FCC to seek public comment on USF cap

The Federal Communications Commission took another step toward reform of the universal service fund, while further leaving in limbo a highly controversial effort by Chairman Kevin Martin to order a temporary cap on government subsidies largely tapped for deployment of wireless services in rural areas. Hundreds of millions of dollars are potentially at stake for the mobile phone industry.
The FCC voted to seek public comment on a ‘reverse auction’ proposal to award high-cost USF support to telecom carriers that can provide service at the lowest cost and on a plan to abolish a policy whereby wireless carriers serving rural areas receive government support based on costs of rural landline telephone companies. The agency wants feedback on determining the level of support for competitive eligible telecom carriers in rural locales.
“I continue to believe the long-term answer for reform of high-cost universal service support is to move to a reverse auction methodology,” Martin said. “I believe that reverse auctions could provide a technologically and competitively neutral means of controlling the current growth in the fund and ensuring a move to most efficient technologies over time.”
Commissioners Michael Copps and Jonathan Adelstein, the two Democrats on the GOP-led agency, remain opposed to the reverse auction approach for USF reform.
“How do we ensure that the winning bidder provides adequate quality of service? What happens if the winner later decides it is no longer profitable to continue its operation? And who will be responsible for establishing the rules and enforcing them?” asked Copps. “Ironically, this purportedly market-based approach strikes me as hyper-regulatory. For these reasons, I must dissent from the [proposal’s] tentative conclusion that the commission should develop an auction mechanism to determine high-cost support.”
Copps said inclusion of broadband as part of universal service, elimination of the identical support rule, stepped-up accounting oversight and legislation enabling USF collections on an intrastate as well as an interstate basis would be a more effective and less disruptive road to reform.
Likewise for Adelstein, with a major caveat.
“I must express a degree of reservation over the amount of support allocated to the broadband fund, among other limitations on support,” Adelstein stated. “Maintaining our commitment to connectivity, particularly in the broadband age, is more important than ever, and the commission must start to provide realistic assessments of what will be required. To that end, I am also concerned about the impact of reverse auctions and whether such mechanisms can provide adequate incentives for build out in rural America.”
However, while Copps expressly rejects a wireless cap on CETCs, it is less clear where Adelstein – up for re-nomination – will come down on the issue. But the real, immediate problem for Martin is getting fellow Republican Commissioner Robert McDowell’s vote to put the interim CETC cap in place. House and Senate lawmakers are divided on putting a ceiling on government subsidies that have fostered expansion of rural wireless service in the past decade.
The commission’s latest move on USF reform is drawn in part from recommendations of the Federal-State Joint Board on Universal Service.
“CTIA welcomes release of these items and looks forward to participating in a dialogue with the commission and all interested parties on ways to reform the high-cost universal service mechanisms,” stated the cellphone industry association. “On behalf of over 250 million mobile wireless customers, CTIA is particularly focused on reducing the size of the universal service fund in a way that recognizes competitive market forces, specifically increased consumer demand for mobile wireless and broadband services. Importantly, we hope the commission will finally address rampant waste, fraud, and abuse of the high-cost universal service mechanisms by rural wireline telephone companies. Accountability must be demanded from all fund recipients.”
Wireless carriers could end up being big losers when the dust settles. The USF has grown to about $7.4 billion, with the ballooning high-cost component accounting for more than half of that total. Martin has repeatedly hammered on government support of CETCs – mostly wireless carriers – as the main reason for the fund’s explosive growth even though rural telephone companies collectively continue to receive billions of dollars from the fund even as they annually lose subscribers.
“Alltel and the wireless industry have long supported meaningful, consumer-oriented reforms to the universal service system,” said Andrew Moreau, a spokesman for Alltel Corp. “We are pleased that the FCC agrees that long-term universal service reform, not quick fixes, should be the focus. However, we believe reforms that favor one technology over another deprive consumers of their choice. Reforms that reward incumbent local exchange carriers for their increasingly inefficient costs violate this basic idea.”
Alltel was on track to receive about $240 million in USF high-cost rural support by the end of 2007. AT&T Inc., parent of the largest cellular carrier, was set to have collected $87 million last year. Also in 2007, Dobson Communications Corp., acquired by AT&T, was to have received $40 million. Rural Cellular Corp., which is being acquired by Verizon Wireless, was awarded between $35 million and $40 million, in USF rural subsidies. U.S. Cellular Corp. is also a major recipient of USF rural subsidies and, like other wireless carriers, faces diminished government support in rural America.