Agenda Date: November 23, 1998 Item Number: Docket: UT-980311(r) Rulemaking for Universal Telecommunications Service Staff Bob Shirley, Telecommunications Analyst Glenn Blackmon, Assistant Director Recommendation: Direct the Secretary to file a Notice of Proposed Rulemaking (CR-102) in Docket No. UT-980311 with the Office of the Code Reviser, in order to propose Chapter 480-123 WAC, and to place in the record a complete copy of the Report to the Legislature on universal service rules proposed in the Notice. A. Background Engrossed Substitute Senate Bill 6622 (C 337, L 98) directed the Commission “to plan and prepare to implement a program for the preservation and advancement of universal telecommunications service...” The rules drafted as proposed WAC 480-123-010 through 480-123-570 are one part of the commission’s efforts to respond to the Legislature’s directive. Combined with the Cost of Basic Service Order served last week and the Report to the Legislature that will be delivered, these rules provide a comprehensive approach to preserving and advancing universal service in compliance with the legislative directive. B. Process Work began on these rules in March, 1998, one week after the passage of ESSB 6622. Throughout the process, the WUTC sought broad participation in both the rulemaking and the adjudication. The initial notice of the WUTC’s plans to commence both an adjudication and a rulemaking was mailed to over 600 companies registered with the WUTC as providing telecommunications services, and to interested parties who had participated in other WUTC dockets on universal service. In subsequent mailings concerning the rulemaking portion of the process, the WUTC UT-980311(r) made an effort to provide notice and information to a much broader audience, including groups which might have an interest in telecommunications or were likely to be operating in high-cost locations. The WUTC contacted the Washington Department of Agriculture in order to obtain a mailing list of organizations active in agriculture. Groups operating in low-cost locations were not overlooked; included in the outreach effort, for example, were the state’s 20 largest corporations. Most of the lists, however, were likely to reach people in both low and high-cost locations. Notices were mailed to over 150 chambers of commerce. Also notified were service club presidents, library, port and hospital districts, county commissioners and other county officials, trade associations and approximately 75 mayors from cities ranging in size from Touchet to Wenatchee. In all, more than 1,700 organizations and individuals comprised the mailing list used throughout this docket. In addition to using mailing lists for broad outreach, the WUTC also made an effort to speak in person with as many people as possible. WUTC staff made presentations to six Rotary Clubs, held three public meetings in Ferndale, Colville and South Bend, and the Commissioners presided over two meetings held on interactive television, one in Seattle, Lacey and Vancouver and the other in Yakima, Spokane and Kennewick. A day-long workshop was held in Seattle, during which Commissioners heard presentations from several panels of industry and consumer experts. Finally, interested parties were asked to make written comments on four occasions, responding first to questions posed by Commission staff and then to three drafts of the rules. The record is a full one. Staff wish to take this opportunity to acknowledge the great amount of effort made by all the commenters. C. Positions of the Parties All parties say they support universal service and competition, but agreement does not extend to the details. Competition has opened wide the fissures between local exchange providers, long-distance providers, wireless carriers and new competitors in wireline service, and it has opened fissures between different classes of customers, large businesses and small businesses, for example. With more than three billion dollars annually at stake in Washington alone, these fissures are not likely to narrow. The rules are an attempt to balance the conflicting goals of competition and preservation of universal telecommunications service. Each proposed rule represents an attempt to balance the many factors at odds with one another in this process. While some parties might say they are losers and that another interest is a winner, staff think the fairer characterization is that a balance has been struck in favor of fair competition and that no interest can say that it has been disadvantaged. Staff believes one group can claim that they have been advantaged: the consumers in Washington as a whole. Sliced into small segments, it may be that one consumer will appear to gain an advantage that another does not, but on balance, the benefits of competition will become available to all Washington consumers as a result of these rules. D. New Rules and Policies Additional legislation is required to provide the Commission with authority to adopt some of the proposed rules. Because the legislature must act in any event before a comprehensive reform of universal service can occur, these rules have been drafted with that understanding. Briefly, the new chapter, if implemented with an explicit fund to support universal service, would: • Preserve of universal service without increases in customer rates Customers, as a whole, would not pay any more for a reformed universal service program than they do today. • Continue support of all lines in high-cost locations As is done today, all high-cost basic local telephone lines will be supported by the universal service program. • Reduce customer rates and implicit contributions to universal service Those rates that are currently carrying implicit support for universal services, such as toll and business rates, would be reduced. • Base explicit contributions on telecommunications companies' total end-user retail revenue rather than establishing new taxes on customers Contributions to universal service will be based directly on a telecommunications companies’ retail revenues and remain a cost of doing business as the implicit supports are today. • Allow participation by all technologies, including wireless, for contributions and draws form the fund The Legislature and federal law require that universal service programs should be technologically neutral and should not handicap or unduly benefit any particular technology. • Reduce high-cost support by the statewide average revenue per line to prevent double-recovery of costs High-cost support will be reduced by a set amount that companies would be expected to receive from customers for local service, access revenue and other local service revenue. • Prohibit incomplete or confusing universal service disclosures on customer bills Companies would not be allowed to identify their contribution to universal service without conveying the rest of the universal service story, including how much money the company receives from the universal service fund. • Provide for service quality standards Poor quality service could result in the loss of universal service support. • Require regular progress reports To ensure that the program continues to meet its objectives and goals, regular reporting and updating of the program will be required. In addition, the proposed rules include a separate section that would lead to minimum network transmission speed of 28.8 Kbps by the end of five years. Most urban telephone networks already transmit at that speed. This standard would ensure reliable modem connections and would not foreclose development of more advanced services. The section is separate from the rest of rules because it goes beyond what the Legislature asked for when it defined basic telephone service. However, based on comments from rural residents and businesses, this enhancement is believed to be important enough to bring before the Legislature and to consider for further study. A detailed statement of the effects of the rules is found in the Report to the Legislature on universal service which will be placed in the record once it has been revised to reflect any changes made in the proposed rules at the open meeting today. E. Small Business Economic Impact Statement A small business Economic Impact Statement (SBEIS) is required by Chapter 19.85 RCW. Staff has prepared an SBEIS and it is attached to the draft rules. It is important to note that we received no information from small business telecommunications carriers about their anticipated cost of implementation despite several requests. In contrast, we received many responses from small businesses that are not telecommunications carriers. We appreciate the time that the small businesses have taken to assist us in understanding their use of business telecommunications. F. Recommendation Staff recommend that a CR-102 be filed by the Secretary with the Office of the Code Revisor and that the Secretary place in the record a complete copy of the Report to the Legislature on universal service rules proposed by the Commission.