WASHINGTON-The Federal Communications Commission tomorrow will argue its rules for universal-service financing are legal, while its opponent, Celpage Inc., a paging company from Puerto Rico, contends contributions to the Universal Service Fund are taxes-unconstitutional taxes.
The arguments will take place in the Fifth Circuit Court of Appeals in New Orleans.
Additionally, Celpage claims that since the FCC’s equal contribution requirement will have a grossly disproportionate impact on commercial mobile radio services carriers, the requirement violates the Telecommunications Act of 1996. The telecom act says contributions should be equitable and non-discriminatory.
While Celpage is the star in court tomorrow, the paging company has not been alone in making its arguments. Earlier this year, conservative law makers, political pundits and constitutional experts said universal service obligations required under FCC rules were unconstitutional because they had been assessed not through the constitutional tax assessing process but by a regulatory agency.
What also rankled many conservatives was that these subsidies no longer were being used solely for traditional universal service.
Due to telecom act language, the USF was being used to fund Internet connections by schools, libraries and rural hospitals-a long-held dream and stated goal of Vice President Al Gore. Indeed, a portion of these subsidies became known as the Gore Tax when long-distance companies began charging a special line item to recover their universal-service assessments.
To turn the focus away from Gore and also to eliminate the 3-percent luxury phone tax-another unrelated tax long hated by the telecommunications industry-Rep. Billy Tauzin (R-La.), chairman of the House telecom subcommittee, earlier this year proposed eliminating the tax on talking and using a portion of the money to fund universal service. The Tauzin legislation did not advance, but, according to his spokesman Ken Johnson, Tauzin is expected to introduce the legislation in the 106th Congress.
Regardless of the hemming and hawing about Internet connections earlier this year and the Celpage arguments this week, Gore last week announced the first phase of commitment letters to schools and libraries.
The e-rate, as it has become known, will fund connections to the Information Superhighway-all paid for by carrier contributions to the USF. These carrier contributions are passed onto consumers, sometimes in the form of line items on bills.
The FCC long has argued its rules simply were implementing congressional intent. Specifically, it said in its court brief that the court must reject Celpage’s claim of unconstitutionality because USF contributions are not “commingled with government revenues raised through taxes,” so they are not taxes.
Should Celpage succeed before the appellate court, the future of universal service could be in jeopardy.
Universal phone service is responsible for the large buildout of wireline phone service in the United States. This buildout has been paid for by low-cost areas subsidizing high-cost areas. This system worked well and was successful until competition began to emerge in the telecommunications industry.
First there was the divestiture of Ma Bell. To help pay for universal service, the FCC allowed the local telephone companies to charge long-distance companies access fees when long-distance calls were made.
In this way, the competitive long-distance industry implicitly subsidized the still-monopoly local exchange industry.
Then came passage of the telecom act, which was expected to bring competition to the local-exchange industry and make implicit subsidies explicit.
To implement this program, the FCC began assessing universal service contributions on all telecommunications carriers, including CMRS. But unlike the LECs that still received an USF benefit, CMRS carriers-especially paging carriers-received little, if any, USF benefit. This led to a loud outcry by the Personal Communications Industry Association.
PCIA, however, is not joining with Celpage in its appeal because Celpage goes further in its arguments than most of the industry wants to go, said Rob Hoggarth, PCIA senior vice president for paging.
Also last week, the Federal State Joint Board on Universal Service made its second recommendation to the FCC.
The split decision showed there remains continuing controversy over exactly how universal service should be funded in an era of local exchange competition.
The decision also showed that some people believe universal service funding should be a state responsibility, while others believe universal service is a federal goal and should be funded entirely by the federal assessments.
