Results tagged “Contribution Factor”

March 9, 2010 5:21 PM

Rust Never Sleeps . . .

"Another flaw in the human character is that everybody wants to build and nobody wants to do maintenance."  Kurt Vonnegut, Hocus Pocus, 1990.

With respect to the Hocus Pocus quote above, the late Kurt Vonnegut could just have easily said the same thing about what humans want to read and write about.  No one wants to read about maintenance, but everyone wants to read about big events and big plans [like Mike Shanahan coming to town, or the National Broadband Plan].  Maintenance is only interesting when it doesn't get done, and the failure to do maintenance causes something bad to happen. 

As a result of this quirk of human nature, when it comes to speculation/predictions/pontification on the National Broadband Plan, the Plan is the thing.  The maintenance on the rusting-for-too-long Universal Service Fund and the related intercarrier compensation system are afterthoughts, and haven't received a ton of attention among FCC watchers, and reporters.  The shame is that the FCC's publicly-stated intent to do this maintenance is a REALLY BIG DEAL. 

To my mind, the Commission deserves more credit for tackling the maintenance (if this is, in fact part of the Plan) than any--forgive the characterization--"pie in the sky" plans. Why, you may ask?  Because--to me--these are the boring-but-thankless (not to mention impossibly complex and politically contentious) chores that the Commission must succeed in addressing as a predicate to creating a regulatory climate that will stimulate investment by carriers (regardless of technology), customers, content, and applications service providers. 

Moreover, this Commission can really clear away a lot of rust in the next two years, and the rest will take care of itself.  Any part of the plan that can be accomplished, in a self-executing way, by mid-2013 is realistic, parts that become effective by 2017 extend into the "optimistic", but still possible.  Anything that's supposed to happen past 2017 should probably be taken out of the Broadband Plan, and put into a special "Broadband Prophecy" section, and phrased in Nostradamus-style quatrains.

Back to the point, though, let's look at one really overlooked area of "rust removal"--Universal Service Contribution Reform--and see why it's so important to a plan designed to increase broadband deployment.

The "Broadband Gap" Will Only Widen Without USF Contribution Reform.  I've heard some pretty reliable sources speculate that the "Contribution Factor" (the percent of the interstate telecom services revenue that consumers must pay to the Fund) for the second quarter will exceed 15%.  This number should be announced this week or next week (I would guess the night of Friday, the 12th).  If true, this would represent an almost 40% increase over last year's second quarter figure of 11.3%.  Moreover, at the current rate of increase, it would not be surprising to see the factor approach 20% by the end of the year. What does this mean? 

Well, let's say you want a "bundled" local/long-distance plan with unlimited long-distance calling.  You live in a big-city suburb, and you want to use a facilities-based competitor to the incumbent LEC.  Here is a typical price schedule for "phone only" for the VA suburbs of DC.  Thus, a 15% contribution factor means that the customer is paying an additional $54 to $72 per year (depending on whether the customer commits to a 1 year contract) over and above the charges it pays to the carrier.  Either way, the telephone service customer is paying well over $400/ year simply for phone service.

On the other hand, if the customer had access to broadband, the customer could purchase the lowest speed broadband service for only a little more, and then pay about $20 per year for VoIP service using magicJack®.  If the broadband customer has no privacy concerns, they could get service for next to nothing with Google Voice. 

Nonetheless, according to the Commission, those customers that are least likely to purchase broadband will continue to be subject to increasing monthly costs for basic telephone service.  These customers are those least likely to buy broadband--the poor, the elderly, and the uneducated. (See, p. 82).

It's difficult to conceptualize that the lack of doing USF "maintenance" on the contribution side--to take account of the many, relatively affluent, customers that have already adopted broadband service--can act as a regressive "tax" on those least capable of shouldering this burden.  Yet, increasingly, without contribution reform (without "maintenance") this is what those buying POTS ("plain old telephone service") every month are facing. 

Contribution reform can be completely accomplished within Chairman Genachowski's tenure, and, if he plans it and follows through, it will be one of the most successful, and (probably) most under-appreciated, things he can do as a Chairman.  If contribution reform is announced as part of the plan--and part of the plan that gets implemented most quickly--the Chairman and the Commission staff deserve a lot more gratitude than they will get in the popular press.  But, if it helps, I'll grant permission to "crack open a cold Bud Light" to the righteous razors of rust . . . . 

June 19, 2009 3:32 PM

Are You There Gov? It's Me, USF Contributor (a/k/a "Taxpayer")

[Disclosure Note:  As I've mentioned previously, AT&T is a client of mine, and they share my views (and those of every other rational observer) on the urgent need for universal service reform--both on the contribution and distribution sides.  Unfortunately, for you (the reader), Bob Quinn (of AT&T) already came out with a quick, clever, and succinct statement on the health of the USF earlier in the week when he pronounced that the Fund was in a "death spiral"--meaning that the Fund's precarious status of quickly losing contributors would exacerbate the "per customer" pain caused by the fact that the Fund continues to grow on the distribution side, and so on, and so on . . . .  Regretably, for the reader, I dithered with a contribution factor post, and then opted for the relatively repetitious "fact, fact, fact" format.  Hang in there, though, it's got a great ending;-)]
Fact: Earlier this week, the FCC announced that the "contribution factor" for the federal Universal Service Fund (a federally-created subsidy pool designed to support telecommunications services to high-cost areas, low-income consumers, schools and libraries, and rural health care facilities), will reach an all-time high of almost 13% for the third quarter.  This means that the FCC has authorized telecom providers to add a surcharge to the phone bills of most Americans amounting to about 13% of the interstate telecommunications portion of their wireless or wireline services bill.  The surcharge is up from about 10% in the first quarter of this year.

Fact: The Universal Service Fund, in the past year alone, disbursed as much money as the total dollar amount of funds appropriated under the "broadband stimulus" provisions of the American Recovery and Reinvestment Act--about $7.2 billion.

Fact:  In a report to Congress earlier this month, the FCC listed the top ten highest per-line USF beneficiaries.  It's an interesting read, notable for two facts that seem counterintuitive.  First, in all but two cases (where year over year data were available), the highest per line recipients either retained or increased the number of access lines served, while subsidies per line also increased.  In other words, the subsidy trends tend to buck commonly-accepted notions of telecommunications being a high fixed-cost, low variable cost industry.  Thus, as line counts increase, one would intuitively expect the necessary subsidies per line to decrease, not increase.

Second, the highest per line subsidy recipients were generally located in service territories surrounded by large LECs (maybe "high cost" but "non-rural") that managed to provide service to what would appear to be similarly-situated territories, but at drastically lower per line subsidy contributions.

The report noted that one rural carrier received almost $17,000 per access line in 2008. House Energy and Commerce Committee Ranking Member, Congressman Joe Barton (R-TX) reacted with this statement:  "It is unreasonable to expect subscribers to pay more than 11 percent of their long-distance phone bills to subsidize scores of telephone providers in each geographic market, especially when other providers are serving the same markets without a penny of support."  Congressman Barton said this before he knew the contribution factor would be well above 11%.


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