FCC Makes a Move on USF Reform

The FCC this week proposed three ways to reform the bloated USF but onlookers were skeptical about the impact of the proceedings, as it’s very possible there will be new agency leadership after the November presidential elections.

Based on the joint federal-state advisory board’s recommendations from late last year, the FCC on Tuesday said it wants comment on running reverse auctions to distribute USF money; requiring wireless carriers to receive support based on their costs, not ILECs’; and establishing and capping three new funds for wireless, broadband and providers of last resort.

The reverse auctions proposal is the most contentious. This method would award USF subsidies to the lowest bidder, rather than the highest. Democratic commissioners Michael Copps and Jonathan Adelstein oppose reverse auctions, as do groups such as the National Telecommunications Cooperative Association (NTCA). For NTCA, the problem is that rural ILECs already have invested millions of dollars in their high-cost regions.

“If these costs are no longer recovered through universal service – and an alternative recovery method is not available or prohibited by regulators – then these costs will become stranded investment and inhibit the delivery of affordable high-quality broadband service to rural Americans,” said NTCA CEO Michael E. Brunner.

For Copps, the matter more is a question of accountability.

“How do we ensure that the winning bidder provides adequate quality of service?” he said in a prepared statement. “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? Ironically, this purportedly market-based approach strikes me as hyper-regulatory.”

Telecom analysts for investment bank Stifel Nicolaus said they didn’t think auctions, if approved, would be implemented by this FCC. For one thing, rural LECs and their congressional allies will oppose the auctions, they said, and “the sheer implementation complexities” will prove to be a major obstacle.

Meanwhile, there’s lingering concern about capping wireless USF proceeds.

Under the “identical support” rule, wireless carriers collect the same amount per line as ILECs. Landline carriers also don’t like that competitors have fewer regulations when it comes to identical support. They don’t have to invest in their networks before submitting costs for reimbursement — they receive support upfront. The only hurdle is that competitive carriers must apply for competitive carrier status from the states (and the FCC) where they want to get USF money, and those requests aren’t automatically granted.

Carriers like Verizon Communications Inc. are pushing for a cap.

There will be a 30-day comment period on the FCC’s reform proposals once they are printed in the federal register.

FCC www.fcc.gov
NTCA www.ntca.org
Stifel Nicolaus ww.stifel.com
Verizon Communications Inc. www.verizon.com