FCC’s McDowell on board for wireless USF cap

Federal Communications Commission member Robert McDowell said he supports imposing an interim cap on high-cost universal service funds primarily benefitting wireless carriers serving rural areas, paving the way for agency approval of a policy that the mobile industry and some lawmakers believe is technologically discriminatory.
“Funding for competitive eligible telecommunications carriers is increasing at a rate of roughly $150 million per year, and some estimate that the CETC (competitive eligible telecommunications carrier) funding level could reach as high as $1.4 billion by 2009, if left unchecked,” McDowell said. “Moreover, this estimate does not even take into account the additional potential increase in demand for CETC funding to build out AWS [advanced wireless services] and 700 MHz spectrum when services on those frequencies come online.”
McDowell said he backs an exception for all telecom providers serving tribal lands across the country, and areas in Alaska, noting such locations comprise some of the most under-served parts of the country.
The FCC is expected shortly to enact the CETC cap, which was recommended by a federal-state joint board on universal service fund reform.
“The FCC rulemaking will likely set the cap to begin retroactively on March 31, 2008, to ensure that all CETC designations granted in the last year remain unaffected,” said Jessica Zufolo, an investment analyst at Medley Global Advisors L.L.C. “The cap will remain in place until the FCC adopts long-term reform measures, which may not happen until next year.”
Zufolo said she expects the FCC to grant an estimated 30 CETC applications pending before the commission. She added that the cap is likely “to apply to carriers on a statewide basis, mainly to ensure that wireless CETCs utilize their existing support more broadly so that it covers additional customers at a lower revenue amount. An exception will apply if a CETC files its actual costs with the FCC on a per-line basis.”
The cap is regarded as a victory for incumbent landline companies, including rural wireless carriers, which receive the lion’s share of high-cost USF support.
“It will . squeeze funding for already-capped Alltel, which went private (and AT&T Mobility, which took over Dobson Communications Corp.), as petitions for new support are approved, reducing support for existing recipients,” said analysts at Stifel, Nicolaus & Co. Inc. The analysts added: “While Mr. McDowell said he looked forward to pursuing more comprehensive actions to reform universal service, we note there is some thought the cap will reduce the chances for an overhaul by taking away some of the urgency — and thus pressure — for action.”
Top wireless CETC beneficiaries this year are projected to be Alltel ($230 million), U.S. Cellular Corp. ($150 million), Rural Cellular Corp. ($40 million) and Dobson/AT&T ($127 million), according to Medley Advisors.