20240903Decision Memo.pdf

DECISION MEMORANDUM
TO: COMMISSIONER ANDERSON
COMMISSIONER HAMMOND
COMMISSIONER LODGE
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM: JOHAN E. KALALA-KASANDA
MICHAEL DUVAL,DEPUTY ATTORNEY GENERAL
DATE: SEPTEMBER 3, 2024
RE: 2023-2024 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT
AND RECOMMENDATIONS; CASE NO. GNR-T-24-05.
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 Idaho Code § 62-610. The Commission established a universal service fund
to maintain 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. Idaho Code § 62-610(1). The IUSF is funded through a
statewide end-user surcharge on local exchange services and intrastate MTS and Wide Area
Telephone Service ("WATS")type services. The IUSF Administrator submits an Annual Report
to the Commission detailing the program activities of the previous year and recommending
surcharge rates to meet the next year's funding requirements. The Commission issues an Order
in response to the Administrator's report establishing statewide end-user surcharges to be in
effect for the next twelve months beginning October 1.
ANNUAL REPORT 2023 - 2024
On July 15, 2024, the Administrator of the IUSF, Alyson Anderson, filed the Annual
Report of the NSF for the fiscal year July 1, 2023, through June 30, 2024. On August 14, 2024,
the Administrator filed with the Commission Staff("Staff') a redacted copy of the Annual
DECISION MEMORANDUM - 1 - SEPTEMBER 3, 2024

Report per Staff s request. On August 20, 2024, the Administrator filed an Amended Annual
Report with Staff which corrected the errors identified by Staff. The proposed IUSF 2024-2025
Administrative Budget is also included in the report. Staff has reviewed the calculations,
supporting documentation, and recommendations contained in the Administrator's Annual
Report.
The current IUSF monthly surcharge rates are $0.25 per residential line, $0.44 per
business line, and$.007 per intrastate MTS/WATS billed minute. See Order No. 35940.
Surcharge revenues collected for the year totaled $1,174,946. Local exchange services
contributed $559,847, or 48%, and $615,098, or 52%, was contributed by MTS/WATS services.
The Administrative expenses for the year were $19,438. This amount includes the
Administrator's salary, expenses, and bank and broker charges.
Currently, eight qualifying Incumbent Local Exchange Carriers ("ILECs") receive annual
payments from the fund, and those payments remain unchanged at $1,698,610. If no changes
occur, the annual disbursements to the ILECs are expected to remain the same for the next fiscal
year(July 1, 2024, through June 30, 2025). The cash balance of the fund as of June 30, 2024,
(after applying bank charges and administrative expenses)was $345, 966.
2024-2025 Administrative Budget
Ms. Anderson proposes an annual administrative budget of$29,300. This amount
includes the Administrator's salary and other expenses such as postage/copies, telephone,
bank/investment charges, letterhead, and the estimated anticipated $10,000 for audit and legal
fees.
Local Residential and Business Service
The IUSF surcharge is attached to residential and business lines, and long-distance billed
minutes, of wireline companies. Thus, the Administrator annually obtains reports from these
companies. As of May 1, 2024, companies reported an average monthly inventory of 57,436
residential lines and 47,478 business lines—for a total of 133,773 lines. This represents a
decrease of 12% in residential lines and 30% in business lines from the prior year.
DECISION MEMORANDUM - 2 - SEPTEMBER 3, 2024

