The wireless industry’s largest lobbying group, CTIA-The Wireless Association, filed suit in a Utah federal court Wednesday to stop the state from imposing a 36 cent surcharge wireless carriers like AT&T, Sprint, and Verizon Wireless cannot easily pass on to their customers.

The new fee, retroactively charged from the beginning of 2018, applies to all telephone lines other than prepaid wireless phones, and represents the chief funding mechanism for Utah’s Universal Public Telecommunications Service Support Fund, which supports providing service in high cost rural areas of Utah and the expenses attributed to Utah’s participation in the federal Telephone Lifeline program, which provides subsidized telephone service to the poor.

The CTIA is upset because its member companies will have to assess the surcharge on almost every customer with a landline or wireless postpaid phone in the state, including customers getting free wireless service through the federal Lifeline program. The CTIA argues that puts an unfair burden on companies, especially those asked to either eat the cost of the surcharge or attempt to collect 36¢ a month from Lifeline customers that currently do not receive bills from their providers.

The lobbying group called its options “a Hobson’s choice” between two bad ideas. Because wireless carriers don’t want to absorb the surcharge and pay for it out of current revenue, the alternatives are to either pass along the cost to customers or raise rates. CTIA’s complaint predominately focuses on what it calls the “absurd real world results” of wireless companies struggling to get paid back the 36¢ monthly surcharge:

Participants in these [Lifeline] programs are frequently members of “unbanked” communities, and even a monthly rate of $0.36 may prove an insurmountable obstacle to participation in the Lifeline program. Those without bank accounts or a credit card have no effective means to remit a surcharge of $0.36. If they choose to mail cash, they would have to spend more on postage than on the surcharge itself. Or they may need to purchase a money order, if such are available in increments of $0.36, and pay both the charges applicable to obtaining a money order and the cost of postage – all well in excess of the $0.36 due under the PSC Rule.

[…] The PSC Rule has a chilling effect on the introduction of service offers in the market today. Carriers that have an interest in introducing innovative service plans that have or are likely to have intrastate revenues near, at, or below $0.36 will have to determine whether to select a collection method illegally imposed on them under the PSC Rule or to not offer such service plans at all.

[…] Further, requiring the underlying wireless carrier to pay the required $0.36 per month UUSF surcharge in such third-party retail prepaid situations would not cure this discrimination, as the wireless carrier generally has no billing relationship with the end-user customer, and therefore no ability to pass the charge through to the end-user customer. Requiring wireless carriers to remit the UUSF surcharge in those situations, notwithstanding their inability to pass the surcharge through to the end-user customer, is equally discriminatory vis-à-vis service providers who can pass through the UUSF surcharge to customers.

The CTIA doesn’t dwell on the real world impact of its member companies, with revenues well into the billions of dollars, simply absorbing the 36¢ a month charged to their Utah customers as a cost of doing business. Instead, the lawsuit argues Utah cannot apply USF surcharges in a way that is “inconsistent with the requirements related to the federal universal service Lifeline program.”

CTIA argues the surcharge, when applied to Lifeline customers, unfairly increases rates for the most-needy. But the lobbying group was equally concerned the charges would not apply to competing prepaid wireless providers, because the Utah Public Service Commission lacks statutory authority to impose surcharges on those providers. The CTIA argues the surcharge is discriminatory and not competitively neutral, because the it allows third-party retailers of prepaid wireless telecommunications services like Tracfone to avoid the surcharge.

The CTIA is seeking a permanent injunction to stop the surcharges and has asked the court to order the defendants — essentially Utah’s taxpayers — to pay its court costs.

Kansas House Bill 2563 would require content providers that sell products and services in Kansas to pay into the state’s rural broadband fund.

ISPs and any website that generates at least $500,000 in revenue from Kansas residents would be required to pay into a state fund to subsidize rural broadband, if a bill introduced by a Lawrence Republican becomes law.

Rep. Thomas Sloan’s House Bill 2563 — a bill requiring broadband and content providers to pay into the Kansas Universal Service Fund (KUSF), drew immediate fire from cable and telephone companies across the state, and Sprint Corp. told state officials the bill was illegal.

“Rural residents lack the same broadband opportunities as urban residents because of the high cost to serve low-population density areas,” Sloan said. “We have a classic case of rising customer expectations for capabilities delivered through a broadband communications system and a fiscally stressed telecommunications provider network’s ability to serve high-cost rural customers.”

