BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION In the Matter of: Establishing Universal Service Mechanisms Docket No. UT-9809311(r) COMMENTS OF UNITED STATES CELLULAR CORPORATION ON SECOND DRAFT UNIVERSAL SERVICE RULES I. INTRODUCTION United States Cellular Corporation ("USCC") was the first wireless carrier to seek eligible telecommunications carrier ("ETC") status in Washington State in order to participate in the federal universal service fund (USF) program under 47 USC § 214 and § 254. USCC was very excited about the prospect of involvement in the federal universal service process. It was also interested in working with this Commission to devise a workable role for wireless carriers in Washington's universal service process. As discussed herein the question of state authority to require wireless carrier contributions to a state USF has not been finally resolved and is the subject of pending federal appellate litigation. See Pittencrieff Order, 9 Comm. Reg. (P&F) 1041 (1997) (appeal pending D.C. Circuit). Initially, USCC believed that the Commission shared this interest and that the Commission would give wireless carriers a meaningful opportunity to participate in the process of creating a Washington universal service program that would allow for wireless carrier participation. However, USCC has been extremely disappointed with both the process which this Commission has used to develop its Second Draft Universal Service Rules, and with the substantive rules themselves. As far as USCC can tell, neither USCC nor any other interested party was given a meaningful opportunity to participate in the process of developing these rules because USCC's views are not considered. Of the 54 proposed rules attached to the October 21, 1998 "Announcement of Second Draft Universal Service Rules" more than two-thirds were virtually identical to those in the first draft Universal Service Rules. It appears that the comments of USCC (and most other parties) on the first set were simply ignored. Because no policy discussion or rationale has been provided to support either the first or second set of rules USCC can only conclude that the Commission did not consider the comments of affected parties. Certainly the time allowed for comment on the second set underscores what little regard the Commission has for process, and meaningful participation by impacted parties. The Commission received comments on the first set on September 8, 1998 and took 41 days to release the second set on October 21, 1998, yet it gave parties a scant five working day period, until October 29, 1998, within which to comment. Because the Commission's report to the Legislature is due on November 1, 1998 the likelihood that any party's October 29, 1998 comments will be fully considered, or that any of the proposed USF rules will be changed, is slight. In sum, USCC is very concerned about the serious process issues which have permeated this rulemaking. USCC is also puzzled as to exactly what study, analysis or thought-making process was pursued by the Commission in developing these rules over the past ten months. There is no record, report or rationale which allows USCC to understand why the Commission has proposed these rules and how they work with respect to wireless carriers. USCC's process concerns are exacerbated by the terms of rules themselves. Under these rules, there is no way for USCC to determine whether it would be economically feasible to participate as an ETC in the State of Washington. USCC initially envisioned a meaningful role for wireless carriers in the USF process. These rules utterly fail to provide that role. The only thing clear from these rules is that wireless carriers and their customers will have to pay more to fund the USF. This burden is offset by no benefit, as the program effectively limits the role of a wireless carrier to that of making contributions. Accordingly, USCC has lost its initial hope that this Commission would assume a leadership role in establishing a thoughtful, meaningful process which understands the role of wireless carriers in a universal service program. Nonetheless, USCC remains committed to working towards the establishment of such a process in the future. With this goal in mind, USCC will highlight its concerns with the Commission's proposed rules, one more time, with the earnest hope that it will dissuade the Commission from adopting the second draft Universal Service Rules. While USCC will comment on those specific rules of most concern to it, its failure to comment on any specific rule does not mean that USCC endorses any such rule. II. COMMENTS ON SPECIFIC RULES WAC 480-123-030 Applicability USCC objects to the application of these rules to wireless carriers such as USCC. As discussed in USCC's previous two comments, these rules, which impose a universal service assessment on wireless carriers, fall well outside of