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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. John W. Stanton
INTRODUCTION Mr. Chairman and members of the Committee, I commend you and your colleagues for conducting this hearing to examine the critically important issue of the future of universal service. I especially appreciate this opportunity given to Western Wireless to address a subject - universal service -- that is not only of great interest to this committee, but also is a subject that runs to the core of the company I founded in 1994. Western Wireless provides wireless telecommunications services in 19 western states with a focus on serving the telecommunications needs of rural consumers. Over the years, wireless service has become essential to a growing number of Americans who are increasingly using wireless service for their basic and advanced telecommunications needs. In urban areas, wireless and wireline carriers compete with one another based upon their costs of providing service, which has resulted in intermodal competition to the benefit of consumers. In rural areas, however, wireline carriers have historically received an exclusive subsidy, called universal service, that has provided the incumbent local exchange carriers a decisive advantage over their only potential competitors -- wireless carriers. In 1996, Congress adopted sweeping changes to the telecommunications landscape by introducing competition into the local market, including the universal service market. Now, for the first time, many rural consumers are realizing the benefits of competition brought about by the Telecommunications Act of 1996 and the pro-competitive policies of the Federal Communications Commission. Coincidently, with competitive carriers' entry into the universal service market, incumbent local exchange carriers have cried foul, attempting to reverse the 1996 Act's pro-competitive promises for rural consumers and restore their monopoly power over the local market. Congress' vision for universal service, which I share, is that it is an evolving set of services based upon consumer preferences. In rural and urban areas alike, consumers increasingly prefer wireless service over wireline service for their communications needs. The FCC and state commissions have recognized this trend and have concluded that the public interest is served by designating wireless carriers as eligible for universal service support. So, instead of talking about competition brought about by the competitive local exchange carriers ("CLECs"), we find ourselves here today talking about one of the bigger successes of the 1996 Act and that is universal service and the fact that rural consumers are, for the first time, beginning to experience the benefits of a competitive local telecommunications market. In this testimony, I explain that: (i) wireless communications serves the needs of rural consumers; (ii) a competitive universal service system allows rural consumers to realize the benefits of a competitive market; and (iii) Congress should continue its oversight of the emerging competitive universal service market to ensure that rural consumers remain the primary beneficiary of efforts to reform the system. WIRELESS SERVES THE NEEDS OF RURAL CONSUMERS Western Wireless provides cellular telephone service in 19 western states, including on more than 85 Indian reservations and American Indian communities. The Company is the second largest wireless carrier in the country based upon geography served, covering approximately 25 percent of the continental U.S. with an average population density of approximately eleven people per square mile. Western Wireless serves many areas that do not have access to basic telephone service, much less advanced telecommunications services. Western Wireless has a long history of providing service to unserved and underserved consumers. In 1994, through a unique arrangement with the Nevada Public Utilities Commission and the incumbent local exchange carrier, Western Wireless began providing wireless local loop service to small businesses and residential consumers in a remote area of Nevada that did not have access to wireline local telephone service. In 1999, Western Wireless began offering wireless local loop service in Senator Dorgan's hometown of Regent, a community of less than 300 people, which was one of the first competitive local telephone service offerings in rural America, resulting in the availability of new and innovative services to consumers for the first time. In August 2000, Western Wireless took another step towards serving the telecommunications needs of consumers living in some of the more rural areas of the U.S. by entering into a historic agreement called Tate Woglaka (Talking Wind) with the Oglala Lakota Tribe on the Pine Ridge reservation, resulting in many tribal members having access to basic telephone service, including emergency 9-1-1 service, for the first time. And more recently, Western Wireless embarked upon an effort to more broadly bring the benefits of competition to the local telephone market in rural America. The centerpiece of this effort was the Company's petitions seeking designation as an Eligible Telecommunications Carrier (ETC) for purposes of universal service support. Today, Western Wireless is an ETC for purposes of universal service support in 14 states, plus the Pine Ridge Indian reservation in South Dakota, and has emerged as the preeminent competitive universal service provider in the United States. A COMPETITIVE UNIVERSAL SERVICE SYSTEM It has been a national policy since 1934 to make available to all Americans, regardless of the location of their residence, affordable telecommunications services. In too many cases, rural areas have been effectively excluded from the benefits of a competitive telecommunications market because incumbent local telephone companies have historically monopolized access to universal service support necessary to provide affordable telecommunications services in these rural, high-cost areas. The 1996 Act changed all of that and now, through a competitive universal service system, rural consumers are beginning to realize the benefits of competition. Many consumers are using mobile wireless service in lieu of wireline as their primary mode of