USF panel’s recommendations chafe rural carriers

A federal-state panel recommended that the Federal Communications Commission cap government subsidies for rural wireless deployment as part of a broader effort to reform the swelling universal service fund, an action that if upheld could cost mobile-phone carriers billions of dollars of support.
The Federal-State Joint Board on Universal Service concluded the fund’s high-cost component should have an annual ceiling of $4.5 billion, with mobile wireless services eligible for $1 billion and the remaining dollars allocated to broadband ($300 million) and providers of last resort ($3.2 billion). The joint board also found in favor of reverse auctions, a distribution mechanism backed by FCC Chairman Kevin Martin that awards rural universal service support to the lowest-bidding telecom carrier.
In addition, the panel decided to halt identical support to wireline and wireless high-cost universal support recipients, owing to the fact that it costs landline telephone companies more to provide service to rural citizens and business than it does for mobile-phone carriers to accomplish the same task.
“We thank the joint board for their efforts and look forward to working with the commission as we move ahead,” stated cellphone association CTIA. CTIA has opposed the cap on support for competitive telecommunications carriers because wireless carriers-large and small-are the biggest recipients of federal subsidies in rural areas.
A rural mobile-phone group was more critical of the joint board’s action.
“Although the FCC has adopted a ‘core principle’ that all universal service mechanisms must be competitively neutral and not favor any technology or carrier, the words ‘competitive neutrality’ do not even appear in the recommendation,” the Alliance of Rural CMRS Carriers said in a statement. “The joint board would continue to provide $3 billion per year to legacy wireline voice networks in accelerating decline, while rural consumers who literally beg for improved wireless service, and contribute $3 billion to the fund each year, get shortchanged.”
The group also said the likely outcome of the federal-state panel’s recommendations will run afoul of the 1996 telecom act.
“While the addition of broadband is commendable, and long overdue, the board’s vision would subsidize a single carrier for each fund in rural areas,” the rural wireless carriers stated. “That is exactly the opposite of the 1996 act’s objective for the FCC-to develop universal service mechanisms that work with competition as it develops in rural areas. If implemented, this decision will favor some market participants, impede competitive entry and cement rural America’s second-class status for years to come.”
Large, regional and mid-sized wireless carriers also likely will feel the pinch if the joint board’s recommended decision is approved by the FCC, with AT&T Mobility, Alltel Corp., U.S. Cellular Corp. and Rural Cellar Corp. collectively set to collect hundreds of millions of dollars in rural universal support this year alone. The FCC already has begun implementing the high-cost cap by making it a condition of approvals to transactions involving Alltel.
“We continue to believe that wireless carriers have the most at risk near term,” stated analysts at Stifel, Nicolaus & Co. Inc. Stifel predicted the joint board’s proposals will help focus the debate, “but FCC decision-making remains up in the air.”
Lawmakers in Congress, who have come down on both sides of the rural universal service cap debate, are apt to re-engage in the controversy when they return from a two-week Thanksgiving break.