Federal Universal Service Fund

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.

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.