USAC Overview & Update

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1 USAC Overview & Update Robert Binder Director Industry Support High Cost & Low Income Division Universal Service Administrative Company Minnesota Telecom Alliance Annual Convention

USF Overview USAC is a not-forprofit corporation selected as the permanent administrator of the federal USF and the four USF

One Fund, Four Programs The High Cost Program ensures that consumers across the country have access to and pay rates for

The Low Income Program, commonly known as Lifeline and Link Up, helps eligible low-income consumers establish and maintain telephone

Through USAC, the USF provides communities across the country with affordable telecommunications services.

2 USF Overview USAC is a not-forprofit corporation selected as the permanent administrator of the federal USF and the four USF Programs. One Fund, Four Programs The High Cost Program ensures that consumers across the country have access to and pay rates for telecommunications services that are reasonably comparable to services provided and rates paid in urban areas. The Low Income Program, commonly known as Lifeline and Link Up, helps eligible low-income consumers establish and maintain telephone service by discounting services provided to them by local telephone companies. Through USAC, the USF provides communities across the country with affordable telecommunications services. The Rural Health Care Program provides reduced rates to rural health care providers for telecommunications and Internet services necessary for the provision of health care. The Schools and Libraries Program, commonly known as E-rate, provides discounts to help schools and libraries in every U.S. state and territory receive affordable telecommunications and Internet access. 2

3 USF Overview USF Disbursements In 2009, USAC disbursed approximately $7.3 billion in universal service support. Calendar Year Approved Disbursements by Program As of December 31, 2009 (unaudited in thousands) 3

4 Universal Service Administrative Co. USAC s functions and responsibilities include: Administering each of the universal service programs. Billing contributors, collecting contributions, and disbursing universal service support. Reporting quarterly to the FCC on disbursement of universal service support. USAC may not: Make policy. Interpret unclear provisions of the statute or rules. Interpret the intent of Congress. Advocate policy positions before the FCC or its staff, but may advocate positions on administrative issues relating to the programs. 4

USAC files program demand estimates & projected revenue

5 How the USF Works USAC collects projected revenue data from contributors (all telecom companies). USAC files program demand estimates & projected revenue requirements with FCC. FCC issues public notice with proposed contribution factor. 5

6 How the USF Works FCC adopts contribution factor if no comments oppose it. Telephone companies use the factor to bill their customers for their USF obligation. Bill e.g. 9.4% TELCO 6

7 How the USF Works Telephone companies collect fees for their USF obligation. TELCO Companies send USF contribution obligation to USAC. USAC disburses the funds to the 4 USF programs. High Cost Low Income Rural Health Care Schools & Libraries 7

Is provided to telecommunications carriers to

8 High Cost Support Overview Ensures that telecommunications rates paid by customers that live in high-cost areas are reasonably comparable to rates paid in other areas. Is provided to telecommunications carriers to cover a portion of the costs to provide telephone service in highcost areas. 8

High Cost Support Overview 5 Components High Cost Loop Provides intrastate support for the last mile of connection for rural companies in service areas where the cost to provide service exceeds 115

9 High Cost Support Overview 5 Components High Cost Loop Provides intrastate support for the last mile of connection for rural companies in service areas where the cost to provide service exceeds 115 percent of the national average. High Cost Model Provides intrastate support for the last mile of connection for non-rural carriers where the cost to provide service in the state exceeds two standard deviations above the national average cost per line. Interstate Access Support Offsets interstate access charges for price-cap carriers. Interstate Common Line Support Provides interstate support for rate-of-return carriers, to the extent that subscriber line charge (SLC) caps do not permit them to recover their common line revenue requirements. Local Switching Support Provides intrastate assistance that helps cover the high fixed switching costs for companies that serve 50,000 or fewer access lines. 9

10 High Cost Support Overview Statistics Over 22 million rural lines supported Over 2,000 study areas Over 1,400 incumbent study areas Over 500 competitive study areas 10

11 High Cost Eligibility Criteria Eligibility Criteria Designated as an ETC by either a state commission or the FCC, if the state lacks jurisdiction Certify annually that all High Cost support will be used only for the provision, maintenance, and upgrading of services and facilities eligible for support CETCs qualify for same components of High Cost as the ILEC in whose service areas the CETC serves lines CETCs receive same per-line support as the ILEC in whose service areas the CETC serves lines but are subject to CETC Interim Cap 11

12 High Cost Eligibility Criteria Basic Requirements Wireline and wireless telephone companies that want to be designated as ETCs must offer the telecommunications services or functions that are designated for Universal Service Fund support by the FCC in Section of its rules. ETCs must also advertise the availability of Lifeline service, which is a component of the Low Income Program of the Universal Service Fund. While most ILECs are already designated as ETCs, there may be new carriers that receive ILEC status through the FCC waiver process. Competitive ETCs are designated on an ongoing basis. 12

