April 25th, 2005

Other Links On USF and Skunkworks

Dear Chairman Martin,

First, congratulations on your new job title as Chairman of the FCC. We look
forward to working with your office. However, beware of those groups who bear words
of wisdom, claiming to represent the public interest. In particular, look behind the
curtain when you hear from the "Keep Universal Service Fund (USF) Fair
Coalition" members. They have an agenda -- the Bell phone company agenda and
not the public interest that they supposedly represent.

Some background.

The KeepUSFFair press release, (April 6, 2005) that welcomes your arrival
to Chairman is funded by the Bell companies --- Verizon, SBC, BellSouth, --- through a Washington-based firm called Issue Dynamics, run by Sam Simon.

Here's a link to the release.
http://keepusffair.org/KeepUSFFair/welcomemartin.html

As we will discuss, this group proposes to increase the USF charges and
place this tax on new services, including VOIP. They claim this
will help seniors, Hispanics, the disabled, and consumers in general. We, of
course, disagree with that analysis.

This release is signed by groups that are also funded by the Bell companies,
including TRAC and Alliance for Public Technology, as well as American
Association of People With Disabilities, World Institute on Disability,
League of United Latin American Citizens, the Gray Panthers, and other
groups that are also tied to Issue Dynamics, Sam Simon and the Bell
companies.

For example:

* Alliance for Public Technology (APT), is funded by BellSouth,
Verizon, and SBC and run through Issue Dynamics. It has run numerous
campaigns, from lobbying to allow the Bell companies into long distance, or
giving the Bells exclusive rights to the customer funded networks, to now
this put-on job for the Bells on Universal Service and taxing VOIP. Daniel
B. Phythyon, APT's Public Policy Director-General Counsel. is also Senior
Vice President, Law and Policy of the Bell companies' main lobbying arm, the
United States Telecom Association.(USTA).

We should note that APT is on the FCC Consumer Advisory Committee as
a "Consumer Group" and Teletruth filed a separate complaint about this,
(and other groups) since they do not represent the public interest but those who
have paid them, the phone companies. As a former member of this Committee,
we have seen first hand how industry interests have overtaken the public interest.

To read our Complaint:
http://www.newnetworks.com/CACletterfinal20205.htm

Other members of "KeepUSFFair" are: (For more details about these groups)
http://www.newnetworks.com/skunkworks101.html

* American Association of People With Disabilities (AAPD) receives major
donations from both Verizon and the Verizon Foundation, and put a Verizon
VP on its own board. AAPD is on the APT board.

* Gray Panthers, ran $100,000 ad campaign against Worldcom, paid for through
Issue Dynamics and Verizon, according to "GRAY PANTHERS ADS TARGETING
WORLDCOM FUNDED BY ISSUE DYNAMICS", Corporate Crime Reporter, 6/2/03
http://www.corporatecrimereporter.com/06_02_03_pressrelease.html

* Latino Issues Forum. The Executive Director's bio includes "Ms. Gonzales
worked for Pacific Bell for eight years where she served as manager in cost
analysis and accounting. Ms. Gonzales represents Latino Issues Forum in
various corporate partnerships with major utilities, such as Verizon... She
also serves on Verizon's National Consumer Advisory Board."

* League of United Latin American Citizens, received $500,000 from Verizon
Foundation in 2000, $200,000 from Verizon Foundation in 1999, $180,000 from
SBC Foundation in 2001, $160,000 from SBC Foundation in 2000, and $200,000
from SBC Foundation in 1999.

* National Hispanic Council on Aging, receives money from the SBC Foundation
and the Verizon Foundation. Is on APT's Board of Advisors.

* Telecommunications Research & Action Center (TRAC), is run by Issue Dynamics,
and its founder is Sam Simon, founder of Issue Dynamics.

* World Institute on Disability, received $25,000 from SBC Foundation in 2002
and Verizon Foundation is a member and Sam Simon is on the board.

