 Super thank you for joining us. Yes, you're welcome. Happy to be here. Maria Royals is legislative counsel and so What I thought I would do for you today is first just provide an overview of the Vermont Universal Service Fund Its purpose how it's financed the programs it supports and then touch upon some legal developments that might impact future contributions to the fund I'll tell the little bit about the federal Universal Service Fund and then The hope was that when clay arrives. He can give you the most recent data in terms of the money That's in the fund and how much has gone to the programs in the last fiscal year Does that make sense? Okay great So the fund the Vermont fund was established in 1994 And it's purpose by statute is to create a financial structure That will allow every Vermont household to obtain basic telecommunications service Not an affordable price So you might wonder what is basic telecommunications service? That also is defined in statute and I won't read through each of these definitions, but basically it means that it's capable of voice quality service voice service you can originate or Terminate receive a telephone call It goes through the public switch telephone network. That's Basically the network of all the telephone exchanges in the world It's capable of being routed Through all of those network in our connections. It has the ability to transmit data Also number four it has the ability to communicate quickly and effectively with emergency personnel and Finally it includes the telecom relay service, which is a service for the hearing impaired So those are all the elements of basic telecommunications service that by statute should be available To all Vermonters at an affordable price So how is the fund financed? There is a we've talked about this already So I know it's somewhat review, but there's a proportional charge on all telecommunications transactions that interact with the public switch network and In 2014 that rate of charge was set as a flat 2% before that time It was capped at 2% but it was variable the public then public service board would set the rate based on How much? They needed to fund the programs and it was usually around one and a half percent somewhere But in 2014 They increased and then set it at a flat 2% and Also, it's worth noting that that is the rate is only applied to retail telecommunications service. So any Wholesale transactions, so if there are any between the company telephone companies Intercarrier interconnection access charges in the wholesale market not to the end user of the consumer the wholesale market this Surcharge does not apply Purely on the consumer yes one other question Itself up the public switch network. Yes So it's basically The local exchange networks on a global level so there are many different providers and it's transmitted over many different types of Medium whether it's cable whether it's wireless, but it's that connection of telephone systems usually associated with the 10-digit telephone number Different from for example If you used a service over the internet of thinking of like Skype Or an application like that where you can communicate with people throughout the world, but it's all over the Internet there's an IP address. They have an IP address At no point you interact or can you call somebody at a 10-digit phone number some Applications allow you to do that like what's that? You can download programs where mobile you have an application And it allows you to make a telephone call to somebody in the state house use the 10-digit number So that's significant because for those Providers that just have that IP address to IP address. They're not covered here at all But for other VoIP voice over internet They would be covered if you can send or receive a call From a local exchange number How do you know Whether a call is a web call In order to charge that or is the universal service being based on the charges Public switch network service I Guess I don't understand how the USF is applied to those types of calls Yeah, so I think you're raising a really interesting issue that I'm trying to get a handle on myself Because I think it's the companies that basically keep track of the information you the consumer might not necessarily Know you pick up your phone. You don't know how they're contacted, but the companies Analyze their data and they're required to But it's not clear to me And not being an engineer in UA how they keep track of the traffic and know when somebody is just usually Using a purely data call or when they're actually interacting with the public switch network I think there are ways that they're able to do that, but I'd have to Follow do a little bit more research And because it's not always built separately either and that sometimes is a problem Sometimes wait service might be included in a package, but there isn't a separate charge So I think these are all kind of developing on folding technologies and how the USF is applied to them is not Perfectly clear at least not to me It's too long, but I Don't get charged for a Skype call for example or for a call from From your computer to Right, there's no way to charge for that I Don't know the answer to that and that's I think that goes to like it might be bundled in with your data package And I don't know to the extent that the provider itself keeps track of that It and it needs to pay both the state and the unit the federal USF on so they have to do some kind of Data analysis or traffic studies and how they do that. I don't yeah Yeah, and some of it I know for for example For wire line And this is just by extrapolation for wire line calls about 60 on average about 64 percent of calls are interstate So at the federal level when they apply the federal universal service charge to Wireless or void providers They can either the provider can either do the traffic analysis and say this is how many interstate calls We've had or there's a safe harbor provision where they can say About 64 percent of our calls are interstates will apply a surcharge to 64 So I think there's some recognition that it isn't might not be spot on there might be the capability But if not, then you just go with the 64 percent which is roughly equivalent to what the wire line does that make sense? I know it's sure If you can clarify any of this please do So I think of this as the 2% charge of my phone bill It also applies to cards, right? Yes, does it apply to anything else besides our phone bill and calling cards Well, there's a slide we're going to go through That will list all the things that applies to but it's pretty much 2% on your phone call to the extent of the telecom service But we'll get to that. I think it might answer And just for a reference in 2017, this is just the most recent data that I have 6.2 million dollars was raised by this finance charge and so We've kind of