13 High Cost Eligibility Criteria Carriers eligible for support must offer: Voice grade access to the public switched network Local usage Dual tone multi-frequency signaling or its functional equivalent Single-party service or its functional equivalent Access to emergency services Offer access to operator services Offer access to interexchange service Offer access to directory assistance, and Offer toll limitation for qualifying low-income consumers Offer all universal services throughout service area Advertise availability of services and charges 13

14 High Cost Eligibility Criteria Obtain a Service Provider Identification Number ETCs that seek High Cost Program support must obtain a Service Provider Identification Number (SPIN) from USAC. The Service Provider Identification Number and Contact Information Form (Form 498) is used to collect contact, remittance, and payment information for service providers that receive support from the federal USF programs - High Cost, Low Income, Rural Health Care, and Schools and Libraries - administered by USAC. A SPIN may be acquired before or after an ETC designation. Please be aware that High Cost support cannot be disbursed without a valid SPIN issued by USAC. 14

15 High Cost Eligibility Criteria Competitive carriers must submit line count data under Part 54 of the FCC's rules to USAC in order for USAC to calculate High Cost support amounts to be disbursed to competitive carriers for each support component. USAC only issues support payments electronically, so make sure your SPIN contact and remittance information is up-to-date. 15

16 High Cost Certifications The following certifications are called use certifications. FCC rules require that ETCs or States certify that High Cost support will be used only for the provision, maintenance, and upgrading of facilities and services for which the support is intended. Certification Type Due Date FCC Rule Affects Payments For Non-Rural Use October 1 Annually 47 CFR Subsequent Calendar Year Rural Use October 1 Annually 47 CFR Subsequent Calendar Year Interstate Access Use June 30 Annually 47 CFR Tariff Year (July 1-June 30) Interstate Common Line Use June 30 Annually 47 CFR Tariff Year (July 1-June 30) October 1 States certify for HCL, LSS, and HCM, unless the state lacks jurisdiction (in which case the carrier self-certifies) (47 CFR & ). June 30 Carriers self-certify for IAS and ICLS (47 CFR & ). 16

17 High Cost Eligibility Criteria Incumbent Carrier Disaggregation Disaggregation (47 CFR ) allows incumbent carriers to target High Cost support at a level below the study area in order to allocate support to areas with higher costs. Three paths for disaggregating and targeting High Cost support Zones: areas/wire centers selected for disaggregation 17

18 Low Income Support Overview The Low Income Program, commonly known as Lifeline and Link Up, provides discounts that make basic, local telephone service affordable to help over 8 million low-income consumers stay connected. $1.025 billion disbursed in ,870 eligible carriers at end of million households supported Program supports wireline and wireless carriers provision of discounted service 18

19 Low Income Support Overview Low Income support consists of three subcomponents. Lifeline reimburses ETCs for discounting eligible customers monthly bills for basic, local telephone service. Link Up reimburses ETCs for discounting connection charges incurred when an eligible customer commences service for the first time or at a new address. Toll Limitation Service (TLS) reimburses ETCs for providing toll blocking and toll control to eligible customers at no cost to the customer. 19

20 Low Income Support Overview The Low Income Program administered by USAC is the federal portion of what is often a federal-state joint effort. States that mandate support: States that make supplemental intrastate support available in addition to federal support These states set their own eligibility criteria and certification and verification procedures 20

21 Low Income Support Consumer Eligibility States that mandate Low Income support set their own eligibility criteria (must be based on factors related to income) Federal default states use federal eligibility criteria Program-based federal eligibility criteria: Medicaid Supplemental Nutrition Assistance Program (SNAP) formerly Food Stamps Supplemental Security Income (SSI) Federal Public Housing Assistance (Section 8) Low Income Home Energy Assistance Program (LIHEAP) Temporary Assistance to Needy Families (TANF) National School Lunch Free Lunch Program 21

22 Low Income Support Consumer Eligibility Income-based federal eligibility criteria: Household income at or below 135% of the Federal Poverty Guidelines Tribal Consumer Eligibility Additional federal support is available to eligible consumers who reside on federally recognized tribal lands or reservations Eligibility for Lifeline on tribal lands includes all the criteria for non-tribal, plus: Tribally administered TANF Bureau of Indian Affairs (BIA) General Assistance Head Start Program (income-eligible only) 22

23 Low Income Carrier Eligibility Carriers eligible for Low Income Program support: Must be designated as an Eligible Telecommunications Carrier (ETC) by state commission or FCC States generally grant ETC designation unless a particular state lacks regulatory authority over a certain type of carrier (e.g., wireless). In those cases, carriers must ask FCC for ETC designation. Must be a facilities-based provider, unless granted forbearance from this requirement by the FCC (e.g., TracFone, Virgin Mobile) 23