How insidious does it get? According to one of the KeepUSFFair member,
the National Association of The Deaf (NAD), The American Association of People
with Disabilities (AAPD), American Foundation for the Blind (AFB), American
Council of the Blind (ACB), National Association of the Deaf (NAD), Self
Help for Hard of Hearing People (SHHH), TDI (formerly known as
Telecommunications for the Deaf, Inc.), and World Institute on Disability
(WID), all use a 'Primer' "designed for advocates to use in working on
these urgent issues." It is funded by the Verizon Foundation. "The Primer
contains information that will help you to advocate effectively on
Broadband, Peer to Peer Signing, Telecommunication Relay Services (TRS),
Wireless, VOIP, Universal Service, and Unbundling."

These ties go deep. For example, NAD's broadband report was done in
conjunction with another Verizon-Issue Dynamics creation, the New
Millennium Research Council, the same group that is creating research to
block municipalities from offering broadband.

In fact, almost every KeepUSFFair member has been involved in multiple
campaigns at the FCC which include helping to raise the FCC Line Charge in
what is known as the "CALLS Proposal", helping the Bells enter long
distance, and harming competition in various broadband and competition
proceedings.

Teletruth has no problem with non-profits taking donations from large
corporations. This is different. This group of non-profits is being heavily
funded and coordinated to be proactive in lobbying for decisions that will
ultimately be harmful to their own constituencies, such as low income families, or
seniors. These groups may say that the money they take from the phone
companies is only a part of their total. However, it is clear that it represents

100% of their telecom policy work. And while these groups may actually
be doing important work, it is clear that the money they've taken has biased
any telecom and broadband related public interest.

The KeepUSFFair Coalition's position is to increase the current USF taxes
as well as tax new services, such as VOIP.

According to the details of their "Fair Share" plan, they would:

"...establish a contribution factor cap to be applied to the revenue-based
approach, e.g., between 12 and 15 percent of revenues derived from
interstate telecommunications (including VOIP) (the contribution factor for
1st quarter 2005 is 10.7%)"

It's a shame the press release didn't mention this massive increase --- from
10.7%, the USF rate they quote, to 15%, --- up to a 40%+ increase! Maybe,
if the press release had stressed this point, co-opted groups may have
changed their position on this plan that harms low income families. We also
need to note that the USF is also taxed, which raises this tax burden even
higher.

This plan would also tax VOIP.

"...would expand the USF contribution base to include all revenues derived
from telecommunications, including services using Voice over the Internet
Protocol (VOIP) technology."

The Universal Service Fund is now a fat corporate subsidy that should be
investigated, not increased or applied to new services such as VOIP.

Teletruth believes that the Universal Service Fund has turned into an
out-of-control phone company corporate subsidy and needs to be investigated.
We're for wiring schools, not billion dollar corporate giveaways and new
taxes.

As you know, the Universal Service Fund is currently an 11.1% tax on interstate wireline
and wireless services, and DSL, and represents a number of different funds including
the Erate (wiring of schools and libraries), the High-Cost Fund, Lifeline, and other funds
.

Let's look at some simple stats:

* 185% increase in five years: The Universal Service Fund has increased from
3.9% on long distance services in 1999 to 11.1% in 2005 --- a 185% increase.

* The largest part of this fund is NOT for wiring of schools and
libraries, but to "High Cost Funds", which are corporate subsidies to the
phone companies. The High Cost Fund represents over 60% of the total
collected, doubling from $1.7 in 1999 to $3.4 billion in 2004 --- and
growing.

* These funds are NOT going to corporations that need this money. Many
of the phone companies receiving funds have 55% profit margins (EBITDA),
in a large part. from this High Cost fund.

USA Today (November 14, 2004) found that one small telco, XIT Rural
Telephone Cooperative, which serves only 1,500 customers in the Texas
Panhandle, received $2.9 million in USF subsidies. It was so profitable that
it gave a "dividend to its customers, who also own XIT, an average $375.".

* Declining Local Service Costs: The costs to offer local service has
continued to drop over the last 5 years. The USF increases have been against
a backdrop of construction cuts, down 50%, and employees-per-line plummeting 65%
since 1984.

* Regulators no longer examine profits --- 90% of the states no longer
examine these companies' profits because of local phone deregulation. How
can the FCC give billions in High Cost funds when costs are not taken into
account?

* Double-Quintuple Taxation? Many states have also added statewide
High-cost funds, Erates, Lifeline services and other services covered under
the federal program, and NO ONE has examined the totality of taxes from
multiple funds!

