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Regulatory Governance and the Implementation of Universal Service: A Comparative Study of the US and Japan
Unformatted Document Text:  Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 10 During the 1970s the provider for universal service was AT&T and it used universal service as a rationale for regulated monopoly faced with competition from MCI and Sprint. AT&T used normal cross-subsidy as the method of universal service while the new competitors were not required to allocate a portion of their costs to local service, simply ordering local business lines from AT&T (Mueller, 1997, p.163). After the divestiture of AT&T in 1984, the long distance carriers including AT&T had to pay their access charge to the local exchange carriers (LECs). A portion of the access deficit of the LECs was allocated to the federal (interstate) jurisdiction. This portion was about 25% and the amount was collected through a combination of access charges on interstate carriers and direct subscriber charges. Although this scheme of universal service has been used since the AT&T’s breakup, this regime has been modified extensively. Generally, the main access charges have been: 1) the Subscriber Line Charge (SLC) which is levied monthly by LECs directly on subscribers; 2) the Common Carrier Line Charge (CCLC) which is a per minute charge on interstate long distance calls levied by LECs on interstate long-distance providers; and 3) the Pre-subscribed Interexchange Carrier Charge (PICC) which is levied by the LEC on the long distance provider which has prescribed to each access line (Intven, p.49). However, the post-divestiture system of universal service support still depended almost entirely on having long- distance rates subsidize local service rates, and therefore, the long-distance carriers felt that it not only would distort the market, but impose upon them a competitive disadvantage as they began to compete directly with LECs (Mueller, 1997, p.168). Telecommunications Act of 1996 and Universal Service The US Congress set a milestone for universal service as it passed the Telecommunications Act of 1996 (hereinafter, the Act) 7 and the Act made universal service more refined and specified having an entire section devoted to it. 8 Subsection (b) of section 254 requires the FCC to define universal service based on the recommendations from the public, Congress, and a joint board of state and federal regulators. The Act specifically states that “quality services should be available at just, reasonable, and affordable rates” (§ 254(b)). For this, the FCC defined what is ‘affordable’ and specified subsidies to any providers whose costs of providing designated service exceed the affordability targets through its Universal Service Report and Order (1997). 9 In addition, Section 254(e) requires that all universal service support be ‘explicit’ intending to 7 It is the first federal legislation with explicit principles and mechanisms of universal service ( http://www.benton.org/Policy/96act/ ). Before the Act, the FCC based universal service policy on the preamble of the 1934 Communications Act as explained before. 8 Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (Feb. 8, 1996), § 254. 9 FCC (1997), Universal Service Report and Order, CC Docket No. 96-262.

Authors: Park, Namkee.
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Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 10
During the 1970s the provider for universal service was AT&T and it used universal service as a
rationale for regulated monopoly faced with competition from MCI and Sprint. AT&T used
normal cross-subsidy as the method of universal service while the new competitors were not
required to allocate a portion of their costs to local service, simply ordering local business lines
from AT&T (Mueller, 1997, p.163). After the divestiture of AT&T in 1984, the long distance
carriers including AT&T had to pay their access charge to the local exchange carriers (LECs). A
portion of the access deficit of the LECs was allocated to the federal (interstate) jurisdiction. This
portion was about 25% and the amount was collected through a combination of access charges on
interstate carriers and direct subscriber charges. Although this scheme of universal service has
been used since the AT&T’s breakup, this regime has been modified extensively. Generally, the
main access charges have been: 1) the Subscriber Line Charge (SLC) which is levied monthly by
LECs directly on subscribers; 2) the Common Carrier Line Charge (CCLC) which is a per minute
charge on interstate long distance calls levied by LECs on interstate long-distance providers; and
3) the Pre-subscribed Interexchange Carrier Charge (PICC) which is levied by the LEC on the
long distance provider which has prescribed to each access line (Intven, p.49). However, the
post-divestiture system of universal service support still depended almost entirely on having long-
distance rates subsidize local service rates, and therefore, the long-distance carriers felt that it not
only would distort the market, but impose upon them a competitive disadvantage as they began to
compete directly with LECs (Mueller, 1997, p.168).
Telecommunications Act of 1996 and Universal Service
The US Congress set a milestone for universal service as it passed the Telecommunications Act
of 1996 (hereinafter, the Act)
7
and the Act made universal service more refined and specified
having an entire section devoted to it.
8
Subsection (b) of section 254 requires the FCC to define
universal service based on the recommendations from the public, Congress, and a joint board of
state and federal regulators. The Act specifically states that “quality services should be available
at just, reasonable, and affordable rates” (§ 254(b)). For this, the FCC defined what is
‘affordable’ and specified subsidies to any providers whose costs of providing designated service
exceed the affordability targets through its Universal Service Report and Order (1997).
9
In
addition, Section 254(e) requires that all universal service support be ‘explicit’ intending to
7
It is the first federal legislation with explicit principles and mechanisms of universal service
(
http://www.benton.org/Policy/96act/
). Before the Act, the FCC based universal service policy on the
preamble of the 1934 Communications Act as explained before.
8
Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (Feb. 8, 1996), § 254.
9
FCC (1997), Universal Service Report and Order, CC Docket No. 96-262.


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