already touched on this but again the charge is applied to retail telecom service This is basically the definition of statute And it's essentially anything that interacts transmission of information that interacts with the public switch network Transmission of voice image data any other information Over any combination of media or the leasing of any such media for such service But significantly not information services and so that is similar to the dichotomy under the Communications Act Telecom Services and unregulated information services like broadband internet access Not a good answer on this because maybe we need an engineer to get through this but To the point that Mike was making if from my voice phone line And I pick up the line and I've got dialed down But I'm calling through easy fiber easy fiber is my Is my telephone carrier if you will and I call Seth and his consolidated lines. I'm sure he's got I'm presuming that my call goes over copper at some point And here in this slide, you know, we're essentially referring to a Transmission of any interactive electromagnetic communications that pass through the public switch network So even though I've got my voice You see fiber phone That has a dial tone when I reach When I reach Seth on his copper consolidating communications line, I'm presuming at some point My fiber call hits copper Though I'm not paying any USF charge I mean, I know why that is but yeah, but I'm taking advantage of Copper in order to get this out, right? I'm not supporting the That infrastructure the percentage isn't applied to that call on your bill And that's something I definitely need to research more for boy, but I just don't know and I understand that We're preempted from the telecommunications act from Applying USF to that type of information service, right? But nonetheless, I'm taking advantage of copper infrastructure out there Yes Seth is settled with that Yes With that list includes optic fiber wire electric conductor cable up to fire fiber microwave So why wouldn't it apply to AC? Well, it does apply it does apply but how that charge is There are the void providers are required to make a 2% by a 2% charge to their Void calls. Okay. I don't know how that money You know, that's kind of where I was getting to that. There are some safe harbor provisions. I just don't know There's a reason why if you look at your Comcast bill, for example, you might see $80 for TV services or internet and then $3 for voice because then they're only paying 2% on that $3 instead of the whole thing So easy fiber might do the same or if you've got You know unlimited calling for 10 bucks than 2% is only 20 cents But they build in the cost of that unlimited calling to your overall $150 a month bill Yeah, no, I Find it complicated. I have actually tried to get a handle on that issue. I just have not yet been able to So I think Just a Tanderman this goes to the question you asked earlier. What are telecom services? They include and this is under statute local telephone service told telephone service directory assistance To a cable television service Which to be perfectly honest, I did not know that was in there until yesterday And I'm not sure what that was intended to capture You know again, and that was included in 1994. So I'm trying to think back at that time what this was applicable to I know there was some interactive television at that time Obviously it's not cable modem service data service that would be an information service So that's just something I need to understand a little bit better myself Then mobile telephone service your cellular service, and that includes text messaging and then also to represent out chestnut handremans a Point that he raised earlier it applies to both postpaid and prepaid. So if you get a prepaid calling card The calculation and payment of the surcharge is a little bit different. I think we've talked about this already The wireless providers They don't it's a prepaid card and so what they are required to do is follow Formula that was set by the public utility commission Which basically says how much revenue do you do in the state in Vermont? And send us 2% of that So Because they are not directly necessarily dealing with the consumer and consumer might go to a Walmart or convenience store and buy the Verizon card So it's a little bit of a different approach. It's not that charge isn't directly on the consumer They could pass it on to consumers in other ways, but it's not a billing line item and then We've already talked about it also applies to VoIP services that interconnect with the public switch network And this is we talked about this and one of the reasons why I did want to focus a little bit on interconnected VoIP services is because that's a little bit of a developing issue. There has been a long-standing debate and Open questions about interconnected VoIP and whether it's an information service or telecom service under federal There was a recent case, I believe it was in the 8th circuit where this issue came up and the 8th circuit held that Interconnected VoIP is an information service And so I think the concern that some people have is What does this mean if they're right is the FCC Going to now define Interconnected VoIP as an information service and in doing so would they no longer be subject to the State Universal Service Fund charge I'll just say that even if the FCC Defines interconnected VoIP as an information service It's not a done deal They could still say for purposes of the federal and the State Universal Service Fund They have to pay the charge But it's something that has a lot of people concerned because if they do no longer contribute to the fund that could be a In issue in terms of long-term sustainability of the fund With respect to the two-page calling cards I had a great answer I was really counting on it Of the total yeah, I don't that's part of the information Clay is going to provide when he comes in here By category of each provider Oh, he is here Actually didn't come prepared with that I'll get that Remember my questions Calling cards subject to sales tax I believe so. Yes Yeah, I think that was yeah initially they weren't but then there was a change Short clarifying question interconnected means interconnected with the telephone network not Yes, so you can either make a call to the telephone network or you receive a call from the telephone network So now in terms of the programs that are supported by the Vermont Universal Service Fund, there's the telecom relay service service for hearing impaired The lifeline program Which is basically assistance for low-income eligible households E911 which is the biggest recipient of funds I think of the 6.2 million last year I think about I might be wrong probably wrong, but somewhere in the neighborhood of 4.8 million went to E911 Telecom relay lifeline, you know somewhere