affiliate NASUCA members also serve 

utility consumers, but have not been created by state law or do not have statewide 

authority. 

101 

2Federal-State Joint Board on Universal Service, WC Docket No. 05–337, CC 

Docket No. 96–45, Recommended Decision, FCC 07J–1 (rel. May 1, 2007) (‘‘Recommended Decision’’). 3 Recommended Decision, ¶ 1. 4 Notice of Propose Rulemaking, FCC 07–88 (rel. May 14, 2007) (‘‘NPRM’’). 

5 Comments are due 7 days after Federal Register publication, and replies are due 

fourteen days after publication. See NPRM, ¶ 6. 6 Id., ¶ 1; see Recommended Decision, ¶ 4. 7See Comments of the National Association of State Utility Consumer Advocates 

on ‘‘Long-Term, Comprehensive High-Cost Universal Service Reform,’’ in WC Docket 

No. 05–337 (May 31, 2007) at 3–5. 8 Recommended Decision, ¶¶ 5–13. 9 Id., ¶ 8. 10 NPRM, ¶ 5. 11 Id. 12 Id. 13 Id. 14 Recommended Decision, ¶ 8. 15 NPRM, ¶ 5. 16 Recommended Decision, ¶ 13. 17 Recommended Decision, ¶ 4 (footnotes omitted). 18http://hraunfoss.fcc.gov/edocslpublic/attachmatch/DA-07-1330A1.pdf. 19 Adding one-quarter of the $0.28 billion increase to the Fund need for the second 

quarter of 2007. 20 Recommended Decision, n. 15. 21 Id., ¶ 4. 22See http://www.ctia.org/media/press/body.cfm/prid/1689. 23See In the Matter of Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, 

and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the 

Telecommunications Act of 1996, GN Docket N. 07–45, Comments of CTIA—The 

Wireless Association (May 16, 2007) at 16–17. 24See In the Matter of the Federal-State Joint Board on Universal Service, CC 

Docket No. 96–45, Report and Order, 12 FCC Rcd 8776 (1997), ¶¶ 48–49. 25 Id., ¶ 52. 26 47 U.S.C. 254(b)(5). 27See Recommended Decision, FCC 02J–2, 17 FCC Rcd 20716 (2002), ¶¶ 14, 16. 28 Recommended Decision, ¶ 12. 29 Id. 30 Id., ¶ 6. 31 If the Commission decides not to limit the cap to CETCs, a cap on the entire 

high-cost fund could be imposed. This is discussed later in these comments. 32 Vonage Holding Corp. v. FCC, ll F.3d.1 ll, Case 06–1276 (D.C. Cir. 2007), 

slip op. (June 1, 2007) at 12, citing Am. Fed’n of Gov’t Employees, Local 446 v. Nicholson, 475 F.3d 341, 355 (D.C. Cir. 2007). 33 Id., ¶ 8. 34 Id. 35 Id., ¶ 5. 36The issues at issue should not be just those that were identified in the May 1, 

2007 Public Notice (FCC 07J–2). See NASUCA’s comments filed May 31, 2007 in 

response to that Public Notice. 37 Id., ¶ 9. 38 Id. The Joint Board also states that this ‘‘allows states some flexibility to direct 

competitive ETC support to the areas in the state that are most in need of support.’’ 

Id. It appears that this ‘‘flexibility’’ would be limited to authorizing new ETCs in 

some areas; states would not (and should not) have the ability to reallocate support 

among currently authorized ETCs. 39 Just as some states have designated multiple ETCs under the current system. 

See id., ¶ 5, n. 17 and Appendix B. 40 Id. 41 USAC’s latest quarterly filings show 2,274 study areas nationwide. Although 

not all of those study areas receive high-cost support, and although not all of those 

study areas have CETCs authorized, the burden on the states and on the Commission would be a distraction from the fundamental purpose here, which is to develop 

long-term reforms for the high-cost support mechanism. 42 47 U.S.C. 214(e)(2). Under 47 U.S.C. 214(e)(6), the Commission has this authority when a state commission cannot designate ETCs. The Joint Board recommendation does not explain the interaction of Federal and state authority to utilize the 

102 

‘‘flexibility’’ under the cap, but one would hope that the Commission would exercise 

the same restraint that the Joint Board expects of the states. 43 Recommended Decision, ¶ 13. 44 Id. 45See NPRM, ¶ 6. 46 Recommended Decision, ¶ 13, citing the fact that, for example, the annual trueup of interstate common line support (‘‘ICLS’’) occurs in the third and fourth quarters, but not in the first and second quarters. 47 Id. 48From the 2Q06 figure of $259 million to the 2Q07 figure of $321 million. 49From the 1Q06 figure of $219 million to the 1Q07 figure of $299 million. 50 Id., ¶ 5. 51 Id. 52The issues being dealt with here are issues with the high-cost fund. Thus the 

Commission need not consider, at this juncture, a cap for the other pieces of the 

USF (schools and libraries, low-income and rural telemedicine). 53See id., ¶ 10. 54See id., ¶ 11. The Joint Board’s example includes the notation that ‘‘if in State 

C the base period capped amount is $0 (i.e., there were no competitive ETCs receiving support in State C as of when the cap was established), then no competitive 

ETCs would be eligible to receive support in that state.’’ Id. The only jurisdiction 

that receives no high-cost support at all is the District of Columbia; under a total 

cap, no carrier in the District would be able to receive any high-cost support as long 

as the cap lasts. 55See footnote 33, supra. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DANIEL K. INOUYE TO

HON. DEBORAH TAYLOR TATE

Question 1. The Joint Board recommendation for a cap on funds available to competitive carriers is designed to be a short-term fix for the growth in Universal Service demand. In order to ensure the long-term stability of Universal Service, what 

specific further reforms do you favor? 

