Decades of the Universal Service Fund contributed to 98% of U.S. households having phone service. This includes 88% of low-income households. But that feat hasn’t come cheaply, especially with the addition of the costly E-rate program that connects schools and libraries to the Internet. During 1998-2005, the USF spent $37.8 billion, according to the National Regulatory Research Institute, which pegs fiscal 2006 USF outlays at $7.3 billion. In fiscal 2006, requests for school and library funding alone will total $3.55 billion to be disbursed among 39,416 applicants, the Universal Service Administration Co. reported (CD March 22 p11).

Incumbent telcos would be the clearest winners, and small providers of interconnected VoIP the biggest losers, if the FCC and Senate proceed as they have been on changes in the Universal Service Fund (USF), according to interviews with industry executives and analysts. Satellite would benefit by becoming eligible under a new fund for places unserved by broadband.

The VON Coalition urged the Commission not to go through with an interim plan to require VoIP providers to pay into the Universal Service Fund (USF) based on a percentage of their revenue (CD May 31 p1). The coalition said in a filing Wed. it was concerned the action, which is on the agenda for the June 21 open meeting, could delay broader reform of the USF contributions system. It said it supported FCC Chmn. Martin’s proposal to eventually move away from revenue as a basis for contributions and feared this interim plan, because it’s based on revenue, would stymie that move. The FCC in essence would be setting up an interim contributions process for VoIP providers and then turning around and setting up a 2nd one once full reform was accomplished, the coalition said. That would mean requiring 2 “fundamental shifts” in tracking and billing practices, the group said. The coalition also questioned whether adding VoIP providers to the pool would make up for contributions lost when DSL providers stop paying into the fund, which reportedly is one of the purposes of the interim plan. “The VON Coalition recommends that, instead of potentially putting the sustainability of the [USF] in jeopardy… the Commission should move promptly to adopt comprehensive reform measures.”

The House voted 321-101 to approve the House video bill, but voted down a controversial amendment on net neutrality. The bill would set video franchising rules for competitors to cable. ?This bill strikes the right bal-ance,? said House Commerce Committee Chmn. Barton (R-Tex.). The Senate will release a revised telecom bill in time for a hearing on Tues. where the net neutrality fight is expected to continue -- Senate Democrats have pro-posed language similar to what failed in the House. The House approved 6 amendments, including a Republican net neutrality measure that clarified that antidiscrimination complaints are subject to antitrust laws even though the FCC is the main arbiter. That amendment passed 353-68. ?This is a good solid followup to the 96 Telecom Act,? said House Financial Services Chmn. Oxley (R-Ohio). The financial services industry understands competition and choice, Oxley said, and consumers will benefit from the bill without the Markey amendment. Key Democrats argued strenuously against the bill. ?It?s a bad bill,? said Commerce Committee Ranking Member Dingell (R-Mich.) ?Consumers are going to see cities lose control over their streets and roads,? Dingell said. ?New and existing companies will be able to cherry pick customers and the rest of us will be left without competitive choice,? Dingell said: ?Mr. Chairman, If you want a bad piece of legislation, you are looking at it right here.? ?This bill is a failure,? said House Telecom Subcommittee Ranking Member Markey (D-Mass.), complain-ing that the Republicans disrespected the importance of the issue. ?They allowed 20 minutes of debate on net neu-trality, when the naming of a new post office gets as much as 40 minutes of time,? Markey said. ?This bill has been put together behind closed doors with the most powerful companies in America,? he said. Markey’s net neutrality amendment failed 152-269. ?It is a shame that the House turned its back on the es-sence of the Internet,? said Public Knowledge Pres. Gigi Sohn. ?Instead the House ignored the arguments of con-sumers, technology companies and interest groups from across the political spectrum.? The net neutrality debate was heated, with Markey railing against the bill?s failure to include protections he said were essential to maintain openness of the Internet. Republicans tried to craft a compromise with the Smith amendment. But the amendment didn?t go far enough to quell the fervor of pro-net neutrality forces: ?Mr. Smith?s amendment does absolutely nothing,? said Rep. Lofgren (D-Cal.). Markey?s net neutrality amendment would have imposed anti-discrimination requirements on network op-erators, with an expedited complaint process. It drew widespread support from key Democrats including House Minority Leader Pelosi (D-Cal.). But Barton and many other Republicans opposed it. ?I rise in the strongest possi-ble opposition? to the amendment, Barton said. Markey argued tirelessly for the net neutrality amendment, using every possible minute to warn members about the need to protect the openness of the Internet. He also said the overall video bill would allow phone companies to ?cherry pick? the best neighborhoods to deploy their new services. He was angry that the Rules Committee wouldn?t allow an anti-redlining amendment, which Markey said is necessary to ?protect people on the other side of town.? One Democrat didn?t buy his argument. ?I?m from the other side of town,? said Rep. Rush (D-Ill.). What these communities need is competition and lower prices, he said. He condemned members who?ve been spending time arguing about net neutrality. ?Network neutrality is the Trojan horse in this whole debate,? Rush said. Mem-bers making those arguments ?aren?t in favor of lowering cable costs for the people on the other side of town.? Barton, impatient with Markey?s anti-redlining arguments, mimicked his Boston accent when introducing Rep. Pickering (R-Miss.). ?He didn?t go to the great institution of Harvard, he went to Ole Miss,? Barton said. Later Barton said he?d listened with a ?great degree of respect? to Markey?s arguments and said he shared the same goals. ?We want to preserve the open access nature of the Internet,? Barton said. ?The underlying purpose of this bill? is to boost broadband deployment into homes and to offer new services. ?Mr. Markey?s amendment says you can?t charge for that,? Barton said, so the deployment wouldn?t happen. The House approved by voice vote Barton?s manager?s amendment that would clarify: (1) what constitutes a franchise area; (2) that a person or group seeking authority to provide service under a national franchise must comply with FCC consumer protection requirements; (3) that anyone with a national franchise is subject to all the cable operator provisions of the Communications Act?s Title VI except for those excepted in the bill; (4) that noth-ing in the legislation affects existing pole attachment law. The House approved an amendment offered by Rep. Johnson (D-Tex.) that would increase penalties on cable operators from $500,000 to $750,000 for denying access to residents based on income. ?Cable providers should not be let off the hook for failing to bring competition? to their communities, Johnson said. Barton said he supported the amendment. Barton also gave his support to an amendment the House approved, offered by Rep. Rush (D-Ill.), which outlined a complaint process to resolve fee disputes between local franchise authori-ties and a cable operator. Also approved was an amendment requiring VoIP providers to contribute to the Universal Service Fund (USF) when they interconnect with local exchange carrier networks. Sponsored by Rep. Gutknecht (R-N.M.), the amendment would require VoIP providers to compensate network owners for using their networks just as incumbent and competitive carriers are required to under current rules. Barton opposed the amendment be-cause he wants to reform USF, he said. The House approved Rep. Wynn (D-Md.)?s amendment which would allow a franchising authority to issue an order requiring compliance with FCC revised consumer protection rules. Rep. Jackson-Lee (D-Ill.) withdrew an amendment that would reduce from 1% to 0.5% the fee paid to local franchise authorities for public education changes by women-owned, small businesses and economically disadvantaged firms.

