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 WASHINGTON, Nov. 1 /PRNewswire/ -- With the ultimate goal of paving the way to a fully competitive telecommunications environment, MFS Communications Company, Inc. (MFS) (NASDAQ-NMS: MFST) has submitted a sweeping policy initiative asking the Federal Communications Commission (FCC) to initiate a formal inquiry and convene a special hearing to re- examine the concept of "universal service." The stated purpose of the inquiry and hearing would be to determine how best to encourage and restructure universal service in the emerging competitive telecommunications environment.
 Universal service is a fundamental precept of telecommunications law specifying telecommunications carriers' responsibility to assure that basic telephone service is widely available in an efficient manner with adequate facilities and at reasonable charges.
 MFS believes that it is now critical to reexamine and rework the whole approach to find a better way of ensuring universal service so that all telephone customers can be provided the lowest rates and the full benefits of increasing competition in the telecommunications industry.
 Moreover, rapidly changing alliances in the industry are overwhelming regulatory barriers. For example, the proposed Bell Atlantic/TCI alliance, if approved, would greatly affect and accelerate the transition to competition in the local exchange.
 MFS' proposal is built on the pioneering economic works of industry experts and others and is based on the elimination of entry barriers to competition for all telecommunications services, including the use of the outmoded universal service structure as such a barrier. As part of its broad initiative, MFS is proposing that all existing FCC and similar state-mandated subsidy programs be replaced by an independent Universal Service Assurance Fund, administered by a neutral third party.
 The neutral administrator would ensure that the subsidy is targeted directly to low income and other special need subscribers in high cost areas, and not funneled into the coffers of the Local Exchange Carriers (LECs). MFS is calling for subsidies that are clearly identifiable so that regulators can monitor them and ensure they are appropriately assessed and distributed. Currently, most of the alleged subsidies are hidden in long distance charges and are supposedly reflected in lower local charges.
 "The LECs consistently invoke concerns about the preservation of `universal service' in an attempt to discourage telecommunications policy makers from introducing increased local service competition," said Royce Holland, president of MFS. "To accelerate greater local competition, it is essential that the FCC debunk these myths by first determining what form and amount of subsidy is really necessary to preserve universal service, and then establishing a secure, competitively neutral and equitable method to fund that subsidy.
 "By exercising its leadership over these significant telecommunications policy issues, the FCC can simultaneously ensure both universal telephone service and the benefits of increased competitive choices for all Americans," Holland said.
 MFS Program Proposes `Play or Pay' Concept
 "Universal service can thrive in a competitive environment even better than in a monopoly environment," said Holland. "Contrary to prevailing myths, we believe that competition in local telephone service will ultimately lead to lower basic local telephone rates. We do, however, believe a new mechanism is needed to ensure that the cost of subsidies be borne equitably by all market participants.
 "Today's universal service system is a giant fuzz ball, perpetuated by the LECs, hiding costs, distorting competition and otherwise causing unnecessary policy concerns. We propose a `play or pay' universal service program, requiring all telecommunications service providers to contribute on a competitively neutral basis," Holland said.
 MFS' proposal states that universal service can be maintained in a fully competitive market consisting of multiple co-carriers based on the following principles:
 -- All existing FCC and similar state-mandated subsidy programs be replaced by an independent Universal Service Assurance Fund, administered by a neutral third party.
 -- The Universal Service Assurance Fund provides credits to those individual customers who would not otherwise be able to afford basic local telephone service.
 -- Subsidies for high-cost areas be targeted based on criteria such as population density, geography, income statistics and other subscriber characteristics, as well as information regarding actual basic local service rates.
 -- Eligible customers receive a credit on monthly bills to reducing the price of basic service to an affordable level, regardless of which carrier they use.
 -- All telecommunications service providers be assigned a Universal Service Assurance obligation based on consistent and competitively neutral criteria, such as percentage of revenues, a fixed amount per access line, or some similar basis.
 -- An independent fund administrator monitor the allowance of credits and the determination of eligibility; determine the industry- wide assessment required to fund the program; settle accounts periodically; collect payments from those service providers who do not satisfy their full obligation through credits to end users; and distribute payments to those carriers who grant credits in excess of their allotted obligation.
 MFS' proposal dramatically overhauls the existing system in light of the emerging competitive local exchange market with:
 -- Clearly defined subsidies so regulators can monitor them and ensure that they are appropriately assessed and distributed.
 -- Targeted subsidies to those who need them, rather than assuming that long-distance service is used solely by the wealthy and local service is used solely by the needy.
 -- Targeted subsidies to end users, not to telephone companies. Some subsidies are now targeted to high-cost local telephone companies, giving the recipient phone company an incentive to keep costs high, thereby rewarding inefficiency.
 Multiple Universal Service Programs Exist
 Existing subsidies are designed to cover the costs of profitable services; contribute to LEC overhead (regardless of their level of efficiency) and shareholder return; and reportedly cover the costs of certain unprofitable or subsidized services.
 Three subsidy programs are administered by the National Exchange Carrier Association (NECA) under FCC rules. Two of these programs, the Universal Service Fund (also known as the "High Cost Fund") and the Lifeline Connection/Link-Up Programs, are funded by assessments on long- distance carriers.
 The third program is the Common Line Pool, under which smaller NECA members receive support payments from large telephone companies. Those funds are used to subsidize the line costs of the smaller companies that choose to participate in the pool of common line costs and revenues.
 In addition to these specific subsidies, the LECs have long argued, without much factual support, that basic local telephone service is heavily subsidized through higher prices for long-distance services, including both short-haul toll services offered by the LECs and LEC access charges paid by long-distance carriers for the termination and origination of toll calls. The LECs reason that introduction of local competition will automatically cause them to lose revenue, including some revenue used as a subsidy. The LECs argue that allowing long- distance calls to be originated and terminated over competing networks will force them to raise basic local telephone rates for remaining subscribers. "Several states have challenged this proposition," said Holland. "However, the issue, has never been fully addressed by the FCC.
 "We believe that universal service is undoubtedly the single most significant public policy issue the FCC must address as local competitors assume co)carrier status," said Holland. "It is one of the FCC's bedrock responsibilities to assure that the protection of universal service is not used casually by entrenched monopolies to resist local competition. Such action clearly serves to defeat the statutory and public policy goals of efficient phone service at reasonable charges for all users."
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 /CONTACTS: Claire Fennell, 202-424-7709, or Steve Ingish, 708-218-7316, both for MFS Communications/

CO: MFS Communications Company, Inc. ST: Illinois IN: TLS SU:

CK -- NY073 -- 9255 11/01/93 15:08 EST
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Publication:PR Newswire
Date:Nov 1, 1993

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