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Prepared Witness Testimony The House Committee on Energy and Commerce
The Future of Universal Service
Subcommittee on Telecommunications and the Internet
Mr. Glen F Post
Good afternoon. My name is Glen Post, and I am Chief Executive Officer and Chairman of the Board for CenturyTel. I appreciate the opportunity to appear before you today representing CenturyTel and the Independent Telephone and Telecommunications Alliance (ITTA). ITTA is an association of 13 mid-sized telecommunications companies who together serve more than 10 million lines in 40 states. CenturyTel is a national telecommunications company with headquarters in Monroe, Louisiana. We are a leading provider of telecommunications services in 22 states that include many of the states represented by members of this Subcommittee including Michigan, Louisiana, Texas, Ohio, Wyoming, New Mexico, Mississippi, Oregon, Missouri, and Tennessee. We specialize in providing high quality telephone, long distance, Internet, broadband and advanced services in rural and small urban markets. Today, CenturyTel is the eighth largest telephone company in the United States with 2.4 million access lines. Much of CenturyTel's recent growth has come from the acquisition of telephone lines from the larger Bell Operating Companies in multiple states. The majority of our 3 million customers and 7,000 employees live and work in the very areas that have the most critical stake in the issue we will discuss today. Many regulatory and technology changes have taken place since the Telecommuni-cations Act was passed in 1996. We want you to know that ITTA companies share common goals with the larger Bell Operating Companies as well as the smaller telephone companies to both maintain the incentive to continue investing in our markets and to see meaningful deregulation of our businesses. However, this hearing should not be about companies. It should be about consumers and the continuity of the network that keeps us all connected. It should be about the future and not the present. We empathize with the other providers that serve high cost markets and appreciate the challenges and concerns those markets pose from a service and investment standpoint. The nation's telecommunications future is at a crossroads. Evolving technology, competition, and converging network platforms are rapidly outpacing the existing regulatory mechanisms' ability to keep rates comparable and affordable for all consumers regardless of where they live. There are a number of proposed changes in telecommunications that could put the stability of rural telecommunications at risk. We commend Chairman Tauzin and Chairman Upton and the members of this Subcommittee for addressing these issues that are crucial to consumers in so many regions of our nation. I have been asked to provide you with a mid-size company perspective about our view of telecommunications and universal service as it relates to our customers and the markets we serve. Mid size companies understand that our business success depends on the long-term economic viability of our communities. In our view, affordable, modern telecommunications infrastructure and advanced services can make the difference between the site for a proposed industrial park remaining a field of weeds, or actually being considered as a promising location by a global manufacturing company. Businesses today look for areas where the telecommunications infrastructure has kept pace with technology and which provide the ability to communicate anywhere in the world. Universal service support plays a big role in this picture. As members of this Subcommittee know, agriculture has long been the leading economic driver for much of rural America. However, I would ask that you also consider telecommunications as a force that will create jobs, spur investment and allow all citizens to effectively connect with the rest of the Nation and the world. It would be fair to say that perhaps no other industry has the potential to more directly impact and improve the lives and livelihoods of your constituents than the telecommunications industry. However, for that potential to be fully realized, some bold changes must take place to provide much-needed stability. The one thing that has not changed since the passage of the Telecommunications Act is that rural and small urban markets remain unique in their demographics, service needs and cost-of-service characteristics. Universal service support, as envisioned by the Act, is still the telecommunications lynchpin for millions of consumers. These consumers have become increasingly sophisticated in the types and quality of services they need and expect. Thanks to the Universal Service system, our companies like CenturyTel have been able to ensure that rural America has not been left behind by the digital revolution. We believe that in a global economy, rural and small urban consumers not only deserve, but also truly need, reliable and affordable advanced telecommunications services to talk with loved ones, conduct business, be entertained and connect with the rest of the world. One of the challenges these customers and their phone providers face is the ability to keep basic and advanced services affordable and to overcome the challenges of distance associated with high cost markets. However, this premise and the system that supports it are under attack from a variety of fronts. The reason we are here today is to attempt to find reasonable solutions that will help to keep America's telecommunications system the model for the rest of the world. A vast and complex task awaits, but there is a need for sequencing and prioritization of the issues we face. To attempt to resolve all pending issues simultaneously prior to stabilizing universal service is to run the risk of failing from the outset. There is an undeniable need to address the full array of issues associated with telecommunications reform, and we support those initiatives and the need to move ahead as an industry. Our industry is in serious need of economic stabilization that can be brought about through deregulation and free market competition. However, the first and highest priority of the Congress must be to stabilize and strengthen the Telecommunication Act's universal service mandates which include: predictability, sustainability and sufficiency. Few issues more directly affect consumers, the economy, job creation or investment in the country's national security infrastructure than universal service. Whether we are talking about affordable services for everyone, national security, bridging the Digital Divide or successfully placing an emergency 911 call, universal service is the key component that affects our industry and customers. Stabilization of universal service must be viewed as the "base" upon which all other reforms are built. If meaningful universal service reform is not accomplished first, other needed reforms such as deregulation, intercarrier compensation and the future of broadband deployment are likely to be grounded on an unsure foundation and are likely to fail to deliver their full-intended benefits to the American consumer. Contribution Mechanisms Addressing the rapidly eroding USF contribution base is the critical first step in the process of shoring up the universal service system. Without ensuring a predictable, sustainable, and sufficient funding base, other reforms could end up being academic. Contributions to universal service funding should be based on revenues. A revenues-based assessment methodology is both competitively and technologically neutral. Assessing revenues instead of connections or numbers avoids imposing a regressive flat fee on low-volume consumers. A revenues-based system eliminates potential "gaming" that may be associated with connections or numbers-based approaches and also anticipates future changes in technology that may make connections-based approaches meaningless. All providers have revenues that may be fairly assessed on a