As in many rural states, finding the funding to solve the rural broadband problem gets more difficult as those hardest to serve are also the most expensive to reach. Kansas currently spends about $40 million annually to reach homes and businesses that are still using dial-up or forced to invest in satellite internet service. Most KUSF money is given to incumbent rural telephone, wireless or cable providers to subsidize expansion, keeping costs in line with each company’s Return On Investment expectations.

But as demand for faster and more robust broadband accelerates, and as the definition of broadband itself has evolved, rural providers are increasingly challenged reaching both unserved customers and those now considered underserved because older technologies like DSL often do not meet the current FCC definition of broadband: 25/3 Mbps service.

Sloan said his bill is designed to address both problems by wiring unserved areas and improving access to reliable, high-speed internet service where only slower alternatives now exist. The bill would provide funding to more than 90 Kansas counties with a population density of less than 100 people per square mile (excepting the county seat). In an agricultural state like Kansas, that would directly inject cash for upgrades into large sections of the state. Sloan says his law would cover at least 40% of a provider’s wiring and upgrade costs.

Rep. Sloan

House Bill 2563 would fund a rural broadband project that:

• is capable of minimum download speeds of 25 Mbps and minimum upload speeds of three megabits per second;
• provides an average latency of less than 100 milliseconds to enable the use of real time communications; and
• provides subscribers with a minimum monthly data allowance of 150 gigabytes per month.

“Poor connectivity to the internet undermines operation of businesses, filing of government documents, school research projects, viewing of entertainment and other day-to-day activities,” Sloan said.

ISPs would likely pass along the costs of the new broadband universal service fund charge to subscribers, which means urban Kansans will be contributing a portion of their monthly internet bill to benefit their rural neighbors.

Sloan’s bill would also take the unprecedented step of taxing internet content companies and for-profit websites that generate at least $500,000 in revenue attributable to Kansas customers and use the money for rural broadband expansion as well. Websites like Amazon.com, Netflix, and Hulu would certainly be liable, but so would thousands of other smaller website ventures, including porn websites and online publishers like newspapers.

Telecom industry lobbyists quickly descended on state lawmakers in Topeka to encourage them to kill Sloan’s bill:

• Catherine Moyer, chief executive officer of Pioneer Communications in Ulysses, represents the interests of the State Independent Telephone Association for Kansas and the Kansas Rural Independent Telecommunications Coalition. She is strongly opposed to the bill because she claims it would weaken the current Kansas Universal Service Fund (KUSF) model that has given rural companies confidence and certainty their rural expansion investments will be backed with adequate state subsidies. Under Sloan’s bill, the disbursement formula and the areas entitled to receive state support would be expanded, potentially reducing funds that were payable to projects under the old KUSF subsidy system.
• Patrick Fucik, national director of legislative affairs for Sprint Corp. in Overland Park, is concerned about broadening the universal service fund to tax content providers and other websites, claiming the state lacks the legal authority under federal law to impose such taxes.
• John Idoux, a lobbyist with CenturyLink, which serves more than 100 Kansas communities with fewer than 1,000 residents, said the bill would likely make lawyers rich from the “prolonged” and inevitable legal challenges that will begin if the bill becomes law, “all while creating false hope of rural broadband availability.” Idoux also wants to make sure none of the KUSF money will be spent in areas already served by a fixed broadband provider (like CenturyLink). He does not want to see public money competing with private investment, even if it results in better service.

An audio-only hearing of the Committee on Energy, Utilities and Telecommunications of the Kansas State Legislature on HB2563, held Feb. 5, 2018. (35:53)

AT&T has sent the Federal Communications Commission a bait and switch checklist that, despite the stated purpose of modernizing telecommunications networks, would also allow the company to completely abandon its landline network and win near-complete deregulation of its broadband service.

On Tuesday, August 28, Christopher Heimann and I met with Matthew Berry and Nicholas Degani, respectively Chief of Staff and Legal Advisor to Commissioner Pai, to discuss actions the Commission can and should take to facilitate the retirement of legacy TDM-based networks and services and transition to an IP-based Network/Ecosystem, consistent with federal policies and objectives, including those enunciated in the National Broadband Plan.

At the request of Commissioner Pai, AT&T has prepared and is submitting herewith a checklist of those actions, which identifies the critical first steps the Commission should undertake without delay to begin the transition as well as additional steps that would facilitate completion of that transition.

