FCC May Vote Soon on Interim USF Cap Proposal, Says Tate

Tate’s concern about the rising level of subsidies to competitive carriers “shouldn’t be construed as critical of the wide variety of services wireless has brought to rural America,” she said. Most competitive rural providers are wireless companies. But something has to be done to slow growth in the USF High Cost Program that subsidizes rural phone service, she said. “We are stewards of these funds,” Tate told the conference, sponsored by the Coalition to Keep American Connected and the Hudson Institute. The coalition consists of rural wireline telecom companies.

Competitive providers drew about $15 million from the USF in 2001 but last year got nearly $1 billion in subsidies, Tate said. That sum is expected to rise to $1.2 billion this year and $2 billion in 2008, she said. Universal service’s historic goals can’t be met “without fundamental reforms of that system,” she said. Subsidies to wireline providers, meanwhile, have remained flat at about $2.8 billion, according to charts shown at the conference.

Rep. Lee Terry, R-Neb., supports the interim cap as a “necessary evil,” he said. Terry remains slightly hopeful about the future of a USF reform bill (HR-2054) he’s cosponsoring with Rep. Rick Boucher, D-Va., though House Telecom Subcommittee Chairman Ed Markey, D-Mass., has said telecom isn’t a top priority in Congress this year, Terry said. “This is the year of global warming, so there is little likelihood of the bill coming out of committee. But I didn’t say there is no likelihood,” Terry said. “It’s on the tray, ready to go.” In a recent meeting with Terry and Boucher, Chairman Martin “indicated a preference” for Congress, rather than the FCC, to take the first step on revamping USF, another impetus for acting this year on HR- 2054, Terry said. Markey has promised to hold a hearing on the Boucher-Terry bill, and staff-level discussions with the Senate Commerce Committee have occurred in hopes of a companion bill’s being introduced, Terry added.

The conference kicked off with a warning that 2.7 million rural households might have to drop phone service if the USF disappeared. The Keybridge Research report, paid for by the rural coalition, said the 10 states most “at risk” are Texas, Alaska, Arkansas, Wisconsin, Oklahoma, Minnesota, Louisiana, Iowa, Kansas and Georgia. Asked about the validity of the study’s premise -- that the USF would go out of existence -- researchers said that was done as an “academic exercise.” The study is “scalable” and can give risk factors for less drastic USF cuts. For example, a 50 percent drop in USF support to rural carriers “would put about 1.5 million households… at risk of losing access to affordable telephone service,” the study said. Public policy research usually looks at killing a program to gauge its effectiveness, said Keybridge Research President Robert Wescott.

The report surveyed rural areas with fewer than 100,000 phone lines, assuming that telecom companies would make up lost USF subsidies by charging consumers. Consumers would be “at risk” of having to give up service if their telecom costs became as big a drain on their income as electricity and other essentials, the study’s authors said. That level would occur when telecom costs became “more than 3 percent of household income,” said Wescott. Consumers would be “more likely to turn off telephone service than electricity,” he said.

Some industry changes after the 1996 Telecom Act surprised members of Congress, said consultant Gregory Rohde, a Senate staffer when the act was being written. “We never anticipated the role of cost models” and “never thought you would have markets with four or five providers” based on rural ILEC costs, Rohde said on a conference panel. The current debate is “disturbing and encouraging,” he said, calling it disturbing because the industry still seems to be debating the value of the USF, which the 1996 act’s framers thought they had settled. He said the debate is encouraging because the discussion is needed to reinforce Congressional statements that the USF is important, Rohde said. Said OPASTCO Chairman Roger Nishi, vice president of Waitsfield and Champlain Valley Telecom: “We need some changes to the USF program” and one is to cap subsidies to competitors, which he said have grown “outrageously.”