24 Low Income Carrier Eligibility Competitive ETCs Non-facilities based carriers must receive forbearance from FCC Must still obtain ETC designation (from states or FCC) Must provide additional info to USAC PSAP certifications Affidavit stating use of facilities if not relying on forbearance in a particular state Any additional information that is part of conditions imposed by the FCC or a state 24

25 Low Income Carrier Eligibility Carriers eligible for support must offer: Voice grade access to the public switched network Local usage Dual tone multi-frequency signaling or its functional equivalent Single-party service or its functional equivalent Access to emergency services Offer access to operator services Offer access to interexchange service Offer access to directory assistance, and Offer toll limitation for qualifying low-income consumers Offer all universal services throughout service area Advertise availability of services and charges 25

26 Low Income Carrier Obligations Eligible Telecommunications Carriers Must obtain a Study Area Code (SAC) from USAC Six-digit number Identifies companies geographic location Identifies ILEC vs. CLEC Must obtain a Service Provider Identification Number (SPIN) from USAC Nine-digit number Service Provider Identification Number and Contact Information Form (Form 498) used to collect contact, remittance, and payment information for service providers receiving support from Universal Service Fund programs 26

27 Low Income Carrier Obligations Eligible Telecommunications Carriers Must notify customers of impending termination if reasonable basis to believe subscriber is no longer eligible Must allow customers 60 days after notice of impending termination to provide proof of eligibility Must keep accurate records of revenue it forgoes in providing Low Income support in a manner determined by USAC Cannot charge Lifeline customers: Federal USF fees on the local service portion of their telephone bill Local Number Portability fee on their telephone bill 27

If the incumbent ETC provides a Lifeline discount to a CETC, the incumbent ETC is eligible to claim support for

28 Low Income Carrier Obligations Competitive Eligible Telecommunications Carriers CETCs may not claim support from the USF for resold, Lifeline-discounted lines purchased from an Incumbent ETC. If the incumbent ETC provides a Lifeline discount to a CETC, the incumbent ETC is eligible to claim support for the discounted amount. CETC is guilty of double dipping if it accepts a Lifeline discount from incumbent and claims support from the fund. 28

29 Rural Health Care Overview The Rural Health Care Program provides reduced rates to rural health care providers for telecommunications and Internet services necessary for the provision of health care. Support for telecom services is the difference between rural and urban rates. Internet access services are discounted at 25%. Health care providers apply for this support and USAC works in conjunction with service providers to make sure this support is passed on to program participants. USAC reimburses telecom and Internet service providers for services provided to eligible rural health care providers (service providers then pass the discounts on to rural health care providers). 29

year 2009 Telecom service support: difference between

30 Rural Health Care Overview 2,800 rural health care providers supported $61 million disbursed in calendar year 2009 Telecom service support: difference between rural and urban rates Internet access support: 25% discount 30

31 Schools & Libraries Overview The Schools & Libraries Program provides discounts to help schools (K-12) and libraries in every U.S. state and territory receive affordable telecom, Internet access, and related services. Two Categories of Services Priority One Support Telecommunications Services Internet Access Priority Two Support Internal Connections Basic Maintenance of Internal Connections Discounts for support depend on the level of poverty and the urban/rural status of the population served and range from 20% to 90% of the costs of eligible services. Eligible schools, school districts, and libraries may apply individually or as part of a consortium. 31

32 Schools & Libraries Overview 43,500 applications filed in Funding Year 2010 (July 1 June 30) 115,000 beneficiaries received support in FY2010 $1.8 billion disbursed in calendar year

33 Safeguard the USF 1. Implementation of the Beneficiary/Contributor Compliance Audit Program (BCAP) 2. Implementation of the Payment Quality Assurance (PQA) program 3. Trends in prior audit findings 4. Recommendations for USF process improvement 33

34 Safeguarding the USF Payment Quality Assurance (PQA) Program Beneficiary/Contributor Compliance Audit Program (BCAP) Not an audit! Specifically designed to assess estimated rates of improper payments Commitment to support Improper Payments Information Act (IPIA) requirements Ensure compliance with FCC rules Prevent, detect, and deter waste, fraud, and abuse Recover funds for rule violations Ensure equitable contributions to USF 34

35 Safeguard the USF BCAP Overview BCAP Audit Announcement Letter Stated objectives and activities under audit Projected timing and audit team Request documents needed for audit USAC Audit Engagement Lead USAC Internal Audit Division staff member Primary point of contact with questions Solicits your input on the audit 35

36 Safeguard the USF Review of Documentation Requirement to review documents prior to field visit Performance of procedures before field visit Field visit (if applicable) BCAP Overview Right size staff to entity under audit Agreeable time for visit Goal: Minimize interruption 36

