Federal Internet Law & Policy
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Universal Service

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Universal Service: "The goals of Universal Service, as mandated by the 1996 Act, are to promote the availability of quality services at just, reasonable, and affordable rates; increase access to advanced telecommunications services throughout the Nation; advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas. In addition, the 1996 Act states that all providers of telecommunications services should contribute to Federal universal service in some equitable and nondiscriminatory manner; there should be specific, predictable, and sufficient Federal and State mechanisms to preserve and advance universal service; all schools, classrooms, health care providers, and libraries should, generally, have access to advanced telecommunications services; and finally, that the Federal-State Joint Board and the Commission should determine those other principles that, consistent with the 1996 Act, are necessary to protect the public interest. " FCC WCB TAPD :: FCC WCB TAPB Proceedings with Open Cycles

Universal Service Programs:


"One system, one policy, universal service." -Theodore Vail, AT&T
In 1899, The Atlanta Telephone Company and the Southern Bell Telephone and Telegraph Company both offered service in Atlanta. "The two competing companies did not provide interconnecting service. You could only call other customers service by the same company. This forced most retail businesses to have dual service, listing both telephone numbers on their advertising. Some businesses managed to get the same telephone number on both systems. Others had completely different numbers on the two systems. An ad for Loftis Plumbing shows that they could be reached on Atlanta Telephone's exchange by asking for number 1184. On Southern Bell's system, they were on the Main office, number 1846. Some businesses, such as Williams Lumber had the same telephone number on both systems. This type of competition was very common during this period in cities throughout the United States and Canada." - Atlanta
Most of these pioneer exchanges were Western Union rather than Bell installations particularly in places distant from Boston, where Western Union had existing telegraph facilities while the Bell company had to start from scratch. Often a Bell exchange would follow quickly on the establishment of a Western Union one, giving American towns their first taste of the curious problem of having two telephone systems, not interconnected. - Brooks, p. 65.
Approximately 13% of subscribers subscribed to multiple phone services. [Mueller p 7]
"Two exchange systems in the same community, each serving the same members, cannot be conceived of as a permancy, nor can the service in either be furnished at any material reduction because of competition, if return on investment and proper maintenance be taken into account. Duplication of plant is a waste to the investor. Duplication of charges is a waste to the user." Theodore Vail, 1907 [Coon. 102] [Brooks 132]
Each year has seen some progress in annihilating distance and bringing people closer to each other. Thirty years more may bring about results which will be almost astonishing as those of the past thirty years. To the public, this "Bell System" furnishes facilities, in its "universality" of service and connection, of infinite value to the business world, a service which could not be furnished by dissociated companies. The strength of the Bell System lies in this "universality." -Theodore Vail [Brooks 132]

The concept of universal service has been around since the turn of the century. The first true articulation of the concept is attributed to Theodore Vail, President of AT&T. [Dept. Commerce 1994] The turn of the century was an age of intense competition in the phone market after Alexander Graham Bell's patents had expired - much like the intense competition in the dot-com boom and the railroad boom. In any one market several companies may be vying for customers. But the networks did not interconnect and therefore one person on one network could not call another person on another network. One network could call Joe, another network could call Mary, and a third network was necessary to call Jane, but none of these networks could talk to each other. As a result, offices were required, in order to reach everyone, to have five incompatible phones from five incompatible and not connected telephone companies. [Mueller p 51 1997] [Brooks 104] See also Instant Messaging (no interconnection solution), History of the Internet (DARPA sponsored R&D solution) (exploring the problem of non interconnecting networks).

It was in this context that Vail came up with his alternative vision: "one system, one policy, universal service." [Copy of the AT&T Advertising Campaign] [AT&T Annual Report 1910] [Iardella 31] This vision is different from the concept of universal service which we have today. Vail's vision was premised on the idea that the way to get all of the telephones to talk with each other was to get rid of all of the competing, non-interconnected telephone networks. In order to achieve this, AT&T was more than glad to step in as the monopoly (the other solution would have been to require interconnection). [Mueller Mythology Made Law] [Fraser] [Cooper]

AT&T finally realized its dream of becoming the official blessed monopoly by the 1930s. [Mueller 1997] [Fraser] (See AT&T for more on the history of AT&T that led it to becoming a government sanctioned monopoly) It has been argued that a different motive of AT&T for becoming a government sanctioned monopoly was to avoid Progressive Era pressures to nationalize the telecommunications network; a government sanctioned and regulated monopoly was a compromise.

The next step in the evolution of universal service was the Communications Act of 1934. The Act, in its preamble, stated that the Federal Communications Commission was created

for the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges.

[Section 151 of the Communications Act of 1934, 47 U.S.C. § 151.] There was no other reference to "universal service" in the Act or the legislative history. [Mueller p 157] Since this was merely a policy statement in the preamble, not specifically calling for any program or action, it could easily have amounted to nothing more than a happy thought. There was no further legislative mandate for universal service for sixty years until the Telecommunication Act of 1996.

Milton Mueller argues that the modern vision of "universal service" was was born in the 1970s with the reintroduction of telephone service competition. MCI and Sprint had entered the scene and were introducing long distances services. The problem for AT&T was that it had been using over priced long distance service to subsidize local service. MCI and Sprint had the advantage not only of undercutting overpriced AT&T long distance rages, but also of interconnecting with subsidized local services. In response to this competitive threat, Mueller argues, AT&T campaigned to oppose the entrance of competition and revised the history of "universal service" as an AT&T mandate stemming back to the Communications Act of 1934. [Mueller p 162]

The concept of Universal Service has morphed from Vail's vision of "one service in which every telephone can call to every other phone" to "a telephone in every house" pursuant to the Telecommunications Act of 1934. Current policy discussion contemplates whether universal service should be extended to next generation broadband networks.

