Incumbent telcos would be the clearest winners, and small providers of interconnected VoIP the biggest losers, if the FCC and Senate proceed as they have been on changes in the Universal Service Fund (USF), according to interviews with industry executives and analysts. Satellite would benefit by becoming eligible under a new fund for places unserved by broadband.
Decades of the Universal Service Fund contributed to 98% of U.S. households having phone service. This includes 88% of low-income households. But that feat hasn’t come cheaply, especially with the addition of the costly E-rate program that connects schools and libraries to the Internet. During 1998-2005, the USF spent $37.8 billion, according to the National Regulatory Research Institute, which pegs fiscal 2006 USF outlays at $7.3 billion. In fiscal 2006, requests for school and library funding alone will total $3.55 billion to be disbursed among 39,416 applicants, the Universal Service Administration Co. reported (CD March 22 p11).
The Universal Service Fund (USF) has grown more than 50% since 2000, much of the growth in the high-cost program that supports rural telephone companies, the Congressional Budget Office said in a report. Spending on the high-cost program doubled in the past 6 years and could more than double again in the next few years, “depending on the outcome of various legislative and regulatory changes that are under discussion,” CBO said in a report on “Factors that May Increase Future Spending from the Universal Service Fund.” The report was released Tues., a day before CBO Acting Dir. Donald Marron was to testify at a House Telecom Subcommittee hearing on universal service reform. USF outlays grew from $4 billion to $6.3 billion between 2000 and 2005, while revenue grew from $4.5 billion to $7 billion, CBO said. Revenues are a better gauge of the USF’s impact on the economy “since they take into account commitments that have been made but not yet paid for,” the report said. The report attributed much of the growth in the high-cost program to the advent of “cell phone companies that are new competitive entrants to rural markets.” CBO said demands for USF outlays could continue to rise depending on how policymakers treat the increase of competitors in rural areas, intercarrier compensation (ICC) reform and demands for the use of USF money to support broadband connections. The first 2 factors -- a growth in payments to wireless competitors and ICC changes -- could raise outlays by as much as $4 billion a year, CBO said. Increased spending for broadband can’t be measured, the report said, because it probably would result from legislative action “which CBO has no basis for predicting.” Raising the USF contributions fee could drive consumers to services that aren’t subject to USF fees, such as e-mail and instant messaging, the report said. On the other hand, there are several options for curtailing growth of USF spending such as limiting USF support in high-cost areas to one connection per household and basing support on each carrier’s own costs rather than the incumbent’s cost, moves that rural telephone companies have pushed. ICC reform could be structured in a way that would ease the pressure on the USF, the CBO said. Finally, budget pressures caused by speeding the deployment of broadband in rural areas could be eased by funding the new service outside the USF as “part of discretionary spending,” the study said.
In a surprise move, a new draft of a telecom bill by Sen. Stevens (R-Alaska) contains language sharply limiting state controls on wireless service (CD June 17 Special Report). Though carriers view this as a potential win, it has raised consumer group and state regulator ire. State regulators said Mon. the wireless language will be controversial and could keep the bill from progressing this year.
The FCC should postpone action on plans to increase the wireless safe harbor for Universal Service Fund contributions and add VoIP providers to the contributions pool for the first time, the Small Business Administration Office of Advocacy said in a June 15 letter to FCC Chmn. Martin. The agency hasn’t properly analyzed either action’s economic effect or submitted a regulatory flexibility analysis meeting Regulatory Flexibility Act (RFA) requirements, the SBA said: “Doing so will bring the FCC into compliance with the RFA and will afford the Commission the opportunity to legitimately solicit input from small businesses on the regulatory costs of compliance as well as garner recommendations for significant alternatives that would minimize the impact on small businesses.” Last week NTCA also weighed in on the proposal, which is on the agenda for the FCC’s open meeting Wed. NTCA said it opposes eliminating DSL revenue from the USF contribution pot, which reportedly is a reason the FCC is considering expanding contributions elsewhere. NTCA urged keeping DSL revenue and adding revenue from cable, wireless, electric, satellite and other broadband access providers. NTCA said excluding such providers from the contributions base will “conflict directly with [Senate Commerce Committee Chmn. Stevens’ (R-Alaska)] telecom rewrite legislation which ties the future of universal service to broadband deployment throughout the United States.” NTCA said “the regulatory classification of cable and wireline broadband Internet access service as an information service does not preclude the Commission requiring all providers of broadband Internet access service to contribute.” The association backs raising the wireless safe harbor and adding VoIP revenue to the pot, it said. But it warned the FCC that the legal basis for doing so might be tricky if VoIP is classified as an information service rather than a telecom service.