communications. Wireless service has emerged as a fully robust competitor to traditional wireline telephone service. Survey results and other data reveal a strong willingness by a substantial number of consumers to substitute wireless service for wireline telephony. For example, a recent study by Ernst & Young and PriMetrica Research Survey confirms the growing displacement of primary lines by wireless service. The study surveyed 700 households and found that: · Close to one-half of households would drop their wireline service for a family share wireless plan with 600 shared base minutes offered at $50 per month. · Roughly one-third of US households would drop their wireline service for a family share wireless plan with 2000 shared base minutes offered at $130 per month. · Not surprisingly, households that currently have wireless service expressed a greater willingness to drop their wireline service than households that do not have any wireless service. Survey data focusing on consumers in rural areas shows similar results. Western Wats, an independent consultant, completed a survey in February 2003 that provides what may be the best, most current insight into the needs and preferences of rural consumers. The survey asked 1,000 rural residents within Western Wireless' territory about their use of wireless phones. The survey found that of the rural consumers who had wireless service: · 50% stated that their wireless phone has become more important to them, while their landline phone has become less important; · 51% said that wireless service has replaced some or a large percentage of their home landline service; · 48% reported that wireless service has replaced 90% or more of their landline long distance; · Nearly 25% reported that they consider their wireless phone to be their primary phone; and · Approximately 65% reported that they have friends or family members whom they contact primarily on their wireless phone. These surveys confirm that wireless service is essential to a growing number of Americans, many of whom are substituting wireless for wireline service. This fundamental change, which is occurring in rural areas, as well as in urban areas, reflects the "will" of consumers, which must be recognized by government policies that are competitively and technologically neutral. The universal service system as implemented by the FCC is a good example of a competitively and technologically neutral policy that has enabled rural consumers to realize the benefits of competition envisioned by the 1996 Act. Consumers will likely increasingly "cut the cord" implement services, like local number portability and enhanced 9-1-1 services, that further blur the lines between wireline and wireless service. To this end, Western Wireless is in the process of sending bona fide requests for number portability to many of the wireline and wireless carriers within its markets. Competition is the means by which rural consumers can obtain service reasonably comparable to those services provided in urban areas. Over the last few years, as competition has developed in the universal service market, it has become clear that competition preserves and advances universal service by: (1) Making service available in areas previously unserved by incumbent carriers. As many state commissions know, there are numerous areas within rural states where consumers do not have access to affordable landline service. On the Pine Ridge Indian reservation, Western Wireless' competitive universal service offering has made telephone service available to many tribal members for the first time, resulting in dramatic increases in telephone penetration rates. In Reese River Valley, Nevada, Western Wireless has provided telephone service for the last 10 years to residents not served by the landline carrier. In Montana, Western Wireless serves many rural consumers that do not have access to landline telephone service. All of these examples demonstrate how universal service is advanced by competition. (2) Providing new and innovative services that are reasonably comparable to those services provided in urban areas. Western Wireless' entry into the local telephone market has not only resulted in new and innovative services being available to rural consumers, but has also forced the incumbent carrier to offer better service. For example, in Regent, North Dakota, after Western Wireless entered the market and began offering new services previously unavailable, the incumbent carrier responded by offering an expanded local calling area, lower rates, and data services. (3) Facilitating access to advanced services. Many rural areas do not have access to advanced services and are unlikely to be served in the future by landline carriers due to wireline limitations. Competition provides the only hope to bridge this "digital divide." Recently, Western Wireless demonstrated the capabilities of wireless service to bridge the digital divide in the small rural town of Terry, Montana, where the Company deployed advanced high-speed digital technology with the capability to offer data speeds of up to 140 Kbps. a. The establishment of a competitive universal service market, and specifically Western Wireless' provision of universal service on the Pine Ridge Indian reservation, is also bridging the "digital divide" in rural America. In September 2003, Western Wireless introduced high-speed data services on the Pine Ridge Indian reservation through the implementation of next generation digital technology and the donation of 22 laptop computers capable of internet access at speeds up to 140 Kbps. Western Wireless' ability to provide advanced telecommunications services on the Pine Ridge Indian reservation and other rural areas are dependent upon high-quality network facilities in rural areas, which, in turn, is largely dependent upon the availability of universal service support. State Commissions and the FCC agree that a competitive universal service system benefits rural consumers. There is near unanimous agreement among policymakers that the public interest is served by a competitive universal service system. Specifically: · The Minnesota commission acknowledged that Congress and the Minnesota Legislature were "deeply committed to opening local markets to competition," but that it was