non-discriminatory basis, which makes such an assessment competitively neutral among consumers. The FCC should be permitted to assess the broadest base of revenues possible, including intrastate revenues. However, this is only part of the solution. To provide true long-term sustainability, the base of contributors must be expanded beyond what may be considered the traditional or legacy providers of today. Consumers are rapidly adapting to a world in which they receive their telecommunications services, including voice service, from their Internet Service Provider such as AOL or their cable modem provider, neither of which are currently subject to assessment. If Congress is going to effectively deal with the crisis looming over universal service and not simply postpone the day of reckoning, it must consider expanding the contribution base to all providers that currently rely on the telecommunications network. Anything less perpetuates rather than resolves the underlying problem. Ultimately, the expansion of universal service contribution mechanisms must be a progressive process with the goal of achieving long-term sustainability that is immune to technological change. The FCC is considering basing its assessment on other metrics beside revenues. Some carriers who would advocate the use of telephone numbers as an assessment mechanism are, ironically, companies that do not have a telephone number link with customers, and would consequently be mostly immune from such an approach. Additionally, telephone numbers are not able to capture new technologies that provide voice service such as Voice Over Internet Protocol (VOIP) or even Instant Messaging services that are so prevalent today. Furthermore, the VOIP industry currently works with traditional telephone numbers and without them. A telephone number-based approach would skew the VOIP industry toward a non-numbers based approach. Congress and the FCC must make sure that any new contribution mechanism is capable of keeping pace with technology by assessing the broadest base of providers possible. Disbursement of Universal Service Funding The rapid escalation in the number of Competitive Eligible Telecommunications Carriers (CETC's) raises critical issues for the customers of ITTA members. Present rules for ETC designation are being interpreted in widely different fashions by state public service commissions and are often not consistent with the intent of the Act. We are concerned that present rules allow carriers to offer different levels of service commitment to customers even though they are receiving the same level of support. This anomaly in universal service portability requirements places an ever-increasing pressure on universal service funding that directly or indirectly affects all American phone users. Appropriate standards for the ETC designation process must be instituted and enforced. Unchecked distribution of universal service support threatens consumers and carriers alike. Currently, designations are often based on inconsistent or non-existent criteria. Minimum uniform, technologically neutral national criteria for state review of applications would do much to rationalize a chaotic, unpredictable process that ultimately does not serve the consumer's interest. Any such standards would also require some provision for enforcement, both at the federal and state levels, if they are not to be rendered meaningless from the outset. Caps on Universal Service Funding Reform of the contribution mechanism and disbursement procedures, while necessary first steps, are nonetheless insufficient by themselves to cure the ailing universal service system. Current caps on universal service funds have a direct and negative correlation to advancing the universal service and advanced services deployment goals of the Act. Existing caps are fundamentally in conflict with the broad universal service mandates laid down in the 1996 Act. They are also a disservice to rural consumers and an impediment to the delivery of advanced services to all consumers. Carriers, competitors and consumers alike will benefit from removing existing fund caps. The growth of the fund is controlled today by arbitrarily capping the funds without regard to the impact on consumers. This is not the answer. In rural areas, significant investment is still needed. Intercarrier Compensation Reform Could threaten Universal Service Carriers that use our networks should continue to pay fair compensation to use those networks. Access charges that long distance companies pay to compensate local phone companies have been reduced and the balance of that money has been shifted into universal service funding. Further access charge reductions will only put more pressure on the funds. Increasing downward pressure on access rates becomes a problem, particularly for the customers of companies operating in high cost rural areas. Zeroing out carrier access charges will mean that the customer ultimately pays an increased price to subsidize the stockholders of long distance companies. Recommendations to Address Universal Service Issues There are no easy answers to solving all of the issues associated with universal service or telecommunications reform. However, there are a combination of actions that need to occur to protect consumers. First, all telecommunications service providers, regardless of their network platform, should be required to pay into the universal service fund. This includes cable, all broadband providers of any kind, Internet Service Providers (ISPs), all wireless devices, long distance and local exchange companies. Second, states that approve additional ETC's should be required to help with the funding. Third, CETC portability rules need to be changed to reflect reality. Today, CETC's are drawing the same support as the incumbent phone provider based on the ILEC's cost. This is putting increased pressure on the fund. They should have more stringent certification standards than they have today. The FCC should establish minimum criteria that individual state commissions can use in assessing eligibility. CETC's should be required to serve an entire rural study area-something they are not being held accountable for today. Regulatory oversight should ensure that funds are being used to serve consumers in high cost areas for all recipients of support. Finally, CenturyTel believes portability requirements should be modified to recognize that many of today's USF dollars are actually access charges formerly paid by long distance companies-these dollars should not be portable to competitors. Conclusion Ultimately, consumers must not be overlooked in the process of achieving telecommunications reform. Consumers have seen a steady increase in their local phone bills due to a variety of end-user charges that have been systematically applied since the passage of the Act. Consumers also face shouldering the burden of pending proposals that would eliminate carrier-to-carrier revenues, such as access charges, and replace them with higher customer charges such as local rates and subscriber line charges. Congress should make sure that rural consumers do not bear a disproportionate rate burden that would place advanced services out of the financial reach of most Americans or add additional pressure to universal service funds. This Committee and the Congress have a great opportunity before them to initiate legislative changes and provide meaningful direction to the FCC that will offer much-needed positive signals to the telecom sector of our economy. Telecommunications has the potential to create jobs, spur investment and provide economic stability to literally every state and to every section of the country. We must remember that our nation's telecommunications system did not happen by accident. There has been, and should always be, a strong commitment to building and maintaining evolving networks that connect all of our citizens in rural and urban areas to each other and the rest of the world.
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