2022 Review of the State Universal Service Fund

The New York Smaller Incumbent Local Exchange Companies (NSIC) filed a petition on December 21, 2021, requesting that the Commission extend the State Universal Service Fund (SUSF) for at least a four-year period and maintain the general framework for the SUSF that was approved and extended by the Commission in 2020. The SUSF was established in 2013 as a successor to a transition fund that assisted eligible telecommunications carriers, primarily in rural areas, in adjusting to competitive telecommunications markets first established in 2006. The SUSF allows eligible telecommunications carriers to recover revenue deficiencies that occur resulting from the $23 cap on the monthly rate for basic telephone service.

Since 2013, the SUSF has been extended twice, once in 2016 for three years, and again in 2020 for two years. As was the case in the 2019 petition — the Commission considered whether the SUSF should be continued, modified, or eliminated. This decision necessarily rested on the question of whether effective competition exists in the areas served by the NSIC companies that rely on the SUSF. According to the National Regulatory Research Institute, effective competition exists where “competition is sufficient to discipline the market and ensure service availability, promote customer choice, and assure the availability of reliable and ubiquitous telecommunications for all citizens.” If effective competition does not exist, continued government regulation can fill the market void via the fund to ensure continued reliable and affordable access to basic telephone service.

The case proceeded in two phases, with both comments and testimony. The parties filed initial comments and reply comments on March 28 and April 18, 2022, pursuant to the Commission’s Notices. On March 28, 2022, UIU filed initial comments in response to the NSIC petition that recommended: (1) the SUSF be extended beyond its current expiration date of December 31, 2022; (2) the current funding arrangement remain intact; (3) the overall level of SUSF funding be directly attributed to need; (4) the level of competition in each respective provider’s market needs granular, transparent analysis; and (5) ongoing data collection of address-level service availability is critical to ensuring adequate service for New York State consumers.

A hearing was held on July 11, 2022, to admit initial comments, reply comments, testimony, and exhibits into the record. UIU filed an initial brief on August 12, 2022, that addressed: (1) the Commission’s authority to extend the SUSF; (2) whether the SUSF should be continued, and for what duration and funding level; and (3) whether substitutability in rural areas requires further definition to ensure that markets characterized as competitive actually provide adequate consumer protections.

After the briefing period, an Administrative Law Judge (ALJ) issued a Recommended Decision (RD) on October 6, 2022. The RD found that: (1) there is insufficient data to support phasing out the SUSF (funding would be frozen at current levels to current SUSF-recipients for a period of four years); (2) a significant number of customers without competitive alternatives exist; (3) broadband should not be considered competitive/substitutable if it is offered by the same provider as landline; (4) the question of affordability exists and must be further addressed (bundling of services as an affordability concept was rejected); and (5) wireless and satellite broadband are not substitutable for landline telephone service. The ALJ also agreed that further data must be gathered on the most vulnerable customers in these areas.

UIU filed a Brief Opposing Exceptions on November 3, 2022, that opposed Department of Public Service Staff’s (Staff) exception to the RD and further supported the RD’s finding that the SUSF is needed because some customers do not have adequate competitive substitute alternatives to basic telephone service. UIU further opposed Staff’s exceptions to the RD specifically to Staff’s exception on the RD’s discussion to clarify that the record already contains precise location counts and pricing data; Staff’s exception on the RD conclusion that the SUSF should continue for four years and that the NSICs have an opportunity to request further extensions; and Staff’s exception to request that eligible recipients provide broadband service speeds and identify alternative carriers.

On December 15, 2022, the Commission issued an Order and Opinion that found that the SUF will continue through December 31, 2026, with funding amounts frozen and available to only current SUSF recipients and if any current Incumbent Local Exchange Company (ILEC) that is a current SUSF-recipient requests SUSF support beyond 2026 it must file location data before December 29, 2025, and financial data before March 31, 2026. Also, any future petition by an ILEC (whether a current SUSF-recipient or not) for a further extension of the SUSF must be filed on or before September 1, 2025 and must propose at least one alternative targeted to protect only basic service consumers who lack access to services from a competitor or competitors that provide an adequate technical substitute to basic landline telephone service.

To learn more about this case, please go to the Department of Public Service’s Document and Matter Management System under the above referenced case number. Here is the link:

Review of SUSF