1. Competitive Universal Service TC 310 June 5, 2008

2. Universal Service Premise Network Externality  Individuals  Society Subsidies (implicit)‏ Rationale for Implicit challenged  Essential, people will pay  Programs don't keep people on USF funded by industry fees, not “taxes”

3. Current Programs Universal Service Fund  Life Line & Link-Up  Non-need based: High cost suppression  Broadband to schools/libraries  Broadband to rural health care facilities Without these, who leaves the network?  Isn't that our concern?

4. Competition Kills Old System Monopolies can cross-subsidize Competitive entities struggle to  Arbitrage rate opportunities  New telecom techs VoIP Wireless 1996 Act Mandates Explicit  Less popular, look like taxes Universal Service Problems Solely Regulation Based

5. Non-Needs Based Primary focus  Willing to pay at cost rate  Largest user of USF  Least socially desirable Greatest challenge to reform  Vested State interests  Arbitrage opportunities  Politically sensitive

6. High Cost Customers Pure competition would not serve rural communities State Demands  Carrier-of-last-resort (ILECs)‏  AT low costs USF helps cover costs  Eligible Telecommunications Carriers (ETC)‏  Wireless and CLECs compete

7. Non-Rural Carriers Interstate v. Intrastate  Interstate: Dominate ILECs lower rates USF makes up difference  Intrastate: Only help high averages (135%)‏ No help without this threshold Burden is on States  Free to experiment  Few do, leaving implicit subsidies in tact

8. Rural Carriers Small ILECs, few customers Insulated from 1996 Act  Safe from unbundling, pro-competition sections  Still face wireless & VoIP challenges  Untenable Still allow ECTs  Arbitrage opportunity  Enter market, get a subsidy  USF needs to keep growing!

9. Funding USF Impose both Intra and Interstate contributions  Supreme Court rules only has Interstate jurisdiction Long Distance bears burden  Based on retail revenues, approx 9% Problems  Fewer customers, competition  Unfairly dampens demand for services  No technological rationale

10. Solutions Connection-Based  Based on customer connections to public network  Irrespective of what technology  Exempts LD, they never connect customers, instead they use a LEC Numbers-Based  Assign numbers, make a contribution  Excludes LD and broadband  Does preserve 10 digit numbers

11. Information v. Telecommuncations Problematic distinction  Cable does not have to contribute  Telephone companies do (even for DSL)‏  VoIP also excempt Problem defining telecommunications Use numbers and connection together  Pulls in VoIP and Cable (bundled VoIP)‏

12. Universal Service for What? USF policies consider only voice as essential  USF applies to what is essential to society 1996 Act grants expanded authority  Likely to include “enhanced” services  Broadband minimally Do we need it?  Broadband subsidies already $2 billion  Makes more sense than telephone  Who's going to pay?