Broadband Plan Recommendations

Sen. Ted Stevens

Universal Service Report to Congress (Steven's Report)

"In a Report to Congress, the Commission revisited many of its major decisions related to the implementation of the universal service provisions of the Telecommunications Act of 1996. Today's Report is consistent with the Commission's aim of ensuring that low-income and rural consumers have access to local telephone service at affordable rates and that an evolving level of telecommunications services are available and affordable for all Americans. At the same time, the Report reaffirms the Commission's commitment to encouraging the continued development of new services and technologies. 

"As required by Congress, the Commission analyzed several definitions in the 1996 Act and the impact of the Commission's interpretation of those definitions on the current and future provision of universal service. The major findings of the Report are detailed below.

Definitions and Policy Implications for Universal Service and the Internet 

The 1996 Act requires providers of interstate telecommunications services to contribute to universal service funding mechanisms on an equitable and nondiscriminatory basis. Pursuant to Congress's directive, the Commission reviewed various statutory definitions, including definitions of "information service," "telecommunications," and "telecommunications service." The Commission concluded, as it had in its Universal Service Order, that the categories of "telecommunications service" and "information service" in the 1996 Act are mutually exclusive and consistent with preexisting definitions. The Commission found generally that Congress intended to maintain a regime in which information service providers are not subject to regulation as common carriers merely because they provide their services via telecommunications. The Commission also reaffirmed that information service providers are not subject to universal service obligations, the access charges paid by long distance providers, or rate regulation. 

The Commission stated that its analysis of these important definitional issues reflects a consistent approach that will safeguard the current and future provision of universal service to all Americans and will achieve the 1996 Act's goal of a "pro-competitive, deregulatory" communications policy. Thus, the Commission found, in general, that continued growth in the information services industry will buttress, not hinder, universal service.

The Commission stated that the provision of transmission capacity to Internet service providers constitutes the provision of "telecommunications." As a result, telecommunications providers offering leased lines to Internet service providers must contribute to universal service support mechanisms. The Commission found that at least some leased-line providers currently are complying with that requirement, and the prices paid by Internet service providers for their leased lines reflect that universal service obligation. As Internet-based services grow, Internet service providers will have a greater need to lease lines. The payments for those additional leased lines will in turn lead to increased universal service contributions by leased-line providers.

In cases where an Internet service provider uses its own transmission facilities to provide an information service, the Report notes that the Commission's rules currently do not require Internet service providers to contribute to universal service support mechanisms. The Commission stated that, as a theoretical matter, it may be advisable to exercise its discretion under the statute to require such providers to contribute to universal service. The Commission acknowledged, however, the difficulties associated with determining the amount such an Internet service provider should contribute to universal service. 

The Commission also examined the application of the statutory definitions to various new services, as required by Congress. In particular, the Commission reviewed services that are generally described as Internet telephony services. Some forms of Internet telephony involve the use of ordinary telephone handsets and employ an Internet protocol (IP) in routing calls to their destination. The Commission observed that certain forms of phone-to-phone IP telephony lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services." The Commission, however, did not find it appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual IP service offerings. 

Federal Funding of Universal Service ("25-75")

The Commission also reviewed its decisions regarding the percentage of universal service support provided by federal mechanisms. The Commission noted that, prior to adoption of the Universal Service Order, interstate rates generally

recovered 25 percent of local telephone network costs. Through the operation of an explicit universal service support mechanism, some non-rural local telephone companies did recover slightly more than 25 percent of costs through interstate rates. In the Report, the Commission concluded that a strict, across-the-board rule that provides larger local telephone companies with 25 percent of their total high cost support might, in essence, reduce the amount of federal support these companies receive.

The Commission stated that it would work to ensure that states do not receive less funding than before as it implements the new high cost universal service mechanism under the 1996 Act. The Commission's work in this area is not yet complete. It committed to issuing an order which reconsiders the "25-75" decision before the new universal service mechanism is fully implemented. In addition, the Commission committed to consult with the Universal Service Joint Board to address the viability of the 25-75 approach as well as various alternatives. The Commission acknowledged that a state may require greater assistance than it currently receives from interstate sources in order to maintain affordable rates. As states develop plans to reform their own universal service mechanisms, additional federal support may be required to ensure that quality services remain available at just, reasonable, and affordable rates. 

In addition, the Commission stressed that there is no change in the mechanism for determining the amount of federal universal service support for rural local telephone companies. Moreover, there will be no change to the mechanism until January 1, 2001, at the earliest. Only the amount of federal universal service support for non-rural telephone companies was under consideration in this Report.

Who Contributes to and Who is Eligible to Receive Universal Service Support

In addition, the Commission reviewed its decisions with regard to which entities are required by the 1996 Act to contribute to federal universal service support and which entities are eligible to receive such support. The Commission concluded in the Report that it had properly interpreted the 1996 Act to require contributions from all telecommunications carriers who provide interstate telecommunications services. Additionally, after carefully evaluating the general standards of eligibility for support set forth in the 1996 Act, the Commission stated that certain of these provisions appeared to be susceptible to more than one interpretation. The Commission, however, found that it had properly implemented eligibility rules that are consistent with both the language and spirit of the 1996 Act.

-FCC News Release