20050829_1311.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GRACE SEAMAN
DATE:AUGUST 26, 2005
RE:2005 IDAHO UNIVERSAL SERVICE FUND ANNUAL REPORT AND
RECOMMENDATIONS
On July 14, 2005 , Alyson Anderson, the Administrator of the Idaho Universal Service
Fund (USF), filed her Annual Report to the Commission for the period of July 1 2004 through
June 30, 2005. Staff has reviewed the calculations, supporting documentation and
recommendations contained in the report.
Current USF monthly surcharge rates are $.10 per residential line
, $.
15 per business line
and $.003 per MTS/WTS billed minute. Ms. Anderson reports surcharge revenue for the year
the amount of$1 616 135. Local exchange services contributed $830 052 (51 %) and $786 083
(49%) was contributed by MTS/W A TS services. This is an increase in local surcharge revenue
of approximately $62,431 (from $767 621 in 2004) and an increase in toll surcharge revenue of
approximately $67 914 (from $718 169 in 2004).
Annual disbursements to the eight qualifying incumbent local exchange carriers (ILECs)
increased slightly to $1 973 671 as of June 30 2005. For the next year beginning July 1 , 2005
annual disbursements are expected to decrease slightly to $1 943 524, assuming no changes are
made to the USF draw. The ending fund cash balance as of June 30, 2004, after applying bank
charges, administrative expenses, and interest received, was $65 265.
Local Service
As of May 1 , 2005, companies reported 485 612 residential lines and 192 947 business
lines, for a total of 678 559 lines. This represents a net decrease in lines of 10 948 with
residential lines declining by 3% and business increasing by 3% from the prior year.
DECISION MEMORANDUM - 1 -AUGUST 26, 2005
The newly calculated statewide average rates and threshold rates are:
Business Services
2004 Current 2005 Statewide 1250/0 Statewide 1250/0 Statewide
Weighted Weighted Weighted Average Weighted Average
A vera2e Rate A vera2e Rate Rate - 2004 Rate - 2005
$17.$17.$21. 92 $22.
$31.67 $31.78 $39.$39.
Residen tial
Switched Access Service
Local exchange companies reported MTS/W A TS access minutes of 314 542 261
compared to 277 754 500 minutes in 2004, a 13% increase. Compared to a steady decline of
billed minutes over the past three years, this represents a significant increase. Staff and the
Administrator believe this is an anomaly that cannot be sustained into the next fiscal year. The
Administrator noted the increase is impacted by the reports of 37 new companies that had not
previously contributed or contributed minimally to the USF. Additionally, four major
MTS/W A TS service providers reported significant increases in billed minutes. These four
companies reported a total combined increase in minutes of 70 594 561. These increases offset
the decreases experienced by 56% of the MTS/W A TS service providers. The statewide average
switched access rate decreased to $0.048 per minute from last year s average of $0.0526.
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, Staff recommends that no adjustments to residential, business, or access rates be made at
this time.
ADMINISTRATOR'S OPTIONS
The Administrator presented five funding options to meet the projected annual
disbursements 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 will have a negative balance of
approximately $22 886 by June 30, 2006.
DECISION MEMORANDUM - 2 -AUGUST 26, 2005
Option 2: Increase Local Surcharge Rates Only - In this discussion, Ms. Anderson
proposes to increase the monthly local surcharges to $.15 per residential line
, $.
27 per business
line, and maintain the MTS/W ATS rate at $.003 per minute. If these surcharge levels are
implemented, the fund balance on June 30, 2005 is estimated to be approximately $546 324.
MTS/W ATS services would contribute approximately 38% of the surcharge revenue and local
exchange services would contribute 62% of the surcharge revenue.
Option 3: Increase MTS/W A TS Surcharge Rate Only - In this option, Ms. Anderson
proposes to maintain the current monthly surcharge rates of $.10 per residential line and $0.
per business line, but increase the MTS/W ATS surcharge rate to $0.0049 per minute. If this
adjustment is made, Ms. Anderson projects an ending reserve balance of approximately
$571 011 by June 30, 2005. MTS/W ATS service would contribute approximately 62% of the
surcharge revenue and local exchange services would contribute 38% of the surcharge revenue.