without No more than 200,000 each And then any remaining funds after those three programs Are funded fall into what's known as the connectivity fund That fund then funds two separate programs the high-cost program and the connectivity initiative And we'll talk about each of those I know we've talked about some of this already, but Hopefully this will help kind of pull it together So in terms of the high-cost program interestingly When the the usf was enacted 1994 there wasn't a high-cost program But in statute there was a study to look at how Rural voice service can be subsidized in the high-cost areas It was not until 2012 that the first high-cost program actually was enacted in seshalon And I think that was capped at one million dollars But then two years later the existing high-cost program was codified And its purpose as you can see in that little blue box if you can read it is to keep basic Telecom service affordable in all places over month And to support access to broadband service in all parts of vermont So it reflected the shift that was happening at the federal level Um Between the high-cost program to the connect america fund where subsidies for broadband build out were included not just voice So in terms of the high-cost program requirements and Who is eligible? These are subsidies. They're available to designated vermont eligible telecommunications carriers And I addressed that a little bit more on the next page But basically these are companies that are eligible to receive federal support under the universal service fund So if they're able to meet the obligations of providing service supporting other federal programs And they're willing to advertise and do the public outreach Then they can be deemed by the public utility commission as an eligible telecommunications carrier They're required to provide As we mentioned earlier both voice and broadband and the minimum speed that they have to roll out is 4-1 Is it a statutory requirement? Yeah In other words, it could be changed. Yes The money can only be used for capital improvements in high-cost areas and Another slide which will look more at what a high-cost area is But just before getting there The company if they receive a subsidy they must serve all locations in a high-cost area within five years There is a waiver provision For broadband If it's not economically feasible to build out to every single location in a high-cost area they can apply To use an alternate build-out plan, which the public utility commission has to approve And as a location defines the E911 I'm pretty sure it is. I have to double check that but that's usually Whether it's a residential Household or business That usually it's an E911 address Did you say that if it's not economically feasible they have to provide an alternate They can provide they can ask for one they can petition the board and I think that within the first year if they realize With half of the money that we receive We can't build broadband out to every single location They can petition the board for approval to build out to however many they think they can and see if they get approval to do that And in terms of the amount of the subsidy By statute they're entitled to their pro-rata share of available funds Based on the number of Ilex and Vermont And either lines in service or service locations, whichever is greater So The bigger the company you are the more money you're entitled to under this Program if a company Chooses not to receive the subsidy The their portion their share goes into the connectivity initiative the broadband grant program So it's removed from this program. It doesn't go to one of the ilex under The high-cost program it goes to the connectivity initiative And then also there is a provision That says there should not be any competitive overbuilds of existing wired telecom services So making sure that the money Is going where it's most needed Maria could you Could you explain the second or last bullet point? Maybe even using a hypothetical as to How that math would be done So there are um, how many Ilex in Vermont? I think there are nine I'm not mistaken eight independence and uh Consolidated Which is an arbok So there are nine companies in Vermont You would divide that money Based on how many lines in service We'll just go with the lines in service each company has so consolidated by far the largest Has x number of lines in service Um, whereas one of the smaller telecoms only has a you know a few amount So let's say so they're going to get a much bigger share than the smaller companies So that means that consolidated would have Access to ten times the amount Yes, but um, maybe we should go there that doesn't mean all of consolidated Service territory is eligible. Um, would would meet the definition of a high-cost area So they don't automatically get money for their entire service territory That has to be a high-cost area and it might be helpful to Look at what meets the definition of a high-cost area So the lines in service based on lines in service is that lines in service in a high-cost area? I think it's total I think it's total but I need to check that again if somebody else in the room wants to With the permission of the chair to respond that's Yeah, I don't need to drag us into that. I just wanted to generally. Yes, the sense is the Portionality, okay so He already talked about what a vermont etc And again, it needs to be designated as a v etc by the public utility commission But so in order to qualify as a high-cost area has to be a remand telephone exchange served by one of the islets and then significantly The supported services that is supported by this program the voice and the 4-1 boy broadband Are not available to all locations in the exchange from at least two service providers If you do Have the option of getting these services broadband 4-1 and voice From two other service providers wherever they are Um At any one location in the exchange that it does not Qualifies a high-cost area So the two sir at least two service providers Raises a question of my mind You've got the I like that's one service provider. Okay, and Since those territories are defined by the public utility commission and they're exclusive to each I like The other service provider would have to be something like Comcast or the celex the competitive local exchange carriers Could be the cable company fiber Wireless, you're able to have And I don't know enough to know how many high-cost areas there are in the state So in terms of the uh What's also sometimes called the broadband grant program the connectivity initiative the second program And I I didn't say this earlier um But the money that goes into the connectivity fund 65 percent of that money goes to high cost. Let me just double check and make sure I'm not confusing that. Sorry No, I'm glad I checked 45 percent goes into the high cost program