20180404Summary and Report.pdf

SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8743
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-59I8
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE 2017 REVIEW OF
THE IDAHO UNIVERSAL SERVICE FUND.CASE NO. GNR.T.17.O5
STAFF SUMMARY AND
REPORT
STAFF OF the Idaho Public Utilities Commission (Commission), by and through its
Attorney of record, Sean Costello, Deputy Affomey General, submits the following Staff
summary and report.
BACKGROUND
On February 27,2018, the Commission Staff convened a Public Workshop to explore
various options for the Idaho Universal Service Fund (IUSF or Fund). The IUSF is a statutory
mechanism designed to enable all Idaho consumers "without regard to their location . . . [to]
have comparable accessibility to basic telecommunications services at just and reasonable rates."
Idaho Code $ 62-610A.
The IUSF is experiencing a significant cash-flow problem, due largely to antiquated
statutes that govern assessments to and disbursement from the Fund, which are based on
assessments to land line telecommunications services that are steadily declining in use and
prevalence. See Order No. 33851.
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ISTAFF SUMMARY AND REPORT APRIL 4,2018
Staff thanks all the participants who attended the workshop and all those who took the
time to submit comments. The input was very helpful and Staff submits this summary for the
Commission' s consideration.
THE FUND
The IUSF is funded through a surcharge assessed to all residential and business local
exchange service, message telecommunications service (MTS), and wide area
telecommunications service (WATS). See Idaho Code $ 62-610(2). As technology has moved
forward into wireless services and voice over internet protocol (VoIP) services, these funding
sources - local exchange service and MTS and WATS-type service - are significantly declining
in use. Therefore, as the IUSF-assessed telecommunications services decline, so too does the
balance of the Fund, making it increasingly difficult for the Fund to remain solvent and fulfill its
underlying statutory intent.
Currently, eight rural high-cost telephone companies collectively receive $ 1,699,000 per
year from the Fund. See Order No. 33851. Again, these disbursements are based on a statutory
regime that is now antiquated, given the massive changes in telecommunications since its
enactment in 1988. The underlying technologies that are assessed to fund the IUSF have become
increasingly obsolete.
A common thread among all comments in this case was to cap the surcharge at the
current rates of $.25 per residential line, $.44 per business line, and $.009 per intrastate
MTS/WTS service. In so doing, the Fund would maintain an annual disbursement of $1,699,000
to the eight qualifying rural high-cost telephone companies, however the question of
sustainability would still remain unanswered. While Staff agrees in principle that the surcharge
rate should be frozen at the current rates established in Commission Order No. 33851 on August
22,2077 , the IUSF statutes provide no mechanism for capping, sun setting, or otherwise
changing the assessment and distribution methodologies. See Idaho Code 62-610(4) and IDAPA
31.46.01.10. The assessment and distribution methodologies are written into the statute, and the
Commission has no express discretion to amend or revise the program outside of legislative
action.
Staff thus recommends that a task force or working group be convened among the parties,
with the goal of bringing this matter to the Idaho legislature so the statutory Fund requirements
2STAFF SUMMARY AND REPORT APRIL 4,2018
can be amended and revised to reflect the current landscape of universal service in Idaho in light
of the fundamental underlying shift in telecommunications technology.
SUSTAINABILITY OF THE FUND
The parties agree the IUSF is unsustainable without major changes to the statute and
funding methodology. Staff believes that, given that technology is rapidly changing the
telecommunications landscape, more participants- specifically, VoIP and cell providers-must
contribute to the Fund if the Fund's purpose is to be maintained. On the other hand, if the
technologies and purpose underlying the Fund have changed so much that the notion of universal
service should also change, Staff would support an update to the universal service statutory
regime.
These changes will require major legislative action both to: (l) address the ongoing
validity of the universal service structure by updating the definition of basic telecommunications
services given the technological revolution that has occurred since the statute's enactment; and
(2) updating the way and from whom the Commission or Administrator collects and distributes
assessments from the Fund. Additionally, disbursement should be refocused to target specific
unserved and underserved areas.
Legislative action is needed so the IUSF can continue to accomplish its original purpose
of ensuring Idaho consumers have comparable access to reasonably priced basic
telecommunications services, regardless of where they live. Idaho Code $ 62-610A.
SUMMARY OF STAKEHOLDERS' POSITIONS
Association of ldaho Cities
The Association of Idaho Cities recommends the Commission expand this case beyond
the remaining scheduled workshop, and engage a broader group of stakeholders, including the
public and other public organizations, to ensure both consumers and the telecommunications
industry are fairly represented. The Commission should guide that stakeholder group towards
agreeing on basic terms upon which legislative action may be commenced.
