Verizon Proposes USF Auction Plan
Phased-in competitive bidding could slow the growth of the Universal Service Fund (USF) while easing concerns of incumbent rural telcos about shortfalls, Verizon and Verizon Wireless told the Federal-State Joint Board on Universal Service in a proposal filed late Fri. The Joint Board is expected to consider Verizon’s proposal at a Feb. 20 meeting during the NARUC winter meeting in D.C. The Joint Board plans to look at competitive bidding and other ideas for easing demands on the USF during that en banc meeting. The board includes FCC Chmn. Martin, Comrs. Tate and Copps and several state commissioners.
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Verizon has supported so-called reverse auctions in the past -- Verizon Economist Dennis Weller was one of the early proponents of USF competitive bidding when he was with GTE -- but this is the first time the company has developed a comprehensive plan for instituting the concept. In a reverse auction, telecom providers would bid for the right to offer service in rural areas and the one that could do it for the lowest amount of USF funding would win.
Verizon envisions a 3-step, “efficient” plan: (1) “Stabilizing” the fund by placing a cap on USF payments to both rural telcos and their competitors, probably setting the caps at current levels. (2) Implement auctions to allot USF payments to wireless competitive ETCs (eligible telecom carriers). “These auctions would be held in areas that currently support more than one wireless CETC, and would select a single wireless CETC to receive support,” Verizon said in a letter to Joint Board co-chairs Tate and Ore. PSC Comr. Ray Baum. (3) A later set of auctions would be held for wireline ETCs where there’s at least one competitive wireline carrier. These auctions would “select a single wireline provider of universal service for the area.” Only a few areas would experience wireline auctions because there aren’t as many wireline competitors.
(4) After “some reasonable period,” the FCC would consider additional uses of competitive bidding. This could include, for example, “a single auction in which both wireline and wireless ETCs would participate, which would select a single universal service provider for each area.” Another possibility would be “the use of representative bidding, based on statistical analysis of the auction results, to adjust support for ETCs whose support had not yet been determined by an auction.”
The idea is to “implement competitive bidding quickly where it would do the most good, where the growth is,” said Verizon Senior Vp Susanne Guyer. Verizon told the joint board it makes sense to start with wireless CETCs in areas where more than one receive USF support because “wireless CETCs operate on fundamentally different cost structures than ILECs.” This has “long made the Commission’s portability rules, which tie CETC support to the ILEC’s per-line costs, a primary target for reform.” Starting with wireless CETCs “would immediately help to connect wireless CETC subsidies with the actual cost of providing wireless services,” the Verizon letter said.
The Verizon plan calls for the FCC to adopt a framework for the auction process that includes choosing the geographic areas for which auctions would be held. “These areas would then serve as ‘building blocks’ which bidders could, if they choose, package together,” Verizon said. The most “logical choice among current alternatives” is the wire centers, but “other areas of similar size may be appropriate.”
Verizon told the Commission: “In its present form, universal service funding provides companies with the wrong incentives, discourages innovation, and has increased the amounts consumers pay for communications services. The approach outlined here will help remedy these problems and transform the fund into an efficient, market-oriented system.”