The adjusted statewide weighted average rates for one-party single-line residential and
business service and the corresponding threshold average rates are:
2023 Statewide 2024 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
Average Rate Average Rate Rate-2023 Rate-2024
Residential Services $28.49 $29.17 $35.62 $36.46
Business Services $54.31 $46.90 $67.88 $58.62
Switched Access Service
Long distance service providers reported intrastate MTS/WATS billed minutes of
87,944,136 compared to the 2023 reported minutes of 46,111,289, a 91% increase from the prior
year. The statewide average switched access rate is $0.064 per minute a change from last year's
rate of$0.067.
Funding Adjustments Review—Rule 106
The Administrator also reviews the residential,business, and switched access rates of the
recipient ILEC companies to determine eligibility to receive IUSF funding. A company's
average one-party single-line rate must equal or exceed the 125% statewide weighted average
line rate and the average rates per minute for MTS/WATS access rate must exceed 100% of the
statewide weighted average access rate. IDAPA 31.46.01.106 ("Rule 106"). If the difference in
the company's current average rate and the statewide average threshold rate is greater than three
percent (3%), and the difference in the annual revenue associated with the company's current
rate and the revenue associated with the statewide average threshold rates is over$6,000, the
company may need to revise rates to meet or exceed the statewide threshold rates. The
Commission may also calculate the weighted statewide average rates by using the residence and
business basic local exchange rates in effect on July 1, 2005, to determine the eligibility of
Eligible Telecommunications Carriers for distributions from the 11USF. See Rule 106.04, and
Idaho Code § 62-605(e).
DECISION MEMORANDUM - 3 - SEPTEMBER 3, 2024

ADMINISTRATOR'S FUNDING OPTIONS
As noted, the Administrator reports that during the past year, there was a significant
decrease in local residential lines by 12% and in local business lines by 30%. MTS/WATS billed
minutes increased by 91%. This significant increase emphasizes the difficulty of estimating
future inventory levels. The Administrator believes that the local access lines and toll minutes
will continue to decline due to the continued migration toward broadband, wireless, cellular, and
VOIP services, as well as the shift from stand-alone residential service to bundled packages.
This, in turn, affects the statewide average rate calculations, as well as the application of Rule
106 to the companies funded by the IUSF.
The Administrator recognizes that in light of the Federal Communications Commission's
("FCC") orders and continuing industry changes, it is becoming more difficult to evaluate the
IUSF funding as it applies to Rule 106. It is also more difficult to accurately calculate the
funding requirements necessary to maintain adequate fund balances throughout the fiscal year.
Additionally, it is equally challenging to estimate future inventory levels and the fund balance.
The Commission recognized this in opening Case No. GNR-T-17-05—the 2017 Review of the
Idaho Universal Service Fund. Until changes to the IUSF rules are made, the Administrator
asserted that she is obligated to apply the current Rules for Idaho Universal Service Fund,
IDAPA 31.46.01. With this in mind, the Administrator presented the following funding options:
OPTION 1: STATUS QUO
If current surcharge rates ($0.25 per residential line, $0.44 per business line, and $0.007
per intrastate MTS/WATS billed minute) are maintained and no additional IUSF funding is
authorized, the fund will decrease by approximately$689,310 (page 44). The 2023-2024 IUSF
authorized disbursements will continue at $1,698,610. MTS/WATS services would contribute
approximately 41% of the surcharge revenue and local exchange services would contribute 59%
of the surcharge revenue, however, the fund would become insolvent before June 30, 2025.
DECISION MEMORANDUM - 4 - SEPTEMBER 3, 2024

OPTION 2: ADJUST SURCHARGE RATES &MAINTAIN FUNDING
If surcharge rates are increased to $0.57 per residential line, $0.91 per business line, and
$.01 per intrastate MTS/WATS billed minute and current funding levels are maintained, the fund
will increase by approximately$62,853 (page 44). MTS/WATS services would contribute
approximately 49% of the surcharge revenue and local exchange services would contribute 51%
of the surcharge revenue. The fund would have a balance of approximately $408,819 on June
30, 2025.
OPTION 3: ADJUST SURCHARGE RATES &ADJUST FUNDING TO MEET
STATEWIDE AVERAGES
Idaho Universal Service Fund Rule 106.02 indicates that to continue receiving NSF
funding after the first year of eligibility, the company may need to revise rates to meet or exceed
the statewide threshold rates. If the rate is below the statewide threshold rate, and the difference
between the rate is greater than both 3% and$6,000, the company must revise rates equal to or
exceed 100% of the statewide average for MTS/WATS access service, and 125% of the
statewide average for local exchange service. The following applies rule 106 to each company
currently drawing from the IUSF.
• ATC Communications should increase local residential and business—as well as toll-
switched access rates. ATC Communications' annual IUSF draw would be reduced
by $205,200.
• Cambridge Telephone Company should increase local residential and business rates.
Cambridge Telephone Company's annual NSF draw would be reduced by $196,494
—thus eliminating Cambridge Telephone Company's NSF annual draw of$13 8,162.
• Columbine Telephone/Silver Star Telecom should decrease toll-switched access and
increase local residential and local business rates. Silver Star Telecom's annual IUSF
draw would be reduced by $138,002.
• Direct Communications Rockland should increase local residential and business rates.
Direct Communications Rockland's annual IUSF draw would be reduced by $47,164.
DECISION MEMORANDUM - 5 - SEPTEMBER 3, 2024

