Federal Universal Service Fund

A bipartisan bill to use Universal Service Fund (USF) money for broadband while curbing USF growth won high marks from the phone industry at a Thurs. press conference by bill authors Reps. Boucher (D-Va.) and Terry (R-Neb.). The 2 House Commerce Committee members offered similar legislation last Congress, but committee leadership never advanced the bill. Boucher said “conversations have not begun yet” with Subcommittee Chmn. Markey (D-Mass.) on the bill.

House Telecom Subcommittee Chmn. Markey (D-Mass.) is waging an effective oversight campaign over the FCC, NTIA and DTV transition issues, according to interviews with industry sources and analysts. Markey presides today (Tues.) over a 4th hearing on broadband, examining how the U.S. policy compares with those of other countries. Controversy is likely given new rankings that show that the U.S. slipping even further behind in broadband deployment.

By capping or freezing universal service subsidies to rural carriers (CD April 13 p1), the FCC could create the perfect setting for a much-needed study of subsidy distribution, Embarq told a federal-state board in an April 12 filing. Freezing or capping rural subsidies would stabilize the high-cost program enough to do a more “granular” study of rural telecom costs, the company told the Federal-State Joint Board on Universal Service. Some areas of the country with very high costs don’t get Universal Service Fund (USF) support due to the way costs are measured, Embarq told the joint board, which is close to recommending measures, including a temporary cap, to halt USF growth. “The ability to accurately identify high-cost areas at a very granular level has reached a level of precision that was unimaginable only a few years ago,” Embarq said: “Advances in modeling, better data and ever-increasing computing power” give the Commission “a set of tools capable of producing a study to ensure that all high-cost areas that truly require explicit support are adequately supported,” Embarq said. The FCC should freeze or cap the fund while it works on “stabilizing” the USF, it said: “All things being equal, a temporary freeze would be preferable to a cap… since it ensures that no individual recipient would be made any worse off.” A cap could allow “the possibility of individual winners and losers underneath the cap,” Embarq said.

A state-federal regulatory board is expected to recommend a 2-year cap on the subsidies some rural carriers get from the Universal Service Fund (USF), sources said Thurs. The cap, which could be announced in a week or 2, probably will be applied only to competitive rural carriers, with incumbent landline rural telecom companies not subjected to the limit on subsidy growth, knowledgeable industry sources said. The so-called competitive eligible telecom carriers (CETCs) are mostly wireless.

The Universal Service Fund high cost program has all sorts of problems, and simply curbing its size isn’t enough, Windstream told the Federal-State Joint Board on Universal Service Mon. in an ex parte filing. Windstream, formed in a merger between Valor and Alltel’s spun-off wireline business, isn’t “heavily reliant” on USF support, so implementing its ideas wouldn’t significantly change how much money it gets, it said. Among problems it cited: (1) The program inadequately targets high-cost, rural areas. (2) Based on embedded costs, it “provides higher levels of support to less efficient providers.” (3) Competitive eligible telecom carriers (CETCs) can get support based on incumbent wireline carriers’ costs, often “unrelated to the CETCs’ costs and based on different technologies.” Broader reform is needed, starting with how CETCs are funded, Windstream said. The joint board should recommend limiting USF support to one mobile and one wireline ETC per area, the company said. Windstream said support to CETCs should be based on their costs or a reverse auction. Reverse auctions to set support levels should be viewed with “caution,” but if the joint board goes that way it should take Verizon’s suggestion and start with auctions for mobile CETCs, Windstream said. The FCC shouldn’t designate any more CETCs until reform is finished, said Windstream. Other recommendations: (1) Target support to smaller areas, such as wire centers, to be sure support goes to the highest-cost rural areas. (2) Change how high-cost support levels are calculated by using forward-looking costs, if possible. Forward-looking cost models “may not be efficient or practical” for very small rural companies, Windstream conceded. (3) Consider using money “available from eliminating multiple mobile CETCs to support under-funded high-cost areas.” (4) The joint board should set an “affordability” benchmark to encourage comparable rates nationwide.

ORLANDO -- If the FCC imposes a cap on competitive eligible telecom carrier (CETC) participation in the USF program it will likely be short-term, said 2 members of the Federal State Board on Universal Service, including FCC Comr. Tate, Wed. at CTIA’s Wireless 2007 show. A source said the cap could be lifted this year. Recommendations of the joint board are expected shortly.

ORLANDO -- Wireless will have a major role in the USF program, FCC Chmn. Martin reassured wireless carriers Tues. Sources said after Martin’s remarks to the CTIA conference here that they're having trouble reconciling Martin’s advocacy of caps on reimbursements to competitive eligible telecom carriers (CETCs) with his insistence Tues. that USF be technologically neutral.

AT&T proposed a plan to “stabilize” the Universal Service Fund (USF) by calling a one-year moratorium on new carriers’ applications for USF money, freezing the number of lines for which wireless carriers can get USF support and making about $200 million in targeted reductions to USF programs. AT&T emphasized the plan isn’t “a crude cap” on funding, as proposed by Verizon. “Simply freezing the fund is neither an appropriate nor a sufficient goal,” AT&T said in a March 22 filing with the Federal-State Joint Board on Universal Service. “This interim stabilization step must be seen not only as a means of providing the Joint Board with time to conduct its review of longer-term proposals, but as the first step on the path to such fundamental reform,” the company wrote. AT&T said the plan targets “the source of runaway fund growth [which] has come most significantly from new ETCs [Eligible Telecommunications Carriers] and new ETC lines.” ETC is a regulatory term for carriers eligible to get USF subsidies. Much of AT&T’s plan would hit competitive ETCs, many of whom are wireless carriers. For example, the $200 million in reduced funding would occur through a 25% reduction in the USF funding that’s used to replace access charges. The money would continue to be available to rural ILECs whose access charges were replaced but not to competitive “ETCs that neither have, nor have ever had, an entitlement to access charges and thus do not share incumbents’ historical reliance on such support,” AT&T said.

Regulators should consider something other than a cap to slow Universal Service Fund (USF) growth, 5 Senate Commerce Committee members told the co-chairmen of the Federal-State Joint Board in a March 21 letter. In the belief that the joint board and FCC “won’t adopt any serious reforms of the program without a cap,” several witnesses at a recent committee hearing recommended capping the USF, the senators told FCC Comr. Tate and Ore. PUC Chmn. Ray Baum: “We reject that notion.” The joint board is expected to urge an “emergency cap” soon, said Sens. Rockefeller (D-W.Va.), Pryor (D-Ark.), Dorgan (D-N.D.), Klobuchar (D-Minn.) and Smith (R- Ore.): “We urge you to consider other more thoughtful measures to limit the growth of the USF instead of arbitrarily capping the fund.” Instead, the joint board should weigh “competitively-neutral proposals, ensure accountability for how funds are used, and promote build-out of advanced services in rural regions through effective targeting of funds to high cost areas,” the letter said. The cap has been described as a temporary measure, but “we are concerned that it would become a de facto permanent cap,” the senators said.

Broadband should be part of the Universal Service Fund (USF) program, rural senators told a Thurs. Senate Commerce Committee hearing. The FCC can do that, but Comr. Copps doubts he can get the other 2 votes needed for a rulemaking clarify that broadband can be included in USF, he said. Panelists favoring USF-sponsored broadband said congressional action would be the quickest route.