Answer. As we look to achieve the long-term goals of the Universal Service program we must recognize how technological changes are putting strains on the mechanics of both our contribution and distribution systems. With respect to the contribution mechanism, I believe that a numbers-based contribution mechanism would 

help maintain the stability of the Fund by assessing all technologies used to make 

a phone call on a similar basis and, unlike the current revenue-based system which 

treats technologies differently, would be competitively and technologically neutral. 

With respect to the distribution mechanism, I generally support proposals that allow 

carriers to receive support based on their own costs. In particular, along with the 

Joint Board, I support the elimination of the identical support rule. I further believe 

we should review whether the use of reverse auctions is an effective and competitively neutral way to determine high-cost Universal Service funding to Eligible Telecommunications Carriers (ETCs). Like you, I want to help insure no area or group 

of our citizens are left behind. 

Question 2. The Joint Board recommends that Universal Service funds for competitive carriers be capped on a state-by-state basis. But the recommendation omits 

any mention of tribal lands. In light of special jurisdictional concerns involving Indian country, how should the FCC apply the cap to tribal lands? 

Answer. Any interim cap order adopted by the Commission will continue the Commission’s traditional recognition that underserved tribal lands and Alaska Native 

Regions are uniquely situated and deserving of individual treatment to ensure that 

they are not left behind urban areas of the country. 

Question 3. In order to preserve the sovereignty of the tribes, would it be best to 

address support for competitive carriers serving tribal lands on a case-by-case basis? 

Answer. Whatever effective mechanism is adopted, a fundamental reform plan 

will ensure that the Universal Service Fund promotes the availability of reasonably 

comparable services at reasonably comparable rates throughout the country in a 

technologically and competitively neutral manner. Comprehensive reform also must 

take into account those areas of our country which are uniquely situated. Any comprehensive reform plan will continue the Commission’s traditional recognition that 

underserved tribal lands including those in Hawaii and Alaska Native Regions are 

uniquely situated and deserving of individual treatment to ensure that they are not 

left behind urban areas of the country. 

103 

1Federal-State Joint Board on Universal Service, WC Docket No. 05–337, CC Docket No. 96– 

45, Recommended Decision, FCC 07J–1 (Fed.-State Jt. Bd., rel. May 1, 2007) (Recommended Decision). 2 Id. 

Question 4. The Joint Board characterizes its proposal for a cap on support for 

competitive carriers as interim, while it considers options for long-term reform. In 

the long term, do you believe the Universal Service Fund should support both 

wireline and wireless technologies? 

Answer. I believe the Universal Service Fund should be administered in a competitively and technologically neutral manner. All carriers, regardless of their chosen technology platform, should be eligible to receive support based on their own 

costs. 

Question 5. In the long term, do you believe that Universal Service funding should 

be available to more than one carrier in a geographic area? 

Answer. In many areas defined as high cost by the Commission’s rules, multiple 

service providers receive Universal Service support. Indeed, the recent runaway 

growth of the high-cost fund is largely a function of subsidizing multiple competitors 

to provide voice services in rural areas. I therefore question the wisdom of funding 

multiple carriers in high-cost areas in order to ensure the sustainability of the Fund 

to serve underserved areas. 

Question 6. In 1997, the FCC decided to add to the Universal Service principles 

created by Congress a new principle of ‘‘competitive neutrality.’’ Do you believe that 

the Joint Board recommendation is consistent with the principle of competitive neutrality? 

Answer. Yes. As discussed in the Recommended Decision, the Joint Board found 

that adopting an interim cap on high-cost support only for competitive ETCs would 

not violate the Commission’s Universal Service principle of competitive neutrality 

for several reasons: 

Fundamental differences exist between the regulatory treatment of competitive 

ETCs and incumbent LECs. For example, competitive ETCs, unlike incumbent 

LECs, have no equal access obligations. Competitive ETCs also are not subject 

to rate regulation. In addition, competitive ETCs may not have the same carrier 

of last resort obligations that incumbent LECs have. Furthermore, under the 

identical support rule, both incumbent rural LECs and competitive ETCs receive support based on the incumbent rural LECs’ costs. Therefore, incumbent 

rural LECs’ support is cost-based, while competitive ETCs’ support is not.1

The Joint Board further noted that incumbent LEC high-cost loop support is already capped and incumbent interstate access support has a targeted limit. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. BILL NELSON TO

HON. DEBORAH TAYLOR TATE

Question 1. The Communications Act, as amended, seems to indicate that distribution of USF funds should be on a competitively neutral and nondiscriminatory 

basis. Do you believe that the proposed interim cap—which only impacts competitive 

carriers—comports with Section 254 and other relevant sections of the Communications Act? 

