AT&T Announces New Universal Service Charges and IP Telephony and Wireless Data Services

(May 29, 1998)  AT&T announced plans to collect a new universal service charge and to notify customers of the reason for the charge in monthly bills.   AT&T also announced plans to offer IP telephony services in three cities, and flat rate wireless data services.  The universal service charge will recover the about $1.6 Billion that the FCC requires AT&T to contribute to universal service programs, including its new $2.2 Billion per year Schools and Libraries Fund.   The announcements do not sit well with the FCC and some proponents of universal service subsidies.

1.  Universal Service Fee.

AT&T filed a tariff revision with the Federal Communications Commission on May 26 in which it stated its intent to assess a  fee on its customers equal to 5% of the amount billed for interstate long distance telephone calls.  The fees collected will be used to recover the estimated $1.6 Billion that AT&T will be required by the FCC to contribute to various universal service programs.

The FCC administers universal service pursuant to its mandate under Section 254 of the Telecommunications Act of 1996.  Two main uses of universal service are to subsidize telephone service in high cost rural areas and telecommunications services, Internet access and networking equipment for schools and libraries.

The later subsidy, known as the Schools and Libraries Fund (or "e-rate"), was created by the FCC's Universal Service Order of May 7, 1997.  It is just now being implemented.   The FCC plans $2.2 Billion in subsidies for calendar year 1998.  The FCC collects this money mainly from long distance telephone companies, who in turn collect it from their customers.

The concept of Universal Service has strong support from rural state Congressmen and Senators, such as Senators Ted Stevens (R-AK), Conrad Burns (R-MT), Jay Rockefeller (D-WV), and Olympia Snowe (R-ME).   It has also recently picked up support from school groups, such as the National School Board Association, whose members are about to start receiving subsidies.

On the other hand, long distance phone companies do not like having to add more charges to their customers' bills, and consumer groups do not like the higher phone bills which result from the charges.

Many phone companies have asked the FCC to change its May 7, 1998 Universal Service Order.   GTE, BellSouth, and SBC have challenged the legal authority of the FCC to even institute the schools and libraries program, in a lawsuit now pending before the 5th Circuit Court of Appeals.

On May 21 the Consumers Union and the Consumer Federation of American announced in a press release "that  federal regulators have broken their promise not to penalize residential phone customers with extra fees as they began financing a program providing Internet hookups for the nation’s schools, libraries and rural health care providers."  They asked the FCC that "the entire program to be suspended until the fees are axed."

AT&T's spokesman, Jim McGann, explained the reason for assessing the universal service charge.  "We are simply trying to recover our costs."   He added -- "We can't eat a billion six in new costs."

2.  AT&T's Billing Statement

AT&T's decision to collect the charge is provided for under the FCC's May 7, 1997 Universal Service Order.  Also, it was expected.  However, AT&T's decision to explain the charge to customers has made some people at the FCC and some universal service proponents very upset.

The gist of the problem is that the information contained in the customer billing statements, even accurate information, could undermine public support for the concept of universal service.

AT&T and other telephone companies which are required to contribute to universal service support want their customers to know that they are being charged to subsidize other people.   Some universal service proponents do not want the customers to know.

FCC Commissioner William Kennard quickly retorted that AT&T's announcement was "premature" and "unwarranted".  However, he stopped short of accusing AT&T of misleading customers.

However, farm state Senator Jay Rockefeller has said that what AT&T is doing is "horrendous" and meant "to scare people."  Two months ago he introduced a "Consumer Protection Act", along with Sens. Bob Kerrey (D-NE) and Olympia Snowe (R-ME) to compel telephone companies to "tell the truth".  Moreover, he succeeded in getting a "truth in advertising" amendment attached to the anti-slamming bill which passed the Senate earlier this month.

Rockefeller was aided by a lobbying effort conducted by the National School Boards Associations, and five other education groups.  The groups also placed an ad in Roll Call, a newspaper which covers Capitol Hill, and contacted their members to encourage them to contact their Senators.

The Roll Call ad stated that "Certain telecommunications companies – AT&T, MCI and Sprint – are undermining the program, by unnecessarily blaming the "E-Rate for higher costs. Others – SBC, BellSouth and GTE – have filed a lawsuit that could gut the "E-Rate" program."

Anne L. Bryant, who is both the Executive Director of the National School Boards Association, and a member of the Board of Directors of the Schools and Libraries Corporation, which administers the Schools and Libraries Fund for the FCC, stated that "We are deeply concerned about actions by MCI, AT&T, Sprint, SBC, BellSouth, and GTE that are undermining the program."

3.  Internet Protocol Telephony.

AT&T announced on May 21 in a press release that it is instituting trial Internet Protocol Telephony services in three cities: San Francisco, Atlanta, and Boston.

Historically, FCC opinions, court orders, and congressional legislation have all considered computer or information services to be different and distinct from telecommunications services.   Hence, they are not subject to FCC regulation, or universal service charges.

The development of IP Telephony, with its lower costs, and greater versatility, raises the possibility that much of the traffic currently on conventional Public Switched Telephone Networks (PSTN) will migrate to IP telephony.  This in turn could have an impact of the level of universal service contributions.  (Since, internet service providers are major users of telecommunications, they make substantial indirect contributions to universal service support in the charges they pay to their telecommunications suppliers.)

The FCC issued a Report on Universal Service on April 10, 1998, in which it asserted, but did not go so far as to rule, that "phone to phone" IP telephony should be subject to the FCC's universal service contributions.

AT&T's IP telephony technology is of the "phone to phone" variety apparently covered by the FCC's April 10 Report.  However, according to AT&T's Jim McGann, AT&T is not assessing any universal service charges to its IP telephony customers.

AT&T will charge 7.5 cents per minute, 24 hours per day, 7 days per week.  This undercuts long distance PSTN rates, but not many of the other IP telephony services.

4.  Wireless Data Services.

Finally, AT&T announced on May 27 that it has introduced new monthly flat-rate pricing plans providing unlimited wireless data transfer for a variety of applications – including wireless e-mail, remote LAN, and corporate Intranet access – for mobile computing customers.

The two new plans include Local Unlimited, a monthly rate of $54.99, which carries an additional $0.05 per kilobyte roaming fee when users are outside of markets where AT&T operates wireless IP service, and National Unlimited, a monthly rate of $64.99 with no roaming charges.