Posted by Barlow Keener

Universal Service Reform has been in the FCC “reform hopper” for more than 10 years.  Commissioner McDowell correctly labeled the USF program “antiquated, arcane, inefficient and just downright broken.” Fixing USF is anything but easy because while you can move USF money from one bucket to another, lowering the fee will take away government subsidies from ILECs and wireless companies receiving the subsidies.  Chairman Genachowski is rightly pushing and attempting to go where no Chairman has gone before, actually accomplishing USF reform.  On June 14, 2010, the Chairman announced the creation of the “Universal Service Working Group” that will provide a comprehensive, collaborative approach.  Sharon Gillett, Chief of the Wireline Competition Bureau, will lead the effort.  This announcement followed the March 16, 2010 National Broadband Plan that included a large section on USF reform and the FCC’s Joint Statement on the same day that USF reform was required and that USF funding should support broadband growth.  On April 21, 2010, the Commission released a Notice of Proposed Rulemaking (NPRM) opening a new docket for comprehensive USF reform.

After the announcements, Congress jumped into the fray.  There is a lot of money at stake, $8.7 billion every year.  On June 24, 2010, the Senate Commerce, Science, and Transportation Committee held a full committee hearing on USF reform.  The hearing was attended by three Commissioners.  The hearing was partially a forum for debating about the proposed Third Way and partially for getting commitments that USF reform would not result in harm to rural carriers.

The agreed consensus by Commissioners Copps, Clyburn, and Baker was the goal of delivering broadband to rural areas.  A large part of the hearings involved a back and forth on the Third Way being an acceptable mechanism for giving the FCC the legal authority to use USF High Cost Program ($4.6b) to support rural broadband.  Senator Ensign (R) emphasized that certain telecom companies’ internet businesses should be subject to “light touch” regulation (which is probably a reference to having no net neutrality obligations).  He argued that if “light touch” regulation was reversed, carriers would not invest in the rural areas.  Commissioner Copps said we have had 10 years of one regulatory question mark after the other but investment proceeded none the less. There was no mention of the ARRA NTIA’s $7.2 billion that is being targeted to solving rural broadband.  Also, there was no mention of the enormous amount of USF subsidies being paid to the largest wireline and wireless carriers.

What makes the USF 13.6% fee and $8.7b annual subsidy so controversial? The main issue, alluded to indirectly by almost everyone at the hearing, is the basic “taxation” conundrum.  If USF funding is decreased, then ILECs relying on USF will lose subsidies and could go out of business.  Also, in order to justify USF, the calculation of costs submitted by the ILECs to support the USF subsidy is so arcane and out of touch with reality that a Google cognitive computing engineer would struggle over how it is being calculated.  Straightening out the cost methodology will mean that some ILECs will receive less.  The USF dilemma is politically no different than those who attempt to decrease military spending, Medicare, welfare, or unemployment compensation.  If CABS is decreased, rural ILECs will suffer.  If USF is decreased, there will not be enough funds to subsidize the three largest ILECs and most of the wireless carriers.  Also, if USF is decreased, there will not be sufficient funds, from the point of view of some analysts at the FCC, to reach the last 250,000 homes without broadband.  A recent FCC study determined the average cost to reach the outlier homes would be around $60,000 per home.  While bringing broadband to rural towns is a goal that will serve the U.S. economy, reaching every outlier home may not be in our nation’s best interest.

                                                                  Nipton, CA (pop. 24) Served with DSL