Universal service charges cause a furor

MCI wants FCC to put funding burder on local carrier, not long-distance providers.

By David Rohde
Network World Fusion, 3/9/98

In a fight that's pitting long-distance carriers against the chairman of the Federal Communications Commission, the nation's new system for funding expanded universal telecommunications service is under attack.

Some long-distance carriers are filing petitions with the FCC to alter the new financing system, voted in by the FCC last May, even while the carriers are starting to pass along the charges to end users. But FCC Chairman William Kennard is battling back by demanding to know why carriers are passing along the charges at all.

At the heart of the battle is a new FCC-mandated program called E-rate, which provides discounts for Internet access and other network services to schools, libraries, rural hospitals and medical clinics.

To help pay for the program, the FCC last May voted to levy new charges on long- distance carriers that began in January.

At the time, the FCC hoped the carriers would swallow the charges because they were offset by a July 1997 $1.7 billion reduction in per-minute access fees that long-distance carriers pay local carriers.

But all of the major long- distance carriers are passing along the charges, especially to business users.

For example, MCI Communications Corp. is "recovering" one of the new charges, called the Primary Interexchange Carrier Charge (PICC), according to the type of user access line (see graphic).

And late last month MCI filed a petition with the FCC asking it to levy the PICC charge on local carriers, such as regional Bell operating companies, instead of long-distance carriers.

In addition, the major car-riers have all either levied or are preparing to levy another universal service charge. That charge is calculated as a percentage of a business users overall interstate voice and data service. For example, AT&Ts charge is 4.9% of revenues, while MCIs charge is 4.4% for large users and 5% for small users.

Some members of Congress blame the current situation on the FCC for raising universal service costs by mandating the E-rate program in the middle of telecom reform.

"Instead of deregulation, we've got taxation," said Rep. George Gekas (R-Pa.) at a recent hearing of the House Judiciary subcommittee on administrative and commercial law.

For a number of reasons, the full force of the new charges has yet to hit many enterprise network users. AT&T officials last week confirmed to Network World that although their new charges officially went into effect in January, many users - especially large businesses with complex voice and data contracts - have not yet seen the charges appear on their bills.

All AT&T business users who are subject to the 4.9% Universal Connectivity Charge will see it reflected on their bills by April, an AT&T spokesman said. But he warned that once the charges appear, AT&T customers will be billed retroactively since January for the charge.