Under the existing statutory and regulatory framework, carriers already can undertake the steps necessary to make the transition, including, in some cases, steps requiring Commission approval (such as withdrawing legacy TDM-based services). But, insofar as the transition raises a number of novel and likely contentious issues, Commission action on the items included on the attached list would greatly facilitate and thus hasten completion of the transition. The steps we identify implicate an array of issues raised in the above-referenced dockets. Accordingly, we are filing the checklist in each such docket.

Respectfully submitted,

Robert W. Quinn, Jr.

AT&T’s letter and attached checklist are documents only a policy wonk or careful observer of Big Telecom could easily navigate. Despite the thicket of opaque terms like “TDM” and the not-immediately-apparent importance of the difference between an “information service” and a “telecommunications service,” AT&T has, to borrow a phrase from President Obama, some brass ones making its intentions perfectly clear.

With the help of Bruce Kushnick, executive director of New Networks Institute and a former telecom industry insider, we will guide you through AT&T’s filing and what it really means.

AT&T lists several “critical first steps” (we have put them in bold) to achieve the transition to an all-IP telecom world, retiring the traditional “public switched telecommunications network” (PSTN) which you know better as a landline.

1. Establish a date certain for an official TDM-services sunset, after which no carrier would be required to establish and maintain TDM-based services/networks, and purchasers of such services (including circuit-switched and dedicated transmission services) would have to switch to IP or other packet-based services.

No casual observer of FCC filings would be expected to understand the implication of setting a date to officially sunset “TDM services.” TDM is synonymous with the landline network Ma Bell established more than 100 years ago — the one that gives you a dial tone, DSL, and access to dial-up Internet where broadband is unavailable. AT&T wants the FCC to manage what the company has not been able to consistently accomplish on the state level: setting a final date when traditional landline service can be permanently disconnected, preferably at the convenience of the phone company.

2. Clarify that any state requirements forcing service providers to maintain TDM networks and services […] following the TDM sunset are preempted. Such requirements could deter investment in broadband, and thus are inconsistent with and pose an obstacle to federal law and policies encouraging the transition to all IP networks and services.

This provision would effectively eliminate any existing state laws or regulations that require AT&T to deliver a fairly-priced, well-run landline service for customers throughout its service area. Some states have not bought into AT&T’s lobbying juggernaut, often delivered with the help of the American Legislative Exchange Council (ALEC). Despite the enormous sums spent lobbying legislators, some states have kept oversight in place requiring AT&T to serve everyone that wants phone service. With this provision, those state laws and regulations would be pre-empted.

AT&T claims state requirements somehow deter broadband investment, a curious conclusion considering AT&T has already largely ceased its expansion of DSL and U-verse services.

3. Complete action in the IP-enabled services proceeding, and classify such services as information services, subject to minimal regulation only at the federal level. The Commission could permit service providers to offer DSL or other broadband transmission services on a common carrier basis if they so choose, but in no event should a provider be required to do so. 

Quinn

This is AT&T’s provision to kill regulation and destroy competition. Government rules, regulations, and oversight apply largely to “PSTN” landline services, not to IP-based or broadband networks. Basic landline service is designated a “telecommunications service” by the FCC, which makes it subject to regulator review. Broadband, on the other hand, and anything else using IP, is typically classified as an “information service,” where most oversight regulations do not apply.

AT&T’s plan is to shut down today’s landline “telecommunications” service in favor of IP-based Voice over IP, which would effectively reclassify your phone line as an “information service.” That means by changing just one word — “telecommunications” to “information” — AT&T can walk away from a century of basic consumer protection rules and regulations. AT&T also gets a divorce from its telecommunications service obligations as a “common carrier,” which requires AT&T to deliver service to any customer who requests it, at a fair and reasonable price, without changing its form or content.

If AT&T’s broadband networks were reclassified as a “telecommunications service,” Net Neutrality would be easy to enforce under the “without changing its form or content” provision of common carrier rules. Back in the 1996 Telecommunications Act, AT&T’s lobbyists had already made their mark, creating new “distinctions” of telecommunications services, some more regulated than others. Now AT&T is back to kill off the last regulatory obligations it still has to endure, taking Net Neutrality to the grave once and for all.

4. Reform Interconnection – after the official date for the TDM sunset, no carrier or other provider of TDM based services should be entitled to require others to interconnect in TDM. The Commission should take action to maintain the market-based, regulation-free interconnection regime that has applied to IP-based interconnection for decades.

[…] Reform wholesale obligations under section 251/271 to eliminate unbundling, resale, collocation and other requirements that could require ILECs to maintain TDM networks and services.

