20080829Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
CO MMISSI 0 NER SMITH
CO MMISSI 0 NER KEMPTON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 29, 2008
RE:2008 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS.
BACKGROUND
The Idaho Universal Service Fund (IUSF) rules were adopted under the general legal
authority of the Telecommunications Act of 1988, Chapter 6, Title 62, Idaho Code, and the
specific authority of Section 62-610, Idaho Code. The Commission established a universal
service fund for the purpose of maintaining the universal availability of local exchange service at
reasonable rates and to promote the availability of message telecommunications service (MTS) at
reasonably comparable rates throughout the state of Idaho. The IUSF is funded through a
statewide end user surcharge on local exchange services and intrastate MTS and Wide Area
Telephone Service (W A TS) type services. The IUSF Administrator, Ms. Anderson, submits an
annual report to the Commission that details the program activities of the previous year and
provides recommended surcharge rates to meet the next year s funding requirements.
THE 2008 ANNUAL REPORT
On July 18 2008, Alyson Anderson, the Administrator of the Idaho Universal Service
Fund (IUSF), filed her Annual Report to the Commission for the period of July 1 , 2007 through
June 30, 2008. Included in the report was the proposed IUSF 2008-2009 Administrative Budget.
Staff has reviewed the calculations, supporting documentation, and recommendations contained
in the Administrator s Annual Report.
DECISION MEMORANDUM AUGUST 29, 2008
The current IUSF monthly surcharge rates are $.10 per residential line
, $.
19 per business
line, and $.003 per intrastate MTS/WTS billed minute. Ms. Anderson reports surcharge revenue
for the year in the amount of $2 038 774. Local exchange services contributed $1 146 457
(56%) and $892 318 (44%) was contributed by MTS/WATS services. This is a decrease in local
exchange surcharge revenue of approximately $37 000 (from $1 183 242 in 2007) and a decrease
in MTS/W A TS surcharge revenue of approximately $89 000 (from $980 877 in 2007).
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
remained unchanged for a total of$I 943 523 as of June 30 , 2008. The ending cash balance
after applying bank charges, administrative expenses, and interest received, was $514 211 on
June 30, 2008. For the next year, beginning July 1 2008, annual disbursements are expected to
remain the same, assuming no changes are made to the IUSF draw.
2008-2009 Administrative Budget
Ms. Anderson proposes an annual administrative budget of $25 500. This amount
includes the Administrator s salary, other administrative expenses such as office supplies and
audit and legal fees. This year s budget is $200 less than the previous year.
Local Service
As of May 1 , 2008 , companies reported an inventory of 418 844 residential lines and
232 536 business lines, for a total of 651 ,380 lines. This is a net decrease in lines of
approximately 2 400 (.37%) with residential lines decreasing by nearly 9% and business lines
increasing by almost 19% from the prior year.
The newly calculated statewide weighted average rates and threshold average rates are:
Business Services
2007 Current 2008 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
A vera~e Rate A vera~e Rate Rate - 2007 Rate - 2008
$17.$19.47 $22.$24.
$31.$32.$39.$41.19
Residential
DECISION MEMORANDUM AUGUST 29, 2008
The increase in the weighted average rate for residential lines is largely due to the
residential line increases imposed by Qwest and Verizon in 2007. These two companies make
up a combined inventory ofalmost 84% of the total residential lines in Idaho.
Switched Access Service
Long distance service providers reported intrastate MTS/W ATS total billed minutes of
313,436 250 compared to the 2007 reported minutes of304 175 225 , a 3% increase. The
statewide average switched access rate decreased slightly from last year s $0.047 to a 2008
average of$0.0476.
Funding Adjustments Review
For a company to be eligible to receive IUSF funding pursuant to Rule 106, IDAP A
31.46.01.106, a company s average one-party, single-line rate must be revised to equal or exceed
the 125% threshold line rate, if the difference in the company s current average rate and the
statewide average threshold rate is greater than three percent (3%). The eight companies who
receive IUSF support all have an average residential rate difference ofless than .9 percent (.9%)
and therefore, do not need to adjust the residential line rates to continue to be eligible to receive
IUSF funding.
Ms. Anderson reviewed the residential, business, and access rates of the recipient ILEC
companies in accordance with Rule 106. Of the eight companies receiving IUSF funding, the
Administrator recommends, and Staff agrees, that no adjustments to residential or business rates
are necessary at this time. Ms. Anderson does, however, recommend an access rate adjustment
for one company.
ADMINISTRATOR'S OPTIONS
The Administrator presented four funding options to meet the proj ected annual
disbursements and expenses for the coming year. These options are as follows:
Option 1: Status Quo - Ms. Anderson comments that if current surcharge levels are
maintained and the disbursements remain the same, the fund balance will be an estimated
$560 823 on June 30, 2009. Surcharge revenue contribution would be approximately 52% from
MTS/W A TS services and 48% from local exchange services.
DECISION MEMORANDUM AUGUST 29, 2008
Option 2: Adjust Funding to Meet Statewide Averages and Maintain Surcharge Rates
With this option, Ms. Anderson proposes to maintain the current surcharges rates. Ms. Anderson
applies Rule 106 to the following companies that currently draw from the IUSF:
A TC Communications' local rates are essentially at 125% of the statewide average rates
and do not need to be adjusted, but could reduce switched access rates and increase the
IUSF draw by $6 636.
