WIRELESS INDUSTRY EFFORTS to derail a federal-state panel’s recommendation to cap universal service fund support for wireless carriers in rural areas could be undermined by a new report that found billions of dollars in subsidies have been largely ineffective in bringing cellular service to high-cost, underserved markets.
The report, from Criterion Economics L.L.C., was filed with the Federal Communications Commission last week and could diminish cellular carrier arguments that USF support for competitive eligible telecommunications carriers is money well spent. Compounding the filing’s impact is the fact the report-comprising two studies-was underwritten by the parent company of a top national mobile phone operator, Verizon Wireless.
While it is not necessarily a secret in Washington lobbying circles that the No. 2 wireless operator is in lock step with parent
company Verizon Communications Inc. on the CETC issue, Verizon’s decision to fund the report and its delivery to federal regulators appears to raise the stakes at a critical juncture in the controversy.
Reading tea leaves
Separate from the CETC wireless issue itself, Verizon’s position offers a glimpse into corporate decision-making by a Bell telephone giant whose mobile phone unit is increasingly competing for the former’s customers. Indeed, wireline-to-wireless subscriber migration is one of the most disruptive trends in the telecom industry today.
Why wouldn’t Verizon Wireless want the kind of generous federal support sought by other mobile phone operators?
“We’re going to let the filings of our parent company speak for us, and as a policy, we don’t discuss or parse out internal decision-making processes,” said Verizon Wireless spokesman Jeffrey Nelson. Reply comments supporting the proposed CETC cap were filed last Thursday under the names of Verizon Wireless and its parent firm.
Criterion’s findings come off as powerful and potentially devastating to the wireless industry and in particular to top CETC recipients: Alltel Corp., AT&T Mobility, Sprint Nextel Corp., U.S. Cellular Corp., Rural Cellular Corp., Dobson Communications Corp. and Centennial Communications Inc. Most CETC support goes to wireless carriers.
“Overall, my analysis demonstrates that, to the extent subsidies to wireless CETCs are intended to increase the availability of wireless service in high cost areas, the vast majority of funds are simply wasted. There are many areas of the U.S. where wireless coverage remains inadequate, but the current programs do not effectively target coverage to those areas,” stated Nicholas Vantzelfde, author of one of Criterion studies in the report.
The report claims non-subsidized wireless service is available in most areas where subsidized carriers operate, with CETCs offering less than 4% of incremental coverage over wireless operators that do not receive federal support. Verizon Wireless is in the latter camp. Vantzelfde also found CETC funding tends to be highly duplicative, with more than 52% of households covered by CETCs having access to multiple subsidized wireless carriers. CETC wireless support is based on wireline costs, another factor making the subsidy vulnerable to criticism.
“Criterion is a very respected group. If Alltel had hired them, no doubt they would have supported our position on the issue just as eloquently,” said Alltel spokesman Andrew Moreau.
USF draws support, opposition
The federal-state joint board’s proposed emergency cap on high-cost USF disbursements to wireless carriers has strong support from FCC Chairman Kevin Martin. Martin is under pressure to rein in a mushrooming USF. The high-cost fund accounts for $4 billion of the total $7 billion in the USF.
Critics of the CETC cap-including key House and Senate members-argue wireless carriers should not be singled out for an outdated USF system that gives billions of dollars more to rural landline telecom carriers than to mobile phone carriers. They point out CETCs bring competition and choice to rural consumers.
Wireless trade association CTIA said Verizon and others that back a CETC cap have a strong economic incentive to do so.
Verizon and Verizon Wireless counter that support is strong from consumer advocates, state regulators and industry for a CETC cap.
“Capping competitive ETC support on an interim basis would stabilize the high cost fund and ease the increasing demand on consumer contributions to the fund. . Parties opposing the interim cap distort its impacts. Claims that the interim cap would adversely affect wireless voice or wireless broadband services in rural areas are simply not true. The interim cap would not reduce support to competitive CETCs, but rather would maintain such support at 2006 levels,” the companies stated.