• Fremont Telecom should increase toll switched access rates, and local residential and
business rates. Fremont Telecom's annual IUSF draw would be decreased by
$135,404, and thus eliminate Fremont Telecom's annual IUSF draw of$57,258.
• Inland Telephone Company should increase local residential and business rates.
Inland Telephone Company's annual IUSF draw would be reduced by $21,475.
• Midvale Telephone Company should increase local residential and business rates.
Midvale Telephone Company's annual IUSF draw would be reduced by $75,997.
• Rural Telephone Companies should increase local residential and business rates, as
well as toll-switched access. Rural Telephone Company's annual IUSF draw would
be reduced by $110,375.
The 2024-2025 IUSF authorized disbursements, including the adjustments to company
funding per rule 106, will be $904,977. If surcharge rates are decreased to $0.41 per business
line and $0.005 per intrastate MTS/WATS billed minute and increased to $0.26 per residential
line, the fund will decrease by approximately $81,764. MTS/WATS services would contribute
approximately 52% of the surcharge revenue and local exchange services would contribute 48%
of the surcharge revenue. The fund would have a balance of approximately $264,201 on June
30, 2025.
OPTION 4: ADJUST INVENTORIES, ADJUST SURCHARGE RATES &
MAINTAIN FUNDING LEVELS
In order to more accurately calculate future fund balances, the inventories have been
adjusted according to the most recent five-year trend. Thus, the residential lines have been
reduced by 11%, the business lines reduced by 30%, and the MTS/WATS billed minutes have
been increased by 3%. If the surcharge rates are increased to $0.65 per residential line, $1.05 per
business line, and$0.01 per intrastate MTS/WATS billed minute and IUSF disbursements are
maintained at current levels, the fund will increase by approximately $89,340. MTS/WATS
services would contribute approximately 50% of the surcharge revenue and local exchange
services would contribute 50% of the surcharge revenue. The fund would have a balance of
approximately $435,305 on June 30, 2025.
DECISION MEMORANDUM - 6 - SEPTEMBER 3, 2024

OPTION 5: ADJUST INVENTORIES, ADJUST SURCHARGE RATES &
ADJUST FUNDING TO MEET STATEWIDE AVERAGES
In order to more accurately calculate future fund balances, the inventories have been
adjusted according to the most recent five-year trend. If the surcharge rates are increased to
$0.30 per residential line, $0.47 per business line, and decreased to $0.005 per intrastate
MTS/WATS billed minute, and if IUSF disbursements are adjusted to meet statewide averages
per rule 106, the fund will decrease by approximately$67,688 for the current fiscal year
MTS/WATS services would contribute approximately 52% of the surcharge revenue and local
exchange services would contribute 48% of the surcharge revenue. The fund would have a
balance of approximately $278,277 on June 30, 2025.
OPTION 6: ADJUST INVENTORIES, ADJUST SURCHARGE RATES &
MAINTAIN FUNDING LEVELS
In order to more accurately calculate future fund balances, the inventories have been
adjusted according to the most recent five-year trend. Thus, the residential lines have been
reduced by 11%, the business lines reduced by 30% and the MTS/WATS billed minutes have
been increased by 3%. If the surcharge rates are increased to $0.57 per residential line, $0.91 per
business line, and$0.01 per intrastate MTS/WATS billed minute and if IUSF disbursements are
maintained at current levels, the fund will decrease by approximately $27,674 by the end of the
current fiscal year. MTS/WATS services would contribute approximately 53% of the surcharge
revenue and local exchange services would contribute 47% of the surcharge revenue. The fund
would have a balance of approximately $318,291 on June 30, 2025.
ADMINISTRATOR'S RECOMMENDATION
In the Annual Report, the Administrator recommended that the Commission adopt Option
3 or Option 5 adjusting the surcharge rates and, also, applying Rule 106.02 to adjust funding to
the companies. The Administrator stated that both options also adjust the inventories for the
five-year average and will provide an approximate three-month reserve balance going forward as
the telecom industry continues to evolve. The fund balance on June 30, 2025,under Option 5
DECISION MEMORANDUM - 7 - SEPTEMBER 3, 2024

