These Comments are submitted on behalf of the Washington Independent Telephone Association (WITA) in the rulemaking portion of the universal service docket. Specifically, these Comments will focus upon responding to the questions set forth in the Commission’s Notice of Rulemaking. GOAL OF UNIVERSAL SERVICE 1. What should be the goal of a Washington universal service support system and fund (USF)? In your answer, please include a separate paragraph which specifically details the ramifications your answer would have for various consumer groups, including residential and small and large business consumers. Response: As stated by the Legislature in ESSB 6622, the purpose or goal of the Washington universal service support system is to benefit telecommunications ratepayers in the state by minimizing implicit sources of support and maximizing explicit sources of support that are specific, sufficient, competitively neutral and technologically neutral to support basic telecommunications services for customers of telecommunications companies in high-cost locations. Stated another way, the goal of universal service should be to ensure that all consumers have access to advanced, quality telecommunications services at affordable rates. Rates and services should be comparable in urban and rural areas. The Washington universal service program should also ensure that there is an incentive and ability to invest in an upgrade of the telecommunications infrastructure throughout the state of Washington. Without adequate support to ensure just, reasonable and affordable rates, residential and business customers (both small and large) in high-cost locations will not be able to obtain comparable telecommunications services at rates comparable to those received by the urban customers. It may be that in an environment without USF support, medium and large businesses can continue to obtain the telecommunications services they desire. However, in rural areas it may be at prices that would appear to the reasonable observer to be excessive. The effect that situation would have on rural economic development could be catastrophic. Medium and large businesses generally have a choice as to where they will locate. Certainly, one of the factors that they will consider is the cost, as well as the quality, of the telecommunications services available to them. If the cost is high or the quality is uncertain, medium and large businesses will not locate in rural areas. This has a dampening effect on the small business and residential customers’ ability to earn a living and continue to be able to enjoy working and living in rural areas of the state. 2. Should the USF program guarantee sufficient operating revenue to companies serving high-cost locations no matter how much market share is lost to competitors? Response: If competition operating by itself will result in the creation of newly disenfranchised (unserved) customers, there needs to be some mechanism in place to prevent that from happening. There should be a vestige of the social compact that underscores the policy goal of universal service. The social compact is that if a company agrees to provide the infrastructure to serve as the carrier of last resort for customers in rural areas, that company should receive a reasonable return on that investment. The effect on customers of not providing sufficient operating revenue is that there will be no service. If competitors are successful in capturing some of the more lucrative segments of rural service, a negative answer to this question implies that a company must operate at a loss to serve the remaining customer base. Because a company cannot survive for very long operating at a loss, customers could go without service. 3. What relationship, if any, should payments from a universal service fund bear to changes in efficiency and productivity of the recipient? Response: To the extent that a recipient of universal service funds does become more efficient or more productive, then it should follow that USF payments can be reduced. Presumably, there will be some cost of service benchmark above which support will be provided. To the extent that a recipient gets closer to that benchmark in its operations, payments from USF decrease. For many rural companies, there is not a lot that can be done on the surface to improve efficiency or productivity. Most small companies have only the essential employees that they need to operate. There is not a layer of middle management that can be reduced. They have no ability to cut 20% of their workforce to obtain “greater efficiency.” They generally have only one switch and only the needed distribution system to serve customers from that switch. SUPPORTED SERVICES 4. Should USF provide support for each customer’s primary line only? Or should USF provide support for all lines or some number of lines greater than one but less than all lines? Response: Support should be provided for all lines. Historically, all lines have been supported. Support for less than all lines will create unwanted adverse effects for customers and will be administratively difficult to address. What appears to be happening in rural as well as urban areas is that the second line is developing into the line that is used for Internet access. Although the concept of access to the Internet is not one of the basic services within the definition of basic telecommunications services contained in ESSB 6622, under Section 254 of the Telecommunications Act of 1996, universal service is to include access by customers in rural and high-cost areas to advanced telecommunications and information services. Supporting only the primary line and requiring the second line or third line to be at a price much higher than the primary line would discourage the purchase of that line and thereby discourage access to the Internet and other advanced services. This would deprive residential customers in rural areas of the opportunities afforded urban customers. It would also have an effect on businesses in rural areas. If only the primary line is supported, then all other lines would be