Broadband Included in Boucher-Terry USF Reform Draft

The draft would declare broadband a universal service for the first time. It would require USF recipients within five years of the bill’s enactment to offer high-speed broadband service with a download speeds of 1.5 Mbps. Contributions would be assessed on any provider that offers a network connection to the public, which would include providers of DSL, cable modem, WiMAX and broadband over powerline services. The draft calls for the FCC to determine whether to use a contribution methodology based on revenue, numbers or a combination of the two. The commission could limit contributions for providers whose customers make only a few calls a month, such as prepaid wireless customers, or for extra numbers provided under group or family plans

Wireless carriers would face changes in the competitive bidding process to determine which ones will receive universal service support. In areas where at least three mobile providers are eligible to participate, the FCC would seek bids from interested parties. The commission then would select up to two winners in each service area, which would receive a flat amount of subsidy per year up to 10 years, as determined by the FCC. Bid awards would be based on cost as well as the broadband speeds carriers propose. The total amount of support the FCC would award through the competitive bidding process could be no more than the amount of high-cost support received by all mobile wireless providers in the year before enactment.

The draft would cap support for all programs under the fund except the schools and libraries program. There could be a one-time, permanent increase in the cap if the FCC revises intercarrier compensation rules, and shifts some or all of access charge recovery into the universal service fund. It calls for a change in the calculation methodology for the non-rural, high-cost portion of the fund from geographic to wire center averaging. The proposal also calls for consistent treatment for certain price-capped providers.

Stricter audit and accountability rules are included in the draft, which seeks a report to Congress on the outcome of changes. The commission would be required to set performance goals for each USF program and to determine the appropriate methodology for audits.

The draft sets a one-year deadline from the bill’s enactment for intercarrier compensation reform to be completed. It proposes to solve the traffic pumping problem by prohibiting access charge recovery when an entity that has an existing relationship with a local exchange carrier offers a free or below-cost service. Carriers would be required to identify all traffic which originates on their networks and require intermediate carriers to pass on that identification. The draft also would eliminate the parent trap, which provides that carriers which acquire exchanges from unaffiliated carriers get support at the same level the exchanges received prior to the acquisition.

Carriers Generally Supportive

Most telecom carriers welcomed the legislation, but the cable industry was silent. An NCTA filing with the FCC Thursday (CD Nov 6 p14) suggested a two-step process for assessing universal support for specific geographic areas. Rural wireless carriers, while applauding the bill’s inclusion of broadband in the program, took issue with the proposed competitive bidding process for determining eligibility for USF support. “Significant portions of the legislation are not competitively neutral,” Rural Cellular Association CEO Steven Berry said. The bill “would only require wireless carriers -- not ILECS -- to engage in competitive bidding,” he said. Bidding should be competitive across technologies and “make subsidies portable with consumers,” he said. The bill’s proposal to limit high-cost support to two wireless carriers in a service area would diminish competition “to the detriment of consumers.”

State regulators were generally pleased with the bill, but “concerned about the preemptive language on Intercarrier compensation,” said a statement from the National Association of Regulatory Utility Commissioners and the state members of the Federal-State Joint Board on Universal Service. “We look forward to addressing this issue with Chairman Boucher and his colleagues as the bill progresses,” said NARUC President Frederick Butler of New Jersey. State members of the Joint Board said they were still analyzing the bill, but praised it for “advancing some key concepts” on targeting subsidies and limiting the fund’s overall growth, according to Oregon Commissioner Ray Baum, the Joint Board’s state chair.

Verizon endorsed the bill, highlighting five reforms it said would improve the program, Executive Vice President Tom Tauke said. They include setting a budget for the high-cost fund; competitive bidding to support wireless; an “invitation” for the FCC to adopt a numbers-based system for contributions; a deadline for reforming the intercarrier compensation system; and an end to traffic pumping fees charged by rural carriers to terminate calls that incumbent carriers say are inflated. The bill would put USF on the “right path,” Tauke said.

AT&T believes the bill “recognizes that we cannot accomplish President Obama’s goal of universal and affordable broadband for all Americans without also fixing the federal universal service fund,” said Executive Vice President Tim McKone.

USTelecom thinks the draft is a “thoughtful and significant initiative” that recognizes the need for fund stability and expanded broadband deployment in high-cost rural areas, said President Walter McCormick. Qwest said it backed the bill’s inclusion of broadband coverage in the USF program. “We also are pleased the measure prohibits revenue sharing between small rural local phone companies and non- telecommunications providers, such as the free calling service companies that are at the center of illegal and fraudulent kickback scams known as traffic pumping,” said Qwest Senior Vice President Steve Davis. The company also welcomed the bill’s suggested one-year deadline for completing intercarrier compensation reform.

Small rural carriers praised Boucher and Terry for listening to their input over several years of work on the legislation, said John Rose, president of the Organization for the Promotion and Advancement of Small Telecommunications Companies. The group agreed with inclusion of broadband, an expanded contribution base, improved audits, addressing phantom traffic and a deadline for FCC action on intercarrier compensation. The Western Telecommunications Alliance said it was “encouraged” that the bill would ask the FCC to address the phantom traffic problem, calls that travel on networks without the proper identification needed for carriers to assess origination and termination charges.

The bill would make “major program modifications which have been sought by the industry for years,” the National Telecommunications Cooperative Association said. The legislation would “better target funds to the truly high-cost and rural parts of our country,” said President Curt Stamp of the Independent Telephone & Telecommunications Alliance.