would be approximately $278,277. The fund balance on June 30, 2025, under Option 3 would be
approximately $264,201.
Additionally, if the Commission is inclined to maintain company funding levels until
changes are made to the underlying rules and statutes, the Administrator recommended the
adoption of Option 6. This option increases the surcharge rates to $0.57 per residential line,
$0.91 per business line, and $0.01 per intrastate MTS/WATS billed minute. Under Option 6, the
fund balance would be adequate to meet the fund obligations, though with less of a reserve for
industry changes going forward. The fund balance will approximate $318,291 on June 30, 2025.
STAFF ANALYSIS AND RECOMMENDATION
Staff believes that the fund is in jeopardy. Staff reached this conclusion after examining
the Administrator's findings, supporting documentation, and recommendations contained in the
Administrator's Annual Report. As a result, Staff supports the Administrator's recommendation
of adopting Option 3: Adjust Surcharge Rates & Adjust Funding To Meet Statewide Averages.
As illustrated in Table 1 below,under Option 3, the 2024-2025 IUSF-authorized
disbursements, including the adjustments to company funding per rule 106, will be $904,977. If
surcharge rates are decreased to $0.41 per business line, $0.005 per intrastate MTS/WATS billed
minute, and increased to $0.26 per residential line, the fund will decrease by approximately
$81,764. MTS/WATS services would contribute approximately 52% of the surcharge revenue
and local exchange services would contribute 48% of the surcharge revenue. The fund would
have a balance of approximately $264,201 on June 30, 2025.
DECISION MEMORANDUM - 8 - SEPTEMBER 3, 2024

Table 1: Option 3-Adiust Surcharge Rates &Adiust Funding To Meet Statewide Thresholds!
a (b) (c) (d)
Fund
Rate Change
Bank Balance 7/1/24 $345,966
Annual Inventory
Residential Lines 57,436 0.26 $179,200
Business Lines 47,478 0.41 233,592
Toll Minutes 87,944,136 0.005 439,721
Total IUSF Surcharge Revenue 852,513
Estimated Interest Income 0
Estimated IUSF Disbursements 904,977
Estimated Administrative Expenses 29,300
TOTAL ESTIMATED EXPENSES 934,277
PROJECTED INCOME/ DRAWDOWN 81,764
PROJECTED BALANCE 6/30/25 $264,201
The basis for this recommendation is provided below:
1. Status Quo: Cash and Fund Balance Analysis
As of June 30, 2024, the Administrator reported that the IUSF fund had a fiscal year-end
cash balance of$345,966, after applying bank/brokerage charges, company disbursements, and
administrative expenses. If current surcharge levels are maintained, and no additional ISUF
funding is authorized, the fund will become insolvent before June 30, 2025.
In Table 2, we see that on July 1, 2024, the fund had a beginning balance of$345,966.
At the current rates, the fund will generate $1,038,601 in surcharge revenues. The total
estimated expenses for the year would be $1,727,910, which is composed of$1,698,610 of
disbursements and $29,300 of administrative expenses. This leaves the projected loss of revenue
of($689,310). On June 30, 2025, the fund is projected to become insolvent with a negative cash
' Source: Case No. GNR-T-24-05.
DECISION MEMORANDUM - 9 - SEPTEMBER 3, 2024