Answer. Yes. As discussed in the Recommended Decision, the Joint Board found 

that adopting an interim cap on high-cost support only for competitive ETCs would 

not violate the Commission’s Universal Service principle of competitive neutrality 

for several reasons: 

Fundamental differences exist between the regulatory treatment of competitive 

ETCs and incumbent LECs. For example, competitive ETCs, unlike incumbent 

LECs, have no equal access obligations. Competitive ETCs also are not subject 

to rate regulation. In addition, competitive ETCs may not have the same carrier 

of last resort obligations that incumbent LECs have. Furthermore, under the 

identical support rule, both incumbent rural LECs and competitive ETCs receive support based on the incumbent rural LECs’ costs. Therefore, incumbent 

rural LECs’ support is cost-based, while competitive ETCs’ support is not.2

The Joint Board further noted that incumbent LEC high-cost loop support is already capped and incumbent interstate access support has a targeted limit. 

Question 2. The Joint Board recommendation indicates that the interim cap on 

support for competitive carriers should only last for a maximum of 18 months as 

104 

3 47 U.S.C. § 254(a)(2). 

the Joint Board and the FCC consider further USF reform efforts. However, the recommendation does not set a firm date for expiration of the cap. Would you favor 

a firm expiration date as a means of ensuring that the ‘‘interim cap’’ does not become a permanent solution—and that further reform efforts are kept on an expedited schedule? 

Answer. I do not believe that a firm expiration date is necessary. As the Recommended Decision and its companion Public Notice make clear, the Joint Board 

is committed to making further recommendations regarding comprehensive highcost Universal Service reform within 6 months of this Recommended Decision. I am 

committed, as the Federal Chair, to putting the Joint Board in a position to make 

those recommendations. Once the Joint Board issues a Recommended Decision to 

the FCC, the Commission is statutorily required to complete its proceedings responding to the Recommended Decision within 1 year.3

Question 3. If an interim cap is not adopted, would the USF contribution factor 

increase past its current rate of 11.7 percent? If so, how high do you think it would 

go by the second quarter of 2008? 

Answer. High-cost Universal Service support has been rapidly increasing over the 

past several years, caused primarily by growth in support for competitive ETCs. 

Competitive ETC high-cost distributions have been growing at a trend rate of 101 

percent-per-year since 2002. Specifically, in 2000, competitive ETCs received $1 million in support. According to USAC, competitive ETCs received almost $1 billion in 

2006. However, we do know, in absence of a cap, that high-cost distributions will 

continue to grow with the designation of additional competitive ETCs and line 

growth among existing competitive ETCs. Absent the imposition of a cap, it is very 

likely that high-cost support to competitive ETCs will continue to grow. It is difficult, however, to predict the effect this continued growth in competitive ETC highcost support would have on the contribution factor. The contribution factor is based 

on expected interstate telecommunications revenues and so the amount of revenues 

generated can affect the contribution factor. Additionally, the contribution factor is 

based not only on the support required for the high-cost fund, but support for the 

other Universal Service support mechanisms as well. These mechanisms are the 

schools and libraries, rural healthcare, and low-income programs. Additionally, 

other factors, such as prior period adjustments and changes in interest income due 

to interest rate changes, will affect the contribution factor in a given quarter. Given 

these other variables, we cannot make an accurate prediction of the contribution 

factor based on whether or not an interim cap on competitive ETC high-cost support 

is adopted. 

Question 4. In your testimony, you note that the Joint Board is committed to releasing a list of comprehensive reform recommendations by November 1. Can you 

give us an update on the specific measures you are pursuing? What sort of cost savings can we expect from these recommendations, if implemented? 

Answer. The Joint Board held a meeting on July 18, 2007 in New York City to 

discuss the comments and reply comments filed in response to the Joint Board Comprehensive Reform Public Notice. The discussion was spirited and wide-ranging, and 

addressed a variety of recommendations that have been placed before the Joint 

Board for our consideration. I look forward to continuing to work with my colleagues 

on the Joint Board to narrow the scope of our discussions and focus on specific 

measures toward the goal of Fund reform. 

I can not at this time estimate the cost savings that would result from the implementation of some or all of the recommendations currently under discussion. As 

stewards of public funds, however, our obligation to preserve and advance Universal 

Service mandates that we do all we can to achieve fundamental reform to ensure 

that affordable, quality services are available to consumers all across the country 

while ensuring the stability of the Fund itself. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. FRANK R. LAUTENBERG TO

HON. DEBORAH TAYLOR TATE

Question 1. New Jersey is the second-largest net donor to the Universal Service 

Fund in the country, contributing almost $200 million. Will the Joint Board’s proposed interim cap help to reduce this burden on New Jersey? 

Answer. I appreciate your comments regarding New Jersey. My home State of 

Tennessee is also a net donor state. High cost Universal Service support has been 

rapidly increasing over the past several years, caused primarily by growth in supVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00108 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
105 

4See Joint Board Auctions Public Notice, 21 FCC Rcd 9292 (2006). 5See Federal-State Joint Board on Universal Service to Hold En Banc Hearing on High-Cost 

Universal Service Support in Areas Served by Rural Carriers, WC Docket No. 05–337, Public 

Notice, 22 FCC Rcd 2545 (2007). Statements, slides and audio transcripts are available at 

http://www.fcc.gov/wcb/tapd/universallservice/JointBoard/welcome.html. 6Joint Board Comprehensive Reform Public Notice, FCC 07J–2 (Fed.-State Jt. Bd., rel. May 

1, 2007). 

port for competitive ETCs. Imposition of an interim cap on high-cost support provided to competitive ETCs pending fundamental reform will ensure that the Fund 

will be sustainable for future years. This action will prevent increases in high-cost 

support due to the designation of additional competitive ETCs or line growth among 

existing competitive ETCs. Although I would have preferred that the Joint Board 

make a recommendation with respect to fundamental reform, the cap will stop 

growth in competitive ETC support while the Joint Board and the Commission consider fundamental reforms to address issues related to the distribution of support. 

