WASHINGTON-The Congressional Budget Office said that financing universal-service subsidies out of general revenues would have a lesser economic cost than the current system of cross subsidization.
“Funding universal service with general revenues would sever the current relationship between telecommunications industry revenues and universal-service funding,” reads a CBO report prepared at the request of the Senate Budget Committee. “Raising general revenues tends to distort consumers’ choices less than raising sector-specific taxes does.”
There is a concern that the universal-service fund could go bankrupt as long-distance revenues plummet. The universal-service fund is financed by interstate and international telecom revenues. One reason long-distance revenues are shrinking is that buckets of minutes, where consumers pay one price for local and long-distance, have become increasingly popular. Many consumers who have signed up for bucket plans from their mobile-phone carriers now use wireless for their long-distance calling rather than a long-distance provider.
Since in the mobile world it is often difficult to distinguish between in-state and out-of-state calls, wireless carriers generally use a safe-harbor percentage of all of their revenues-set at 28.5 percent-to determine how much they owe to the universal-service fund. Mobile-phone customers are charged a percentage of their bill to recover this assessment.
The CBO report examines the universal-service system in general and some options to reform the process, but makes no recommendations.
“The CBO paper examines recent trends in the financing sources that underlie universal service and analyzes options for change. In keeping with CBO’s mandate to provide objective, impartial analysis, this report makes no recommendations,” said CBO Director Douglas Holtz-Eakin.
Universal-service subsidies are one source of funding for rural carriers in addition to revenue from customers and intercarrier compensation.
On the topic of intercarrier compensation, the Organization for the Promotion and Advancement of Small Telecommunications Companies said that it was joining with the Rural Alliance in pressing its principles for intercarrier-compensation reform.
“Rural telecommunications advocates, whether they are associations or individual companies, need to come to agreement quickly on overarching intercarrier compensation and universal service principles,” said OPASTCO President John Rose.
Intercarrier compensation comes in two forms: access charges for long-distance calls and reciprocal compensation for local calls. Rural local exchange carriers rely heavily on access charges as a major revenue source. The other major source of revenue for RLECs is universal-service funding. The FCC is also considering changes to the universal-service system. It is unclear whether intercarrier compensation can be changed without changes to universal service and vice versa. Universal-service subsidies and access charges are under increasing pressure as telecom evolves from a circuit-switched wired world to one where calls are connected without wires and without switches, and the distinction between local and long-distance is shrinking.
State regulators have also indicated that changes to both the intercarrier-compensation regime and universal service are necessary. The National Association of Regulatory Utility Commissioners recently voted to tell the FCC that states should be allowed to opt in to any new system.