balance of$343,344. At this level, Staff believes that the fund is in jeopardy and urgent action is
required to salvage the fund.
Table 2: Option 1 - Status Quo
(a) b c d
Fund
Rate Change
Bank Balance 7/1/24 $ 345,966
Annual Inventory
Residential Lines 57,436 0.25 $172,308
Business Lines 47,478 0.44 $250,684
Toll Minutes 87,944,136 0.007 $615,609
Total IUSF Surcharge Revenue $1,038,601
Estimated Interest Income 0
Estimated IUSF Disbursements 1,698,610
Estimated Administrative Expenses 29,300
Total Estimated Expenses (1,727,910)
Projected Income/ Drawdown 689,310)
Projected Balance 6/30/25 ($343 344)
As shown in Table 3 below, this is a similar situation to what happened to the fund in
2017 when the actual cash balance of the fund was $80,784 and the projected year-end cash
balance was a negative balance of$504,036. At the time, to mitigate the situation, the
Commission issued Order No. 33851 adjusting the surcharge rates. As a result, since 2018 the
fund's annual year-end cash balance has been maintained at a healthy level. Staff believes a
similar kind of review is urgently warranted now. As can be seen in the Table: lUSF Fund Trend
Analysis below, since 2016, there has been a steady decrease in the projected year-end cash
balance (column e) and the actual fiscal year-end cash balance (column d). The surcharge
2 Source: Case No. GNR-T-24-05.
DECISION MEMORANDUM - 10 - SEPTEMBER 3, 2024

revenues have decreased from $1,644,938 in 2016 to $1,174,946 in 2024,peaking at $2,227,054
in 2019. Staff believes the option of maintaining the "Status Quo' is no longer sustainable.
Table 3: IUSF Trend Analysis3
Fiscal Year-End Projected Year-
Year Surcharge Revenue Disbursement Cash Balance End Cash Balance
a b c d e
2016 $ 1,644,938 $ 1,698,610 $ 500,768 $ 479,993
2017 $ 1,291,532 $ 1,698,610 $ 80,784 $ 504,036
2018 $ 1,889,493 $ 1,698,610 $ 249,758 $ 502,320
2019 $ 2,227,054 $ 1,698,610 $ 767,449 $ 1,038,211
2020 $ 1,917,737 $ 1,698,610 $ 972,125 $ 744,509
2021 $ 2,000,824 $ 1,698,610 $ 1,254,623 $ 994,058
2022 $ 1,650,870 $ 1,698,610 $ 1,187,050 $ 719,490
2023 $ 1,420,072 $ 1,698,610 $ 889,068 $ 40,000
2024 $ 1,174,946 $ 1,698,610 $ 345,966 $ 343,344
2. The Stress Factors
During the examination, Staff found that the principal contributing stress factors to the
demise of the IUSF, to varying degrees, are threefold. The technological changes, the decline in
reported lines, and the legislative inaction.
i. Stressor 1: Technological changes: Over the last twenty years, there has been a
significant acceleration in the adoption of new technologies in the telecommunications
industry. This is demonstrated in areas such as broadband internet services, wireless
communication services, cellular services, and Voice over the Internet Protocol ("VoIP")
services. Additionally, the service providers are now moving from stand-alone service
offerings to bundled packages. These migrations significantly contributed to the decline
of local access lines and toll minutes, as shown in Table 4 below.
s Sources:previous annual reports: Case Nos.: GNR-T-16-12,GNR-T-17-04,GNR-T-18-06,GNR-T-19-06,GNR-
T-20-12,GNR-T-21-07,GNR-T-22-04,GNR-T-23-05,and GNR-T-24-05.
DECISION MEMORANDUM - I I - SEPTEMBER 3, 2024