Question 2. What can be done to reduce the growth in the Universal Service Fund 

and lessen the burden on consumers in donor states? 

Answer. As we look to achieve the long-term goals of the Universal Service program, we must recognize how technological changes are putting strains on the mechanics of both our contribution and distribution systems. With respect to the contribution mechanism, I believe that a numbers-based contribution mechanism would 

help maintain the stability of the Fund by assessing all technologies used to make 

a phone call on a similar basis and would be competitively and technologically neutral. With respect to the distribution mechanism, I generally support proposals that 

allow carriers to receive support based on their own costs. In particular, I support 

the elimination of the identical support rule by which competitive Eligible Telecommunications Carriers (ETCs) receive support based on the incumbent’s costs, 

even if its costs are significantly lower. I further believe we should review whether 

the use of reverse auctions is an effective and competitively neutral way to determine high-cost Universal Service funding to ETCs. Implementation of such proposals would benefit consumers in both net donor and net recipient states. 

Question 3. Is the Joint Board considering the use of reverse auctions to distribute 

Universal Service funds? Would reverse auctions reduce the size of the Fund and 

help donor states like New Jersey? 

Answer. On August 11, 2006, the Joint Board issued a Public Notice seeking comment from interested parties on the use of auctions to determine Universal Service 

support.4 More than 50 parties filed comments and reply comments in fall 2006, responding to the Joint Board’s request for comment. On February 20, 2007, the Joint 

Board held an en banc hearing in Washington, D.C., where it heard, among other 

issues, from experts in support of, and in opposition to, the use of auctions to determine Universal Service support. 5 The Joint Board also issued a Public Notice on 

May 1, 2007 seeking comment on proposals for long-term, comprehensive reform of 

high-cost Universal Service support.6 Among the proposals on which the Joint Board 

sought comment is a proposal to use reverse auctions to distribute high-cost support. I further believe we should review whether the use of reverse auctions could 

provide a technologically and competitively neutral means of controlling Fund 

growth and ensuring that supported carriers utilize the most efficient technologies 

over time, which would benefit consumers in both net donor and net recipient 

states. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DANIEL K. INOUYE TO

ROGER NISHI

Question 1. The Joint Board characterizes its proposal for a cap on support for 

competitive carriers as interim, while it considers options for long-term reform. In 

the long term, do you believe the Universal Service Fund should support both 

wireline and wireless technologies? 

Answer. Yes. Both services are complimentary to each other and, in the long term, 

the Fund should support both wireline and wireless technologies. However, the support should be based on the carriers own costs and, therefore, the identical support 

rule should be eliminated. As Chairman of OPASTCO, I am on record in support 

of the Joint Board’s recommended interim cap on the competitive eligible telecommunications carrier (CETC) portion of the Fund. 

Question 2. In the long term, do you believe that Universal Service funding should 

be available to more than one carrier in a geographic area? 

106 

Answer. Yes. As stated above, both wireline and wireless technologies should be 

supported. Carriers receiving Universal Service Fund (USF) support should fulfill 

the goals of the 1996 Telecommunications Act by being accountable, efficient and 

by properly using the funds. 

Question 3. In 1997, the FCC decided to add to the Universal Service principles 

created by Congress a new principle of ‘‘competitive neutrality.’’ Do you believe that 

the Joint Board recommendation is consistent with the principle of competitive neutrality? 

Answer. Yes. The USF’s high-cost loop fund for wireline service has been capped 

for a number of years. As FCC Chairman Kevin Martin has illustrated, all of the 

current growth in the high-cost program has been in the CETC portion of the Fund 

while there has been no growth in the incumbent local exchange carrier (ILEC) portion of the Fund. The Joint Board’s current recommendation is to temporarily cap 

CETCs. The proposed interim cap is to slow the growth of the Fund while both Congress and the FCC enact comprehensive USF reforms. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. BILL NELSON TO

ROGER NISHI

Question 1. For those of you who do not support the interim cap, what other steps 

can we take to immediately control growth of the USF? 

Answer. As Chairman of OPASTCO, I am on record in support of the interim cap 

on CETCs. In addition, elimination of the identical support rule would substantially 

control the growth of the Fund. 

Question 2. The rapid recent growth in the Fund seems to indicate that we must 

do something—I’d like to hear your solutions. 

Answer. First, the FCC needs to quickly adopt the Joint Board’s recommendation 

to temporarily cap the CETC fund. Next, both Congress and the FCC need to move 

forward with long-term reforms such as eliminating the identical support rule, 

broadening the base of contributors to the Fund and strengthening the requirements 

for CETC designation. 

Question 3. Getting beyond the issue of an interim cap, what recommendations 

do you have for comprehensive Universal Service reform? 

Answer. Eliminate the identical support rule, broaden the base of contributors to 

the Fund and strengthen the requirements for CETC designation. 

Question 4. What savings do you think these suggestions would generate? 