the congressionally mandated scope of a state's lawful regulatory authority over wireless carriers. In attempting to comply with the universal service mission of Senate Bill 6622 and Section 254(f) of the Telecommunications Act of 1996, the Commission ignored Congress' virtual elimination of state regulation over the wireless industry by the Omnibus Budget Reconciliation Act of 1993.Pub. Law. No. 103-66, Section 6002(b), 107 Stat. 312, 392. In the Budget Reconciliation Act of 1993 Congress explicitly granted the Federal Communications Commission (FCC) exclusive jurisdiction over wireless regulation thereby acknowledging the inherently interstate nature of the industry. Specifically, Section 332C(3) of this Act provides . . . No state or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service . . . Furthermore, Congress specifically addressed the wireless role with respect to universal service in Section 332(c)(3)(A): Nothing in this subparagraph [Section 332(c)(3)] shall exempt providers of commercial mobile service (where such services are a substitute for a landline telephone exchange service for a substantial portion of the communications within such state) from requirements imposed by a state commission on all providers of telecommunication services necessary to ensure the universal availability of telecommunication service at affordable rates. Thus, unless a wireless provider is a substitute for landline telephone exchange service, Congress intended wireless providers to be exempt from intrastate universal service obligations. Although the Telecommunications Act of 1996 specifically allows the FCC to adopt universal service rules for interstate services, the 1996 Act did not authorize states to impose similar requirements upon wireless providers and it did not change Section 332(c)(3)(A). The issue of whether Section 254(f) of the 1996 Act allows states to require CMRS providers to contribute to state universal service plans has not been conclusively determined. A series of conflicting court and commission decisions call into serious question the Commission's ability to impose the universal service requirements in the second draft universal service rules upon USCC.The pre-emptive authority of Section 332 over this Commission's universal service authority, and the conflicting court and Commission decisions are discussed at length in "Section 332" of the Communications Act of 1934: A Federal Regulatory Framework that is "Hog Tight, Horse High, and Bull Strong." 50 Fed. Comm. Law J. 547 (May 1998). USCC contends that Section 332(c)(3)(A) prevents Washington State from imposing a state universal service levy on what is inherently interstate telecommunications services. Senate Bill 6622 does not require the Commission to include wireless carriers within a state universal service program. Senate Bill 6622 addresses only those telecommunications carriers that provide "intrastate telecommunications services." See Section 1(8). Because Section 332(c)(3) declares the very interstate nature of wireless telecommunication services, such services are not included within the terms of Senate Bill 6622. The Oregon Public Utilities Commission in Order No. 98-094 recognized the interstate nature of wireless communications when it determined Oregon's universal service policies to specifically exclude wireless (radio common carrier) contributions. The Commission noted: These carriers are excluded because they are not now classified as intrastate carriers. In addition, in its fourth order on reconsideration, the FCC recognized the difficulty associated with classifying wireless traffic as intrastate. As a result, the FCC concluded that these carriers may recover their contributions to the federal program through rates charged for both interstate and intrastate services. (FCC Order No. 97-420) For these reasons, the Commission does not consider RCCs to be intrastate carriers for purposes of the high cost OUSP. Therefore, RCCs are not required to contribute to the high cost fund and they may not receive distributions from it. In the event of enabling legislation, the Commission may revisit this issue. (Page 5 of 7). In addition, state law clearly mandates that this Commission cannot regulate wireless carriers. See RCW 80.36.370(b), 80.66.010. Both of these statutes explicitly proclaim "the Commission shall not regulate radio communications service companies. . . . " Accordingly, without explicit legislative authority, the Commission simply has no authority to apply the second draft universal service rules to USCC and other wireless carriers. Any attempt to do so will only engender complex litigation which will challenge all of the second draft service rules. A more prudent approach would be to exclude wireless carriers from the state USF program, like the Oregon Commission did, until such time as the law is clear on the Commission's authority