ii. Stressor 2: Changes in Rates and Reported Lines: Staff reviewed the changes in reported
lines from 20210 to 2024, the last fifteen years. The findings are alarming and
concerning as illustrated in Table 4, below. The total reported lines (column d) have
decreased from 548,344 lines in 2010 to 104,914 lines in 2024 an approximately 81%
decrease. The total billed minutes have changed from 284,863,207 minutes in 2010 to
87,944,136 minutes in 2024a 69% decrease. The dependency of the fund on a
dwindling pool of customers causes debilitating distress on the fund and is hastening its
demise. Staff believes an exploration of other additional funding sources is now of
paramount importance for the survivability of the IUSF.
Table 4: Reported Lines
Reported average Reported average MTS/WATS
monthly inventory: monthly inventory: Reported Total Billed
Years Residential Lines Business Lines Total Lines minutes
a (b) c d e
2010 328,592 219,752 548,344 284,863,207
2011 292,282 221,764 514,046 253,602,445
2012 253,461 219,108 472,569 257,750,454
2013 229,336 230,860 460,196 197,465,217
2014 202,341 236,547 438,888 172,567,590
2015 182,038 225,512 407,550 167,029,919
2016 169,987 193,095 363,082 197,135,147
2017 152,290 122,009 274,299 125,154,200
2018 122,347 114,359 236,706 110,719,570
2019 106.787 114,073 220,860 117,572,337
2020 94,556 87,586 182,142 107,374,568
2021 97,154 101,719 198,873 90,893,786
2022 72,811 78,030 150,841 89,781,375
2023 65,516 68,257 133,773 46,111,289
2024 57,436 47,478 104,914 87,944,136
Staff has reviewed the changes in rates over the last 15 years, as illustrated in Table 5
below. Here, Staff also discovered an alarming trend. The declining lines have carried
significant weight in sustaining the IUSF. The rates for residential lines have increased from
$0.10 in 2010 to $0.25 in 2024 (150%); for business lines, the rates have increased from $0.17 in
DECISION MEMORANDUM - 12 - SEPTEMBER 3, 2024

2010 to $0.44 in 2024 (160%); and the rates for MTS/WATS per minute have increased from
$0.003 in 2010 to $0.007 in 2024 (135%). Staff believes that this is no longer sustainable.
Table 5: Rates Change4
Rates: Total
MTS/WATS per Rates per residential Rates per business Surcharge
Years minute lines lines Revenue
2010 $ 0.003 $0.10 $0.17 $1,734 098
2011 $ 0.003 $0.12 $0.19 $1,715,397
2012 $ 0.003 $0.12 $0.19 $1,654,166
2013 $ 0.004 $0.15 $0.23 $1,683,231
2014 $ 0.006 $0.16 $0.25 $1,946,672
2015 $ 0.006 $0.16 $0.25 $2,046,064
2016 $ 0.005 $0.12 $0.20 $1,644,938
2017 $ 0.005 $0.12 $0.20 $ I,291,532
2018 $ 0.009 $0.25 $0.44 $1,889,493
2019 $ 0.009 $0.25 $0.44 $2,227,054
2020 $ 0.007 $0.25 $0.44 $1,917,737
2021 $ 0.007 $0.25 $0.44 $2,000,824
2022 $ 0.007 $0.25 $0.44 $1,650,870
2023 $ 0.007 $0.25 $0.44 $1,420,072
2024 $ 0.007 $0.25 $0.44 $1,174,946
iii. Stressor 3: Legislative inaction: Per Commission Order No. 33851, Staff and the
Administrator initiated a generic docket before the Commission to allow a public forum
for stakeholders to participate in a discussion of the Idaho USF as it relates to the current
legal and regulatory framework, its place in the evolving telecommunications landscape,
and universal telecommunications services in Idaho generally. Staff convened a
workshop on January 17, 2018, Stakeholders filed position papers by January 31, 2018,
Staff filed a summary report on April 4, 2018, Stakeholders filed reply comments on
a Sources:previous annual reports: Case Nos.: GNR-T-10-04,GNR-T-11-04,GNR-T-12-07,GNR-T-13-04,GNR-
T-14-06,GNR-T-15-07,GNR-T-16-12,GNR-T-17-04,GNR-T-18-06,GNR-T-19-06,GNR-T-20-12,GNR-T-21-
07,GNR-T-22-04,GNR-T-23-05,and GNR-T-24-05.
DECISION MEMORANDUM - 13 - SEPTEMBER 3, 2024