priced at a much higher level. This raises the cost of telecommunications services to those customers and discourages their locating in or remaining in rural areas. From an administrative standpoint, supporting only the primary line would be difficult to administer. Multiple primary lines to homes are difficult to detect and monitor, and there are easy ways for customers to get around the restrictions to obtain more than one primary line. The cost of administering a primary-line-only system would increase the administrative burden on all companies. There would be a need to develop accurate tracking and monitoring systems of primary and secondary lines both within and between companies. For example, a husband and wife could each order a primary line from a company, and that company would have to be able to detect and correct the fact that there are two primary connections to a single address for a single family. Tracking problems also arise if a customer orders primary lines from more than one company. In the event that there is competition between companies and, for example, a customer orders a wireless “loop” from a wireless carrier and a land line loop from a land line carrier, which is the primary loop? 5. - 9. Questions 5 - 9 relate to supporting less than all lines. Response: WITA does not advocate supporting less than all lines. However, the complexity that these questions raise underscores WITA’s comments about the difficulty of administering and the cost of administering a program that supports less than all of the lines. 10. Should unsubscribed lines be supported? Response: One of the ways that all companies, including companies serving rural areas, provide for efficiency of investment is to build a network which is planned to accommodate expected growth over a reasonable forecasted period. To the extent that a company is stringing or plowing cable, it is more efficient to put in a 24- cable pair to accommodate expected future growth than to install a 6-cable pair. The same concept holds true in the wireless arena. If there is expected growth, it is more efficient to put in the facilities at one time to serve that expected growth than to go back and reconstruct facilities. A program which bases support on construction of a hypothetical network consisting only of actual working loops discourages this efficiency and would actually drive up the cost of a universal service program over time. 11. Universal service is intended to assure affordable access to the network to use a group of enumerated services (See ESSB 6622, Sec. 1(7)(b)(i) through (ix)). Many customers desire additional features or services, for example, call waiting, voice mail, and call blocking. Should features or services in addition to those which constitute basic service, when provided to customers in high-cost locations, be priced the same, or higher or lower than they are priced in non-high-cost locations? Response: Congress has directed that rates for telecommunications services in rural areas be comparable to rates for similar services in urban areas. This directive does not appear to be limited to basic services. From a practical standpoint, it is probably the case that the revenues received from these services, such as call waiting and call blocking, are so small in rural areas that the question does not deserve in-depth study. WITA notes voice messaging mentioned in the question is largely an unregulated service not subject to Commission oversight. 12. When an incumbent local exchange carrier (ILEC) provides unbundled network elements (UNEs) to another carrier designated as an ETC, how should USF support be allocated between the companies? Response: In part, this depends on how the ILEC is allowed to price the unbundled network element. If the pricing occurs based upon the same cost characteristics that go into the universal service support mechanism, including a reasonable return on the investment, then the support could probably be provided to the competitor up to the level of the price paid to the ILEC for the unbundled element. However, if the unbundled network element is priced on some other theoretical pricing model other than the basis that the USF support is received by the incumbent to serve that particular area, then the support should continue to go to the ILEC. Under this scenario, in essence the USF support is already flowing through to the CLEC in the pricing of the unbundled network elements. 13. Should the universal service fund be used to pay for infrastructure necessary to provide service to potential customers who do not reside within established company service areas? Response: The concept of established company service areas is rapidly becoming a concept that has no meaning. Competitive entrants are routinely granted statewide serving authority. Historically, incumbents have, from time to time, chosen to serve customers outside their service areas because they could either do it more efficiently than the company in whose service area the customer resides (the company with the service area may have facilities much further away than the other company) or because they could efficiently extend service to a customer in an unserved area. Since the goal of a universal service program appears to be, and should be, to serve as many customers who reside in high-cost areas as can be reasonably served, any company that is serving a customer or is compelled to serve a customer under some policy for obligation to serve concepts should receive universal service support for that service. AFFORDABILITY AND COMPARABILITY 14a. What rate(s) for basic telecommunications service are affordable in Washington? Response: The level of the affordable rate for the state of Washington should be based on a combination of current rate levels, calling scope, total customer bill for all telecommunications services, and population density. It might be argued that current rate levels constitute affordable levels based upon relatively high subscribership within the state. However, it may also be that telecommunications service is relatively inelastic, at least as far as basic telecommunications service is concerned. It is unlikely that any price elasticity of demand studies have been done in rural areas of the state of Washington. In any event, Congress has directed that rates for telecommunications services in rural, high-cost areas be comparable to rates for the same services in urban areas. To meet this objective, the statewide average urban rate (including SLC and taxes) could be set as the initial affordability benchmark. Or, a set level (such as $25 per month including SLC and taxes) could be set with companies below that amount allowed to rate rebalance. 