to regulate a wireless carrier's role on an intrastate basis. WAC 480-123-070 OUTCOME MEASURES This rule fails to define both the meaning of, and purpose for, "outcome measures." Without further definition this rule is useless. USCC also objects to it because it requires carriers to provide ambiguous "information" upon which to develop these ambiguous "outcome measures." WAC 480-123-180 HIGH COST LOCATION This rule was revised to delete the word "revenue" from before the word "benchmark." In its place, the Commission has inserted the word "applicable." Yet, the Commission does not decide which benchmark would be "applicable." Instead, the rules only discuss the determination of, and use of, a "revenue benchmark" suggesting that this benchmark is the only "applicable benchmark." This confusion is perpetuated in WAC 480-123-380 which defines how universal service support, available to carriers will be calculated. Again, the Commission uses only "the applicable benchmark" in this rule, but fails to discuss any other type of benchmark other than a revenue benchmark. The Commission then complicates the "revenue benchmark" issue further by establishing different revenue benchmarks for wireline and non-wireline carriers. See WAC 480-123-360 and WAC 480-123-370. However, the rules do not provide for any differentiation on this basis for the determination of a Commission determined per line cost (See WAC 40-123-380). If wireless carriers are required to contribute to an intrastate USF fund like wireline carriers, then the USF fund should provide the same dollar amount of support per month per supported line to all eligible telecommunications carriers (ETCs) serving that area. In sum, the Commission's rules regarding determination of high cost location (WAC 480-123-180), revenue benchmarks (WAC 480-123-190, WAC 480-123-370, 360, and 380) are ambiguous, confusing and unfair to wireless carriers. They fail to achieve competitive and technological neutrality between wireline and wireless eligible telecommunications carriers because their application will result in different levels of support for each type of carrier. WAC 480-123-210 CONTRIBUTORS TO THE UNIVERSAL SERVICE FUND USCC objects to this rule (which remains unchanged from the first draft) because it requires wireless carriers to contribute to the state USF. While USCC contributes to the federal USF, and expects to participate fully in the federal program, it objects to what amounts to be impermissible rate regulation by the Commission's attempt to assess a state USF levy. WAC 480-123-230 CONTRIBUTIONS BASED ON END USER RETAIL REVENUES AS REPORTED ON FCC UNIVERSAL WORKSHEET FORM 457 This rule purports to determine how much each carrier must contribute to the State Universal Service Fund. This rule establishes a market share approach rather than a uniform assessment for each carrier. How this rule would work is not entirely clear. The last sentence of this rule states "each carrier's ratio is its revenue share." If this type of misguided approach carries forward into a final set of rules the Commission should clarify what this sentence means. While USCC complies with federal reporting requirements (i.e., such as completion of FCC Universal Service Worksheet Form 457), it objects to the reporting requirements created by these rules. WAC 480-123-240 imposes state's specific reporting requirements and onerous penalties for filing late reports. In addition, WAC 480-123-250 calls for additional reporting requirements for access lines. These reporting requirements constitute impermissible state regulation, as discussed above. WAC 480-123-290 CONTRIBUTIONS FROM CARRIER REVENUE AND WAC 480-123-300 COMMISSION NOTICE ON UNIVERSAL SERVICE FUND USCC objects strenuously to these rules. Any requirement as to how wireless carriers recover USF contributions is simply impermissible state rate regulation under 47 U.S.C. § 332(c)(3). In addition, the requirement that contributions "not be billed directly to customers" violates the very statement of purpose in WAC 480-123-020 which recognizes that the purpose of the universal service program is to identify explicit sources of universal service support. The Commission wants USCC and other carriers to hide the impact of the Commission's USF program from customers. Somehow, the Commission is under the delusion that USF contributions can be "paid from carrier revenues" and not paid by customers. This belies reality. Customers ultimately pay for USF contributions. Accordingly, customers should be fully informed about the financial impact to them of this Commission's decisions on universal service. In the second draft the Commission tries to neutralize its non-disclosure requirement by giving carriers two purported "options." The first option hides the USF charge, while the second creates an administrative nightmare for carriers. They are not acceptable options. By