Answer. The suggested reforms in the above answer would make the Fund more 

efficient, require greater accountability and provide for the proper use of the Fund 

as envisioned by the 1996 Telecommunications Act. However, if policymakers want 

to achieve ubiquitous broadband and mobility services, it is unreasonable to expect 

the size of the Fund to shrink. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. DANIEL K. INOUYE TO

JONATHAN D. FOXMAN

Question 1. The Joint Board characterizes its proposal for a cap on support for 

competitive carriers as interim, while it considers options for long-term reform. In 

the long term, do you believe the Universal Service Fund should support both 

wireline and wireless technologies? 

Answer. I believe Universal Service Fund support should not distinguish among 

technologies. The fund should support the designated services regardless of the technology (wireless vs. wireline), and regardless of category of service provider—whether the provider satisfying the ETC criteria is an incumbent or a competitive entrant. 

The purpose of the Fund is to provide rural communities with services and choices 

that are comparable to those available in urban communities. I believe what technology is utilized to deliver those services is incidental. In fact, it serves the public 

interest for government to be ‘‘color blind’’ with respect to technology. If a new technology can provide the same or better service or more services at a lower cost, then 

allowing it to be utilized, i.e., without the discrimination that would be implicit in 

unequally subsidizing a less efficient technology, will force one or both of the following beneficial outcomes of competition. Either the company that provides the 

more efficient technology will win customers and deliver to them a better service 

at a lower cost or incumbents will be forced to (a) improve the efficiency and capabilities of their businesses or (b) adopt the new technology and bring the same benefits to consumers. In either case, the consumer will benefit. For this reason, I beVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00110 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
107 

lieve the Universal Service Fund should support any technology—wireless, wireline, 

or whatever may develop in the future. 

Question 2. In the long term, do you believe that Universal Service funding should 

be available to more than one carrier in a geographic area? 

Answer. Yes. Competition is essential to delivery of high quality, affordable advanced communications services. The evidence is overwhelming. So much of our Nation’s economic system, regulations, and laws are based upon this principle of the 

benefits of competition. 

I feel very strongly that the public interest is served best when companies can 

compete freely to earn consumers’ business. The human mind and, therefore, all 

that it creates (including businesses) is driven by a complex system of responses to 

incentives and disincentives. There must be an incentive to providing the best service at the lowest cost and a disincentive to not doing so. Anything less cannot maximize the benefit to consumers and, therefore, does not serve the public interest. If 

only one carrier can access Universal Service funding support in a geographic area, 

then it will have little incentive to serve consumers’ needs adequately; and competitive entrants would be denied the ability or incentive to enter the market. There 

are no examples in our economic history when this has been a good thing. Therefore, I believe it is critical that Universal Service funding be available to more than 

one carrier in a geographic area. 

Question 3. In 1997, the FCC decided to add to the Universal Service principles 

created by Congress a new principle of ‘‘competitive neutrality.’’ Do you believe that 

the Joint Board recommendation is consistent with the principle of competitive neutrality? 

Answer. I do not believe that the Joint Board’s recommendation is at all consistent with the principle of competitive neutrality. It is inappropriate for regulators, rather than consumers, to distinguish among types of companies and, thereby, pick winners and losers in what is supposed to be a free market. 

Similarly, I do not believe that eliminating the so-called ‘‘identical support’’ rule 

would be consistent with the principle of competitive neutrality. If the government 

gives the incumbent ILEC $1 per line, then it should give the CETC $1 per line; 

that is competitive neutrality. If a cap were imposed and the ILEC received, for example, $1 per line while the CETC only received 75 cents for providing the same 

supported service to the same customers, that would blatantly violate competitive 

neutrality and would amount to improperly favoring one technology or type of competitor over another. Specifically, if you support the highest cost competitor in a 

marketplace with greater subsidization, are you not favoring them? Are you not accommodating their inefficiency and interfering with the workings of the free market? 

Furthermore, wireless is required and accountable to use the $1 to expand its net- work. If it happens that the wireless company can do more with that $1 per line, 

for example build two cell sites instead of one, then that is a good thing; it benefits 

consumers and avoids waste of public funds. Every penny of the dollar will be spent 

to further the public interest, as intended by Congress in the Telecommunications 

Act of 1996 and as mandated of the FCC in its formative statute. In fact, when the 

dollar goes to rural construction investment by the low-cost competitor, more of the 

dollar goes to serving the public interest than if the dollar were given to an incumbent ILEC, many of whom are guaranteed a very comfortable rate of return which 

they can send to their investors. If identical support results in pressure on the incumbent ILECs to maximize their efficiency or even to improve or change their technology, those improvements will benefit consumers. 

The benefits of identical support per line, regardless of how the level of support 

is determined, include resulting fairness, public service, and efficiency: (a) the government will have done its job of ensuring competitive neutrality, i.e., ‘‘I gave you 

each $1; I did not arbitrarily decide that one of you would receive that funding but 

not the other,’’ (b) the CETC will have done its job by investing that $1 in its network as required by law, benefiting the customer and again with clear accountability because of the detailed accountings required by state government, and (c) the 

marketplace will have done its job by then pressuring all competitors to be as efficient as possible, even to the point of evolving their businesses and technologies if 

necessary, to meet the needs of rural consumers. Perfect! 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. BILL NELSON TO

JONATHAN D. FOXMAN

Question 1. For those of you who do not support the interim cap, what other steps 

can we take to immediately control growth of the USF? 