responsible under Section 214(e)(2) to determine on a case-by-case basis whether some rural telephone company areas could not sustain or benefit from competition. The state commission first looked to whether Western Wireless' designation would benefit consumers in rural Minnesota, and determined that Western Wireless would bring reliability, high service quality, affordability, customer choice and new and innovative services. · The Kansas Commission stated that the clear and unmistakable public policy imperative from both the federal and state legislatures is that competition is a goal, even in rural areas. Arguments were made that competition is not in the public interest in any rural telephone company service area because it may jeopardize universal service. However, the commission concluded that no articulable facts had been presented to reach the broad conclusion that competition and universal service are never able to exist together in rural areas. The Commission did not accept the assertion that designating additional ETCs in rural areas will necessarily threaten universal service. The commission found that the benefits of competition and customer choice should be available to Kansans living in non-rural areas and that general concerns and speculation are not sufficient justification for adopting a policy that would result in benefits and services that are available to other Kansans not also being available to rural telephone customers. The Commission concluded that the rural telephone companies did not demonstrate any adverse impacts and that competition should not be withheld from customers in rural areas. · The Nebraska Commission concluded "the public interest requirement for designation of an ETC in rural areas is not meant as a protective barrier for rural telephone companies but rather as a method for ensuring that rural areas receive the same benefits from competition as their urban neighbors." · The South Dakota Commission found that Western Wireless' provision of "universal service throughout the study areas will be beneficial to the public." · The North Dakota Commission summed things up this way: "The Commission finds that designating Western as an additional ETC in the study area of each rural telephone company will advance universal service by bringing new telecommunications services to North Dakota consumers, by bringing competitive choice for universal services to residential customers, by offering a highly reliable and top quality universal service offering, and by providing cost effective means for customers in remote areas to acquire universal services." · The Texas Public Utilities Commission said in 2000, when designating Western Wireless as an ETC: "[T] he Commission is unwavering in its support of a simple proposition: Rural Texans are not second class citizens and should not be deprived of competitive alternatives or access to new technologies." CONGRESS SHOULD CONTINUE ITS OVERSIGHT OF THE EMERGING COMPETITIVE UNIVERSAL SERVICE MARKET. Congress and this Subcommittee in particular should continue its oversight over the development of a competitive universal service market to ensure that rural consumers continue to be the primary beneficiary of universal service policies. To this end, I suggest the following: 1. Create A Stable, Sustainable Universal Service Funding Mechanism By Ensuring Adequate Funds Are Available To Preserve And Advance Universal Service. Until universal service evolves to a market-based solution for providing telephone service to rural America, any support provided to rural areas must be distributed on an equitable, non-discriminatory basis to both incumbents and competitive carriers. Federal legislation may be necessary to provide the FCC with the authority to base universal service contributions upon a broad range of revenue sources to ensure a stable, sustainable universal service funding mechanism. At the same time, universal service support to carriers must be based upon the most efficient technology for providing service. 2. As Consumers' Telecommunications Needs Evolve, The Universal Service Policy of the U.S. Needs To Reflect Consumers' Increasing Reliance On Wireless Services. The focus of any universal service policy should be the consumer. Wireless service has emerged as a fully robust competitor to wireline telephony, resulting in many rural customers "cutting the cord" and other consumers using wireless as a substitute for wireline usage or additional lines. Competitive Eligible Telecommunications Carriers ("CETCs"), including wireless CETCs, use high cost support to serve unserved and underserved areas, thereby "advancing" universal service. 3. Universal service policies must be competitively-neutral. It has been a national policy since 1934 to make available to all Americans, regardless of the location of their residence, affordable telecommunications services. All too often, however, rural areas have been effectively excluded from the benefits of a competitive telecommunications market because incumbent local telephone companies have historically monopolized access to universal service support necessary to provide affordable telecommunications services in these rural, high-cost areas. Clearly, a competitive carrier that does not have access to universal service funds would not choose to enter the local market and compete with incumbent carriers who do have access to universal service support. CONCLUSION The competitive universal service system is working: rural consumers are gaining access to services previously reserved to their urban counterparts. Rural consumers today have begun to realize the vision of the 1996 Act's pro-competitive mandates, including those that apply to the universal service market. Wireless service provides the only real option for rural consumers to bridge the "geographic divide" and fully participate in our global economy. A competitive universal service market is a success because of the progressive thinking of Congress and pro-competitive policies of the FCC and state commissions. Congress should continue to oversee the development of universal service in the United States and take action, as necessary, to further develop the emerging competitive universal service market.
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