These particularly opaque sections give AT&T’s competitors real nightmares because they would wipe out requirements that phone companies open certain facilities to competitors who deliver services over AT&T’s network. If AT&T’s recommendation is adopted, no competitor would be safe if AT&T eventually padlocks access to its network.

But AT&T does not want its intentions to be that obvious. It throws a transparent bone to regulators to offer a facade of competition in both this and the preceding recommendation.

AT&T instructs the FCC it can mimic the time-honored patina of an open, competitive industry by allowing AT&T’s competitors to sell DSL or other broadband services over AT&T facilities, but only if AT&T feels like it (at comfortable prices that don’t undercut AT&T).

5. Eliminate regulatory underbrush/superstructure that accompanies TDM-based services. For example, phase out equal access, residual ONA/CEI, record-keeping, accounting, guidebook, dialing parity, payphone, and data collection (which should be limited to that which is collected on the Commission’s Form 477) requirements.

AT&T leaving town.

What AT&T calls “underbrush,” consumers and regulators call oversight and consumer protection.

“Sayonara any telco rules, regulations and oh yes, your rights,” says Bruce Kushnick. “Your service breaks… tough. Prices go up and there’s no direct competition — too bad. Networks weren’t upgraded — so what.”

Kushnick notes this provision would allow AT&T to avoid maintaining a public record of its performance (and its potential abusive practices, bad service, and high prices), including any requirement on the state or federal level to tell the public anything about how well we are being served by the wired monopoly.

Other things on AT&T’s hit list: “Equal Access,” which opened the door to competitive long distance calling and lower rates, “Dialing Parity” which lets you avoid dialing ten (or more) digits for every call (or being forced to learn more complicated numbers for things like directory assistance or other shortened dialing numbers), and public payphones. AT&T’s desire to kill off “residual ONA” refers to the costs to establish Open Network Architecture — the framework for opening up the nation’s phone monopoly for competition. Re-establish the monopoly and there is no reason to fret about the costs to maintain access for competitors AT&T will eventually eliminate.

6. Further reform USF to provide support for broadband regardless of the regulatory classification of broadband services, eliminate any obligation to offer such services on a common carriage basis to be eligible for such support, and provide incentives for service providers to invest and offer services necessary to ensure that no one is left behind by the transition to an all-IP, broadband ecosystem.

The reform of the Universal Service Fund has already opened up opportunities for rural telecommunications companies to apply for broadband infrastructure grants to expand broadband in rural America. Only AT&T has refused to participate in the current round of broadband grants because they do not like the rules. AT&T wants a free hand to receive broadband funding, so long as it faces no questions about where the money gets spent. Under AT&T’s recommendation, the company would receive money with no obligation to ensure everyone who wants broadband in rural America can get it. It also wants the government to hand out money to providers to implement their goal of regulatory nirvana — the conversion of basic landline service to Voice over IP, idolized as the golden calf of ultimate deregulation.

But although providers won’t be left behind, consumers might be:

7. Establish/reform rules to facilitate migration of customers from legacy to IP-based services and to prevent customers that procrastinate or fail to migrate from holding up the transition. For example, establish a process for identifying a default service provider if a customer fails to migrate, and/or permit service providers to notify customers that they will be dropped from service as of a date certain if they have not migrated to an alternative service/service provider. 

This particularly arrogant provision would put a stop to Aunt Maude holding up AT&T’s grand plan to live a regulation-free lifestyle. How dare she drag her feet with AT&T’s agenda at stake? If your elderly parents or extended family don’t understand why AT&T is meddling with their landline service and don’t want to change, AT&T has an unsympathetic solution. Under their recommendation, your parents would find themselves with a “default service provider” they might not want to do business with or, even worse, simply leave them with a dead phone line AT&T has no interest in repairing. But AT&T would likely still get their way. In rural areas they already cover, AT&T would be the “default service provider” because it is the only service provider. If Maude wants her phone line back, the only way she will get it is choosing the migration to Voice over IP AT&T intended all along.

AT&T’s language is remarkably frank, but was never intended to be viewed and explained to the public at large. It was the product of a phone company lobbyist talking to a politician, staffer, or regulator that one day could become an employee of that phone company. The only way to stop this cozy relationship is to tell regulators you are watching (and understanding) the game being played here.

Outside of a handful of consumer groups, just about everyone — including one “anti-tax” Republican on the Federal Communications Commission — favors the imposition of a new broadband tax on your Internet connection.

