Joint Board Recommends USF Subsidies for Broadband, Wireless

Among its many recommendations, the board said broadband services should be eligible for USF subsidies for the first time and the FCC should “substantially increase the effectiveness of funding now awarded to wireless carriers.” The board suggested creating separate funds for broadband, wireless infrastructure and the traditional “provider of last resort” (POLR) subsidies.

The proposal for a $300 million broadband fund reflects the need for universal service to evolve as communications changes, FCC Chairman Kevin Martin said. “Congress did not envision that services supported by universal service would remain static,” he said. The new fund would be made up of money saved through other proposed changes, such as capping wireless support and eliminating the “identical support rule,” which bases subsidies to wireless competitors on the costs of running incumbent wireline telecom companies.

The wireless fund “targets support toward the task of building infrastructure to bring wireless service to the unserved areas of rural America,” said Oregon regulator Ray Baum, a joint board member. “As wireless build-out is completed across the country, the Mobility Fund should decrease in size over time,” he said. Vermont regulator John Burke said he would have expanded the wireless fund to provide support for “rural areas with weak and intermittent wireless service.” The main goal of the “Mobility Fund” is to support new construction, he said. But “if wireless service is indeed a substitute for wireline service, that wireless service should be, in all instances, reliable.”

The POLR fund would support only one carrier in a geographic area, rather than multiple carriers, as it has been doing. “Initially, this will be an incumbent LEC providing voice service over traditional landline facilities,” the recommendation said. The board recognized that adopting the single-carrier recommendation would exclude some existing competitors, many of them wireless, and it said the FCC should consider continuing subsidies during a transition. It is “essential” for POLR support to go to “truly rural” areas, said board member Larry Landis of Indiana. “This requires adoption of improved analytical and modeling techniques to examine these costs at a far more granular level than has been heretofore possible.”

The recommendation would cap the total sum distributed through the high-cost portion of the USF at $4.5 billion for the near term, in effect adding broadband funding without increasing the fund overall. “Despite our strong interest in providing adequate funding for broadband deployment, we also want to avoid significantly increasing the burden” on consumers, the board said. Ultimately, “it is consumers who must pay universal service contributions,” the board said.

Payments to rural wireless competitors and other “competitive eligible telecommunications carriers” would be capped at $1 billion, based on subsidy distribution at the end of 2006. But Baum called that outcome unlikely, “since the FCC appears to be moving toward a somewhat higher cap amount based on fund numbers at end of June 2007.” The figure more likely would be $1.15 billion, he said.

The board said reverse auctions “may offer advantages over current high-cost distribution mechanisms” and suggested that the FCC “explore” the idea of using auctions to set subsidies for rural service. Analysts at Stifel Nicolaus said they doubt that the FCC will adopt auctions, given opposition by incumbent wireline carriers in rural areas, objections from wireless carriers to “being singled out” for auctions, “implementation complexities and the concerns of rural lawmakers.”

Many joint board members issued statements saying they agreed with parts of the document and disagreed with others. FCC Commissioner Michael Copps, a joint board member, said he was pleased with the recommendation to use USF money to pay for rural broadband services but disappointed at the small size of the amount proposed. “Instead of bold recommendations to implement our historic decision, the Joint Board only suggests that $300 million of federal dollars be dedicated to this challenge and none of this would be new money,” Copps said. Florida regulator Lisa Edgar cited “lingering concerns that we have not accomplished all that can and should be done.” As a regulator from a “contributor state,” which pays in more USF money than it receives, Edgar said, she worries about “expanding the scope of the fund to include broadband and mobility.” It’s important to extend broadband to unserved areas, but “I am wary of what lies beyond that initial objective and what financial impacts such deployment may have on consumers,” she said.

Rural carriers praised the board for recommending an end to the identical support rule and limiting the number of subsidized carriers in an area. TDS Telecom said it was “thankful” for recommendations that would assure “financial accountability” in the USF. “The elimination of the identical support rule will ensure carriers receive support based on their own costs” and limiting the number of carriers eligible for subsidies would mean “redundant and unnecessary funding will be reigned in,” TDS said. The Independent Telephone and Telecommunications Alliance said the board proposed “important steps toward controlling recent growth in the USF.” But the Western Telecommunications Alliance voiced concern about recommendations to cap high-cost support at current levels and to consider reverse auctions. Verizon Senior Vice President Susanne Guyer said the proposal “would help bring fiscal responsibility to a program ultimately paid for by every telephone customer.”