And 55 percent goes into the connectivity initiative Unless one of the highlights waves the yes Yep good point So in the requirements of the connectivity initiative will first of all the purpose of the program is to provide each service location broadband broadband internet access service bias That is capable of speeds of 10 1 at least 10 1 or Whatever the connect america fund phase 2 requirements are And right now they are also 10 1 Uh But if they go up then the statute would go up to whatever the federal Are for their their broadband grant program Um by statute priority is to be given to un-served and underserved Locations and those terms are defined as un-served means you only have access to dial up or satellite service underserved means You have access to broadband that's faster than dial up or satellite But less than 4 1 and then There's also a requirement that any services that are funded Must be capable of being continuously upgraded to reflect best available Most economically feasible service capabilities So just in terms of how that the connectivity initiative is implemented Uh department of public service annually Publishes a list of eligible census blocks Then solicits, uh RFPs From any provider When dps is looking at the Proposals that have come in It is required to give priority to Proposals that reflect the lowest cost of providing service to un-served and underserved locations um The thinking being The lowest cost will reach the most people basically that the dollars will go the furthest And then uh, the department also considers data transfer rates price the cost to consumers of any new construction or equipment or installations Whether the service is the best available technology that is economically feasible The availability of service of comparable quality and speed Presumably in the area and also the objectives of the telecom plan Can you clarify eligible census block? In my understanding It's a federal designation Or the census blocks are federal. The census blocks are federally Determined and eligibility is that if one address is served the block is served or Clarify that I don't know. I think clay would have to weigh in on that. I don't know if it's every location in a census block Or if they can Cross borders with other census blocks. I'm not sure. I don't know if it has to be entire I can find that out myself You may be able to get an answer sooner And then just generally for the the vermont universal service fund Just for background purposes, and maybe I should have put this at the beginning, but in terms of how it's administered. Yes So the connectivity initiative funds Maybe said this but I missed it What portion of the cost Of providing the service You see what I'm asking? It's a it's a it's an incentive program for For Providers to build out the service. How much is it? It's a grant and I don't know. I don't know How much they need to match or I don't know what kind of proposals they get so But I can find that out also So the fund is overseen by the department of public service who hires a fiscal agent To collect and distribute the funds. I think that agent right now is a firm called solix The charge and this kind of gets to some of the issues that came up earlier is Is imposed on the person purchasing the service The customer the end user but collected by the telecom provider And again, there's that one exception for prepaid wireless Cards that might be purchased at a Walmart One thing that I wanted to note there is congress passed a federal law last year the wireless telecom tax and fee collection Act of 2018 I think that collection method that we have in vermont might be preempted by this federal law So there may be a hole created simply by act of the congressional action. And so Whether you want to address that or not is something Another committee to consider No, I just well, I think we have a bill you do have a bill. Yes Yep, that would apply the charge at the point of sale. So at the walmart or the convenience store we buy the card Payments and supporting documents are provided to the fiscal agent monthly and If the provider does not Get their payments into the fiscal agent, there are some penalties for delinquent payments So I only have one slide on the federal universal service fund. It could be many many many slides But I just wanted you to have it in the background. So You're less likely to conflate the two programs. Some people talk about universal service. They don't always make the distinction between federal and state So the federal The funds were established in 1997, but there were since 1990 30 1934 There were subsidies built into the system for high-cost areas. It just that the fund itself wasn't codified until 1997 um The providers Their contribution rate their charge changes quarterly to reflect the needs of the fund And right now the quarterly rate is 20 percent and that's applied to Interstate and international calls And this gets to the issue of For wireless services or for VoIP services, how do they keep track Of what's an interstate call versus an interest state call? And that's kind of what I talked about earlier. There's a safe harbor provision You can just say 65 of your calls of your revenue is international or interstate and Will pay two percent of that revenue There's no requirement that they pass on that cost to the customer But they often do you'll notice a federal charge on your phone bill for that portion of them This says 20 percent. Is that is that into two percent 20 percent 20 percent of the call 20 percent of the revenue from international and interstate Long-distance telephone calls so because the dollar they're called somewhere 20 cents Is is the tax basically? Yeah, it's my understanding I will sleep Yeah And then the federal programs that are supported with the federal charge there's The federal high cost support program which has been transformed in the connected connect America fund Which is You know reflects the The policy change to build a broadband not just voice Um low-income support like the federal lifeline program Which the state programs supplements And then there's the e-rate Discounts and subsidies for schools and libraries and also for rural health care facilities Yeah So this federal USF is this Like the connect america fund is that You know at FCC or is this the usda money or is you know how it's How it's who disperses Yeah There's an entity you Yes You see I can't remember but there's an administrator hired by the FCC To collect the money, but it's basically an FCC program So the money comes from the providers come from the phone bills and that money goes into the programs It's not a separate appropriation from a A different program But when we talk about You know the rural broadband development money in the usda budget right Is that separate? Is any of this money going into there? I don't know for