Small Business Administration: Office of Advocacy - Letter dated 4/29/97 - Federal Communications Commissions - Federal-State Joint Board on Universal Service (CC Dkt No. 96-45) and Access Charge Reform (CC Dkt Nos. 96-262, 94-1, 91-213, 96-263)

April 29, 1997

The Honorable Reed E. Hundt
Chairman
Federal Communications Commission
1919 M Street, NW Suite 814
Washington, DC 20554

RE: In re Federal-State Joint Board on Universal Service (CC Dkt No. 96-45) and In re Access Charge Reform (CC Dkt Nos. 96-262, 94-1, 91-213, 96-263).

Dear Chairman Hundt:

The Office of Advocacy applauds the Commission's reconsideration of the Federal-State Joint Board on Universal Service Recommended Decision's proposal that universal service support be limited only to single-lines in rural and high cost areas. Your decision to continue support for telecommunications providers that serve residents and businesses in rural and high cost areas with multiple-lines is critical to the economic and technological growth of rural America. We realize that implementing the Universal Service provisions of the Telecommunications Act of 1996 is an enormous task and that this effort involves a complex balancing of public policy and support mechanisms to meet the objectives of the statute. We appreciate your concern about the impact on small businesses, especially given the limited time frame under which the Commission is operating.

We also recognize that the immediate economic impact on small businesses in rural areas has been greatly reduced by implementing these proceedings in stages with the foundation to be established by May 8. In no uncertain terms, you have stated that costs for residential service will not increase. You have also proposed that rural teleco providers would continue to receive current levels of universal service fund (USF) support for both residential and business lines for a three year period, and a shorter transition period for high cost carriers. We commend this decision.

However, we are concerned that the Commission may be considering a reduction in support for businesses in rural and high cost areas with multiple-lines during the interim stages or once the transition periods are over. For example, although you have indicated that small rural telecos should continue to receive all the assistance that they currently receive, we are concerned about press reports that allegedly quote you after your appearance before the Senate Appropriations Committee's subcommittee on Commerce, Justice, State, and the Judiciary on April 16, to the effect that you do not believe that "second lines need the exact same amount of subsidy as first residential lines - first residential lines is clearly the highest goal. . . . They [second lines] should get some [support]."

This is an important issue. The impact of universal service reform on small businesses is a particular concern to the Office of Advocacy given the fact that 94.9% of all reported businesses in the United States have less than $5.0 million in annual gross receipts. Also significant is the fact that 50% of small businesses in the country have zero net income or profits. Therefore, any increase in telephone service could be a tremendous economic burden on small businesses and may deter technological progress in this business sector.

Currently, the universal service high cost fund subsidy is not allocated by either residential or business status - funds are distributed to telecommunications carriers equally for all lines. Therefore, anything less than the "exact same support as first residential lines" implies a reduction for multiple business lines. While we concur that first

residential lines are indeed a high priority, we are very concerned about the overall significant economic impact on small business if the current level of support is reduced. Such a reduction in support, simply because of the geographic location of the business, we believe is inconsistent with the statutory mandate to ensure that in rural areas "telecommunications and information services . . . are available at rates that are reasonably comparable to rates charged for similar services in urban areas." 47 U.S.C. § 254 (b)(3).

We have prepared Chart A which illustrates the impact of a hypothetical 25% and 50% reduction in universal service for small businesses. This chart indicates that a reduction of support could be significant on an average small business if the carrier's loss were passed on to their business customer. The methodology used for this illustration is based on NECA's October 1, 1996 Submission of USF Contribution to Loop Cost Recovery for USF Recipients in Various States and the California Small Business Association national survey results showing that an average small business in the country has 8 lines. We have multiplied the number of lines by the per line increase to the customer adjusted for a reduction in the USF/Loop contribution. These potential increases have been calculated for each of the selected states.

