ATSI Update: Federal Universal Service Fund

By Ray Shaw
April 2007

There are several pieces of federal legislation that could greatly affect the teleservice industry and about which we should all be vigilant.  The most pressing of these concerns is proposed legislation affecting the Federal Universal Service Fund (FUSF).

There is little doubt the FUSF will receive a major overhaul in the 110th Congress.  By the time you read this, Senate Bill 101 will likely have had its first hearing before the full Senate Committee on Commerce, Science and Transportation, and a new House bill is expected to be introduced by Representative Rick Boucher from Virginia and Representative Lee Terry of Nebraska.

Senate Bill 101 proposes that the contribution methodology to fund the FUSF be reformulated by the FCC to focus on some mix of a monthly assessment on telephone numbers (including DID numbers) and other forms of network addresses such as SIP or IP addresses.  This legislation will affect many industries across the nation, particularly those with multiple telephone numbers.  It is very likely to lead to a considerable shedding of unused phone numbers by companies everywhere.

The biggest fight in the 110th Congress over the FUSF is expected to center on capping the size of the fund, which has grown tenfold in recent years.  Furthermore, it is expected to expand at an increasing pace if Congress does not set limits that balance the legitimate need for rural broadband and telco supports with the increasing cost to urban and suburban ratepayers.

If Congress does not cap the federal USF and companies shed numbers to minimize their exposure to USF assessment recovery charges, the rate will increase well beyond the approximately $1.70 to $2.00 per number per month that is currently being mentioned.

The industry also has other taxes and assessments to consider.  The failed 2006 legislation in Washington (SB.2686) also authorized the creation of State Universal Service Funds.  This means that companies in some states can expect a per-DID number assessment authorized by state legislation in addition to a federally authorized charge on each telephone number.

The focus of the federal 2006 telecom bills was federally authorized nationwide video franchises to speed the entry of the telcos into video services delivered over broadband.  While this provision was lost when the 2006 bills died, AT&T and Verizon have succeeded in obtaining statewide video franchises from a dozen state legislatures and governors; both have said they will continue this initiative.  (They also received an FCC endorsement for a federal provision in late December, but this will not stop their state-by-state initiative.)

While video franchises are not an issue for most call centers, in many cases the telcos are leaving taxes and assessments off the agenda while trying to obtain state video franchises to streamline the decision-making.  (Texas and Virginia are notable exceptions -- both states adjusted telecom taxes within the last year, and Texas is already planning a revision of its state USF this year.) 

For this reason, it is widely expected that the telcos will come back to each state legislature in the following legislative session to request more changes to state telecom taxes and assessments.  It's in these sessions that we'll probably see proposals for new or revised state Universal Service Funds, as well as all kinds of creative attempts to broaden the existing base for telecom taxes and assessments. 

It is here that industry members should be most vigilant and cautious.  Our industry does not need the laundry list of taxes and assessments tacked onto our bills that telcos are now responsible for collecting.  Calculate the percentage of your monthly telecom expense that goes to taxes and assessments and imagine how your call center client base will react to a billing increase of that magnitude.  More importantly, contrast what you could do to grow and improve your business if you could raise your rates that much and invest the added revenue as you see fit.

Ray Shaw is president of ATSI (www.atsi.org), an international trade association for the teleservices industry.  Connections Magazine is pleased to serve as ATSI's official magazine.  Ray can be reached at rpshaw@bpeinc.com; Ray thanks Brian Gilmore and Charlene Glorieux for their input and assistance in writing this article.

Federal Universal Service Fund

A reorganization of the federal Universal Service Fund was authorized by Congress in the Telecommunications Act of 1996 Section 254(d) which reads in part:  "Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service.  A majority of the USF's spending goes to companies that provide voice telephone connections in areas where the cost of offering such service is higher than the nationwide average.  Smaller USF programs subsidize telephone service for qualified low-income people (urban or rural) and Internet and other advanced telecommunications services for schools, public libraries, and rural nonprofit health care providers."