The controversy over the Federal Communications Commission’s decision to cap subsidies flowing to wireless carriers for building rural networks has been elevated to a new level, with rural cellular operators asking a federal appeals court to review the agency’s action.
Hundreds of millions of dollars are on the line for the cellphone industry, which has leveraged high-cost universal-service funds to help underwrite the cost of wireless construction in rural areas, which tend to lag behind major metropolitan areas in terms of access to cutting-edge communications from a competitive mix of service providers. Wireless operators must be certified as competitive eligible telecommunications carriers (CETCs) to be able to tap into the fund.
The legal challenge, filed at the U.S. Court of Appeals for the District of Columbia Circuit, is being pursued by the Rural Cellular Association, Cellular South Licenses Inc., N.E. Colorado Cellular Inc., the Cellcom Companies, Smith Bagley Inc., Carolina West Wireless Inc., Bluegrass Cellular Inc., MTPCS L.L.C. and Leaco Rural Telephone Cooperative.
The companies previously asked the FCC to reconsider the controversial cap ruling, but withdrew their petition for reconsideration in view of the new court appeal. Still in play at the FCC, however, is a separate petition by rural wireless carriers to put a hold on the USF wireless-cap decision. If the FCC decides against doing so, wireless carriers plan to ask the court to stay the FCC order while the litigation is pending.
FCC claims cap necessary
The wireless providers claim the FCC’s targeted cap on one category of high-cost USF support is based on inaccuracies, faulty assumptions, unsound legal reasoning as well as being at odds with congressional direction and the principle of competitive neutrality.
FCC Chairman Kevin Martin said the emergency, interim cap on competitive rural telecom subsidies – one of a series of reforms recommended by a federal-state joint board on universal service – was necessary because of skyrocketing payments to mostly wireless carriers that have grown from $1.5 million in 2000 to more than $1 billion in 2007.
“Changes in technology and increases in the number of carriers that receive universal-service support . have placed significant pressure on the stability of the fund,” Martin stated when a divided FCC approved the wireless cap in May. “A large and rapidly growing portion of the high-cost support program is now devoted to supporting multiple competitors to serve areas in which costs are prohibitively expensive for even one carrier. These competitive ETCs don’t receive support based on their own costs, but rather on the costs of the incumbent provider, even if their costs of providing service are lower.”
At the same, rural wireline carriers receive three times as much as wireless operators from the high-cost universal service fund. The FCC has pointed out that the level of USF payments to local telephone companies in rural areas has remained relatively steady in recent years and is unlikely to experience the kind of spike associated with CETCs. Most CETCs are wireless companies, prompting accusations from that sector that the FCC’s high-cost cap is discriminatory.
Wireless carriers lash out
The FCC and Congress have been wrestling with approaches to reform the universal-service regime, which is under increasing stress at a time of significant change and turbulence in the marketplace. None of the high-cost USF proposals has attracted anything close to wholesale support from national, regional and rural wireless carriers.
Rural carriers accuse the FCC of fear-mongering and making the wireless industry the fall guy for USF reform.
“There is no empirical evidence whatsoever that an ’emergency’ interim CETC-only cap was needed to avert what the commission claimed was a ‘crisis’ that could have crippled the USF,” the carriers stated in their FCC petition for stay. “The use of such hyperbole to justify what will amount to a facially discriminatory, five-month cap of CETC high-cost support is among several ‘danger signals’ that will be apparent to a reviewing court that suggest that the interim cap order was not the product of a reasoned decision-making process.”
Support from the hill
In a recent letter to the FCC’s Martin, Rep. Rick Boucher (D-Va.), said he is troubled by the USF reform path the agency is taking on CETCs.
“Rural consumers would not be well-served by proposals that reduce or eliminate support for the operating costs of wireless services provided by wireless ETCs,” Boucher stated. “A properly functioning and modern national universal-service system must enable rural consumers to select the service and service provider that best suits their needs. Universal-service mechanisms are supposed to work with competition, not impede it by favoring one technology or provider over another. . I suggest the FCC take the time to fashion comprehensive reforms to the universal-service-fund program instead of adopting more short-term fixes that may well slow the development of mobility and broadband in rural areas. Alternatively, the commission could decide to defer making universal-service reforms to the Congress where comprehensive legislation is currently pending.”
Among the top recipients of the high-cost fund are Alltel Communications L.L.C.; U.S. Cellular Corp.; AT&T Mobility; Rural Cellular Corp., which was recently acquired by Verizon Wireless; and Dobson Communications Corp., which was bought by AT&T Mobility last year.
In addition to acquiring RCC, Verizon Wireless – which does not pursue high-cost USF subsidies – is seeking government approval to buy Alltel. It is unclear whether the Verizon Wireless acquisitions will cut into the level of support rural carriers otherwise might attract in their court appeal of the FCC’s high-cost CETC cap.
