USAC:

1999 Annual Report to Congress and the FCC

Summary of Operational Activities

USAC is responsible for collecting and distributing the funds for each of the four universal service support mechanisms. USAC bills and collects approximately $370 million from over 2,000 telecommunications providers each month. Funds are distributed to entities in accordance with FCC rules and directives. USAC works with the FCC to resolve any issues regarding uncollectibles. Uncollectible accounts are under 1 percent of total funds.

During its first two years of operation, USAC has focused on reducing administrative expenses. USAC has strived to keep its administrative expenses low compared to both the overall size of the USF and to comparable public and private programs. Pursuant to FCC regulation, USAC submits its projected administrative expenses to the FCC on a quarterly basis. USAC's financial position as of December 31, 1998, including its administrative expenses, are detailed in the audited financial statements attached to this report. Audited financial statements for 1999 are not yet available. In 1998, USAC's administrative costs averaged $2,590,000 per month. In 1998, USAC’s administrative costs constituted only 1.12 percent of the USF. For 1999, we estimate this figure to be approximately 1.07 percent of the USF. USAC will continue to streamline the process and consolidate operations where appropriate as part of its ongoing effort to reduce administrative expenses.

USAC determines the amount of High Cost Program support based on cost data submitted by the contributing companies. The FCC’s forward-looking cost model will be the basis for determining high cost loop support for non-rural carriers beginning in 2000. USAC also utilizes data provided by NECA to determine the high cost loop support for rural carriers. Carriers also provide USAC with information regarding their projected Local Switching Support requirements. Long Term Support is calculated by USAC based on historical requirements adjusted for changes in economic indicators. Demand for the High Cost Program is then estimated based on all of the data provided. Included in the collection of data for these programs is information from competitive providers that are certified by a state commission to be eligible for support.

For the Low Income Program, each participant was required to submit monthly data in order to receive reimbursement for discounts provided to low-income consumers. This monthly data submission would result in a payment to the carrier months later. USAC has taken steps to revise the process to require data submissions on a less frequent basis. Beginning in 2000, USAC will estimate the projected funding requirements of the participating carriers based on historical performance. Actual amounts of low-income support provided to consumers are then reported to USAC by the carriers. Discounts will then used to adjust payments made based on the projections and to update the model for use in determining future projections. This change will decrease administrative costs and provide that payments are distributed more evenly.

On March 5, 1999, at the FCC’s request, USAC submitted a report evaluating the Rural Health Care Program. Based on USAC’s recommendations, as well as those submitted during the public comment period, the FCC released two orders in early November 1999 that serve to expand rural health care provider participation in the program and increase the amount of support available to participants. As of December 31, 1999, over $1.6 million has been committed to more than 295 rural health care providers for Year One. Based on the program changes adopted by the FCC, USAC expects that nearly $3 million in support will be provided for Year One.

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