Wireless carriers could see cap on universal service support

WASHINGTON-A federal-state panel working on universal service fund reform is expected next month to recommend a temporary cap on government support for cellphone carriers seeking to serve rural areas, according to telecom analysts.
“The cap will end up reducing wireless CETC (competitive eligible telecommunications carrier) support to the point where it is no longer identical to the amount collected by the local ILEC (incumbent local exchange carrier),” said Jessica Zufolo of Medley Investment Group. Zufolo said the USF Joint Board could rule by the end of May, with the Federal Communications Commission expected to act on that specific item not long afterward.
FCC Chairman Kevin Martin has blamed wireless CETC support for unsustainable growth in the USF, whose level has increased from $1.8 billion to $7.2 billion since 1996. USF high-cost support for rural areas today eats up $4 billion of the USF. Both wireline and wireless get USF high-cost support. Some critics argue wireless CETC support should not be based on capital costs of rural wireline carriers, which are different-indeed higher-than wireless carriers.
“States that today designate CETCs to wireless firms may continue doing so and award new applicants state USF support, but the total amount distributed to wireless CETCs will not increase, which will force states and carriers into making hard choices about whether to designate new wireless entrants ETC status,” said Zufolo.
Martin wants to limit high-cost support to a single entity in rural areas through a reverse auction that rewards the lowest bidder with federal subsidies.
The wireless industry, various federal policy-makers and state officials disagree, saying such an approach runs counter to the competitive goals of the 1996 telecom act and would undermine efforts to bring broadband connectivity to rural areas.
“A wireless-oriented cap could be problematic for mobile-phone companies seeking increased USF support, and they also face longer-term efforts to lower their support through changes to their cost basis, though the flows are not very large,” said analysts at Stifel Nicolaus & Co. Inc. “AT&T/Cingular, Sprint Nextel, Alltel, US Cellular, and Alaska Communications are among the top wireless USF recipients, with the smaller companies being more dependent on the support.”