The 3rd draft of a telecom reform bill from Senate Commerce Committee Chmn. Stevens (R-Alaska) addresses net neutrality but doesn’t assuage critics’ fears that network operators like AT&T and Verizon will be able to discriminate against content providers like Google and Amazon.com, sources told us Sat. It goes further than Stevens’ previous draft, which simply required the FCC to conduct a study on the controversial topic. The new version of S-2686 is expected to become public Mon.
The VON Coalition urged the Commission not to go through with an interim plan to require VoIP providers to pay into the Universal Service Fund (USF) based on a percentage of their revenue (CD May 31 p1). The coalition said in a filing Wed. it was concerned the action, which is on the agenda for the June 21 open meeting, could delay broader reform of the USF contributions system. It said it supported FCC Chmn. Martin’s proposal to eventually move away from revenue as a basis for contributions and feared this interim plan, because it’s based on revenue, would stymie that move. The FCC in essence would be setting up an interim contributions process for VoIP providers and then turning around and setting up a 2nd one once full reform was accomplished, the coalition said. That would mean requiring 2 “fundamental shifts” in tracking and billing practices, the group said. The coalition also questioned whether adding VoIP providers to the pool would make up for contributions lost when DSL providers stop paying into the fund, which reportedly is one of the purposes of the interim plan. “The VON Coalition recommends that, instead of potentially putting the sustainability of the [USF] in jeopardy… the Commission should move promptly to adopt comprehensive reform measures.”
The FCC will vote on contentious multicast must-carry rules at its June 21 meeting, according to an agenda released Wed. The order, which would reverse a previous rulemaking, didn’t mention so-called digital downconversion, once rumored to be on the agenda. The meeting was delayed a week in part to give new Comr. McDowell a chance to review must-carry before he votes on it, sources said. Another media item to get a vote Wed. is a broad ownership review, championed by Chmn. Martin. The FCC also will take up a rule newly imposing universal service charges on VoIP and raising the safe harbor percentage for wireless payments into the USF. Also on the agenda: a broadcast satellite NPRM addressing 17.3-17.7 GHz, known as the “reverse DBS band.” The rulemaking will consider licensing and service rules for the satellite spectrum, which will be available effective April 1, 2007, substantially increasing DBS bandwidth over the U.S.
The House subcommittee overseeing the FCC Wed. marked up a bill that would give the Commission $294 million -- $4.5 million more than last year but $8 million less than the agency requested. The bill would enable the FCC to conduct more audits and oversight of the Universal Service Fund (USF), where “reports of waste, fraud, and abuse plague the program,” according to statements by House Appropriations Science, State, Justice & Commerce Chmn. Wolf (R-Va.).
FCC wrongly used TNS Telecoms bill-harvesting data as a source for a new universal-service wireless safe harbor of 37.1%, Verizon and Cingular said. Cingular said that number, proposed for approval by the Commission (CD May 31 p1), seems to match one in a 2005 TracFone PowerPoint presentation filed with the FCC. “Neither TracFone nor TNS proffered that study for the purpose of modifying the wireless safe harbor, and -- as TracFone readily admits -- the TNS study is inherently unreliable,” Cingular said: “TracFone states that the errors are likely to understate interstate usage, but Cingular believes the study’s assumptions would just as likely overstate it.” Verizon told the FCC: “If the Commission decides to make any changes to its USF policies for wireless carriers it should not do so based upon the TNS study.”