14b. Is there a different affordable rate for a business and a residence? Response: WITA is still formulating its position on this issue. However, to the extent that business rates are priced well above residential rates without cost support for the difference, then the higher prices for business services would constitute an implicit subsidy. 14c. For a small business versus a large business? Response: See above. 15. Should business and residential lines be priced differently? If so, on what basis? Response: Historically, residence and business rates have been set at different levels based upon a value of service as opposed to a cost of service concept. To the extent that there is a difference in the cost of service, that difference in cost of service should be recognized in pricing. However, to the extent that current rates for business service provide a subsidy to residential service, and therefore also constitute a pricing anomaly that allows competitors to focus solely or primarily upon business markets rather than ubiquitous service, then pricing of residence and business service should reflect their cost characteristics rather than the value of service concepts. 16a. If all lines are supported, should second lines be priced at the same level as primary lines? Response: Yes. The reasons for doing so are the same reasons set forth in the response to question 4. 16b. Should there be an even greater charge for each additional line above two? Response: No. As discussed earlier in these responses, multiple lines for residences and businesses in rural areas should not be discouraged. In addition to providing the customers with access to such services as the Internet, it allows customers to meet the same sorts of customer-driven needs that exist in urban areas at rates comparable to urban areas. On the business side of the equation, higher prices for second and third lines would simply act as a deterrent for those businesses to locate in rural areas, and thereby would have a dampening effect on rural economic development. 16c. Would this present administrative problems and expenses? Response: Yes. To the extent that pricing for second or third lines is higher, some of the same tracking mechanisms that would need to be put in place if only the primary line is supported would still need to be developed. Tracking the first line versus the second or third line would need to occur. There would need to be tracking of orders to addresses and a determination of whether or not there is more than one family living at the address. Questions such as if there is a mother-in-law apartment, does a line to that apartment constitute a second line, would arise. To the extent that administrative costs increase, then the overall cost of operation increases, and a higher level of universal support is needed. The administrative cost increases would offset, at least in part, any additional revenue that would be received from the higher pricing of the second or third lines. 17a. If all lines are not supported and second lines are priced at cost, will the rates for high-cost and non-high-cost areas be “reasonably comparable” as required by the Telecommunications Act of 1996? Response: No. There is no distinction necessarily contained within Section 254 of the Telecommunications Act of 1996 between a primary line and additional lines. In addition, the Federal Communications Commission has, at least for the present time, determined that support should flow to all lines. 17b. Will the access to telecommunications and information services be reasonably comparable? Response: No. See earlier responses to questions 4 and 10. 17c. Expressed in dollars or as a multiple (e.g., twice, four times), what rate above your answer for an affordable rate (question 14) would no longer be “comparable?” Response: Any multiple such as twice or four times the existing rate would not be a comparable rate. While the rates do not have to be identical, a 100% increase (i.e., twice the urban rate) does not, on its surface, constitute a comparable rate. It is too early to determine whether a price difference of 10% or 20% above the urban rate makes the rates no longer comparable. The factors that are described in response to question 14a would need to be considered. The effect on residential customers and small and large businesses for pricing of rates for second or third lines at twice or some other multiple above the urban rate has the same effect that has been described in response to other questions. It dampens economic development in rural areas, and it has the effect of discouraging customers from subscribing to the additional lines. USF BENCHMARK 18. What cost of providing basic telecommunication service in Washington should be deemed to be “high cost” (what is the benchmark figure)? How should it be determined? Response: The benchmark rate could be established by determining the statewide average cost to provide service. Companies would be eligible to receive support for costs above the benchmark cost. Support could be provided at a percentage above the statewide average cost, such as 115% or 120%. The resulting rate would need to be reviewed to be sure that it produces an affordable rate. See response to question 14. 19a. Should the benchmark be company specific? Response: No. The benchmark should be based upon the statewide average costs. 