Federal Universal Service Fund

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.

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.

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.

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.

FCC Chmn. Martin said Tues. he sees reverse auctions as a solution for stemming the “unsustainable” growth of the Universal Service Fund caused by increased competitive providers. Martin told the Federal State Joint Board on Universal Service that he never supported giving USF subsidies to multiple recipients in an area, and just what he feared has happened -- a sharp rise in USF subsidies caused by the increase in competitive rural carriers.

Another universal-service proposal has surfaced, this one from wireless provider Alltel, which backs a “pilot” reverse auction focused on broadband deployment. A bidder would win by offering the lowest price for deploying “substantial broadband service,” in addition to existing USF- supported basic services, to specific percentages of a zip code’s population, Alltel said. All eligible telecom carriers (ETCs) operating in an area, not just the auction winner, would get comparable per-line funding for making the same service commitment. The plan calls for revamping the USF system, such as by limiting growth of per-line support in each study area to the inflation rate. The “transitional” reforms require more accountability and reporting by ILECs and competitive ETCs and would make the Universal Service Administration Co. (USAC), not NECA, responsible for collecting and processing cost data and setting support amounts. NECA is “an RLEC-dominated advocacy group,” Alltel said in the Feb. 16 ex parte filing with the Federal-State Joint Board on Universal Service. The plan would “retain the rule that all ETCs receive the same amount of support per line served,” a practice rural LECs strongly oppose. To “target funds more effectively,” Alltel would: (1) Consolidate study areas served by a single ILEC holding company in each state into a single study area. (2) Apply “non-rural” funding rules to such study areas if they had 50,000-plus lines. (3) Revise the “high cost model” support mechanism for nonrural carriers “to provide support in the highest-cost wire centers nationwide, not just in 10 states.” Rural consumers want high-bandwidth and wireless services but “due to the relatively high costs of deploying… networks in many rural areas, these services are being deployed less rapidly in rural areas than elsewhere,” Alltel said. The plan builds on ideas from W. Va. PSC Consumer Advocate Bill Jack Gregg and others, Alltel said: “These policy changes will affect CETCs as much as ILECs. Alltel is not offering these proposals in an intent to benefit or harm any category of providers.”

Alltel fears Verizon’s universal service reform plan may unfairly target wireless companies, an Alltel official said. The company, still studying the Verizon proposal, “would be concerned with any plan… that implies that wireless is to blame for problems with the current funding system and essentially asks wireless to shoulder much of the burden of USF reform,” he said: “As Verizon correctly identifies, we need a system that provides all high-cost funding recipients with more rational incentives and ensures that consumers receive the benefits of innovation.” Alltel is a major provider of competitive wireless service in rural areas. Verizon’s plan and others will be reviewed by the Federal-State Joint Board on Universal Service 2 p.m. Feb. 20 at the Renaissance Washington Hotel during NARUC’s week-long winter meeting.

Verizon isn’t seeking “sweeping” telecom legislation this Congress, Exec. Vp Public Affairs Tom Tauke told reporters Mon. The 2007 focus is getting broadband to consumers who lack it, but that doesn’t demand major legislation, he said. Congress simply may need to refocus existing grant and loan programs, Tauke said.

A federal appeals court indicated it may ask the FCC to reconsider parts of an order requiring VoIP providers to contribute to the Universal Service Fund. A 3-judge panel of the U.S. Appeals Court, D.C. questioned possible disparities in the FCC’s treatment of VoIP carriers in relation to other telecom carriers and asked the agency for legal justification for several sections of the order approved last summer (CD June 22 p1), during oral argument Fri.