37 Safeguard the USF BCAP Overview If on site test work is conducted: Conduct interviews with staff, review inventories, and request additional documentation during this time Keep open communication with entity under audit Provide an audit status at the end of field visit 37

38 Safeguard the USF Goal: Communicate Results BCAP Overview Exit audit conference to close the audit Draft report reviewed by USAC Engagement Lead and Quality Assurance Auditor s review by audit firm Provide audit findings to entity for review and response USAC management will respond to entity s comments Final report presented to USAC Board of Directors and beneficiary 38

39 Audit TIPS Safeguard the USF Ask questions Keep accurate records Properly label records If schedules or summary documentation do not agree to amounts reported, provide reconciliations Get your NECA regional representative and cost consultant involved (High Cost Audits) DOCUMENT everything! BCAP Overview 39

40 Safeguard the USF PQA Overview What are the PQA Program guidelines? Covers each of the four programs Measures accuracy of USAC payments to applicants Evaluates eligibility of program applicants High level testing of information obtained from program participants Tailors scope of procedures to ensure reasonable cost while meeting IPIA requirements 40

41 Safeguard the USF PQA is a 5 Step Process PQA Overview 1. USAC will select beneficiaries for payment quality assessment. 2. USAC will contact the beneficiary and request payment documentation and/or confirmation of eligibility. 3. Beneficiary information is reviewed by USAC. 4. USAC concludes on the payment and closes the case. 5. USAC submits the annual assessment results to the FCC. 41

42 It is designed to: Safeguard the USF Minimize requirements placed on beneficiaries Significantly decrease processing time Capitalize on documents within USAC Not require USAC to be on site Further Information PQA Overview Detailed description of the PQA program - Listing of Frequently asked Questions and their Answers

43 Safeguard the USF USF Best Practices Line Count Problems Examples Duplicate lines Reported in the incorrect rate zone Misclassified as to whether single and or multi lines Lines billing addresses were outside the study area Included an inactive line on its line-count Unable to provide billing system data to support official lines 43

44 Safeguard the USF USF Best Practices Line Count Problems Error Detection Customer billing line-count detail Subscriber listings Best Practice Solution System must retain historical data of reported levels that can be retrieved or accurately recreated Maintain a document retention policy for customer billing and outside plant access line reports 44

45 Problems Safeguard the USF USF Best Practices Asset Valuation Lack of proper documentation Continuing Property Records (CPR) not posting adds (invoices) and retirements in a timely manner Lack of consistent periodic reviews Unable to provide invoices and proper supporting documentation to support asset valuation in General Ledger for audit sampling Did not maintain documentation for write offs or expense capitalization 45

46 Safeguard the USF USF Best Practices Asset Valuation Error Detection Depreciated assets in excess of the salvage rates approved by the PS Reconcile CPR balances to related General Ledger accounts Best Practice Solution Implement a document retention policy to retain work order record or approved worksheets for any retirements or adjustments Set up a tracking system to assure updates to the CPR Conduct periodic reviews of CPR 46

47 Safeguard the USF USF Best Practices Intra-Company Allocations Problems Allocations conducted in a manner that is non-compliant with regulations. Lack of sufficient documentation as to the logic behind allocations Affiliates allocation factors were not supported. No quantitative support for the rate used for services provided for their affiliate. Regulated recovery of a de-regulated asset Improper costs are recovered due to reporting errors to USAC due to non-compliance issue. 47

48 Safeguard the USF USF Best Practices Intra-Company Allocations Error Detection Test pricing and costs related to transactions between parent and its affiliates in comparison to fees paid to nonrelated entities Review accounting of payroll costs Review product codes for compliant regulated/de-regulated treatment 48

49 Safeguard the USF USF Best Practices Intra-Company Allocations Best Practices Record affiliate transactions in accordance with FCC Rules (47 C.F.R. 32, 36) Establish a system of controls through compliant mapping of each activity code to the valid general ledger account number Develop improved system for tracking assets and transactions Improve document retention and review processes periodically for regulatory compliance 49

50 USAC s Resources Regional training sessions for beneficiaries Collocated workshops and education sessions held on-site at professional meetings Webinars Outreach Events Partner organization outreach (direct mail, web links, etc.) Individual outreach: in-person visits, video conference sessions, phone or exchanges, etc. 50

51 USAC s Resources Online video tutorials Information packets for ETCs Website Tools Monthly e-newsletters Outreach Products Announcements for distribution by partner organizations about program dates and news items Brochures and display materials 51

52 Thank You! Visit us on the web at Or call us at Robert Binder Director Industry Support High Cost & Low Income Division 52

Low Income Program AN OVERVIEW

Low Income Program AN OVERVIEW November 2010 1 Overview Low Income support reimburses eligible telecommunications carriers (ETCs) for providing eligible low-income customers with discounts. 2 Overview