19b. If so, what common factors should be used to derive the benchmark number for each company? (If you are answering for a carrier and your answer to part one of this question is yes, please state in dollars the benchmark you recommend for your company and how you determined it.) Response: Not applicable. 19c. Should the benchmark be higher or lower for some technologies based on the traditional differences in customer revenue associated with different technologies? Response: The response provided by WITA is that the benchmark should be based on cost rather than revenue. 19d. How should it be calculated for each technology? Response: The benchmark should be calculated based upon a statewide average cost of providing service. It should not differ between technologies. To be more specific, the statewide average cost of providing service should be based upon wireline technology which is currently the basis for providing ubiquitous service within the state. To the extent that wireless carriers wish to avail themselves of universal service funds, they would be able to port those funds based upon the underlying incumbents’ costs compared to the statewide average that is used to calculate support. Whether or not that is attractive to a wireless carrier would depend upon that wireless carrier’s own cost characteristics. To be technologically neutral, wireless carriers should be eligible to receive the USF support to the extent that they win customers. Technological neutrality does not mean wireless carriers’ costs must be included in a benchmark or that a separate benchmark is required. ELIGIBLE TELECOMMUNICATIONS CARRIERS 20. What process should be used to designate eligible telecommunications carriers (ETCs)? Should it be by petition? By some other process? Response: The Commission should use the same process outlined in the Telecommunications Act of 1996. Generally, that is a petition process initiated by the company seeking ETC status. 21. What criteria should apply to the designation of eligible telecommunications carriers? Response: Again, generally the criteria that are set forth in the Telecommunications Act of 1996 should apply. See Section 214(e). Carriers wishing to be designated as ETCs for service areas must demonstrate that they will offer all of the services included in the definition of universal service to customers throughout the service area either using their own facilities or a combination of their own facilities and resold facilities. It is important that the Commission ensures that carriers requesting ETC certification are able and will provide all services included in the definition throughout the entire service area. WITA continues to believe that it is problematic that wireless carriers can, as of today, provide all of the services. 22. At what geographic level (exchange, wire center, census block group or other) should ETCs be designated? Response: ETCs should be designated at the same geographic level that USF support is averaged over. If that is study area, then the ETC designation should be for study area. If it is for a grouping of census block groups, then for that area. This will prevent cream skimming of universal service support. The Commission is aware that significant work has been done in this area to disaggregate support. If the FCC approves the disaggregation of support concept that will soon be presented to it, then the designation should be at the grouping of census block groups by wire center that constitutes the “core” and “non-core” areas of the wire center. There is continuing work that will be done to try to bring the deaveraging or disaggregating of support to a finer level of granularity while taking into account administrative burden concerns. As finer levels of disaggregation are accomplished, then finer levels of ETC designation can occur. 23. Should a bidding process be utilized to select ETCs? If yes, describe in detail how such a process would work. Response: No. 24. What facilities, if any, should an ETC be required to self-provide? Response: No response at this time. WITA is still evaluating this issue. 25. Should the Commission adopt ETC basic service advertising guidelines that differ from the federal guidelines? Response: No. 26. For what service areas can the provision of support payments be reasonably administered? Response: WITA believes that at the present time, the provision of support payments on a disaggregated basis that can be reasonably administered is on a two-tiered basis for each wire center (the “core” and “non-core” areas described above). At this date, it appears that going below this two-tiered approach creates some administrative complexities that need to be addressed. It may be possible to address those within the coming year or so, but at the present time, those administrative problems have not been solved. 27. How should the USF be funded? What is an “equitable” basis for all telecommunications providers and services to contribute to the USF? Response: Funding should occur through a percentage surcharge on intrastate telecommunications services revenues. 28. What telecommunications carriers must contribute to the USF? Response: All providers of intrastate telecommunications services should contribute to the universal service fund. 29. How often should USF contributions be collected? Response: This is a question that should be determined by the administrator. It may be that quarterly or monthly contributions provide for the most efficient administration. 30. How should USF contributions be recovered by a carrier that also makes payments to the fund? Response: Payments from the fund should be netted against contributions to the fund for those carriers that contribute and also receive payments. ADMINISTRATION OF THE UNIVERSAL SERVICE FUND 31. Who should administer the USF and how should the administrator be selected? Response: The administrator of the universal service fund should be a neutral third party. The administrator should be chosen based upon consideration of cost, competence, experience, and efficient administration of the program. The administrator can be selected through an RFP process or through a building of industry consensus. 