Option 4: Increase All Surcharge Rates - In this option, Ms. Anderson proposes an
increase in each surcharge rate to $0.12 per residential line, $0.22 per business line and $0.004
per MTS/W A TS minute. Under this proposal, the fund is estimated to have a reserve balance of
$568 313 by June 30, 2005. MTS/W ATS service would contribute approximately 51 % of the
surcharge revenue and local exchange services would contribute 49% of the surcharge revenue.
Option 5: Adiust Funding to meet Statewide Averages and Increase All Surcharge
Rates - In this option, Ms. Anderson proposes an increase in each surcharge rate to $0.12 per
residential line, $0.22 per business line and $0.004 per toll minute. Ms. Anderson also points out
that Cambridge Telephone Company and Inland Telephone Company could slightly reduce
access rates according to Rule 31.46.01.106. Under this proposal, Ms Anderson projects the
fund would attain a reserve balance of $552 958 by June 30, 2005. MTS/W ATS services would
contribute approximately 51 % of the total surcharge revenue and local exchange services would
contribute 49% of the total surcharge revenue.
ADMINISTRATOR'S RECOMMENDATION
Ms. Anderson recommends Option 5, which would increase the surcharge rates to $0.
per residential line, $0.22 per business line per month and $0.004 per toll minute. Under this
proposal, the fund is estimated to maintain an adequate reserve balance of $552 958 by June 30
2005.
DECISION MEMORANDUM - 3 -AUGUST 26, 2005
STAFF ANALYSIS
In spite of this year s increase in MTS/W A TS billed minutes, 56% of the companies
reported a decline in billed minutes. Staff is cautious about increasing the per-toIl-minute rate
due to the continued competitive pressure and unstable toll minute inventories. This year s large
and sudden increase in billed minutes should be viewed as an anomaly. Staff also understands
that local exchange companies face increasing competition and shrinking line counts. Therefore
Staff continues to support an attempt to spread the needed increase as equitably as possible
between the local and toll carriers.
Staff does not believe it is necessary to make the slight adjustments to the access rates of
Cambridge and Inland Telephone companies at this time. Staff discussed this with both
companies and they agree the slight changes mayor may not have any distinguishable effect
given the components of access revenue and the reporting cycles to the fund.
After reviewing the USF Annual Report, Staff discovered elements in company reports
that merited further scrutiny. Staff requested additional information from Ms. Anderson and
requested company reviews of information contained in the USF reports. Some issues have been
clarified and some investigation of reported information continues. Receipt of additional
information from company inquiries may potentially affect the statewide average threshold rates.
Staff is also concerned about the 130/0 increase in billed minutes and believes it is prudent to
expect the 2005 levels be the same or lower than the levels reported in the 2004 annual report.
After assessing these concerns, Staff recommends the Commission adopt Option 4, which
distributes the needed increase among the local and toll carriers and produces an adequate fund
reserve balance that will provide an adequate cushion for changes in the funding thresholds.
Staff believes the low end-of-year cash balance of $65 265 must be addressed with a surcharge
increase beginning on October 1 , 2005. Additionally, the projected reserve balance estimated in
Option 4 provides a cushion to address any downward adjustments in MTS/W A TS billed
minutes reported, and changes in the threshold levels that may occur as companies submit their
reports.
COMMISSION DECISION
Does the Commission wish to adopt the Administrator s recommended Option No.5 to
increase the surcharge rates to $0.12 for residential lines, $0.22 for business lines and $0.004 per
DECISION MEMORANDUM - 4-AUGUST 26, 2005
intrastate MTS/W A TS minute? Does the Commission also approve an access rate decrease for
Cambridge Telephone Co. and Inland Telephone Co. to the statewide threshold level and the
corresponding changes in USF draws?
Does the Commission wish to adopt Staffs recommended Option No.4 that increases the
surcharge rates to $0.12 for residential lines, $0.22 for business lines and $0.004 per
MTS/W A TS minute, but does not adjust the access rates of Cambridge and Inland Telephone
Co.
Does the Commission wish to adopt a different funding option?
ttU
Grace Seaman
i:udmemos/IUSF 2005
DECISION MEMORANDUM - 5 -
L41-
AUGUST 26, 2005