108 

1Letter from Kevin J. Martin, Chairman, FCC, to Edward J. Markey, Chairman, Subcommittee on Telecommunications and the Internet, Committee on Energy and Commerce, U.S. 

House of Representatives (rel. May 14, 2007), at 1 (‘‘Martin Letter’’): 

Several factors contributed to the 2 percent increase of the contribution factor for the second 

quarter of 2007. The largest single factor was prior period adjustments that acted to reduce the 

Universal Service Fund’s revenue requirements in previous quarters. Specifically, these prior period adjustments arose from additional contributions made by AT&T and Verizon on past underreported revenue, and from a change in the amount of funds that the Universal Service Administrative Company held in reserve for bad debts. The absence of these prior period adjustments 

caused a 1.5 percent increase in the contributions factor. The remaining 0.5 percent of the increase was due to reductions in the funding base, increases in program demand, including for 

high-cost support. 2MTPSC Comments, In the Matter of High-Cost Universal Service Support, WC Docket No. 

05–337, CC Docket No. 96–45, at 4 n. 4 (June 6, 2007) (‘‘MTPSC Comments’’). That Commission 

noted: 

While the FUSF growth due to CETC designations has increased monotonically since year 

2000, the annual percentage rate of growth has at the same time nearly decreased 

monotonically. . . . [F]or the Joint Board to now predict a 90 percent plus annual percent 

growth rate for 2006 to 2007 is suspect. 

MTPSC Comments, at 4. 

3Proposed Fourth Quarter 2006 Universal Service Contribution Factor, CC Docket No. 96–45, 

DA 06–1812, FCC Public Notice (rel. Sept. 11, 2006); Proposed Second Quarter 2007 Universal 

Service Contribution Factor, CC Docket No. 96–45, DA 07–1330, FCC Public Notice (rel. Mar. 

15, 2007). 4 If concern over Fund size relates to carrier receipts, consider the fact that wireline carriers 

still receive an enormous share of Universal Service funding. In the State of Montana, in 2006, 

according to the Joint Board, incumbent wireline carriers received $69.7 million in funding, and 

competitive carriers such as wireless received $7.2 million in funding. See Federal-State Joint 

Board on Universal Service, Universal Service Monitoring Report, Table 7.2 (2006), attached 

hereto (‘‘Monitoring Report Attachment’’). Incumbent wireline carriers still receive more than 

three times as much funding as their wireless and wireline competitors, and in some states, they 

receive 100 percent of Universal Service funding. The FCC adopted a five-year transition period, 

which it has extended indefinitely, during which rural ILECs would not lose support when 

CETCs entered. See Federal-State Joint Board on Universal Service, Fourteenth Report and 

Order, Twenty-second Order on Reconsideration, and Further Notice of Proposed Rulemaking, 16 

FCC Rcd 11244, 11294–95 (2001). 5 Joint Board Member Billy Jack Gregg, in testimony before the Communications Subcommittee of this Committee, described legislative intent and expectations in 1996 as follows 

(emphasis supplied): 

Answer. As an important preface to my response, I urge you to reconsider whether there is truly a need to ‘‘immediately control growth of the USF.’’ Growth in the 

Fund is in fact not an imminent threat, and therefore does not need to be immediately controlled. In fact, while the Joint Board claims an ‘‘emergency’’ has arisen 

from recent growth, the Fund over the years has weathered significant growth rates 

without becoming ‘‘unsustainable.’’ Support to ILECs jumped from $1.7 billion in 

1999 to $3.1 billion in 2003, and continued to increase from 2003 to 2005. (Support 

to ILECs was growing during these periods even though ILEC line counts were decreasing.) Moreover, three-quarters of the 2.0 percent increase in the contribution 

factor from 9.7 percent to 11.7 percent from the first quarter to the second quarter 

of 2007 was as a result of true-up mechanisms within the program (1.5 percent of 

2.0 percent). Only one-tenth of the 2.0 percent increase resulted from increases in 

high-cost support. This calculation corresponds with FCC Chairman Martin’s letter 

responding to an inquiry from Representative Edward Markey.1 Moreover, the contribution factor decreased significantly (to 11.3 percent) in the third quarter of 2007. 

Even accepting, for the sake of argument, the Board’s unsupported projection that 

the Fund could increase by another $1 billion in the next year, that increase would 

add only 31 cents to the Federal Universal Service charge. As the Montana Public 

Service Commission recently stated, the annual percentage rate of growth in the 

Fund is trending toward decreasing, and ‘‘[t]he growth in the size of the FUSF that 

CETCs receive appears to behave like an ‘‘S-curve’’ (logistic).’’ 2

Furthermore, Universal Service Administrative Company (‘‘USAC’’) projections between the fourth quarter of 2006 and the second quarter of 2007 show high-cost 

support rising 3.9 percent.3 This is a much lower rate of growth than prior periods, 

suggesting that the growth rate is slowing. Moreover, these increases are largely a 

product of the fact that CETCs are new entrants who started with a baseline of zero 

support from the fund. As competitive entry has advanced, CETCs’ share of the 

Fund has increased correspondingly. 

