Proposed USF Changes Seen Helping Incumbent Telcos, Hurting Small VoIP, Cell Providers
Incumbent telcos would be the clearest winners, and small providers of interconnected VoIP the biggest losers, if the FCC and Senate proceed as they have been on changes in the Universal Service Fund (USF), according to interviews with industry executives and analysts. Satellite would benefit by becoming eligible under a new fund for places unserved by broadband.
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The FCC is expected as early as its meeting today (Wed.) to impose USF contribution obligations on interconnected VoIP providers up to 64.9% of their traffic and to raise the effective maximum, or “safe harbor,” on wireless carriers to 37.1% from 28.5%. The moves aim to lighten the estimated $350 million-per-year blow of removing DSL service from the USF contribution base in Aug. as a result of last year’s wireline broadband order.
Meanwhile, bills in Congress would shore up Commission authority to impose the duty on VoIP providers, also creating a fund of as much as $500 million per year to help finance provision of medium-to-broadband services to “unserved areas.” These matters are covered in Senate Commerce Committee Chmn. Stevens’ (R-Alaska) communications bill set for markup in the committee tomorrow (Thurs.).
Imposing substantial payment demands that affected VoIP providers will pass on to customers, and raising charges on cellular carriers, necessarily helps competing voice providers and notably wireline incumbents, said Stifel Nicolaus analyst Blair Levin. Rick Cimerman, NCTA vp-state govt. affairs, agreed, noting most cable companies already are making and charging USF assessments based on the 28.5% wireless safe harbor.
David Cohen, USTelecom policy vp, called the VoIP assessment competitively neutral, since it will subject the providers to the same obligation as others with comparable services. The Keep USF Fair Coalition of consumer and other groups agrees. “We think this is in fact the right move to make,” a step toward a numbers-based contribution system, said Exec. Dir. Maureen Thompson.
The VoIP providers might pay much less by submitting traffic reports showing long distance calls are a smaller proportion of their business than implied by the 64.9% safe harbor. But that analysis will be tricky, considering VoIP’s locationless character, said Jim Kohlenberger, VON Coalition exec. dir. Besides, with FCC Chmn. Martin making a priority of a broader USF overhaul using a numbers-based system, VoIP providers stand likely to come under a succession of 2 new systems in as little as a matter of months, Kohlenger said.
Small providers -- those among the 200 interconnected VoIP providers but not the 7 dominating residential VoIP -- will bear the greatest proportional burden and are likeliest to be compelled to pay the highest rate, namely the safe harbor figure, he said. Cimerman said: “I'm sure that’s right, but that’s not our problem.”
Kohlenberger and other critics questioned the FCC’s expected VoIP safe harbor, saying there’s no evident reason to assume the proportion of long distance calls over VoIP is so much higher than on similarly portable cellular service, which is largely flat-rate. The safe harbor figure’s derivation hasn’t been disclosed. But the comparison between VoIP and wireless is “apples & oranges,” because replacing wireline long distance is a much greater impetus to VoIP demand, said a cellular industry official.
“It can’t help” cellular carriers to raise the wireless safe harbor, the official said. Raising costs “always has an impact,” he said. Small carriers, forced by traffic study costs to keep relying on the safe harbor despite the increase, will be hit hardest, the official said. In a shift away from wireline interests, the revised draft of Stevens’ bill fixes the measure’s previous tilt toward them, he said.
But longer term, fundamentally shifting USF to a numbers-based system -- as FCC Chmn. Martin and much of the communications industry support in general terms -- would mean the large and growing cellular business will remain a loser on support contributions, the wireless official said. “The devil’s in the details” regarding how sectors would make out in relation to each other beyond that, he said.
Lifting the charge on DSL service has to help its providers, led by the Bells, compete against cable modem, which was never assessed, Levin said. But Cimerman noted that cable hasn’t competed in broadband as much on price as on access speeds and features. EarthLink is concerned about a Verizon filing to the FCC that the company read as taking a position that might let Bells keep imposing USF charges on its ISP customers for DSL, said an executive with a large ISP, who spoke on condition of anonymity ahead of meetings at the FCC. Verizon didn’t return our call. But USTelecom’s Cohen said the concern is unwarranted under the FCC order and given the telcos’ business interests.
Wireline, terrestrial wireless and satellite services all are eligible for subsidies for extending broadband to unserved areas under Stevens’ bill. It specifically would allow payments for customer premises equipment for satellite broadband. Incumbent telcos -- especially rural outfits -- usually are best positioned to benefit from such spending, Levin said. “The telcos might get more” of the money than cable, because rural America accounts for much of the 7% of the population cable doesn’t reach, Cimerman said. But Stevens’ counterpart in the House, Commerce Committee Chmn. Barton (R-Tex.), isn’t eager to expand universal service; he doesn’t even think it should exist.