The following overview of Chart A clearly illustrates why the Commission's proposed interim approach and transition periods is the right decision:

Summary of Potential Annual Increases in the Cost Of Basic Telephone

Service for Small Businesses in Rural and High Cost Areas

(Hypothetical 75% of Current Levels of USF Support)

State	Average	High	Low
Arizona	$197	$1,883	$110
Kentucky	$14	$259	$1
Louisiana	$36	$1,243	$3
Massachusetts	$72	N/A	N/A
Missouri	$80	$973	$11
Montana	$76	$1,504	$1
New York	$52	$1,570	$2
North Dakota	$167	$668	$6
South Carolina	$27	$695	$18
Texas	$75	$8,489	$7
Virginia	$28	$321	$9

This overview clearly demonstrates that although some small businesses may see a nominal increase in their telephone bill due to a hypothetical 25% reduction in

universal service support - the potential increase for other small businesses may be significant, particularly those in the high percentage contribution areas.

If a reduction in support to multiple-line businesses is ultimately adopted by the Commission, other support mechanisms may be necessary to offset any significant increases. One such option is to provide a cap on the amount of an increase a telecommunications provider and/or customer would be subject to. For those areas that exceed a designated percentage or dollar amount, additional support from the federal fund could be provided. However, as previously noted, we believe that increases of any kind are inconsistent with the intent of the Telecommunications Act. If the Commission determines otherwise, we feel that there must be a cap on any increases for small businesses in rural and high cost areas after the transition periods.

The Commission has recognized that universal service and access charge reform are inter-related. As part of the first stage of access charge reform, an increase of the Subscriber Line Charge (SLC) for businesses in the amount ranging from $1.50-$6.00 per month and/or an use fee for Internet access will be considered by the Commission. The Office of Advocacy does not take issue with a reasonable increase of the SLC if there are no additional increases from other sources. We also acknowledge that for the May 8 statutory deadline, the Commission will address only access reform on price cap carriers, thus rural telecos are not expected to receive an increase in the SLC in this first stage. This would indeed benefit small businesses served by rural telecos. However, as stated in the Access Charge Reform NPRM, the Commission plans to initiate a separate proceeding later this year to undertake a "comprehensive review" of access charge reform for rate-of-return carriers. It is possible, given the desire to promote increased competition in long distance services in all parts of the country, that there may be a future need to equalize the amount of the SLC for all carriers. We simply encourage the Commission in its deliberations to consider the cumulative economic impact that the completion of all stages of universal service and access charge reform will have on small businesses.

Allow me to illustrate the economic impact of a hypothetical 25% and 50% reduction in universal service high cost support coupled with a hypothetical $3.00 monthly increase in SLC for both price caps and rate-of-return carriers. As previously note, the average small business has eight (8) telephone lines. Therefore, a $3.00 per line SLC increase would result in a $24.00 per month increase - $288 annually. The attached Chart B illustrates what the potential overall economic impact on an average small business would be if their telecommunications provider also received a reduction in the current level of universal service support combined with the estimated $288 annual increase in SLC charges. This impact ranges from a low of $302 to a high of $485 annual increase if there was a 25% reduction for the 'Average' of USF contributions in a selected state.

Granted, our analysis does not factor in a predicted cost savings in toll/long distance charges that may result from access charge reform. This is because all small businesses may not benefit from such savings. As reported in the Office of Advocacy's ex parte filing of April 4, 1997, small businesses have a varied use of local and interstate telephone service which is dependent on the type of industry, the location of the business, and the location of their customers. Not all small businesses may have a high enough volume of interstate calls, on each of their lines, to offset a substantial increase in the SLC and/or an increase in the cost of basic service. Of those businesses that do not generate a high volume of toll/long distance calls, a disproportionate number are most likely small businesses. These small businesses could be net losers of any significant SLC increase.

Furthermore, there is a great deal of uncertainty whether customers will ultimately receive any cost savings from interexchange carriers due to a reduction in access charges. These issues are not yet resolved. Therefore, we encourage the Commission to ensure that the cost of basic telephone service, independent of toll/long distance use, remains affordable for small businesses.

The Office of Advocacy is confident that the Commission will consider the cumulative economic impact of its universal service and access charge reform proceedings on small businesses in the immediate future and after the proposed transition periods. If you have any questions, please do not hesitate to contact me, or S. Jenell Trigg of my staff, at 205-6532.

Very truly yours,

Jere W. Glover
Chief Counsel

Attachments: 3

cc: Commissioner Susan Ness
Commissioner Rachelle B. Chong
Commissioner James Quello
Mr. Thomas Boasberg
Mr. James Casserly
Mr. James Colthorp
Mr. Dan Gonzalez
Ms. Regina M. Keeney
Ms. Catherine J.K. Sandoval