However, increased payments to competitors were foreseen by the drafters of the 

1996 legislation.4 What legislators did not anticipate 5 was that after competitors enVerDate Nov 24 2008 10:14 May 07, 2012 Jkt 074012 PO 00000 Frm 00112 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\74012.TXT SCOM1 PsN: JACKIE
109 

It should not be surprising that funding for competitive ETCs has increased. After all, before 

the advent of competition incumbents received 100 percent of high-cost funding. It was expected 

that as competitors gained ETC status and won customers in high-cost areas, their high-cost 

funding would rise. What is surprising is that incumbent support has not dropped by an amount 

proportionate to the increase in competitive ETC funding. . . . 

Not only was the introduction of competition expected to lower prices of telecommunications 

services, it was supposed to lower the cost of Universal Service as providers competed for the 

Universal Service subsidy. 

Testimony of Billy Jack Gregg before Communications Subcommittee, Senate Commerce, 

Science and Transportation Committee, at 6–7 (March 1, 2007), referencing House Report No. 

104–204 (I) (1995), Arnold & Porter Legislative History P.L. 104–104 (A&P) at 60; Senate Report No. 104–23, A&P at 254 (1995). 6 In 2006, the FCC extended indefinitely the transition period during which rural ILECs would 

not lose support when they lost the customers/lines to whom that support had related. FederalState Joint Board on Universal Service, Order, 21 FCC Red 5514 (2006). 7MTPSC Comments, at 7. 

8 Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993—Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile 

Services, Eleventh Report, 21 FCC Rcd 10947 (2006), App. A, Table 10. 9 Id. 

tered rural markets, there would be a failure of regulatory will to concomitantly reduce funding to carriers who lost customers or used funds inefficiently.6 Certainly, 

Federal decisions in these matters cannot be universally popular with all industry 

participants—but consumers, not carriers, are the intended beneficiaries of Universal Service. As the Montana Public Service Commission noted recently,7

There is, however, need to consider the benefits of CETC designation, benefits 

that play out in terms of economic development, public interest benefits to consumers, and ultimately Universal Service. If the FCC is to have a balanced decision, it must not ignore Universal Service benefits to the exclusive focus on 

Fund size. 

Congress, enacting the 1996 Telecom Act, decided that rural consumers should 

have the access to advanced services such as wireless that are reasonably comparable in quality and price as their urban counterparts, from providers operating 

in competitive markets, governed by technology-neutral rules. In short, the growth 

of the Fund is not some unintended aberration; it is the direct result of a conscious 

and enlightened public policy. 

If some perceive that the Universal Service Fund is attracting too much demand, 

then we need to consider whether Universal Service funding should be equitably 

distributed to the carriers who can use it most efficiently, and whose services are 

most in demand. Any other result would injure citizens, who increasingly desire 

wireless service—particularly in rural areas, where wireless service is very useful 

for stranded people roadside, and where wireless carriers need Universal Service 

funding in order to fiscally justify extending their networks to serve additional 

areas. Unlike incumbent local exchange carriers, wireless carriers do not have a 

built-in, regulator-guaranteed rate of return. Moreover, we do not collect access 

charges, a solid revenue stream for wireline carriers. Accordingly, our business 

model depends upon making a solid business case, in terms of customer revenues, 

for every tower we must fund. If the customer revenues cannot justify the tower, 

then it cannot be built, pursuant to lenders’ and investors’ fiscally responsible requirements—unless another source of funding for that tower is available, such as 

Universal Service. If Universal Service funds are denied to wireless carriers, or diminished, many towers in rural areas, therefore, will not be built. 

Meaningful competition does not exist in rural areas where wireless carriers cannot, without support, provide consumers with a viable substitute for wireline service. This is supported by FCC data. Between 1995 and 2005, the average cost per 

minute for wireless service has dropped from 43 cents per minute to 7 cents per 

minute.8 Competitive forces have not only driven down prices, they have driven the 

average number of wireless minutes per month upward from 119 minutes to 740 

minutes over the same period.9 Accordingly, the price of telephone service for wireless consumers, who contribute more to the USF than any other class of consumers, 

has decreased dramatically thanks to competition, even including the increase in 

the contribution factor. The drafters of the 1996 Act were correct in believing in, 

and desiring to permit, the benefits of competition. 

Without receiving Universal Service funds comparable to those received by 

wireline carriers, wireless carriers cannot compete on an even footing with the USFreceiving LECs, and the benefits of true competition cannot reach rural areas. 

110 

10See note 1, supra, citing the letter wherein FCC Chairman Martin noted that most of the 

recent Fund growth stems from ‘‘prior period adjustments arose from additional contributions 

made by AT&T and Verizon on past under-reported revenue, and from a change in the amount 

of funds that the Universal Service Administrative Company held in reserve for bad debts.’’ Martin Letter (emphasis supplied). 11Wireline Competition Bureau Announces Carryover of Unused Funds for Funding Year 2007, 

(DA 07–2470) (released June 11, 2007) (pursuant to 47 C.F.R. § 54.507(a)(2), the Commission 

carried forward these unused schools and libraries funds to the 2007 funding year). 12 Alenco Communications, Inc. v. FCC, 201 F.3d 608, 615 & 621 (5th Cir. 2000). 

Nevertheless, if steps are to be taken in order to immediately control growth in 

the Fund, please see the response to the next question, below. 

Question 2. The rapid recent growth in the Fund seems to indicate that we must 

do something—I’d like to hear your solutions. 

