20060814_1640.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 11, 2006
RE:2006 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS.
On July 19, 2006, Alyson Anderson, the Administrator of the Idaho Universal Service
Fund (IUSF), filed her Annual Report to the Commission for the period of July 1 , 2005 through
June 30, 2006. Included in the report was the proposed IUSF 2006-2007 Administrative Budget.
Staff has reviewed the calculations, supporting documentation and recommendations contained
in the report.
Current USF monthly surcharge rates are $.12 per residential line
, $.
20 per business line
and $.004 per MTS/WTS billed minute. Ms. Anderson reports surcharge revenue for the year in
the amount of$2 082 684. Local exchange services contributed $1 092 754 (52%) and $989 930
(48%) was contributed by MTS/W ATS services. This is an increase in local exchange surcharge
revenue of approximately $262 702 (from $830 052 in 2005) and an increase in MTS/W ATS
surcharge revenue of approximately $203 847 (from $786 083 in 2005).
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
decreased slightly to $1 943 523 as of June 30, 2006. This decrease reflects the true-up
payments made in June 2004 to ATC Communications, Fremont Telecom, and Midvale
Telephone companies. For the next year, beginning July 1, 2006 , annual disbursements are
expected to remain the same, assuming no changes are made to the USF draw. The ending fund
cash balance as of June 30, 2006 , after applying bank charges, administrative expenses, and
interest received, was $193 664.
DECISION MEMORANDUM AUGUST 11 2006
Local Service
As of May 2006, companies reported 474 571 residential lines and 208 671 business
lines, for a total of 683 242 lines. This represents a net increase in lines of 4 683 (.7%) with
residential lines declining by 2% and business lines increasing by 8% from the prior year.
The newly calculated statewide average rates and threshold rates are:
Residential
2005 Current 2006 Statewide 125% Statewide 125% Statewide
Weighted Weighted Weighted Average Weighted Average
A vera~e Rate A vera~e Rate Rate - 2005 Rate - 2006
$17.$17.$22.$22.
$31.78 $31.96 $39.$39.Business Services
Switched Access Service
Long distance service providers reported MTS/WATS billed minutes of315 380 191
compared to 312 577 570 minutes in 2005, a .9% increase. The statewide average switched
access rate increased to $0.05 per minute from last year s average of$0.048.
Funding Adjustments Review
Staff also reviewed the residential, business, and access rates of the recipient companies
in accordance with Rule 31.46.01.106. Of the eight companies receiving Universal Service
funds, the Administrator recommends and Staff agrees that no adjustments to residential
business, or access rates need to be made at this time.
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 stated that if current surcharge levels are
maintained and the disbursements remain the same, the fund balance will be approximately
$675 354 by June 30, 2007. Surcharge revenue contribution would be approximately 52% from
MTS/W A TS services and 48 % from local exchange services.
DECISION MEMORANDUM AUGUST 2006
Option 2: Adjust Funding to Meet Statewide Averages and Maintain Surcharge Rates
In this discussion, Ms. Anderson proposes to maintain the surcharges rates. Ms. Anderson points
out that Midvale Telephone Company does not need to adjust local rates, but could increase
switched access rates and decrease the IUSF draw by $6 635 according to Rule 31.46.01.106.
Under this proposal, Ms. Anderson projects the IUSF disbursements would decrease slightly to
936 888 and the fund balance on June 30 2007 would be approximately $681 989. At these
rates, MTS/W ATS 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 option, Ms.
Anderson proposes to decrease the residential surcharge rate to $.11 per line, but maintain the
current business surcharge rate of $.20 per line. This option would provide a reserve balance of
approximately $618 406 by June 30, 2007. MTS/W ATS service would contribute approximately
53% of the surcharge revenue and local exchange services would contribute 47%.
Option 4: Adjust Funding Levels Per Rule 106 and Decrease Surcharge Rates - In this
option, Ms. Anderson proposes a decrease in the residential surcharge rate to $.11 per line, and
business and MTS/W ATS surcharge rates remain the same at $.20 per line and $.004 per minute.
Under this proposal, the estimated reserve balance would be $611 770 by June 30, 2007.
MTS/W ATS service would contribute approximately 53% of the surcharge revenue and local
exchange services would contribute 47%.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends Option 1 , which would maintain the current surcharge rates
of$.12 per residential line, $.20 per business line, and $.004 per MTS/W ATS billed minute.
These rates would provide a comfortable four-month reserve balance of approximately $675 354
by end of June 30, 2007.
STAFF ANALYSIS
As a result of the 8% increase in business lines, the number of local exchange lines
remained stable with an overall increase of slightly less than a one percent. Additionally, the
anomaly of last year s 13 % increase in billed MTS/W A TS minutes did not reoccur during the
past year. Instead, MTS/W A TS remained relatively stable, as anticipated, with a nominal
DECISION MEMORANDUM AUGUST 11 , 2006
increase of .09%. Overall results for line inventory and MTS/W ATS billed minutes were
consistent with last year s projections. Staff believes wireless service adoption by consumers in
Idaho is nearing maturity and will have a decreasing impact on the reduction of exchange lines.
No significant changes for either service are anticipated for the next fiscal year, but it is
uncertain how the adoption of new technologies, such as Voice Over Internet Protocol (VoIP),
may impact the line inventory and the billed MTS/W ATS minutes. Additionally,
telecommunications company mergers that occurred in 2005 and 2006 may have disrupted the
reporting of accurate information by some companies for this year and more accurate
information may change the anticipated revenue outcome for next year.
With respect to Midvale Telephone Company, Staff does not believe it is necessary to
make the slight adjustments to their access rates at this time.
Finally, Staff believes that the level of uncertainty in the market suggests that the
surcharge rates should remain unchanged, providing an adequate funding cushion to address any
downward adjustments and changes in the threshold levels that may occur as companies submit
their reports in the next year. Staff, therefore, supports the Administrator s recommendation to
adopt Option No.
COMMISSION DECISION
Does the Commission wish to approve the IUSF 2006-2007 budget?
Does the Commission wish to adopt the Administrator s recommended Option No. I and
maintain the surcharge rates at $0.12 for residential lines, $0.20 for business lines and $0.004 per
intrastate MTS/W A TS minute?
Does the Commission wish to approve a switched access rate increase for Midvale
Telephone Company to the statewide threshold level and the corresponding decrease in the USF
draw?
Does the Commission wish to adopt a different funding option?
~CR
Grace Seaman
i:udememos/usf 2006
DECISION MEMORANDUM AUGUST 11 2006