AT&T
AT&T has not taken a position on retiring the IUSF. But if the IUSF is reformed, AT&T
would like to see measurable objectives for the IUSF and then identify the smallest IUSF needed
STAFF SUMMARY AND REPORT 3 APRIL 4,2018
to achieve those objectives. AT&T said the IUSF burdens contributing providers, and ultimately
their customers, and that the Fund should account for, and avoid duplicating, any federal
Universal Service Fund (USF) funding and support mechanisms and Idaho recipients' other
revenues. Further, if the Commission intends to continue assessing telecommunications
customers to fund the IUSF, the Commission should calculate the assessment rate to support the
IUSF's funding goals. AT&T suggested that the legislature consider supporting the IUSF
through the general fund. The Company said this would provide a broader, more stable, and
competitively neutral base that is less burdensome on current telecommunications customers and
more equitably spread across all consumers who benefit from having a more robust broadband
ecosystem. AT&T's suggestion was the first mention of broadband in these proceedings. The
IUSF currently doesn't fund broadband.
AT&T recommended capping and sun setting the current IUSF if a larger fund with a
broader base and distribution is contemplated. Because Idaho's consumers ultimately bear the
costs of funding the IUSF, the IUSF's objectives should be clearly articulated, and the State's
progress in achieving those objectives should be regularly monitored. AT&T suggested the
legislature specify a sunset date for the Fund to ensure that the continuing need for support is
periodically evaluated. Also, every carrier receiving support should have to demonstrate a need
for that support. Again, AT&T suggested that any changes to the IUSF should take federal
funding into account and use it to determine the IUSF's size.
CenturyLink
Centurylink recognizes the IUSF has significant problems and that it is unsustainable to
continue increasing the surcharges on access lines. Centurylink also believes a legislative
solution is needed. Meanwhile, the Commission should not approve additional increases to the
access line surcharges that would worsen the situation and harm remaining customers who
subscribe to traditional phone service. As IUSF revenues decline because of access line loss, the
Commission should reduce IUSF distributions to providers based on demonstrated need, and not
increase the burden on the remaining customers who pay the IUSF access line surcharge.
Centurylink highlighted several problems with the current IUSF.
First, the IUSF's funding mechanism is broken because the surcharge is collected on a
declining base. The decline in access lines will continue due to migration to wireless and VoIP
services. Increasing the IUSF surcharges on the declining base is unsustainable.
4STAFF SUMMARY AND REPORT APRIL 4,2018
Second, the IUSF is not competitively and technology neutral, since wireless and VolP
providers do not have to pay into the IUSF. The IUSF should not advantage or disadvantage any
provider or technology in the collection of the IUSF surcharge or distribution of IUSF payments.
And rural telecom providers, who are rate-of-return regulated and receive ongoing draws from
the IUSF, should have to demonstrate a continued need for the support they receive.
Centurylink suggested two options for the legislature to consider in addressing IUSF
problems: (l) Reforming the IUSF; and (2) Changing the IUSF to a High-Speed Internet (HIS)
investment program. These two options are summarrzed below.
Centrltlink Option I - Reform the IUSF: Centurylink suggested that all providers of
voice lines/connections could be required to pay into the IUSF on a non-discriminatory and
competitively neutral basis. Wireless and VoIP providers would have to start paying into the
IUSF. Providers would be allowed to recover the IUSF surcharge from their end-user customers,
but would not be mandated to do so (Centurylink believes not mandating an end-user surcharge
would eliminate the need for the legislature to establish a point-of-sale process for pre-paid
wireless providers). Obtaining parity would allow the Idaho Public Utilities Commission to
significantly reduce the IUSF surcharge, making the surcharge the same for business and
residential lines/connections and eliminating the need for the MTS/WATS minutes of use
(MOU) surcharge. If all providers of Idaho voice lines/connections paid into the IUSF, at the
current level of funding of $1.7 million ayear, the per line/connection surcharge would only
need to be $.07 per month.
CenturyLink also feels that all wireless and VoIP voice service providers should have to
pay the same fees and surcharges that access line voice service providers must pay. Besides
paying into the IUSF, all providers should pay into the Telecom Relay Service and Idaho
Telephone Service Assistance Program, and regulatory fees should be assessed on all voice
service providers in Idaho based upon the number of voice lines/connections they provide in
Idaho. To fund all four items would only require a per line/connection surcharge of $.15 per
month.