sure I don't know so beyond these four programs Is any of this money collected going to support the other programs at the farm bill and I can find that out I don't Clay's shaking Yeah, I can answer that question sounds Yeah Yeah, this is clay nervous for the record. The answer is no that money comes from You know the the omnibus bill, you know the budget federal budget Um The connect america fund comes directly from the universal service Charges on folks phone. So they're very two separate company or programs with two separate revenue streams Yes Is an FCC program And the fund is managed by the universal service administrative companies. So they're hired by the FCC too collect all the money and then Administrative programs Any other questions I have some I know some things I'm gonna look into but anything else Try to answer For what is worth. I know Jeff knows a lot about the the high cost programs from administering for a while if One task at least here Well, let's have clay join us now. Okay And thank you Sarah do you want to Check in the president of masslin and let him know that maybe we're more like quarter out here Okay, oh, I see a minute. Okay All right. Thank you for having me just um Something that uh, just thinking about the next let's call it 45 minutes What I'm hoping we can use our time on um is for you to Um further expand our knowledge on the Vermont usf Um, and I'm hoping you can also touch on as we segue into some pull attachment discussion Just a high level overview of the The docket that you've opened with the puc. I don't know to the extent you can talk about that but um at a high level We're going to talk about h 93 Representative masslin and uh, is going to introduce that bill and Maria's going to talk to that to some extent as well after your Uh, download your presentation sort of want to kind of lay out what we're going to be talking about here in the next 45 minutes And you're joining us this morning is a good segue into some of those things So just so i'm clear. Uh, I should stay in my seat and do this and then go on to um I do want to say I also invited Our attorney who drafted the pull attachment rulemaking. So we have technical questions She knows the rule inside and out. She's a very good resource her name is uh, sarah sedas And she'll be joining us. I think so So I uh, so my name is clay fervis. I'm the director for telecommunications and connectivity with the department of public service I uh prepared a uh the high level Um, powerpoint presentation just to go over the basics of the fund This presentation, uh, just based on the questions. Uh, I heard from Maria or host Maria may not answer All of your questions, but i'm happy to follow up with any additional information. Um, Just scroll like this. Uh, so this uh cover a little bit of what, um Maria already covered The v usf is a two percent fee on your retail telecommunications services Um, you can see this on your bill Whether you have a mobile phone or a landline telephone You'll see that fee and what and what you pay. Um It's collected from At the retail level. So there's no collection on wholesale transactions. So, um Transactions between telecommunications carriers are not subject to the fee The fund is managed by an independent fiscal agent. So the statute requires that we hire Fiscal agents. So we don't do any of the Work in-house. We don't do any of the collection or the distribution funds to the program Solux is a company based out of new jersey And they actually manage Service funds and 9-1-1 funds for I believe 13 or 14 other states. So, um, they are One of the preeminent companies in this field and they do lots of other things Along with uh, kind of in the same vein supporting telecom companies and Other state programs before we leave that it's like um, quickly thought we'd had some discussion with Maria about And there's some confusion I'll speak for myself on my part about if I have a I have a Broadband provider that I get my telephone service through The usf charge is applied to the proportion of my bill that is Telecom related so my in this case ec fiber may apportion I don't even know what it is 20 of my bill to telephone services. So the usf Is applied to that portion of my bill Yes, okay Is there any auditing that confirms that yes 20 of your bill should be ascribed to telecommunication services Certainly we have the the power to audit Individual carriers the I believe the way it works though is it's not just Because you have this issue with bundle packages. So you just pay 100 bucks and you get three services But carriers all have um a retail catalog that breaks out individual services. So You know And the the the cable franchise fees calculated the same way they take Um, whatever the proportion of They try to figure out what the proportion what percentage of your bundle package would be if you bought each item separately. So If you're The phone service plus the individual phone service plus the individual broadband service plus the individual cable service Um, you know equals 99 dollars. So Um, and each one is 33 then they're going to charge you 2 percent on 33 percent of your bill. That makes sense I was trying to understand how much discretion The service provider had in saying, you know what you have your hundred dollar bill telecoms only five dollars of that So, um, we're only going to collect the usf on that five dollars because that's what we've determined Is the ascribed amount of telecommunication value in your package But it's not that it sounds like there's If they want to charge five dollars as long as it's they're charging everyone five dollars and they're not changing the price For they can change the price for a bundle package, but the the fee is going to apply to Whatever kind of the pro rata amount of that service by itself. So 33 33 33 it's got to be one third Of the bill is subject to the fee And the cable friend that issue comes up in the cable franchise fee as well because We impose a five percent cable franchise fee as we're allowed to under federal law on cable television service With bundle packages it creates the same The same issue. So, okay, there are rules of the road But if they did want to charge only five dollars for phone service, then it would be two percent of five dollars What it's got Just and and see like is that the cable? See like is an acronym and I apologize I personally don't like acronyms, but there's the there are many of them in this world I like is the incumbent local exchange carrier So that's your consolidated in your weightsfield Champlain Valley And then see like is a competitive local exchange carrier These are terms of art that come from the telecommunications act the federal act. So They have different regulatory treatments. So that's why we we use them Are the carriers Required to justify the percentage of the one word packages that they