32. What role should the industry have in selecting and administering the USF? Response: If the industry can develop a consensus as to who the administrator should be, then they should have a role in selection. Otherwise, the Commission should select the administrator. In the administration of the USF, the industry should have a role. That role can be through an advisory group (perhaps a board of directors of a nonprofit corporation created to oversee the administrator) to guide the administrator on a monthly basis. That group could consist of representatives from the CLEC portion of the industry, the ILEC portion of the industry, and the consuming public. Commission Staff could serve as an ex officio member of that group. The group would oversee the work of the administrator who would report the collection and disbursement of funds on a monthly basis. 33. What are the responsibilities of the Administrator? Response: To collect from carriers the appropriate USF contributions and to disburse the USF funds in a timely fashion to the recipients. The administrator should develop a recommended USF rate based upon information provided by the companies. The administrator should test the reasonableness of company-provided numbers. To the extent that reasonableness of the numbers cannot be established by the administrator with the affected company or companies, those matters could be referred to an arbitrator or Commission Staff for resolution. 34. How should the Administrator handle proprietary and other data received from telecommunications providers? Response: The information should be treated as confidential information. There should be an agreement in place between the company that provides the information and the administrator which specifically details the handling of the confidential information. To the extent that confidential information is disclosed to members of the advisory group to allow them to fulfill their responsibilities in their relationship with the administrator, the members of the advisory group should also be bound by the confidentiality restrictions. 35. Are changes to RCW 42.17, public disclosure, needed for administration of the fund? Response: If the information provided remains with the administrator, it may be that no changes to Chapter 42.17 RCW are needed. However, because Commission Staff will need to have access to some of that information. To make it easier for Commission Staff to have that information and retain copies of such information at the Commission’s offices, Chapter 42.17 RCW should be amended to include in the list of exemptions from public disclosure, company-specific revenue requirement information, including, but not limited to, revenue requirement cost studies. 36. What authority should be granted to the Administrator to ensure program compliance of the individual USF contributors and recipients? Response: The administrator should enter into a contract with each telecommunications provider that either contributes to or receives universal service funds. The Commission should require each such company to enter into that contract. Within the contract, there should be specified duties that the company must meet, including the requirement to provide such information to the administrator as the administrator deems necessary to perform his or her function. There then should be a dispute resolution clause that allows the administrator to seek the information if it is not voluntarily provided. The decision maker for the dispute resolution could be an outside arbitrator or Commission Staff. 37. Who should perform audits of the USF (the program and the fund, not the participants) and how often? Response: The Commission should have the ability to audit the USF when, in its exercise of judgment, such audit is necessary. Individual contributors and recipients should also be able to perform audits of the USF no more frequently than annually. The cost of any audit should be borne by the company requesting the audit with the contract calling for those costs to be reimbursed if a certain threshold of discrepancy is found (5% or 10%). Commission Staff audits should be borne as part of the regulatory expense through the regulatory fees paid by companies to the Commission. 38. How should the costs associated with the administration of the USF be recovered? Response: The costs for administration of the USF should be recovered as part of the total calculation of the USF. It is then part of the USF rate and is collected from the contributing carriers. The cost of administration should be tested for reasonableness. For example, the Washington Exchange Carrier Association administers the existing $30 million NTS and USF pools at a cost of about 0.75% of the pool funds. 39. What operations systems of ETCs and contributing carriers will be impacted by administration of the USF? Response: WITA is not sure what is meant by “operations systems” in this context. If the question is directed towards existing billing systems, data collection and projection methods, the answer to this question depends upon the way in which the USF is established. If the USF is established in a way which is consistent with existing information collection systems, there should not be a negative effect on the operating systems of any contributing or receiving carrier. 40. How can administration of the USF most efficiently utilize the operations systems of ETCs and contributing carriers? Response: If the benchmark utilized in the USF program is established based upon the cost characteristics of the incumbent LECs, there should be a great deal of efficiency in the administration of the USF program. The incumbent LECs already gather the type of information needed to determine a statewide average benchmark. The competitive LECs have generally expressed concern about following FCC Parts 36 and 69 and have not set their systems up to track costs in such a fashion. If those companies are deemed to be at the statewide average, then the cost characteristics are not a relevant consideration. This then means that the competitor can win support by winning a customer, without having to j