Further Notice on Contributions Seeks Efficiency, Fairness, Sustainability
With 555 question marks, the 182-page further notice of proposed rulemaking on contribution reform, released late Monday, contains as many questions as there are feet in the Washington Monument. Throughout the further notice, after posing several dozen questions, the commission pauses to ask whether certain proposals are consistent with its fundamental goal of being efficient, fair, and sustainable.
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"I think the large number of questions posed by the FCC itself is instructive,” said Jeff Silva, Medley Global Advisors analyst. “It tends to suggest the FCC has put a lot of thought into how contributions might be rebalanced without drawing any tentative conclusions at the outset. As such, the policy outcome appears far from pre-determined and thus the proceeding likely has a ways to go."
The further notice poses three broad ways to assess contributions: reforming the current revenue-based systems, which could include “value-added” revenue-based contributions from each telecom provider in a “service value chain”; a connections-based system; or a numbers-based system. “Nothing in the Act requires contributions to be based on revenues, and the Commission has explored a connections-based methodology in the past,” the notice said, asking whether a connections-based goal would be more efficient, sustainable and fair. In a connections-based system, providers would contribute a set amount per connection, regardless of revenue derived from that connection. The commission wants parties claiming significant costs or benefits of one system or another “to provide supporting analysis and facts for such assertions, including an explanation of how data were calculated and all underlying assumptions."
The commission sought specific comment on whether a connections-based methodology is consistent with the TOPUC decision of the 5th U.S. Circuit Court of Appeals, which said section 2(b) of the Communications Act prohibits the commission from assessing revenue associated with intrastate telecom service.
The commission last looked at a numbers-based methodology in 2008. A numbers methodology would assess a standard monthly amount per phone number, with potentially higher and lower tiers based on how the numbers are assigned or used. The commission posed several questions about the specifics of such a methodology, such as how it would work for numbers that are assigned but not operational, available but not assigned, or assigned but not working; and how it should treat family plan numbers, numbers provided to Lifeline subscribers, or Internet-based telecom relay services.
The further notice also looks extensively at requiring contributions from broadband Internet access services, and posits hypotheticals to try to determine exactly how assessment would work in practice. In interpreting the statutory requirement that a telecom transmission must be “between or among points specified by the user,” the further notice imagines a bookseller that sells an electronic reading device to a user, Ms. Smith, whose price includes a 3G wireless connection that lets the user connect to the bookseller’s servers at any time. “In this instance, should we consider Ms. Smith to be the ‘user’ of the service provided by Bookseller A? Alternatively, is Bookseller A the ‘user’ of the service provided by Carrier B? Under the former view, would Bookseller A be viewed as ‘providing telecommunications’ to Ms. Smith, and therefore a contributor on that service? Or should Carrier B be viewed as the entity that is providing telecommunications to Bookseller A, and therefore the contributor? What would be the potential effects in other regulatory contexts if the Commission were to interpret the term ‘user’ in a new way here?"
"The FCC appears to want to make the USF contributions methodology ‘future proof,’ which will be a daunting task indeed,” said Cassandra Heyne, analyst at JSI Capital Advisors. Heyne expects one of the most contentious issues to be whether services like text messaging, one-way VoIP, and broadband Internet access should be included in the contributions base. “Given the FCC’s ambitious plans for ubiquitous broadband for all Americans, it makes sense to expand the contributions base to include the popular services that customers are increasingly substituting for traditional voice service,” she said.
Silva wonders whether politics will enter into the equation if Internet-based companies that provide voice and data services are asked to contribute directly to the fund. “Would such an obligation be portrayed as an unlawful tax on the Internet that chills innovation, and prompt a high-profile backlash like we saw with the potent backlash against online piracy legislation in Congress? My sense is major telecom contributors to the fund want the FCC to seriously entertain the question of whether broadband IP-based services, including those that compete with telecom companies to varying degrees, should be brought into the fold.”