Subsidy caps and reverse auctions proposed to rein in a rapidly growing Universal Service Fund split wireline carriers by geography, in comments to the FCC. While Verizon urged a high-cost cap and auctions, rural groups said the reforms would undermine broadband deployment efforts. Meanwhile, wireline groups didn’t contest a proposal to kill the identical support rule. Wireline groups also expressed mixed feelings on a Universal Service Joint Board proposal to expand high-cost support to broadband and wireless.
Wireless carriers’ advice to the FCC on Universal Service Fund reform varied sharply, as companies and groups commented on three rulemakings on the universal service fund. A general message was that wireless must play a significant role as the fund is restructured. There was broad support for an advanced mobility fund. But wireless players disagreed on the wisdom of eliminating the identical support rule or launching reverse auctions to shrink the fund. Comments came as the FCC poised to approve a fund cap many in wireless fear will hit their sector the hardest (CD April 1 p1).
“It’s critical that the universal service system adapts to keep pace with the dramatic changes driving the sector,” said USTelecom President Walter McCormick as the telecom association Thursday filed comments on three universal service proceedings. USTelecom urged the FCC to cap high- cost support and “gradually remove access support” for competitive eligible telecommunications carriers. The FCC should phase out support for multiple wireless lines in one household, and look at end-user rates when it calculates high-cost support for fixed line ETCs, USTelecom said. The association supported using reverse auctions to “reduce the number of wireless competitive ETCs to one per geographic area” and determine their support. USTelecom also urged the FCC to target USF subsidies at high-cost wire centers within large study areas and “begin the transition to project-based support to build out service in areas lacking wireless coverage.”
The FCC needs a reverse auction mechanism to curb growth of the Universal Service Fund, said Americans for Tax Reform. The USF, which it called “a revolving multi-billion dollar slush fund,” exemplifies “bloated big government with a heavy dose of entitlement politics,” said the group, headed by Grover Norquist. The high cost program “a monument to inefficiency and waste,” fritters away millions of tax dollars, the group said. Short of killing the USF, the best way to control it is by reverse auctions, it said.
The FCC denied BellSouth and Arya International petitions seeking reconsideration of universal service fund contribution obligations the FCC set in 1999. That order, made on remand from the Fifth Circuit U.S. Court of Appeals, established a “limited international revenues exemption.” LIRE stipulates that carriers with interstate revenue comprising less than 8 percent of combined interstate and international revenue base their USF contribution only on interstate revenue. In December 1999, BellSouth and Arya filed for reconsideration of the order. Last week, the FCC rejected Arya’s argument that the 8 percent threshold was “arbitrary and capricious.” In 1999, 8 percent “provided sufficient margin of safety based on the contribution factors,” and fixing that figure kept the agency USF contribution factor “specific and predictable,” the FCC said. In 2002, the FCC raised the exemption threshold to 12 percent to reflect market changes, it added. The FCC also rejected BellSouth and Arya demands that the FCC refund all USF contributions collected from Jan. 1, 1998 to Oct. 31, 1999, and based on intrastate or international revenue exceeding the 8 percent LIRE. “Requiring refunds of this magnitude would compel” increased USF fees and might not be feasible, the FCC said. “That would cause manifest injustice for today’s consumers, as they shoulder higher bills while bearing no culpability for the refund problem.”
The Internet voice industry is divided on a popular proposal to base universal service fund contributions by carriers on phone number count rather than interstate revenue. Vonage and other interconnected VoIP carriers support a numbers approach as making the fund technology- neutral. Others say a numbers world would force overhaul of business models at Google’s GrandCentral and other enhanced service providers. That shouldn’t be, Feature Group IP CEO Lowell Feldman said in an interview. Ten-digit phone numbers represent “1970 technology, not 2008 technology,” he said. “The numbers scheme is really a sleight of hand to try to force the industry to always use numbers.”
All major parties to the Texas Public Utility Commission’s review of the state’s universal service programs agreed to a settlement proposal for the high-cost fund that would reduce fund 36.5 percent -- $144 million annually -- in steps over three years. The proposal (Case 34723) would reduce the universal service surcharge on landline and wireless phone bills to 3.4 percent from 4.4. Signers included AT&T, Verizon, the PUC staff, Office of Public Utility Counsel, the USF Reform Coalition of cable and wireless telecom providers, Embarq, Windstream and rural landline competitive carriers. The PUC, complying with a legislative mandate, opened a comprehensive review of the fund in the fall. The PUC staff had recommended cutting the $395 million high-cost fund 60 percent to $165 million -- but competitive carriers supported deeper cuts and incumbents called for roughly doubling the fund. The PUC urged negotiations. Other provisions of the agreement would end universal service subsidies in deregulated exchanges with population higher than 30,000. Subsidies in deregulated exchanges with fewer than 30,000 people could continue if market rates exceeded “reasonable” levels specified. Large incumbents would be allowed rate increases to offset the reduction in universal service subsidies. The pact also would increase the Lifeline discount. The signing parties agreed to not seek any changes to high-cost or Lifeline programs from the PUC or state legislature before 2012.
CapTheFund.org had collected 1,509 consumer comments by Feb. 7 supporting a cap on universal service fund high-cost support, it said Tuesday. The comments also support proposals to use reverse auctions and limit the ‘identical support’ mechanism that bases USF subsidies on the cost of running incumbent telecom companies. The FCC deadline for comments is April 17.
LAS VEGAS -- The pending FCC order approving a Universal Service Fund cap does not have a sunset date, as was recommended by the Federal-State Joint Board on Universal Service, sources said Thursday. The order grants more than 40 pending applications for eligible telecom carrier (ETC) status. It also caps the fund at March 31 levels. FCC Chairman Kevin Martin has yet to circulate text of the order, complete with proposed edits, but is expected to do so in days. Sources said the order will likely have at least three votes if it contains expected language, with Martin and Commissioners Robert McDowell and Deborah Tate in support.
LAS VEGAS -- FCC Chairman Kevin Martin told CTIA attendees he expects to move quickly to adopt a cap on payments to competitive eligible telecom carriers (CETCs), now that Commissioner Robert McDowell is a likely third vote in favor (CD April 1 p1). Martin said he still plans an en banc hearing of the commission to look more closely at early termination fees (ETFs) often imposed by wireless carriers and other regulated companies. Martin also said he was starting to circulate an order dismissing a Skype petition seeking Carterfone rules for wireless.