April 25, 2018. Staff filed a second summary and report on September 7, 2018, as well as
a Stakeholders Memorandum inviting parties to bring proposed legislative language to a
workshop in October. Three parties responded on October 4, 2018.The parties agreed to
work on legislative language separately from Staff and then bring back what they worked
out as a group. Thus far, the parties have failed to agree and are still working towards that
end. Staff is still waiting for the parties to come together on legislative changes. As a
result of this inaction, alternative funding sources (such as wireless, VoIP, or any other
viable funding sources) cannot be explored and implemented. Staff, therefore, believes
that the future of the IUSF is rather uncertain unless prompt and robust action is taken.
Given the three stressors discussed above, Staff acknowledges that the funding elements
are impermanent and difficult to predict. However, Staff agrees with Ms. Anderson's
recommendation to the Commission to adopt Option 3, which adjusts surcharge rates and adjusts
funding to meet statewide averages. Options 3 and 5 are similar. The only difference is that in
Option 5 the forecasted inventories have been adjusted for the 5-year average. Option 3 proposes
a slightly lower surcharge rate.
The Administrator reported that she has been trying to fund the IUSF in a declining
industry. The local access lines and toll minutes will continue to decline due to the continued
migration toward broadband, wireless, cellular, and VoIP services—as well as the shift from
stand-alone residential service to bundled packages. This affects the statewide average rate
calculations, as well as the application of Rule 106 to the companies funded by the IUSF. In
light of FCC orders and continuing industry changes, it is becoming more difficult to evaluate
the IUSF funding as it applies to Rule 106. It is equally challenging to estimate future inventory
levels and the fund balance. Thus, until changes to the IUSF rules are made, the Administrator
feels obligated to apply the current Rules for Idaho Universal Service Fund, IDAPA 31.46.01.
These are legitimate concerns and Staff fully concurs with the Administrator. The status quo is
no longer sustainable for the IUSF.
DECISION MEMORANDUM - 14 - SEPTEMBER 3, 2024

The FCC and Commission Rule 106
In expressing this opinion, Staff also notes how Rule 106 was impacted by the FCC
Transformation Order, FCC 11-161, released on November 18, 2011, and the subsequent FCC
14-54, Seventh Order on Reconsideration, released on June 10, 2014. The first FCC Order
established a schedule to reduce intrastate terminating access rates, including transport and
reciprocal compensation, to bill-and-keep by July 1, 2019. The second FCC Order established a
four-year transition of voice services to a rate floor of$20.46 for carriers that receive federal
high-cost support. In April 2017, the FCC froze the rates at $18.00 and issued a Notice of
Proposed Rulemaking and Order seeking comments on the rate for basic voice services.
Stakeholders argued that higher prices for basic voice service in rural high-cost areas created a
significant and legitimate rate shock for rural customers. Therefore, the FCC has provided a
freeze on the rate floor at $18 pending further review and comments.
Given the current demise of the IUSF, these Orders, and uncertainty at the FCC, it is now
paramount for the Commission to apply Rule 106 to determine eligibility for the eight companies
that receive state USF disbursements. All eight IUSF-funded companies have residential rates of
$25.76.5 If Rule 106 is strictly applied, all eight companies would be required to increase the
residential local exchange rate from the current $25.76 to $30.85 and the business local exchange
rate to $49.02. Staff is not overly concerned about the significant increase in local residential
exchange service rates. Staff fully supports the Administrator's recommendation. Staff believes
that, at this juncture and in light of the three stressors referred to above, it is imperative to take
actions now that would temporarily assist in the IUSF's survival.
5 On September 2,2009,Commission Order No. 30894 was issued notifying the NSF recipient companies that
residential rates must be increased to the statewide threshold rate of$25.76 to continue to receive funding. All nine
companies complied by increasing the residential rates.
DECISION MEMORANDUM - 15 - SEPTEMBER 3, 2024

STAFF RECOMMENDATION
Staff recommends the following:
1. The Commission approves the Administrator's budget;
2. The Commission adopts Option 3 - Adjust Surcharge Rates &Adjust Funding To
Meet Statewide Thresholds; and
3. The Administrator continues to provide quarterly cash flow analysis to the Staff.
COMMISSION DECISION
1. Does the Commission wish to approve the Administrator's IUSF 2024-2025 budget?
2. Does the Commission wish to adopt Staff s recommended funding Option 3, one of
the Administrator's recommended funding Options, or a different one?
3. Does the Commission wish to accept the Staff s final recommendation for quarterly
cash flow reports to monitor revenue impacts from unforeseen changes in line counts
or access minutes?
4. Anything else?
o n E. Kalala-Kasanda
Commission Staff
DECISION MEMORANDUM - 16 - SEPTEMBER 3, 2024