Cambridge Telephone Company s local rates are essentially at 125% of the statewide
average rates and do not need to be adjusted and the access rate does not need to be
adjusted.
Direct Communications Rockland's local rates are essentially at 125% of the statewide
average rates and do not need to be adjusted and the access rate does not need to be
adjusted.
Fremont Telecom s local rates are essentially at 125% of the statewide average rates and
do not need to be adjusted and the access rate does not need to be adjusted.
Inland Telephone Company s local rates are essentially at 125% ofthe statewide average
rates and do not need to be adjusted and the access rate does not need to be adjusted.
Midvale Telephone Company s local rates are essentially at 125% of the statewide
average rates and do not need to be adjusted and the access rate does not need to be
adjusted.
Rural Telephone Company s local rates are essentially at 125% ofthe statewide average
rates and do not need to be adjusted and the access rate does not need to be adjusted.
Silver Star Telecom s local rates are essentially at 125% of the statewide average rates
and do not need to be adjusted and the access rate does not need to be adjusted.
Under this proposal, Ms. Anderson projects the IUSF disbursements would increase to
975 859 from $1 943 523 and the fund balance on June 30, 2009 would be approximately
$554 187. With this option, MTS/WATS services would contribute 52% of the total surcharge
revenue and local exchange services contribution would be 48%.
Option 3: Decrease Surcharge Rates and Maintain Funding Levels - In this scenario, Ms.
Anderson considers decreasing the surcharges to $.17 per business line, and maintaining the
residential surcharge rate at $.10 per line and $.003 per intrastate MTS/W A TS minute. This
would result in a fund balance of approximately $505 015 on June 30 , 2009. MTS/WATS
DECISION MEMORANDUM AUGUST 29, 2008
service would contribute 50% of the surcharge revenue and local exchange services would
contribute 50%.
Option 4: Adjust Funding Levels Per Rule 106 and Decrease Surcharge Rates - In this
discussion, Ms. Anderson proposes maintaining the current rates for residential line at $.10 per
line and MTS/W ATS at $.003 per billed minute, and decrease the business surcharge rate to $.
per line. In addition, she recommends a decrease in the access rate for A TC Communications
with a corresponding increase in the IUSF funding by an estimated $6 636. As a result, the fund
balance would be approximately $554 187 on June 30, 2009. MTS/W ATS service would
contribute 50% of the surcharge revenue and local exchange services would contribute 50%.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends that the Commission adopt Option 2, decreasing the access
rates and increasing the IUSF funding for Albion Telephone Company (ATC). In addition
Option 2 maintains the current surcharge rates of $.003 per MTS/W ATS billed minute
, $.
10 per
residential line, and $.19 per business line. Maintaining the current surcharge rates and adjusting
ATC's funding would provide for an adequate fund balance of approximately $526,455.
STAFF ANALYSIS AND RECOMMENDATION
The surcharge rates for residential and business lines and for the MTS/W A TS billed
minutes were reduced in 2007. Ms Anderson assumes the line count will be relatively stable
during the next year, and if the surcharge rates remain unchanged, the fund balance will grow to
an excessive amount by the end of June 2009. She suggests that the surcharge rates should be
adjusted downward. Staff supports the Administrator s recommendation to reduce the business
surcharge rate as outlined in both Option 3 and Option 4. Staff, however, does not believe the
slight adjustment to ATe's access rate and the corresponding increase to the IUSF distribution
are warranted at this time. Intrastate MTS/W A TS usage has fluctuated up and down over the
past years and it is difficult to discern whether these fluctuations are a result of changes in
consumer calling patterns or anomalies in company reporting. Likewise, it is difficult to
determine the amount of adjustment a company must make to the access rate for that company to
stay at or below the IUSF threshold of the 100% statewide weighted average rate for
MTS/WATS.
DECISION MEMORANDUM AUGUST 29 , 2008
No significant changes are anticipated in the coming year that may substantially impact
the IUSF fund. Assuming all factors will remain relatively stable, Staff recommends adopting
Option 3, which decreases the business surcharge rate to $.17 per line, maintains the current
residential line rate and MTS/W A TS billed minute rate, and maintains the current IUSF
company disbursements. This option would provide a reasonable 3-month reserve balance of
approximately $477 283 on June 30, 2009.
COMMISSION DECISION
Does the Commission wish to approve the IUSF 2008-2009 budget?
Does the Commission wish to adopt the Administrator s recommended Option 4?
Does the Commission wish to approve a switched access rate decrease for A
Communications to the statewide threshold level and increase the corresponding IUSF
contribution?
Does the Commission wish to approve Staffs recommendation to adopt Option 3 , reduce
surcharge to $0.17 for business lines, maintain the current residential and intrastate MTS/W ATS
rates, and maintain the current access rate and IUSF draw for ATC Communications?
Does the Commission wish to adopt a different funding option?
ihQ ~M1
Grace Seaman
i:udmemos/usf2008
DECISION MEMORANDUM AUGUST 29, 2008