It is all a part of the Federal Communications Commission’s effort to transform a badly-outdated Universal Service Fund (USF) into the Connect America Fund (CAF) — an ongoing project to help defray the costs of wiring rural America for broadband service.

Phone and cable companies are on board. So are several state regulators. Even search engine giant Google favors applying a surcharge to consumer bills to retire a funding formula currently dependent on declining landline phone revenue.

In April, the FCC began accepting comments on its proposal to expand the number of telecommunications services subject to the surcharge, currently found on telephone bills. The FCC has proposed a number of possible taxes including the new broadband fee, a tax on text messages, or moving to a flat fee for each phone line instead of a variable tax rate (currently around 18%).

Virtually every major telecommunications company provisionally supports the new tax, for at least three reasons:

1. Most can benefit from future CAF funding opportunities, dipping into the fund to help subsidize expanding broadband into areas where current “return on private investment”-standards make deployment unprofitable;
2. Consumers will pay the tax, not providers;
3. The companies are confident their fierce lobbying will get the FCC to drop a proposed requirement the fee be included in the advertised price of broadband service. They want the fee broken out separately on customer bills, in part because they fear higher-advertised-prices for broadband will discourage customers from buying.

Google also supports the new tax because they profit from a larger broadband audience accessing their web pages and services. If the FCC were to tax online services, as Google fears, it would be bad news.

“Saddling these offerings with new, direct USF contribution obligations is likely to restrict innovative options for all communications consumers and cause immediate and lasting harm to the users, pioneers, and innovators of Internet-based services,” Google argued.

The Fiber to the Home Council, another industry group, was disturbed by one FCC proposal that would levy an increasingly higher percentage of the new tax on customers with progressively faster high speed connections. Although the Council agreed with many consumer groups that any new broadband tax would discourage broadband adoption, it was alarmed with the proposition of taxing consumers the most for selecting the highest speed broadband tiers.

“The Commission should not impose a fee that increases with greater performance capabilities (capacity/speed) because that would discourage plant and service upgrades and hinder the expansion of critically important high-speed broadband services,” the Council wrote in its comments to the FCC.

The Fiber to the Home Council is concerned about one proposal that would levy increasingly higher taxes the higher your connection speed.

With 19 million Americans currently unable to obtain broadband service, adding a new tax on existing broadband customers’ bills would bring in millions that the CAF will ultimately award to rural landline providers and cable operators to encourage them to expand their broadband networks.

But consumer groups including Free Press worry the new tax would rob Peter to pay Paul, and further discourage poor Americans who can’t afford current broadband prices from ever signing up for service.

“In other words, as the Commission reforms the overall USF system in the name of greater broadband adoption, particularly among rural, poor and elderly consumers, assessing [a broadband tax] could lead to an overall lower level of broadband adoption, despite the availability of new broadband subsidies,” writes Free Press research director S. Derek Turner in an official filing with the FCC.

Free Press called the current comments from industry players largely as expected.

“Industry commenters simply offered self-serving proposals that will ensure that their (but not necessarily their customers’) contribution burdens are as low as possible,” Turner wrote. “We instead are strongly encouraging the Commission to conduct actual cost-benefit analysis prior to adopting rule changes that could have massive unintended consequences for consumers.”

Thinks a broadband tax will reduce broadband adoption.

Outside of a small handful of remarks from end users, the overwhelming majority of comments received by the FCC are from providers, industry groups, and telecommunications regulators. Almost none come from actual consumers, who will ultimately pay the proposed tax.

Some conservative anti-tax groups have been alarmed by the tax expansion and Republican FCC Commissioner Robert McDowell’s apparent support of it. McDowell issued a statement in April declaring his support for reform of the USF system to broaden the tax to additional telecommunications users:

[…] “To put the importance of contribution reform into perspective, the contribution factor, a type of tax paid by telephone consumers, has risen each year from approximately 5.5 percent in 1998 to almost 18 percent in the first quarter of this year. This trend is unacceptable because it is unsustainable. Furthermore, the cryptic language on consumers’ phone bills, combined with the skyrocketing “tax” rate, has produced a new form of “bill shock.” We must tame this wild automatic tax increase as soon as possible.

[…] “Controversy, however, should not deter us from lowering the tax rate while broadening the base according to the authority granted to us by Congress. The current pool of contributors is shrinking. It must be expanded, but we must do so only within our statutory authority while keeping in mind the international implications of our actions.”