The FCC and the USF - Looking for a Law

Only this week, the FCC’s Office of the Inspector General (OIG) detailed the agency’s haphazard performance fighting fraud and abuse in the $6.5 billion program, and FCC Chmn. Martin took to the microphone at Supercomm to declare the USF doesn’t violate the Anti-Deficiency Act (ADA) after all, an allegation that last Dec. had Congress scrambling to pass a one-year ADA exemption for the USF.

At the time, the USF was thought to have run afoul of ADA’s ban on advance unfunded appropriations, because USF pays its way prospectively through a charge on interstate and international long-distance calls recalculated quarterly. Martin’s announcement may ease the fund’s difficulties slightly, but it’s no panacea. As the telecom market morphs and evolves, the long-distance revenue stream’s chronic shrinkage has landed the USF in the shallows, and set up the FCC for a long-delayed confrontation.

The question is whether FCC will take up arms against those troubles on its own, or await a Congressional mandate defining exactly how to reconfigure the USF. Though many in D.C. say the FCC has the authority to rebuild the fund without the Hill, what is likely to happen is wait for Congress to act first.

A confluence of factors -- newish FCC chief, empty FCC seats, competing reform proposals from every side, recent FCC reversals in the courts -- suggests the surest path to USF reform leads to Congress. There, some of the capital’s most powerful pols, including rural state senators who also happen to be USF devotees, are eager to devise legislative solutions to dilemmas confronting the USF (see accompanying story) -- and they're likely to prevail over those favoring a strictly regulatory fix.

The FCC hasn’t avoided the matter: Two agency proceedings are under way. One is on changing the USF contribution methodology, the other on broadening the ranks of USF contributors to include entities not currently defined as telecom. These efforts dovetail with goals set by some in industry, such as would-be merger mates AT&T and SBC, which favor variations on an FCC-driven approach to USF reform.

AT&T wants a mix of numbers-based and connections-based criteria for setting uniform fixed rates of USF support, while SBC urges a connections-based approach. Both maintain the FCC could go it alone and bring about the needed changes in USF administration -- and should do so. They're concerned that an attempt at reform via legislation might strangle on its Congressional umbilicus or be challenged in court. The goal, one of these partisans told us, is a “functional, operational” program that’s impervious to judicial challenge while fixing the glitches that plague the USF.

SBC’s affection for a connections-based system arises from the fact that Sec. 254(d) doesn’t require the FCC to analyze what percentage of revenue any given industry contributes. Rather, it merely says contributions must be equitable. “What any segment is paying now shouldn’t act as an impediment to reform -- especially since it is the consumer that pays in the end,” a source at the company said.

According to one rural telecom trade association insider, the FCC, which plays its USF planning hand very close to the vest, is contemplating numbers- and connections-based scenarios, with a notice of proposed rulemaking perhaps imminent. “We've heard it could be issued any time,” our source said, recalling that in 2003 the Commission considered using its discretion to open up the definition of universal service such that it would include some type of high-speed Internet access.

Now the central issue at the FCC is USF contribution methodology, this observer said. “The question is whether they should change it, and if they do, what it should be. And if they implement a change, what should be the transition period, and how do they do that seamlessly? That'll be the challenge.”

But an NPRM to expand the ranks of basic contributors to include a new group of providers such as VoIP could spur Congress to present a legislative alternative. That could happen simply because forces on the Hill want things their way, or because they're acting at the behest of parties now not paying into USF but threatened with inclusion by regulatory fiat.

But despite brave talk about the FCC accomplishing USF reform itself, the likelier possibility is that the agency will work with reform advocates in Congress. The collaborators’ goal will be to build a consensus for legislation that tells FCC precisely how to do what it wants to do, in the process providing the Commission with a firm legislative footing from which to push its USF reform agenda, officials said.