The legislature must ensure the Commission has the resources to conduct frequent rate
cases/audits of the rate-of-return regulated telecom providers who receive ongoing draws from
the IUSF. The Commission also should have the resources to adopt a cost model or other cost
methodology as an option in rate cases/audits, and to allow non-rate-of-return, carriers of last
resort (COLRs) to receive support for the high-cost areas they serve.
5STAFF SUMMARY AND REPORT APRIL 4,2018
Centurylink recommended the Commission be provided with the authority to approve
targeted, one-time IUSF distributions as an aid to construction, to help COLRs fund specific
projects to construct High-Speed Internet (HSI) facilities, capable of supporting voice service, in
high-cost areas that are underserved or unserved.
Option 2 - Change the IUSF to a HSI investment program. As a second option,
CenturyLink suggested allowing one-time distributions to help COLRs build HSI networks that
could support voice service in unserved or underserved high-cost areas that otherwise would not
get HSI. These distributions can also help fund the backbone fiber facilities that COLRs need to
serve wireless cell sites in high-cost areas with a significant public safety/public interest need for
wireless service. Initial funding would come through grants from the Idaho general fund.
Depending upon the program's success, the legislature could consider funding it through a per
voice line/connection based surcharge on providers, implemented in a competitively and
technologically neutral manner. Centurylink also proposed increasing the Broadband Tax
Credit in urban and suburban areas, and significantly increasing it in rural areas. Lastly, Century
Link suggested sales and property tax abatement incentives for HSI investment.
Conclusion: CenturyLink supports the legislature either reforming the existing IUSF and
fixing the problems, or changing the IUSF to a HSI investment program. CenturyLink defers to
the legislature as to the better approach. But Centurylink strongly recommends the Commission
not increase the IUSF surcharge on access lines in the interim before the legislature acts.
CenturyLink states an interim increase would only harm customers who subscribe to voice
services currently subject to the access lines surcharges. Centurylink suggests the Commission
can adjust IUSF payments to account for any interim IUSF revenue decreases.
City of Ammon
The City of Ammon recommends a new model be developed to address the changes that
make the current IUSF model unsustainable. Technology improvements affect the IUSF by
enabling service competition in a traditionally monopolistic model. These competing services
often use the same underlying infrastructure as the regulated service, providing adequate equal
functionality to the consumer for a lesser cost. Increasing the contributors to the IUSF pool to
include these new technology providers, like VolP and wireless providers, will not halt service
evolution or the established trend of repurposing infrastructure formerly dedicated to an analog
service to data.
6STAFF SUMMARY AND REPORT APRIL 4,2078
Introducing new contributors to the IUSF pool will likely create increased complexity as
pressure to provide parity between Fund contributors and Fund recipients evolves. The
foregoing demonstrates the need to unbundle services from infrastructure, because the essential
service provided today is the infrastructure, not any specific service. This is especially true with
the rapid evolution of services and functionality happening across our communications
infrastructure.
The City believes a new model is required that includes infrastructure cost recovery while
unbundling services from the supported infrastructure. This would open up the services, not the
infrastructure, to competition for the benefit of the infrastructure owner and the public
contributors supporting the infrastructure.
These realities suggest that the State recognize broadband as an essential service, and
require utility treatment for the high-cost wireline infrastructure. Failure to treat the
infrastructure as the regulated utility and continuing to tie cost recovery to either the service or
operations will tie universal support benefits to the regulated service's market. This will
continue to encourage disruption as technology evolves to deliver the same functionality outside
of the regulated service, and will entice an artificial consumer shift to avoid the fees necessary to
support wireline ubiquity. Any such model will prove unsustainable in the face of technology
advancement.
The City of Ammon believes that the State should include a broad and diverse set of
stakeholders in developing this new model, which also needs to include logical migration paths
for infrastructure owners to systematically transition from the current model to the new model as
desired.
CTIA The Wireless Associution
CTIA believes the Commission is unlikely to find consensus on a different contribution
scheme given widely differing industry views on how to equitably fund universal service
programs. Similar proceedings in other states have borne this out.
To the extent that the Commission seeks a legislative solution to funding the IUSF, CTIA
urges the Commission look to the State of Washington for a prudent, durable solution for
universal service funding. Taxpayers alone fund Washington's state USF. Using general
revenues to fund universal service is more appropriate given the general benefit of such
7STAFF SUMMARY AND REPORT APRIL 4,2018
programs, and also more economically efficient because the effort to extend the availability of
communications services does not suppress demand for those same services.
