The New Universal-Service Rules: Less Than Meets the Eye

On May 8 the Federal Communications Commission released its long-awaited rules defining how universal telecommunications service will be achieved. The ruling is, to be charitable, underwhelming.

Universal service has been public policy since the Telecommunications Act of 1934, which established the FCC "to make available, so far as possible, to all the people of the United States a rapid, efficient, nationwide and worldwide wire and radio communications service with adequate facilities at reasonable charges."

In the days of AT& T's almost monopoly, universal-service goals were pursued primarily through antitrust exemptions that were granted in return for internal cross-subsidies. In other words, AT& T used income from easy-to-serve urban customers to subsidize service to higher-cost rural areas. In today's multicarrier world, interstate carriers pay into a Universal Service Fund, which, in turn, subsidizes carriers providing service to rural areas and low-income subscribers.

The Telecommunications Act of 1996, despite its generally deregulatory intent, reaffirms and expands universal-service goals. The act establishes six principles governing universal service. One principle states that consumers in all regions, including low-income consumers and those in rural areas, should have access to telecommunications and information services, and that these services should be reasonably comparable in scope and price with those services provided in urban areas.

Underwhelming Ruling

Implementation of these goals, however, was left to a joint federal/state board and an FCC rule-making process. Given the 1996 act's broad goals, the FCC's May 8 ruling is surprisingly, and exceptionally, narrow. The ruling primarily refines existing procedures for administering universal-service funds and establishes targeted discounts for schools, libraries and rural health care providers. The ruling does nothing to foster "access to advanced telecommunications and information services" for the general public.

The FCC limits "supportable" services to "voice-grade access to the public switched network, with the ability to place and receive calls; Dual Tone Multifrequency (DTMF) signaling or its functional equivalent; single-party service; access to emergency services, including, in some instances, access to 911 and enhanced 911 services; access to operator services; access to interexchange services; access to directory assistance; and toll-limitation services for qualifying low-income consumers." Notably absent are any references to digital services (for example, the Integrated Services Digital Network) or even toll-free Internet access for the general public.

Schools and Libraries

The ruling provides special support for schools, libraries and rural health care providers. Schools and libraries can obtain discounts on telecommunications services (including wireless services), Internet access and internal connections (for example, inside wiring, routers and hubs). Discounts range from 20 to 90 percent, with more disadvantaged schools and libraries receiving higher discounts.

To obtain discounts, schools must first obtain competitive bids for services. Carriers must offer the lowest prices offered to similarly situated nonresidential customers, and the discounts are then applied to the winning bid. Schools are required to meet a variety of requirements, including having a technology plan in place and self-certifying such information as the number and types of computers in place, internal connections available or budgeted, and staff experience and training. Funding will be provided on a yearly basis, with overall funding capped at $2.25 billion per year.

Applying to the Fund

Administration of the program was to have begun on July 1, at which point applications would be accepted for calendar 1998. Currently, information is sketchy as to the exact application procedure. Some documentation indicates that carriers will be the ones ultimately applying to the Universal Service Fund, while other materials indicate that schools must apply. Watch the FCC's World Wide Web site ( for details.

Interestingly, these subsidies also are available for services obtained from noncarriers, such as Internet Service Providers, providers of internal network maintenance and electricians. Again, the detailed procedures for obtaining such subsidies are not yet clear.

Somewhat different benefits are available to public and nonprofit rural health care providers. In general, eligible users can obtain services at up to T-1 speeds, at the prices available in the nearest urban area. Rural health care providers also can obtain support for up to 30 hours of Internet access per month at local calling rates, or $180 in toll-charge credits. Carriers providing these services will receive subsidies from the Universal Service Fund. Total subsidies are subject to a cap of $400 million per year.

Think Big, Plan Broad

The May 8 ruling does little to help communities develop a 21st century telcommunications infrastructure. The special provisions for schools, libraries and health care may, in fact, hurt rather than help.

The best strategy for a community is to plan its telecommunications infrastructure on a communitywide basis. Just as a university builds a single network to serve all the buildings on campus, or a firm has a single network to serve all the users within an office, a community needs to identify its telecommunications needs, plan its telecommunications infrastructure and negotiate with telecom carriers from a position of strength by aggregating the broad-based needs of the community.

If schools, libraries and health care providers each obtain discounts on their own, the opportunity to address needs on a communitywide basis will be lost, and a community's negotiating leverage will be diluted. (While the FCC ruling allows buying consortia, in general, such consortia must contain only entities eligible for subsidies.) Furthermore, the funding caps and year-by-year renewal requirements of the subsidies make long-term planning difficult. Moreover, while the FCC's ruling may bring improved telephone service to rural areas, it does little to bring advanced services to the average user. Seemingly attractive subsidies for schools, libraries and rural health care are unlikely to help. And they are more likely to dilute negotiating leverage and divert focus from meeting a community's overall telecommunications needs. Look at these special provisions with extreme skepticism, except if you can find ways to use such provisions to support an overall communitywide strategy.

If you are considering implementing a telecommunications infrastructure, conduct a communitywide planning process to identify all your community's telecommunications needs. Then, armed with this knowledge, you will be prepared to negotiate with carriers for a common-user solution that provides economies of scale to all telecommunications users in your community.

The initial rules were released May 8. For the complete ruling, see

Miles Fidelman is president of the nonprofit Center for Civic Networking, which maintains a Web site at that focuses on municipal telecom. He can be reached at [email protected]


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