apply to telecom versus the other things What do you mean by justify? Well, I mean if they say Only five percent or ten percent of my of the model packages subject to the usf Who figured who is it up to them to say what the percentage is and does anybody check on that? There's public utility commission and take a look at it and say well, you know, how do you come up with the 10 percent? Well, certainly Telecom is by and large deregulated. So we don't regulate rates anymore. So they They are free to set the rates where they want Consolidated is under an incentive regulation plan, which I put the best way to describe that is it sets a ceiling for what the rates are and they can move the rates You know anywhere under that ceiling on the federal end The the FCC often mandates a floor for telecommunications rates. So There is a a baseline under which they can't they cannot go below so the FCC is controlling both the The kind of the rate base and I guess what you call it the mill rate the the actual charge As a way to maintain Revenues and budget for future revenues Yeah, we just put a finer point on it. I think Mike and are kind of asking the same question The discretion of the service provider Determines how much tax is collected from the consumer? Yes, and that discretion The service provider may decide Ascribing less value To a particular bundle of service And that discretion That decision made by the service provider has a direct impact on the revenue That the state collects on the USM. Correct. So that's a lot of discretion In the hands of the service provider as opposed to the hands of the regulator Yes But again our ability to regulate rates And you know wireless is a big part of that because we are expressly preempted by the telecommunications act from regulating Wireless rates. So to the extent that they're regulated at all It's at the FCC level and we were seeing people cutting the court moving to wireless And at the same time we're seeing a decline in wireless voice revenues That's a competitive market They're competing for customers that are lowering that And and voice is also becoming a smaller component of your overall package. It's all about data. Now people want data So the the voice is almost an afterthought especially talk to Teenagers, you know, they're texting they're not Try calling one of them on the phone and they're not going to pick up Um So it's certainly a trend that is having uh downward pressure on on the usf Um, so the supported programs. So this is an order. So there's an order of priority And uh, I believe maria touched on this, but the fiscal agent gets paid first Um, then we move yep always always first Uh, then we move to the vermont lifeline program So this is on top of the federal credit so Lifeline eligible consumers get a federal credit, which I believe is nine dollars and 25 cents And then we have a credit on the state level, which is an additional It's capped at four dollars and 25 cents um Which can be applied to a telephone bill the difference between our lifeline program And the federal lifeline program is that we only fund wire line telephone service So if you buy telephone service from an eligible telecommunications Carrier or an etc They have to be a wire line. So we're not supporting You know the the life the mobile lifeline the track phones and the uh queue link But those services are generally priced At the same uh at 9 25. So the federal credit covers 100 percent of the mobile. So that's why we've chosen As a state to only support wire wire line telephone service Telephone relay services is communication services for the deaf and hard-of-hearing And that includes the equipment distribution program. So The service uh contractor for that program is sprint and If you utilize that service Make a phone call and a technician at sprint will relay that call Through video using sign language 75 000 a year is devoted to equipment distribution So this is to purchase equipment that would be used to access relay services or TTY services 9 1 1 enhanced 9 1 1 so that's uh set by the The budget the big bill And we pay 12 equal payments to the state treasurer To support 9 1 1 and then anything that's left over goes to the connectivity fund And i'll talk about distributions in a moment Yeah, um Last year we uh as part of telecommunications, but we we asked for a study on The need for helping people who are both visually and hearing impaired. Yeah I know you're probably not including that here, but is that Study has it has it been done? Yes. It has okay and report that to us at some point I We submitted it to the uh to legislative council. I'm happy to come back and Discuss the findings in that report But that yeah, that's not included here because it's not a service that's yet supported And I know the relay service used to you just type out like Straight text which presumably is less expensive than video conferencing. They also had uh braille versions of keyboard and monitor they still use that or is it all switched to The video That equipment is still available to the extent Folks are using that in favor or over Newer technologies certainly for deaf and hard of hearing There are there have been great advancements in computer technology deaf deafblind folks Still I think there's still a need there to make technology available For that but this program hasn't actually been updated To kind of take into account computer equipment and information technologies that could be that could assist It is still largely telecommunications Equipment that has traditionally been used in that service There's a chart of Revenues and expenses from 2014 to 2018 It's the time frame in which we've managed the fund and uh solix has been the uh The uh Fiscal agent for the fund. Um, you can see uh, there there's a trend developing Revenues are declining Um expenses are also declining but not quite at the same rate So is there is there a uh in this in a future study looks like just in this Five-year period there's about a two million dollar surplus um Just looking at the the revenues exceeding expenses. Yes, um What happens to that surplus? It goes to the connectivity fund But it's yeah, it's Uh, it's actually 500,000. I believe in 2015 was our our greatest Yeah, and that that went to the connectivity fund. Um, we had I think 1.9 million I'm just adding up the surpluses over five years Yeah, or yes, it's um, there have been surpluses and when you add them together, um, you know, that would be the connectivity fund distribution By and large some of it was left in the fund discussion. So We certainly don't want to sweep every single dollar out of the fund because then you have It creates cash flow plot problems as you uh Go from month to month we have some carriers that pay on a monthly basis and some that pay on a quarterly basis So every at the end of every quarter you we receive a um A