Idaho Cable Broadband Association (ICBA)
Because of the accelerating decline in the market for basic circuit-switched local
exchange service, the ICBA recommends that the Commission phase down IUSF distributions to
parallel the continuing expected decline in IUSF receipts. Simply raising IUSF charges will not
save the Fund. Any other signihcant change to the IUSF requires legislation, and the debate of
fundamental changes to the IUSF - to support broadband services, expand the contributor base
or change the contribution method - should occur at the Idaho legislature and not at the
Commission.
The ICBA agrees with the recommendation in the Commission's report that "all federal
funding in Idaho should be exhausted and then a reassessment of areas that still need broadband
services could then be targeted." This would ensure the State's scarce resources are efficiently
administered to serve unserved areas, and reduces the contribution burden on Idaho citizens.
Centurylink will receive $6,279,869 in federal Connect America Fund ("CAF") Phase II
model support each year for five years (2016-2020) to deploy broadband in Idaho. Frontier will
receive 55,233,121in federal funds each year for the same period to deploy broadband in the
State. In addition, 13 Idaho rate-of-return carriers collectively were offered $20,780,910 in
annual A-CAM federal model-based broadband support for ten years, but turned it down. Those
l3 Idaho rate-of-return carriers will continue to receive substantial legacy high-cost federal and
state universal service funding.
Additional federal broadband funding will become available because of the CAF Phase II
reverse auction, which will provide support in eligible geographic areas in Idaho. Further, there
will be additional support through the federal Mobility Fund and, about ayear after the CAF
Phase II reverse auction, a separate Remote Areas Fund funding process.
If the Idaho legislature ultimately determines that State broadband subsidies are needed,
any system of awarding grants should be based on a reverse auction approach that does not
duplicate federal USF (CAF, A-CAM or Legacy) subsidies and does not provide grants for areas
served by unsubsi dized competitors.
8STAFF SUMMARY AND REPORT APRIL 4,2018
Idaho Telecom Alliance (ITA)
ITA members rely on the federal and State USF to build communications services
networks throughout rural Idaho. They believe these networks will fail without continued IUSF
support. Network failure would preclude the rural citizens from having access to wireline voice
services. Further, because wireless and broadband providers use the same network, network
failure would preclude rural Idahoans from having their communications needs supplied by
wireless or broadband providers. Without the network that enables communications services,
rural Idaho citizens will exist on the wrong side of the digital divide and be unable to keep pace
with the rest of the country.
The ITA's position is that the IUSF must be maintained, and that the Commission and
interested stakeholders should work together to foward the goal of providing universal service to
all Idahoans at comparable prices. Because of the IUSF, many areas in Idaho that would not
have communications services now have those services. If IUSF support ceased, providing
communications services to these high-cost areas in Idaho would not be sustainable. If a
provider is forced to maintain the current rate structure and simply sustain the losses, that
provider would cease to be viable, its network would fail, and Idaho citizens would suffer. It
might be suggested that the provider could charge the actual cost of service to customers in the
high-cost areas. But that would defeat the goal of universal service at comparable costs
throughout the State. Further, the cost to the customer would be prohibitive, the customer base
would shrink, and the network would not be sustainable. Either way, rural areas ultimately
would lose communications capabilities. The argument that urban Idahoans should not have to
support rural Idahoans access to telecommunications because rural Idahoans choose to live in
these areas, is as simplistic as saying that rural Idahoans should not have to pay taxes that fund
infrastructure in primarily urban areas. Just like highway infrastructure, communications
infrastructure is useful both to those who live in these areas and to those traveling through.
Besides the necessity of IUSF funding to sustain services already provided in high-cost
areas, the need for IUSF funding likely will exist as long as high-cost areas exist. The Federal
Communication Commission recently announced the CAF Phase II Auction (Auction 903) to
award nearly $2 Billion to service providers that will commit to offer voice and broadband
services to fixed locations in unserved high-cost areas. The list of unserved high-cost locations
includes over 2,000 locations in Idaho. Many of these areas received no bids in earlier auctions
because, even with federal funding, many bidders believed the areas were too expensive to serve.
9STAFF SUMMARY AND REPORT APRIL 4,2018
The likelihood of all such areas in Idaho being awarded funding in the Auction 903 is, therefore,
slim.
