Billing Q & A with Jim O’Neill

Q—Can you provide some information on the federal Universal Service Fund (USF) and how it is administered?



A—The USF started with the Communications Act of 1934. Before the fund was introduced, telephone service was a high-cost luxury item not available to low-income families and hardly available at all in many rural communities. The Telecommunications Act of 1996 expanded the USF boundaries to provide support for schools, libraries and rural health care providers.

The Federal-State Joint Board on Universal Service was established immediately after the 1996 act was signed. The board consists of FCC commissioners, state utility commissioners and a consumer advocate representative. Its charter is to make recommendations for implementing the universal service provisions of the act.

Previously, only long-distance companies paid fees into the fund. Today, the fund gets mandated contributions from all U.S. telecommunications companies, including local, long distance, wireless and paging companies, as well as pay phone providers. The 1996 act also states that providers should contribute in some equitable and nondiscriminatory manner.

The fund is administered by an organization known as the Universal Service Administrative Company (USAC), which follows regulations issued by the FCC. Note that while the objective is to provide benefits to consumers who need telecommunications, it is the companies providing telecommunications and related services that draw money directly out of the fund to defray the costs of delivering discounted services to those consumers.

The USAC is a private, not-for-profit corporation that is responsible for providing every state and territory in the United States with access to affordable telecommunications services through the USF. All of the country’s communities—including remote areas, low-income neighborhoods, rural health care providers, and public and private schools—are eligible to seek support from the fund.

Currently USAC administers four universal service programs, each designed to address a specific category of need. They include programs to provide support for telephone service in high-cost areas of the country, to enable low-income consumers to obtain and retain telephone service, to assist schools and libraries in purchasing telecommunications and information services, and to assist rural health care providers in purchasing these services.

To generate the revenue necessary to fund these programs, telecommunications companies must pay a percentage of their interstate end-user revenues—their “contribution factor”—to the USF. The contribution factor changes four times a year and may be increased or decreased depending on the needs of the programs at any given time. The current contribution factor, for the first quarter of 2003, is 7.2805 percent.

The exact percentage that companies contribute is adjusted every quarter based on projected universal service demands.

Because the long distance market is competitive, the FCC does not heavily regulate long distance company charges for service. As a result of this flexibility, long distance companies are permitted to, and do, take varying approaches to recovering the costs of their contributions to the universal service funding mechanisms. Each company makes a business decision about whether and how to assess customers to recover these costs. Not all companies impose specific universal service charges on bills.

Some companies contributing to universal service have recently added itemized charges—such as a “universal service fee”—to residential customer bills (many business customers have been receiving bills containing itemized universal service charges since January 1998). These charges and fees may either be a percentage of the customer’s bill, typically between 4 percent and 5 percent, or a flat, monthly charge, typically of less than $1.

It is important to remember that the FCC did not tell companies whether or how to adjust customer rates in response to the universal service payments, so the charges can vary significantly from one company to another.

You can find additional information and details of Universal Service Fund activities at these Web sites:

• www.benton.org/Policy/Uniserv is a general information site that seeks to consolidate USF information.

• www.lifelinesupport.org is the site maintained by USAC.

• www.fcc.gov/wcb/universal_service/welcome.html provides information from the FCC perspective.



The questions in this column were recently asked by delegates who attended the TeleStrategies “Understanding Telecommunications Billing” seminar led by Jim O'Neill. If you have any questions related to billing and would like to see them answered in Jim’s column, please email Jim at oneill@billingworld.com or fax them to Billing World & OSS Today at 703-556-8445.