larger Amount of revenue than we would In the off quarter months, and this is disbursements for fy 18 You can see that 9-1-1 makes up the bulk of the fund Relay and lifeline and administrative makeup the rest Relay includes the equipment distribution fund. So That would be a maximum of 75 but of course section 2018 we saw Significantly less come out of that fund Due to a Contracting issue that has since been resolved. So we expect that number to be a little bit bigger this year So where's the connectivity fund slice of the pie there? It's excluded from this and the reason I excluded the connectivity fund from this is because The way the connectivity fund is funded Is that the fiscal agent is required by law to wait till the end of the fiscal year? So the end of 2018 They close out the books and in september they make a sweep Of basically whatever the surplus is in the fund at the end of the year into the connectivity fund So It's not budgeted for so much as it's just whatever's left at the end of the year Goes into this separate fund. Is there a percentage roughly it ends up being a total every every year for the connectivity fund? Yes, I have a slide on that right here. You can see the the distributions that have gone from the The vusf into the connectivity fund. So 2015 it was nearly two million dollars That was swept into the fund that was by and large because of a build-up of cash in the fund 2016 was just over a million And you can see it steadily declining last year the fiscal agent Determined that There was That no money should be transferred to the connectivity initiative This year this year. Yeah Going back to your slide five where we left out Obviously a huge amount of this goes to e911. Is that How discretionary is that going into the fiscal year in the budget? Is there an e911 item? Yes, and if If this fund for example in this year Raised six million dollars The 4.8 million dollars would still be a fixed amount that would go to e911 Yes, the 911 budget is determined through the regular budgeting Process just like any other state agency So, you know, they create a budget roll-up and it gets decided to some appropriations and ways and means And just you know goes through that regular process. So we talk with e911 over the summer and Find out what their plans are for their forthcoming budget, which I believe agencies submit In September, October, you know kind of the beginning of fall And so we we know going into the new year kind of what we're going to budget for In the past few years, I believe it's been level funded So this year in terms of the connectivity Yes, we We have an rp out right now for the money we have received last year That's 220 And this year we have none. So that means no high-cost money. No No connectivity initiative money coming from the BUSF. So can I ask another question here? So are you doing any projections? Going forward, you know, so we're obviously on a downward trajectory. So In terms of the usf and the uses of the usf, you know, yes, that's something that fiscal agent has worked on the budget that I've provided to you has That that would be the f y 19 budget that the fiscal agent created and they've actually added tabs within that workbook That show what the projected revenues would be at different rates of two or one two Swans I mean And I don't want to get into this right now, but just to comment and say that you know, we do have We do have a proposal to raise the usf and you know, I'm just wondering With some attention about what that might be used for a minute. We're like You know, heading we're having a hard time covering what it's paying for now. I think that might be We're going to be there. There are a lot of different items up in here So lifeline is one area where we're seeing a decline in lifeline usage And it's a program that's actually very underutilized in vermont. So Everyone who if everyone who is eligible for lifeline applied for lifeline That would have a significant impact on on the funds Sustainability That was eligible applied before it it would have a significant impact. Yes, but we're actually seeing the lifeline numbers declining So of the various uses of the usf money, the only one that is It budgeted around is e911 the rest are sort of s annual as Applications company or need based correct. Yes. So it actually makes it difficult to budget for lifeline because an increase in lifeline applications would increase The pressure on on the fund. Yeah and and vice versa Actually due to federal changes in the federal lifeline program, we've seen a decline in Lifeline users That's having I don't want to say a positive impact on fun, but it's it's Do you know what I mean? It's leaving pressure. It's relieving pressure on on on the fund The you know, the other the other budgeted item is the administrative cost. We generally know what that's going to be that's in contract The fiscal agents charges about 73 thousand dollars a year and then we have bank fees Fairly predictable. So, um, you know the total admin for 2019 we're looking here. So it's going to be about about red 186 yeah Our interest 186 we're there. It's 107. Yeah 107. Thank you Using the way it's written there, but yeah 107 so You know that's predictable, but that's such a small portion of the fund and the equipment distribution since it's capped at 75 That's a budgeted item as well. So Lifeline and trs are the two areas where The fund can fluctuate But we've seen downward trajectory in both items Yeah, there is a surplus projected and the Projected transfer to the connectivity fund is zero. What happens to that surplus? It stays in the vusf to manage as a as a precaution against Changes of evidence. So there there wasn't and I've provided you the audited financials for last year. So I don't have those up, but Certainly at your disposal. You can see there was Um About a half a million dollars surplus in the fund At the end of the year, but it was the fiscal agents concerned that that this trend Would affect cash flows The long-term sustainability of the fund is certainly on their minds So they determined that a certain level of reserve is necessary to keep it Yes, I think we've covered that slide and so the connectivity fund Just to go over the basics The connectivity fund supports two programs The high-cost program and the connectivity initiative The high-cost program provides support to eligible telecommunications carriers or vetcs Those are by and large your incumbent telephone companies And there's a process by which they get certified by the pc to Become incumbent or to become vetcs So I think we have about seven in the state and Of the money that is Attributed to or that is Put into the high-cost program. They take a program out of share based on either eligible service locations or Lines and service, whatever is greater Eligible locations are locations deemed to be high-cost