Carriers Target Pa. USF for 'Extinction,' Seek Less Regulation

Pennsylvania’s biggest incumbent, Verizon, launched an all-out attack on state USF in comments Friday, urging that the Pennsylvania Public Utility Commission eliminate the fund. The carrier said the USF is archaic. In addition, AT&T joined Verizon in urging the PUC to reduce regulations, such as carrier of last resort (COLR) obligations. However, rural LECs argued that they will continue needing state USF support for as long as Pennsylvania heavily regulates them.

The telcos commented on an August advanced NPRM about amending state USF rules (docket L-2023-3040646). In December, Pennsylvania's USF administrator suggested reexamining the USF mechanism due to declines in the contribution base and annual reported revenue (see 2312070023). In a November interview, PUC Chairman Stephen DeFrank said the commission seeks to maximize contributions even though some don't want to pay (see 2311140035).

The Pennsylvania PUC "should rescind its current regulations and eliminate the USF, an archaic forced transfer of revenue from some regulated companies to the rural incumbent local exchange carriers," commented Verizon, a large contributor to the fund. “This 'fund' was supposed to be a temporary mechanism when it was adopted nearly twenty-five years ago, to help the RLECs transition to a competitive market. The competitive market has long ago arrived." More than 10 years ago, two administrative law judges recommended ending it, Verizon added. “Developments in the ensuing years have made this revenue transfer to the RLECs indefensible and there is no justification for its existence today.”

Don't fall for the "misconception” that mom-and-pop telcos receive most of the state's USF support, Verizon said. More than 80% goes to "companies affiliated with large and sophisticated telecommunications conglomerates, mostly owned by private equity funds, including foreign interests," Verizon added. Most of the $34 million paid in 2016 went to companies associated with Windstream ($13.3 million), Brightspeed ($7.4 million), Consolidated Communications ($5.4 million) or Frontier Communications ($2.7 million), Verizon said.

Rule changes should "moderate -- not expand -- the size and reach of the USF program to better align it with marketplace realities within the bounds of controlling law,” commented AT&T: Any company that wants to keep receiving USF support must demonstrate "the continuing need for the PA USF in any form." Pennsylvania USF "was never intended to be permanent," it added. Pennsylvania USF is “an anachronistic subsidy program,” agreed CTIA, which counts Verizon and AT&T as members. “Rather than looking for ways to maintain it, the Commission should scrutinize it for extinction."

Pennsylvania USF is “is hopelessly obsolete,” agreed the Pennsylvania Office of Small Business Advocate. “The fund today perpetuates a paradigm of landline phones making long distance calls that simply no longer exists."

The Pennsylvania Telephone Association disagreed. "So long as heavy regulation and the COLR obligation are maintained, so too should the USF." The RLEC association cast Pennsylvania as an “outlier,” with most other states having "fully or substantially deregulated their ILECs." Meanwhile, RLECs face a difficult operating environment, said the PTA. "The existence of powerful, dominant carriers, particularly wireless, have reduced market share to single digits. Yet, to meet their COLR obligation, the RLECs must maintain a robust network capable of providing service to all households and businesses in their respective service territories."

Eliminating USF support could increase end-user rates by 46%, the PTA said. "The best alternative would be for the Commission to implement a transitioned carrier designation, whereby a RLEC would choose to continue receiving USF proceeds and remain under COLR obligation and some form of streamlined regulation or, in the alternative, forego funding and be relieved of its COLR obligation and other regulatory burdens."

Continue state USF but prioritize affordability over infrastructure deployment because much federal support is coming for the latter, said the Pennsylvania Office of Consumer Advocate. “A pivot so the [Pennsylvania] USF may provide support more like the [federal affordable connectivity program] would bolster affordability and access as the FCC has recently announced a freeze on ACP enrollments and a plan to wind down the ACP program, in the absence of new federal funding.”

The PUC should tap the brakes, said the Broadband Communications Association of Pennsylvania. “Nascent and significant federal broadband infrastructure programs will impact the need for high-cost funding, including where and how much funding may be needed, if at all,” the cable group said. "Suspend this proceeding until the impact of the federal programs can be fully assessed.”

Some suggested that the Pennsylvania PUC cut red tape instead. "Reduce outdated regulatory burdens on incumbent and other regulated telecommunications companies, including the current fund recipients,” Verizon said. “These companies should no longer be subject to outdated regulatory obligations in locations where service is available from another wireline or wireless provider, particularly where construction of those competing networks has been subsidized."

The PUC should update companies’ "alternative regulation plans to eliminate any ongoing obligation for the ILECs to maintain facilities in place or to deploy to the ILECs’ retail voice customers a Chapter 30 'broadband' service (1.544 Mbps down and 28 Kbps up) in any location where a faster broadband service is available from any other wireline or wireless provider,” said Verizon. Second, classify all ILEC retail services as competitive "in any location where service is available from another provider of wireline or wireless service” as shown by the FCC’s national broadband map, it said. "This would exempt all ILEC retail services from rate regulation and tariffing in those areas.” Third, the PUC should declare "that an ILEC is not required to make line extensions to enable it to provide voice services where it does not have existing network facilities and where service is available from another provider of wireline or wireless service,” Verizon said. Meanwhile, AT&T urged the PUC to shed COLR obligations because it sees the market as competitive.

Commenters disagreed whether the PUC could expand the state USF contribution base and require all VoIP and wireless providers to pay into the fund. The commission currently requires landline and certificated VoIP providers to pay.

Verizon said the PUC lacks authority to assess wireless or VoIP providers. Similarly, AT&T said the PUC shouldn’t assess wireless. For VoIP, either assess all providers or none, "whether certificated or non-certificated, whether facilities-based or over-the-top," it said. And CTIA said it would be unlawful to assess wireless carriers in Pennsylvania because they’re not public utilities.

However, the state consumer advocate argued that assessing wireless and VoIP would be lawful and is fairer and competitively neutral. The state’s authority to assess intrastate revenue doesn’t depend on whether wireless or interconnected VoIP companies are jurisdictional public utilities, and the federal Telecom Act allows it, the consumer advocate said. The PTA also supported expanding the contribution base to cover all VoIP and wireless providers.