At our deadline, the House was expected to endorse a rule allowing a net neutrality amendment to the House video bill (HR-5252), which in turn was set for vote later Thurs. The amendment, by Rep. Markey (D-Mass.), would subject network operators to anti-bias rules and provide for expedited complaint review. It’s among 8 amendments the Rules Committee decided to accept late Wed. after a hearing on about 25 proposed changes to the bill.

At our deadline, the House was expected to endorse a rule allowing a net neutrality amendment to the House video bill (HR-5252), which in turn was set for vote later Thurs. The amendment, by Rep. Markey (D-Mass.), would subject network operators to anti-bias rules and provide for expedited complaint review. It’s among 8 amendments the Rules Committee decided to accept late Wed. after a hearing on about 25 proposed changes to the bill.

The FCC is poised to impose a mandate on VoIP providers that they pay into the Universal Service Fund (USF) and also may raise significantly the “safe harbor” for wireless carriers. FCC Chmn. Martin began to circulate a USF item last week, timed to the June 15 agenda meeting -- likely the first with new Comr. McDowell.

The FCC denied a Telco Group petition seeking exclusion of international revenue from the base used to calculate payments into the Telecom Relay Service Fund, or at least exclusion of Telco Group’s international revenue from its own contribution base. The FCC rejection of the requests said the TRS fund isn’t limited to supporting domestic relay service, but also is used to fund international relay calls. Telco had argued international revenue should be excluded because it’s excluded from contributions into the universal service fund. The FCC said that’s a different situation because USF money isn’t used for international service.

U.S. colleges could see a “staggering annual increase” in phone fees if the FCC moves to a numbers or connections system for collecting universal service fund contributions, the Keep USF Fair Coalition said Thurs. The group -- which has conducted a long-running campaign against the numbers approach proposed by FCC Chmn. Martin -- said colleges could see an increase of as much as $480 million, which could translate to phone service cuts and higher tuition. The coalition said a study shows that colleges could see their USF fees rise to an average of $82,999 from $8,971 now. The fees, paid by telecom carriers, usually are passed on to customers. Under a numbers approach, carriers would contribute to the USF by paying a per-phone number fee, probably around $1, rather than making contributions based on a percentage of revenue, as in the current system.

Rural telcos want a wider contribution base for the universal service fund, plus support for broadband deployment, according to Wed testimony before the House Subcommittee on Rural Enterprises. Groups lauded the approach in a bill (HR-5072) by Reps. Terry (R-Neb.) and Boucher (D-Va.) that would require all 2-way voice services to contribute, create a fund for broadband deployment in unserved areas and put a limit on the fund’s growth.