* Questionable taxation? The Universal Service Fund is being applied to
charges on the local phone bill, including "Local Number Portability" and
the "FCC Line Charge", which are not interstate by definition. Also, the USF
charges are being taxed multiple state and federal taxes as well, adding
insult to injury.

* The E Rate, the schools and libraries fund, has an excess of $3.4
billion yet to be given out. Also, the phone companies are also the largest
recipient of the Erate because they get paid back on network charges in
full, for any discounts the schools receive.

* Major Fraud and Lack of Audits -- Everyone from the FCC Attorney General
and other regulators are finding Erate fraud, and a lack of audits.

In fact, in May 2004, the FCC Inspector General stated he had "...numerous
concerns about the Erate program and believes that the program may be
subject to a high risk of fraud, waste, and abuse through noncompliance and
program weakness." And in February 2005, the General Accounting Office
(GAO), released a report titled "Greater Involvement Needed by FCC in
the Management and Oversight of the Erate Program."

Any rational consumer group worrying about rising costs to their
constituency should be demanding an investigation into this Tax. Instead, these
groups are advocating giving the phone companies more money.

Issue Dynamics and this astroturf cabal wants to make the USF a consumer issue,
so they use scare tactics, couching the argument that other plans would be
even worse for low income or low-use families. If there was any truth in this, then
they should be advocating cleaning up the corporate subsidies to lower all
rates.

Taxing VOIP? Voice-over-the-Internet is under siege, with
monopoly-phone-company-based lobbying and legal initiatives to blanket
this service with new taxes and surcharges, or simply close it down. Shouldn't

the current taxes and surcharges be investigated before any new tax on new
services?

In sum, good luck with your new position. Teletruth stands ready to supply
you with more data on USF and these fake groups. We ask that when your
are confronted with groups who state that they represent the
public interests, look behind the curtain. We also ask you to take a personal
interest in the FCC Consumer Advisory Committee's business ties.

Teletruth, is a former member of the FCC Consumer Advisory Committee, (CAC)
and is independent, not funded by any phone company, lobbying organization
or political group.

To see the KeepUSFFair Press Release, links to learn more about Issue
Dynamics, skunkworks and astroturf groups, our complaint about the CAC,
see: http://www.teletruth.org/USF.html or the links below.

Bruce Kushnick, Teletruth
Tom Allibone, Teletruth

* The Teletruth Complaint pertaining to APT and other members of the FCC
Consumer Advisory Committee
http://www.newnetworks.com/CACletterfinal20205.htm

* Information pertaining to Issue Dynamics, Skunkworks and Astroturf groups.
http://www.newnetworks.com/skunkworks101.html

* Keep USF Fair Press Release On FCC Chairman Martin
http://keepusffair.org/KeepUSFFair/welcomemartin.html

* KeepUSFFair Coalition Members
http://keepusffair.org/KeepUSFFair/members.html

* Keep USF Fair Plan
http://keepusffair.org/USF_Proposal_13105.pdf (PDF)

* National Association of the Deaf' Telecommunications Primer,
paid for by Verizon Foundation
http://www.nad.org/site/pp.asp?c=foINKQMBF&b=273994

* Testimony, FCC Inspector General, Subcommittee on Oversight and
Investigations of the Committee on Energy and Commerce, U.S. House of
Representatives on "Problems with the Erate Program: Waste, Fraud, and About
Concerns in the Wiring of Our Nation's Schools to the Internet" Statements,
1/6/2005
http://www.teletruth.org/docs/FCCattorneygeneralEratestatement.pdf (PDF)

* General Accounting Office Report (GAO), "Greater Involvement Needed by FCC
in the Management and Oversight of the Erate Program" February 2005
http://www.teletruth.org/docs/GAOonusfd05151.pdf (PDF)

* FCC Inspector General Semiannual Report, for April 1-September 30, 2004,
released January 2005
http://www.teletruth.org/docs/FCCInspectorGeneral112204.pdf (PDF)

* Congressional Budget Office Report "Financing Universal Telephone Service",
March 2005 http://www.teletruth.org/docs/CBOUSF03-28-Telephone.pdf