FCC Proposes USF Reforms
The FCC late Tuesday opened three universal service proceedings and asked for public comment, setting in motion a long-awaited effort to reform the Universal Service Fund. The agency wants to distribute universal service subsidies more efficiently and lessen the fund’s growth. The FCC voted last week on the items, whose release was delayed until commissioners could write explanations of their positions. The notices of proposed rulemaking are interconnected so parties can comment on them as a package.
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Proposed changes include ending the “identical support rule” that bases USF subsidies to wireless competitors on the cost of running incumbent wireline telecom companies. Another notice of proposed rulemaking would allow use of reverse auctions to distribute subsidies. The third item seeks comment on USF reforms recommended in November by the Federal-State Joint Board on Universal Service. The joint board recommended, among other things, that broadband services be eligible for USF subsidies. The reforms are aimed at the costliest USF subsidy, which assures affordable consumer service in “high-cost” rural areas.
FCC Democrats dissented on the reverse auction proposal, challenging the utility of auctions in distributing subsidies. “The NPRM on reverse auctions is… a mixed bag,” said FCC Commissioner Michael Copps. He endorsed seeking comment on reverse auctions’ merits but said he thought the FCC went too far in tentatively concluding that auctions are the way to go. FCC Commissioner Jonathan Adelstein also supported “the majority’s willingness to flesh out details of their reverse auction proposal,” but cautioned that he “cannot support these premature tentative conclusions.” Adelstein also questioned the sum the FCC envisioned for broadband subsidies, saying “the Commission must start to provide realistic assessments of what will be required” to assure rural broadband connectivity.
Copps said there are better ways to improve the fund and rein in costs, such as making broadband a USF-funded service, ending the identical support rule and tightening scrutiny of the high-cost fund -- all under study in the other two NPRMs. Assessing universal service contributions on intrastate revenue, a move demanding Congressional action, “would be a valuable tool for supporting broadband,” Copps said.
Analysts at Stifel Nicolaus are “skeptical” of the FCC moving toward reverse auctions, said analyst Blair Levin. Rural incumbent telecom companies will “vigorous oppose auctions” and “the sheer implementation complexities will prove to be a major obstacle,” he said. “A pilot project of limited broadband auctions seems more practical,” he said. The National Telecommunications Cooperative Association “strongly opposes” reverse auctions, it said in a statement Wednesday. It would be a “serious mistake and harm rural consumers” to use auctions in areas “with preexisting infrastructure,” NTCA CEO Michael Brunner said.
Levin voiced doubt as to whether the FCC can complete USF reforms before the November election and the inevitable change in chairman. “There’s a long way to go and not much time for this FCC,” he said. The agency has “a narrow window” in which to act on identical support and it’s doubtful it could act on broad USF reform by the time leadership changes, a telecom attorney said.
Verizon said the FCC package lacks “the crucial, first- step to comprehensive reform -- a temporary cap on the skyrocketing level of subsidies paid to rural wireless carriers.” Capping the fund now would assure more money to support broadband buildout, AT&T said. NTCA said it “heartily supports” ending the identical support rule and requiring wireless carriers to “base their future USF support on their own cost,” a move NTCA has been advocating.
An attorney for wireless companies asked why the FCC is going so easy on wireline incumbent telecom companies. “One of these days, the world is going to wake up and realize that growth in the universal service fund happened because the FCC decided not to reduce support to ILECs when they lose customers,” he said. An Alltel official praised the FCC for studying “long-term universal service reform, not quick fixes” but said some of the proposals “reward ILECs for their increasingly inefficient costs.”
FCC Chairman Kevin Martin said he has sought votes for an interim cap on high-cost subsidies for competitive carriers, which he backs. He also said he wants the identical support rule eliminated so subsidies derive from competitive carriers’ own costs, “in the same way that rural phone companies’ support is based.” Martin’s interim cap proposal has languished for several months.
In seeking to end identical support the FCC asks for comment on alternatives to subsidizing rural wireless providers. Comments are sought on “methodologies for determining a competitive [provider’s] costs,” how subsidies should be calculated and “whether we should cap such support at the level of the incumbent LECs,” the agency said.
The commission tentatively concluded “that reverse auctions offer several potential advantages over current high-cost support distribution mechanisms.” Comments are sought on varied issues such as eligibility requirements for bidders in such auctions, whether to pick one winner or many, and which geographic areas should be the basis for auctions. The FCC asked how subsidies should be distributed -- whether “subsidies could potentially be offered as a fixed payment for each geographic area, on the basis of the number of subscribers or households served, or on some combination of these methods.”