There's a A mechanism for that and the pc had a docket to determine Which telephone exchanges were considered high-cost The connectivity initiative is the second program This receives 55 percent of that funding It's a 45 to high-cost 55 to the connectivity fund Or the excuse me the connectivity initiative This is a grant program that funds last mile broadband expansion So my department maps broadband availability We ask broadband providers to tell us where they have broadband service and where they do not And we produce a map that then grantees can And submit proposals to the department That Seeking to serve eligible locations So this process is laid out in state statute and we're required to issue Our solicit proposals from carriers at least once a year Using the money that we've received in the connectivity fund for this program Um very briefly 10,000 50,000 for you Um eligibility is determined by census block Is that correct? That is the language in the statute and To to give effect to that we certainly Kind of look at the locations by census block, but it's actually much easier to look at it on an address by address basis So we can be far more precise than at the census block level and actually You know, there's so many what we call contaminated census blocks Those are census blocks that are partially served and then partially unserved and we want to make sure We want to make sure that those partially unserved census blocks That the addresses within those blocks are getting served Are getting priority over The addresses that are served so Because providers can give us data on an address by address location our map actually you can You can zoom in on Any particular location and see You know, which houses are unserved and which houses are served So you're not necessarily constrained by the definition of an unserved census block or restricted prohibited from allocated funds and something that's designated as that's served if it's half unserved Yeah, we do not We do not believe that we are constrained By that and actually the At least for the first few years of this program We were very concerned about the contaminated census blocks because the FCC wasn't So in the connect america fund program They excluded contaminated census blocks because it's just so hard to Differentiate between who served and not served. So there were plenty of addresses in wholly unserved census blocks that they That the FCC designated connect america funds for those blocks leaving the contaminated census blocks with no publicly funded solution um So we thought that the connectivity initiative could really fill in the gap where uh connect america fund And that and frankly usda programs weren't going Do you have a question Scott? Yes a couple of questions And i'm trying to figure out which one to ask maybe i'll ask the easy one and that is So this is a a grant program for providers for Service providers that they think they're thinking good for and what portion of the cost is that Of whatever cost they are asking to to provide connectivity does the grant cover? So the grant covers Uh the infrastructure costs so the actual cost of deploying broad bands. We're not subsidizing operations the The statute towards a hundred percent of that it can't it can't uh the statute directs us to prioritized projects with the lowest cost per address so When we get a list of when we get a group of proposals what we do is We put them in a spreadsheet based on cost and see which ones are at the top and The law requires us to favor those but then it gives us some leeway to look at technology Cost to the consumers so maybe there's a A low cost service that Might even though the The cost to the grant program is more and maybe it's just a better option for consumers. So there is There is some leeway In the statute for us to kind of make decisions Based on whether you know, this is a better technology Perhaps we should be paying more for Broadband that can provide higher speeds Like fiber If a provider Saw an area where they were interested in providing service they might they might request less than 100 percent of The cost of building out Yes for a grant so that might make it more attractive to get funded Yes, as an example Wheatsfield Champlain Valley They actually asked for a very small percentage of the overall project But it's not the sole determiner So certainly if there was a good project then we had to pay 100 percent for it. We would consider that So this graph shows the distributions to the connectivity fund And so these numbers that you see here would be split 45 55 percent except for the year 2015 when the law was and even split The law was changed in 2016 to 45 One last slide on fund trends We're seeing a decline in accessible revenue We're seeing declines in Front the telephone rates so the amount of money that telephone carriers are charging Shifts from regulated to non-regulated revenues people are favoring information services over telecom services So where folks used to have a mobile phone and a landline phone they're cutting their landline phone They're down to one phone Prepaid calling legislation Maria Royal touched on this This is Going to have a small but noticeable impact to the fund We're thinking somewhere between possibly 400 to 600 thousand dollars a year This only affects prepaid calling cards. So not all prepaid plans only Only cards sold in stores So most consumers they Use prepaid they'll buy a prepaid card once they'll go to Walmart. They'll buy the card They'll come home. They'll activate the card under existing state law Once that card is activated and it's determined that the Location of the user is within the state of Vermont the carrier remits payment to the usf once that The consumer is established. They generally re-up that card directly with The the carrier so at that point the carrier is Making that direct transaction and that direct transaction between The consumer and the carrier is not the subject of the federal legislation Only the cards purchased At the store So once the consumer is kind of in the door And they're just re-upping their service directly with the provider Let this federal law doesn't touch those reference Can I just clarify? So I just want to clarify that you Said we're going to have a four to six hundred thousand dollar hole Because of the prepaid which I think you called small Yes, so what percentage? drop in Is that you're asking me to do math on the spot, you know, I'll take I'll take some pretty ram numbers Well, I I brought this thing and it has a calculator on it So we'll just give you let's say we had five eight How did we figure this out? Yes Has joined us and we're going to hold questions Representative aslin is going to join us to do a presentation or an introduction of h 93 Clay if you can stick around because we're going to ask you to come back and Actually refer to this