dictating what carriers must tell their customers about the state universal service fund program, the Commission violates the carrier's fundamental constitutional right to communicate with its customers, and imposes significant and costly billing requirements. The United States Supreme Court has declared that a regulatory commission may not force a utility to send compelled statements with which it may disagree to its customers. See Pacific Gas & Electric v. California PUC, 475 U.S. 1, 89 L. Ed. 2d 1, 106 S. Ct. 903 (1986). So long as a carrier is not making deceptive or fraudulent statements in violation of well settled consumer protection rules, the Commission has no authority to direct what a carrier tells its customers on a bill about universal service contributions. These rules are seriously flawed and should never be adopted. WAC 480-123-330 DESIGNATION OF ELIGIBLE TELECOMMUNICATIONS CARRIERS USCC renews its concerns expressed in its comments on the first draft about this rule which gives the Commission the ability to determine a wireless ETC service area. No wireless carrier will want to seek state ETC authority under a rule which gives this Commission full discretion and control over the extent of a carrier's ETC obligations. The Commission should let the market, through the carrier's self-selection process determine wireless service areas. The Commission is not in the position to determine what "best promotes competition in telecommunication services." The real marketplace makes that determination. The impact of this rule will discourage competition, discourage wireless carriers from seeking ETC status and leave wireless carriers in a position of being contributors but not beneficiaries of a state USF program. WAC 480-123-440-560 ADMINISTRATION If a USF fund is created, and to be administered, an efficient streamlined organization should be designed. The proposed rules do not satisfy that goal and appear to perpetuate a bureaucracy, with insufficient accountability and overly sufficient funds and powers. USCC supports an independent administrator separate and apart from the Commission. The administrator should be charged with narrow duties and responsibilities necessary only to administer the fund and safeguard the funds placed with the state for USF purposes. Information associated with fund administration should be subject to the requirements of the Washington Public Records Act to allow interested parties to audit and examine USF expenditure information. USCC sees no useful purpose in WAC 480-123-490 on "program compliance." Because the level of support should be calculated based upon authorized regulatory filings, there is no need to give an administrator the power to find that a carrier may not have used "universal service support for other than to preserve and advance universal service." Existing state law gives the Commission authority to penalize carriers who may misreport information or deliberately mislead the Commission. USCC also objects to WAC 481-123-500 which gives the administrator access to extremely confidential information of wireless carriers. Wireless carries such as USCC will strenuously resist providing any information to a USF administrator, or the Commission for that matter without sufficient guarantees of confidentiality. Indeed, in connection with this rulemaking, USCC would only provide its proprietary information to the Department of Revenue, which agreed to aggregate wireless information to provide to this Commission in connection with the Commissioner's work on implementing Senate Bill 6622. The Department of Revenue, pursuant to RCW 82.32.330, has more explicit and specific safeguards for treating confidential information. These proposed USF rules do not even address the issue of a carrier's need for confidentiality. WAC 480-123-570 DETERMINATION OF COSTS If this rule stands, the Commission will not even begin to look at wireless carriers' specific costs until the year 2001. Once again, the interest of the wireless community has been ignored by the Commission in drafting these rules. III. SUMMARY USCC cannot underscore the importance of proceeding carefully and cautiously with proposed USF rules. Wireless carriers should not be included within the confines of these rules at this time, if ever. USCC is deeply troubled by the Commission's insistence on proceeding with haste, with little or no analysis to adopt these rules. These rules are unclear, ambiguous and are not in the public interest of the telecommunications consumers of this State. DATED this _____ day of October, 1998. UNITED STATES CELLULAR CORPORATION By Eva-Maria Wohn, Director Government Affairs 8410 West Bryn Mawr, Suite 700 Chicago, IL 60631-3486 WILLIAMS, KASTNER & GIBBS PLLC By Judith A. Endejan WSBA #11016 Two Union Square 601 Union Street, Suite 4100 Seattle, WA 98101 Attorneys for United States Cellular Corporation