Federal Universal Service Fund

A federal court Fri. vacated part of an FCC order under which VoIP providers must contribute to the Universal Service Fund (USF). A 3-judge panel of the U.S. Appeals Court, D.C., said it found “the Commission’s explanation wanting as to the pre-approval of traffic studies and the suspension of the carrier’s carrier rule.” Judges Harry Edwards, David Tatel and Merrick Garland heard the case brought by Vonage and CCIA (CD Feb 12 p1), with Tatel writing the opinion.

The FCC should create a pilot program that pays for broadband deployment in rural areas with “a specified amount of funding, such as $1 billion per year,” AT&T recommended Thurs. in comments on Universal Service Fund (USF) reform. A 2nd program could provide money for mobile wireless service in those areas, the company said. “Rather than attempting to use the current federal high cost [USF] mechanism to achieve its broadband deployment objectives, the Commission must approach the problem head-on,” AT&T wrote.

Capping universal service support to competitive eligible telecom carriers (CETCs) may be seen now as an interim measure but easily could become the norm, Rep. Allen (D-Me.) told FCC commissioners in a May 22 letter opposing the proposal. “My worry is that this action will act as a pressure valve and decrease the urgency for broader reform,” Allen said. Me. has 2 wireless ETCs “that have productively used universal service funds to expand service to remote areas in our largely rural state,” Allen said: “It is not fair that residents in rural Maine should lose the access to modern telecommunications services under a one-size-fits-all cap.” Comments to the FCC on capping Universal Service Fund (USF) subsidies to CETCs are June 6, replies June 13. The Federal-State Joint Board on Universal Service recommended the cap. The comment deadlines awaited Wed. Federal Register publication of a notice of proposed rulemaking based on the joint board proposal (CD May 15 p9).

The Mont. PSC is eyeing retail or wholesale rate cuts for Qwest to ensure its ratepayers benefit from sharp increases in the company’s federal universal service subsidies the last 10 years. In 2005 the PSC opened an inquiry on Qwest’s use of universal service high-cost support funds (Case D2005.6.105). In the latest docket report, the PSC said Qwest’s annual universal service subsidy jumped from $1.3 million in 1996 to $16 million yearly for 2004-06. Qwest said universal service subsidies go to add, upgrade and maintain network facilities in its high-cost areas; the PSC noted Qwest’s gross network investment statewide fell from $52.6 million in 1996 to $24.6 million in 2005. The PSC said Qwest’s gross construction cost has fallen more than 50% since 1996, as its universal service subsidies “have increased dramatically.” Qwest said universal service support doesn’t offset its rural network construction expenses so its rates should stay the same. But the PSC said that while there’s no evidence Qwest improperly uses universal service subsidies, “it is difficult to pinpoint exactly where the USF money is going,” or verify that Mont. customers get maximum benefit from the subsidies. The PSC said it may order direct ratepayer benefits of $8-$10 million via a cut in basic exchange rates, killing Qwest’s monthly extended area calling surcharge, or implement MCI’s proposal to cut Qwest intrastate access charges. The PSC hired a consultant to study these and other alternatives for using Qwest’s universal service revenue to benefit ratepayers. The consultant’s report is due June 12; Qwest’s response, July 19. Data requests must be completed by Aug. 30, and hearings will open Sept. 26.

FCC Chmn. Kevin Martin plans to proceed as soon as the fall on a proposal to change how telecom providers contribute to the Universal Service Fund, he said Mon. after a speech. Martin told reporters he is waiting for a U.S. Appeals Court, D.C., decision on a related universal service issue before teeing up a proposal to replace the revenue-based contribution system with one relying on phone numbers.

Democrats are scrambling to fill broadband gaps in rural America, with House Telecom Subcommittee Chmn. Markey (D- Mass.) drafting a bill based partly on a successful state program that mapped high-speed service holes. Markey’s bill would have NTIA draw and maintain the map, to be posted on the Internet and searchable by users, according to a copy of the discussion draft. A hearing on the bill is set next Thurs.

Claims that a cap on wireless universal service recipients wouldn’t be competitively neutral “ring hollow” because wireline LECs have had caps in the past, USTelecom Pres. Walter McCormick told the FCC in a letter. “Universal service caps are not new,” he said in response to concerns voiced about a recommendation by the Federal-State Joint Board on Universal Service (CD May 3 p1). “Almost a decade ago, the Commission established an indexed limit on the high- cost fund for ETCs [eligible telecom carriers] and capped the amount of corporate operations expense that an ETC could recover” through USF payments, he said. As now, the action was taken to “prevent excessive growth in the size of the universal service fund,” McCormick said, and the cap was upheld by the 5th U.S. Appeals Court, New Orleans. “Unlike the high-cost fund for incumbent ETCs, the universal service support available to competitive ETCs has never been capped,” McCormick said.

Along with a cap on universal service subsidies (CD May 2 p1), the recommendations from the Federal-State Joint Board on Universal Service late Tues. could hit wireless carriers with a 2nd reduction in their payments. The Joint Board urged the FCC to “consider abandoning or modifying the so- called identical support… rule.” The rule bases competitive carrier funding on the same per-line support given to the rural ILEC operating in the same area.

A group of federal and state regulators has urged capping subsidies to rural telecom providers to slow booming Universal Service Fund growth. At our deadline, the Federal- State Joint Board on Universal Service recommended that the FCC impose an interim “emergency” cap on high-cost support that “competitive eligible telecom carriers” can receive in each state, based on the average amount of CETC support distributed in each state in 2006. CETCs generally are wireless providers.

In a letter to FCC and state regulators, Qwest recommended reforms to the Universal Service Fund’s high-cost program: (1) Capping per-line support to all USF eligible carriers and (2) subsidizing only one wireless connection a household. These are temporary measures, Qwest told members of the State-Federal Joint Board on Universal Service in the April 26 filing. Qwest said permanent changes are needed but it agrees with the “common theme” of recent reform proposals “that the unchecked growth of the universal service high-cost fund must be contained immediately.” For the long run, Qwest recommended Verizon’s proposal to continue capping high-cost support but said “the support should be re-targeted to high cost wire centers and redistributed prior to capping the fund.” In addition, if the Joint Board and FCC decide to use reverse auctions to distribute funding, they should adopt Verizon’s proposal to start with auctions for wireless providers, Qwest said. Meanwhile, the Western Telecom Alliance threw its support to an AT&T proposal for USF reform. “AT&T’s interim stabilization plan properly focuses upon the skyrocketing… support” to competitive providers, the rural telecom group said. “AT&T’s proposal to place a targeted cap upon the industry sector most responsible for recent USF growth is reasonable, effective and equitable.” The plan’s one-year moratorium on new applications by competitors will slow the USF’s growth, the Alliance said.