FCC floats high-cost formula: Wireless carriers offered 'safe harbor' for determining interstate revenues

It has taken more than two years for the FCC to get over its first bruised and bloodied attempt at coming up with a new methodology for determining how much common carriers must pay into the universal service fund and how much they will be reimbursed for serving high-cost and rural areas.

On Oct. 22, the commission adopted a Fifth Report and Order regarding a model platform for use in determining universal service support for high-cost areas. This order puts phase one of the reimbursement mechanism into play.

The Federal-State Joint Board on Universal Service crafted the adopted platform with input from the industry. It is based on "the best elements" of models previously submitted by AT&T and MCI WorldCom, and by U S West, BellSouth and Sprint. Sprinkled in are a few parts from the FCC's hybrid cost proxy model, said Chuck Keller, a common carrier staff member.

The FCC did not shop the final model around to telcos before the recent vote, mostly because the model development process took so long and was so open, Keller said. "Everyone started to agree over time, and we don't anticipate having to make any changes in our position regarding the model," he said.

"We are pleased that the FCC finally is moving forward on universal service," said a GTE spokeswoman. "The model has some important uses, but it shouldn't be the only source [for reimbursement]. The FCC needs to look at reality-what it really costs to serve these areas." The carrier will submit additional comments on the docket.

The model may be too difficult to actually implement, said George Reed-Dellinger, senior vice president of HSBC Washington Analysis. "I have never seen anything morecomplicated in my 20 or 30 years in Washington," he said.

Reed-Dellinger also doesn't hold much hope for the FCC to come up with an easier plan because Congress hasn't provided any leadership on this issue. "Congress wants universal service, but it doesn't want rates to go up," he said.

Also on Oct. 22, the FCC released initial guidelines for the wireless industry regarding how to separate interstate and intrastate costs when determining their universal service contributions.

Problems had arisen because the methodology for determining intrastate vs. interstate revenue percentages was based on wireline standards.

The guidelines contain several interim "safe harbor" percentages of revenues wireless carriers can use to determine how much to earmark for universal service quarterly (see box). Attached to the memorandum opinion and order was a further notice of proposed rulemaking seeking comment on the proposed safe-harbor percentages prior to the FCC actually codifying them.

Wireless carriers that choose to use the safe-harbor percentages apparently will not have their contributions challenged by the FCC. Those that submit a different number could be subject to intense scrutiny and a pile of paperwork to substaniate their numbers.

None of the major wireless or wireline associations, including the U.S. Telephone Association, the Cellular Telecommunications Industry Association and the Personal Communications Industry Association, would comment on the record regarding the MOO/NPRM, but all three plan to submit their comments in writing.

The commission itself is not united on this issue. Commissioner Harold Furchtgott-Roth called the safe-harbor initiative "a missed opportunity to simplify the universal service contribution scheme for wireless carriers" and to experiment with the adoption of a flat, federally mandated universal service fee. "I would have preferred to adopt a flat, fixed federal fee per wireless 'line' or equivalent, at least as an interim solution to the ultimate resolution," Furchtgott-Roth said.

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