House Aide says USF Reform in House Could Focus on Wireless
A senior House Commerce Committee aide said Fri. that high-cost support of the Universal Service Fund (USF) was growing too large, and when reforming USF next year, members would look for more efficient ways to disburse the fund, perhaps even favoring wireless technologies over wireline. House Commerce Committee senior counsel Howard Waltzman told a Progress & Freedom Foundation (PFF) forum on USF that if the goal of the high-cost program is to ensure affordable voice telephony, more-efficient wireless technology might be preferred to costly wireline service. Waltzman said “appropriators didn’t consult us” before inserting a provision in the 2005 omnibus appropriations bill that would prevent the FCC from imposing a “primary- line restriction” on USF high-cost support. Waltzman intimated that House Commerce Committee leadership would be interested in considering some forms of line restrictions when USF came up in the House. “There’s no reason to increase the size of the fund,” Waltzman said of the high-cost fund.
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PFF will release a comprehensive report on USF in Jan. and PFF Fellow Joe Kraemer, of LECG said it would show the need for high-cost USF subsidies had gone down. Kraemer, who previewed parts of the report, said the low- income portion of USF was largely meeting its goals, but the high-cost USF fund was growing rapidly because it was essentially subsidizing competition in rural areas. Although wireless technologies receive a far smaller share of the subsidies, Kraemer pointed out that the technology was still being heavily adopted in rural areas and by low- income users. He said it would be more efficient to increase rural-area demand subsidies than to increase supply-side subsidies to rural carriers. Kraemer cited examples in Colo. and Ia. where rural LECs received significant USF support though most residents could afford higher-costs service.
The USF high-cost fund is being converted from a regulatory mechanism into a “pork process,” said Robert Crandall of the Brookings Institute. Crandall said the system rewarded inefficiencies because carriers get more money if they have higher costs. Jerry Ellig of George Mason U. Mercatus Center said such “rate of return” regulations amount to a conflict of interests for carriers. Crandall said payments based on cost-per-loop were also inefficient. Every $1 raised by USF costs the U.S. economy $1.25, he said. However, if the subsidies were paid from the general revenue, it would cost the U.S. economy only $0.40 for every $1 raised, Crandall said. While it costs $1,500-$2,000 per line to keep low-income users connected to the network, it costs $15,000-$20,000 per line to keep high-cost users on the network, Ellig said. “It'd be better to give the subsidy directly to the user,” he said.