Answer. First, as noted in the preceding response, growth in the Fund is nothing 

new or extraordinary, and most of the recent growth was not even caused by increases in the high-cost fund (relating to wireless carriers).10 In addition, on June 

11, 2007, the FCC’s Wireline Competition Bureau announced that it would release 

an additional $650 million in unused E-Rate funds from funding years 2001–2004.11

We support appropriate use of funds for schools and libraries. But this unexpected 

disbursement of $650 million in previously withheld funding—equivalent to nearly 

two-thirds of the total support granted to CETC carriers for the entire year of 

2006—raises questions about the basis for the contribution factor and the reasons 

for the wild fluctuations in the rate (from 9.7 percent in the first quarter, to 11.7 

percent during the second quarter, to 11.3 percent during the third quarter of 2007). 

Why was this enormous disbursement made if the Fund is in jeopardy? 

Moreover, the effect of Fund growth on consumer rates is, at least currently, we 

believe, offset by the fall in prices for wireless services, as discussed in detail in my 

written testimony submitted with this Committee. Accordingly, for all of the foregoing reasons, Joint Board and FCC concern over this growth is vastly overstated. 

Nevertheless, I offer here suggestions for legislative action. In summary, a long 

term plan should be developed and implemented, including portability of support 

and broad based contributions to the Fund, and recognizing the increasing importance of the broadband and mobility aspects of telecommunications services. The details are as follows. 

A. Make Support ‘‘Portable’’: If a Carrier Loses a Line, It Should Lose Support/ 

Funding for That Line 

We favor making support fully portable, in order that a carrier that wins a line 

wins the accompanying USF support. Many of the lines‘ for which local exchange 

carriers receive support were dug in and paid off many years ago; some are no 

longer even used to provide service. CETCs’ customers are increasingly shouldering 

the burden of funding the USF, and indeed will eventually be the primary contributors in some areas. Accordingly, it would be illogical to take from the customers of 

new entrants still paying for their initial infrastructure in order to give to the customers of the existing carriers with entrenched customer bases, USF incomes, access 

line incomes, and little if any new construction expenses. 

We believe the carrier that has the customer should receive the support for serving that customer. And logically, when a carrier loses a customer, the support 

should stop arriving. This approach was initially upheld by the Fifth Circuit Court 

of Appeals in the case of Alenco Communications, Inc. v. FCC: 

. . . [T]he [FCC’s Universal Service] order provides that the Universal Service 

subsidy be portable so that it moves with the customer, rather than stay with 

the incumbent LEC . . . The purpose of Universal Service is to benefit the customer, not the carrier. ‘‘Sufficient’’ funding of the customer’s right to adequate 

telephone service can be achieved regardless of which carrier ultimately receives 

the subsidy.12

Yet, inexplicably, this course was reversed by the FCC, and now, the cost of USF 

subsidies that are still being paid to wireline carriers for customers those carriers 

have lost (lines that were built long ago and paid for many times over) is over $300 

million per year. Wireless carriers, in contrast, lose support when we lose customers. The Senate can direct the FCC to reduce waste in the system by requiring 

that a carrier no longer serving a customer give up its claim to funds initially relating to that connection. We believe that a carrier that loses a customer should stop 

receiving support for that customer’s lines. 

111 

B. Broaden Base of Support 

In addition, we suggest broadening the basis of support in order that all providers 

of communications-based services, including broadband voice and information services, will be required to contribute to Universal Service. Specifically, we believe contributions should be supported by VoIP, broadband (wireline, cable, and wireless), 

and voice-grade mobile, ILECs, and CLECs. 

C. Recognize Increasing Importance of Broadband and Mobility 

Please see the response to the question below. 

Question 3. Getting beyond the issue of an interim cap, what recommendations 

do you have for comprehensive Universal Service reform? 

Answer. We suggest shifting away from the current funding structure, which is 

oriented to support legacy voice services, and instead focusing on support for the deployment and operation of broadband services and mobile wireless services, in highcost rural areas. This would recognize citizens’ increasing desires in rural areas for 

advanced broadband and mobile services similar to those available in urban areas, 

but that have not yet been fully deployed in many rural, high-cost areas. Broadband 

and mobility are the 21st century functionalities that consumers most intensely 

want and need. 

Accordingly, we believe it is logical to replace the existing system with one that 

targets funds, on a competitively and technologically neutral basis, to the broadband 

and mobile networks that should be built to satisfy consumers today—and that concomitantly draws equitable contributions from all telecommunications-based services, including all IP services. At the same time, the existing ‘‘legacy’’ funding mechanisms should be reformed and phased down, because the traditional 20th century 

voice services to which they are targeted are already fully deployed in most rural 

areas, and demand for those services is declining. Many of the carriers that deployed legacy voice systems would now like to deploy advanced broadband or mobile 

technologies, so this system should transition their fund receipts from legacy voice 

system funding to funding for the new, advanced technologies. 

Question 4. What savings do you think these suggestions would generate? 

Answer. We believe these suggestions will save sufficient funds to stabilize the 

Fund, and will generate benefits that far outweigh any costs. They will target the 

disbursed funds more efficiently, by creating incentives for all carriers to provide 

improved services, with funding based on a model of forward-looking costs of an efficient provider of services. These suggestions would focus disbursements so as to motivate efficient provision of the broadband and mobility services that modern citizens increasingly want, for critical public safety as well as business and personal 

communications, including in the rural areas this Fund was designed to serve. 

Æ