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For more than 70 years, the United States has been committed to the principle of universal service, ensuring that local telephone service is provided at reasonable and affordable rates throughout the nation, so that residents of hard-to-serve rural areas receive basic local service at prices comparable to those paid by residents of easier-to-serve cities. The result of this historic commitment has been a national telephone service penetration rate of more than 97 percent, a sterling accomplishment that no other nation can claim. Over the past decade, the communications landscape has undergone a dramatic transformation. We have witnessed a communications revolution that has rivaled the Industrial Revolution in how it has transformed the way we live, work, transact business, and obtain information. In an era when electronic communications are at the heart of the national economy, it is more essential than ever that all Americans remain connected. At a time when more traditional commerce is being conducted electronically, the value of our deeply penetrating telephone network to the national economy is greater than ever before. The direct, visible benefits of our universal service occur in rural areas, where the greater distances between customers means that rural end users are much costlier to serve than their urban counterparts. Congress codified this policy in the Telecommunications Act of 1996 by creating the Universal Service Fund, an explicit mechanism that collects contributions from long-distance service providers and distributes support through four universal service programs. Without the USF support provided through the high-cost program — the largest of these four programs — telephone companies would have to charge rural customers many multiples of the monthly rates paid by urban telephone subscribers. But even urban residents benefit from universal service, because they can call people in areas who, in the absence of universal service, could not afford a telephone. All of us — urban, suburban, and rural residents alike — have a stake in assuring that everyone can afford basic telephone service. Universal service makes our widely connecting network possible. But the USF has come under pressure today as never before. Changes in technology, business models, and consumer preferences over the last decade have rapidly shrunk the long-distance revenue base that has been relied upon for universal service funding, as Americans increasingly have turned to other technologies and means of communications for such services. At the same time, demand on the USF has grown as additional telecommunications carriers qualify for and receive support to provide service in high-cost areas. As a result, providers of landline, cellular, and now voice-over-Internet-protocol long-distance voice services are burdened with an even greater universal service funding responsibility, which they pass on to their customers. The changes have rendered the USF unsustainable under its current structure. A comprehensive reform of the system is, therefore, urgently needed. Other funding sources must be tapped, and new controls must be placed on distributions from the fund. FAIR TO ALL In an effort to achieve the needed reform in a manner that is fair to the rural telephone companies that are the major recipients of universal service funding and to the large regional telephone companies that are net contributors into the fund, I have introduced, with Rep. Lee Terry (R-Neb.), the Universal Service Reform Act of 2007, H.R. 2054, which we believe reflects a consensus among the competing interests. The bill is a sensible modernization of the USF to account for the dramatic changes that have transformed telecommunications during the past decade. Since inception of the USF and pursuant to statute, traditional telephone providers, and now VoIP providers, have paid a percentage of their interstate and international revenues into the fund. To ensure sustainability of the fund, the Universal Service Reform Act would expand the contribution base to include all providers of two-way voice service, or substitutes for it, without regard to which technology the provider uses or whether the service is intrastate, interstate, or international. Internet protocol-based providers as well as hard-wired traditional and cellular providers would make contributions based on all of their voice traffic. In addition, companies that provide a connection to the broadband network, such as DSL and cable modem service providers, would contribute into the fund. At the same time, we propose significant cost controls to limit fund growth, which will address concerns over increasing fund size. While broadening the contribution base, the Universal Service Reform Act would impose a cap on the entire high-cost fund, ensuring that the only annual growth in the fund is in accordance with a specified inflation factor. In the future, eligible telecommunications carriers would receive support based on their own costs, not on the costs of the incumbent carrier in the area they serve. In addition, the bill specifies more precisely the criteria that must be met by carriers to be eligible for universal service support. To be considered an eligible carrier, a provider must provide service throughout its service area, assuming carrier-of-last-resort obligations; demonstrate the ability to remain functional in emergency situations; and satisfy consumer protection and service quality standards. BETTER BROADBAND The Universal Service Reform Act would also help lift our nation’s currently unenviable international ranking in broadband deployment. According to the most recent statistics released by the Organization for Economic Cooperation and Development, the United States has dropped from 12th in the world to 15th for broadband penetration. The nation that invented the Internet and today creates its most popular, globally utilized applications can and, for the sake of our national economy, must do better. To encourage broadband deployment, the Universal Service Reform Act would allow, for the first time, eligible telecommunications carriers to use universal service funds to deploy high-speed Internet access services in rural areas. Five years after enactment, our bill would require recipients of universal service support to provide broadband throughout their service territories. Because the areas in the United States that lack broadband now are generally the same areas served by carriers receiving USF support, this provision would go a long way toward elevating our global standing in broadband penetration. SOLVING PROBLEMS The Universal Service Reform Act would solve other USF-related problems. We provide a permanent exemption to the Antideficiency Act, relieving the necessity for the annual exemptions that Congress has passed in recent years. Application of the Antideficiency Act to the USF could result in disruption of fund distribution and would prohibit investment of contributions in liquid, interest-bearing, government-backed securities until disbursement of funds. The legislation also addresses the problem of “phantom traffic,” where traffic lacks proper identification of the originating carrier for purposes of calculating intercarrier compensation. The Universal Service Reform Act would require all carriers to identify all traffic originating on their networks and to ensure proper pass-through of that identification so that terminating carriers can seek appropriate payments. The bill would eliminate the “parent trap,” a current regulation that provides that a carrier that acquires telephone exchanges receives universal service support at the same level for which those exchanges were eligible prior to the transfer. Eliminating the parent trap would encourage the sale of exchanges to rural carriers by carriers that today do not qualify for USF support. We would base distribution of USF support for high-cost, rural areas served by large regional carriers on more granular, wire-center averaging rather than geographic averaging. This would provide needed USF support to rural exchanges that are not receiving support currently because, on average, the larger geographic areas used to determine support have an urban characteristic. Our USF reform measure reflects a broad consensus on the steps that are currently required to stabilize and sustain the fund. The bill has been endorsed by large net contributors into the USF such as AT&T and Qwest, by midsize carriers including Embarq, and by the associations representing the rural carriers that are net beneficiaries from the fund. It achieves a careful balance of the competing concerns of these interested parties and deserves enactment by the 110th Congress.
Rep. Rick Boucher (D-Va.) represents Virginia’s 9th Congressional District. He is the co-founder and current co-chairman of the Congressional Internet Caucus.

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