Congress Must Cover Broadband in USF Program, Most Say

Commerce Committee Chairman Henry Waxman, D-Calif., said a fix is needed and “tough questions” must be dealt with. He suggested competitive bidding or requiring matching state grants as ways to limit costs that Congress might study. Waxman emphasized that Congress must ensure “full accountability and transparency.” Full committee Ranking Member Joe Barton of Texas, a long-time critic of the fund, also expressed interest in competitive bidding or reverse auctions. The auctions are opposed by many rural carriers.

Expanding the fund isn’t the solution, especially since the stimulus package provides $7 billion to bring broadband to unserved areas, according to a Republican staff memo we obtained. “Rather than add new broadband requirements … we should engage in oversight and evaluation of these existing programs,” the memo said. Boucher said he plans to hold oversight hearings soon to look into how the NTIA and the RUS are handling the $7 billion they received for broadband grants.

The high-cost fund should be the center of attention, said Cliff Stearns of Florida, ranking member of the subcommittee. He suggested that Congress take an oversight role on USF during the two years that the Obama administration will be rolling out the $7 billion grant program. Rep. Roy Blunt, R-Mo., said Congress should act now, since the fund needs “serious reform,” but he advised caution in expanding it to cover broadband. Rep. Bart Stupak, D-Mich., said Congress, not the FCC, should be the source of changes in the program. “This is not an easy process.” Rep. Zack Space, D-Ohio, said his rural district needs services to combat unemployment and inadequate access to health care. He’s a new member of the subcommittee but worked on broadband issues last Congress.

Although Boucher is determined to move a bill, the Senate may move more slowly, preferring to play an oversight role, according to interviews with telecom aides on both sides of the aisle. Giving a new FCC leadership a chance to tackle the issue makes more sense than trying to stitch together a complex bill, aides said.

AT&T supports changing the high-cost fund to promote deployment of next-generation broadband and improved mobile wireless in rural areas, said testimony by Joel Lubin, vice president for public policy. The carrier suggested replacing the existing revenue-based contribution systems with a system based on phone numbers and connections, an idea under consideration at the FCC. AT&T and other carriers said intercarrier compensation reform must go hand in hand with a move to funding broadband.

For broadband, AT&T envisions a competitive application process to bring service to unserved areas through one winning entity for each. “Providers would receive a precise amount of support and in exchange would commit to serving the area.”

Verizon likes the idea of competitive bidding for wireless carriers, if they must serve an entire area, not just the denser parts that often get USF funding now, said Executive Vice President Tom Tauke. He warned against any system that bases support on a carrier’s costs, because it can be “difficult - and always contentious” - to identify wireless carriers’ expenses. Verizon suggested that Congress consider a “temporary” subsidy program to promote broadband deployment by supporting “middle mile” transport costs. The program “should fall within the overall cap on the high-cost fund and should itself be capped at a set amount,” Tauke said. It should also be technology-neutral.

Embarq, which has mainly rural customers, advised Congress to consider, in devising policies to expand broadband in the USF program, the responsibilities that carriers of last resort bear. The problem is that USF support has been calculated on “broad geographic ’study areas'” that can cover whole states, lumping cities in with swaths of open spaces, CEO Thomas Gerke said. “This policy produced an unfair result for people who lived in those rural areas,” Gerke said, resulting in a system that “overinvests” in town centers.

“Meaningful and lasting USF reform may only be achievable through congressional action,” said Derek Turner, research director of Free Press. But the FCC has authority to make change, and it should require a 10-year transition of the high-cost fund to one that subsidizes the upfront costs of broadband networks, Turner said. “Further ongoing support should only be provided on a limited disaggregated basis to extremely high-cost areas.” He recommended that high-cost support be frozen at 2009 levels, and after 10 years, the fund’s size be cut below $1.5 billion annually.

Separately, Waxman said at the hearing that he plans to reintroduce a bill requiring carriers that receive universal service subsidies to open their networks to roaming by customers of other carriers. The committee “will look closely at whether additional public interest conditions are appropriate,” he said. Waxman cited information that he gathered from an investigation of the high-cost fund which the Oversight Committee did last year.

Three companies in Hawaii were found receiving subsidies almost $13,000 a line to serve the same insular area, accumulating more than $120 million total support over three years. Waxman said the committee should consider whether to require competitive bidding for the high-cost program, and weigh how long carriers should be allowed to receive support after they build facilities. - Anne Veigle