As noted above, ITA recognizes that the current funding sources or funding levels for the
IUSF are inadequate to sustain the Fund. ITA acknowledges that change must occur, and short
of simply increasing the per line/per-minute charges, any change will require legislation and
rulemaking. With the primary goal of maintaining universal and affordable service to Idaho
residents, ITA is open to exploring all reasonable recommendations that will allow the continued
viability of the Fund. Some states have different funding mechanisms and may not be affected
by decreasing line counts, and other states have recently changed their universal service funds to
address issues the IUSF is now facing. Changing who is eligible to receive funding, or otherwise
allowing limited distributions to currently ineligible recipients could help improve service in
other eligible high-cost areas.
If the IUSF is failing because of decreases in line counts and presumably a decrease in
using traditional landline voice services, then perhaps the Commission should consider: (l) a
broader, technologically neutral IUSF, (2) any communications services provider with ETC
status and obligations being eligible for funding the network in the highest-cost areas; and (3) all
customers who use communication services that are delivered over the network having to pay for
the network.
The ITA acknowledges that not all of Idaho's unserved or underserved areas are within
the service territories of companies receiving IUSF funding. ITA believes in the overall goal of
universal service at comparable rates for all Idahoans, and perhaps expanding the pool of eligible
recipients can fairly accomplish that goal. The Commission would have to consider what
comparable requirements the expanded pool of companies would have to meet to receive
funding.
In summary, ITA continues to support the goal of universal service for all Idahoans at
comparable rates. That goal can only be reached if the IUSF is maintained. The IUSF can only
be maintained if the Fund's contribution base expands. With the growth of the contribution base,
ITA is open to expanding the potential recipients of funding. Finally, the ITA would like the
Commission to expand this case beyond the remaining scheduled workshop. The ITA believes it
would be benef,rcial for the Commission to guide discussions to help interested stakeholders
agree on basic terms upon which legislative action may be commenced.
STAFF SUMMARY AND REPORT 10 APRIL 4,2018
STAFF FINDINGS AND RECOMMENDATIONS
Staff has reviewed the stakeholders' position papers and determined that the stakeholders
do not agree on a single course of action. But Staff and all those who provided position papers
agree the IUSF is not sustainable in its current state. Staff and stakeholders agree that the current
surcharge amount should not be raised until a viable course of action has been determined for the
future of the Fund. Staff and stakeholders also agree that any potential changes to the Fund's
assessment and distribution mechanisms must be accomplished by the legislature, because those
mechanisms are in the statute and not in a rule or otherwise within the Commission's discretion
to change.
Staff foresees three potential options for addressing the IUSF's problems:
Staff Option l: Leave the IUSF as is, cap the Fund based on the projected surcharge
revenue collected each year, and adjust the distribution to the current recipients accordingly.
This option would be hard to execute, because Fund assessment and distribution methodologies
are codified in the Telecommunications Act of 1988 and, therefore, the Commission may be in
conflict with the statute.
Staff Option 2: Seek statutory revisions. Specifically, approach the legislature about
updating and revising the statute. These changes would most likely include adding assessments
on, and expanding disbursements to include, all qualifying providers, so long as they are serving
unserved and underserved areas according to the amended statute.
Staff Option 3: The third option would be to leave disbursement of the Fund at its current
level and fund the IUSF out of the general fund as the State of Washington does. This would
also require involving the Idaho legislature to update and revise the statute.
Respectfully submitted this /ra day of April2018
Sean Costello
Deputy Attorney General
Technical Staff: Carolee Hall
Daniel Klein
i:umisc/comments/gnrtlT.5scchdk staff summary and report
STAFF SUMMARY AND REPORT 11 APRIL 4,2018
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 4.h DAY OF APRIL 2018, SERVED
THE FOREGOING STAFF SUMMARY AND REPORT, IN CASE NO. GNR-T-17-05,
BY E-MAILING A COPY THEREOF TO THE FOLLOWING:
E-mail List: [e-mail]
[e-mail]
j ames. farr@centurylink. com
j ohn. stuart@mtecom. com
[e-mail]
krm@,givenspursley. com
[e-mail]
i wescott(@ctqtg le. qeln
[e-mail]
[e-mail]
mamotzkus@ silverstar.net
[e-mail]
[e-mail]
[e-mail]
i ohn. [e-mail]
ron@williamsbradbury. com :
j harri son@idahocities. org
s gri gs@idcounties. org
i on. barrett@irp. idaho. gov
CERTIFICATE OF SERVICE