USF Reform Could Leave Out Satellite Again, Worry Executives
Talk at the FCC of Universal Service Fund reform to include broadband services has satellite companies concerned over the possibility of increased contribution rates without any subsidy in return, industry executives said. Under the current system, companies pay into the USF based on their interstate and international end-user telecom revenue and generally leave satellite companies out of the running for subsidies. If a future version of the USF includes broadband, as proposed by the FCC and tentatively named the Connect America Fund (CAF), satellite companies could be left paying for expansion of competing technologies again, executives said.
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"Satellite has been able to make a significant dent in providing broadband of some level in largely unserved areas,” said lawyer Doug Orvis of Bingham McCutchen, who has worked on USF matters with satellite companies. “Once the broadband fund comes online, if traditional RLECs are able to have their service subsidized by the fund and satellite is not, it will create some competitiveness issues.”
Discussion about the CAF has created some disagreement among satellite companies. Some are uncertain about whether to push for total un-involvement with the program, or a measured stance where companies should be eligible to contribute only if they're eligible to receive funds, executives said. For instance, WildBlue and Hughes, which have been the most vocal on the subject through comments on the USF proceeding, are divided. WildBlue is pushing for satellite involvement and Hughes seeks satellite to be left completely out (CD July 14 p6).
"The quandary is that all of us contribute,” said a satellite industry executive. “Yet a very small minority can draw from it.” As is, USF amounts to a “15 percent tax” that the satellite industry gets nothing out of, the executive said. Technically, the fund is supposed to be competitively neutral, though it has several criteria that leave out many services, said Orvis. Similar criteria could be included in a reformed USF. The proposed 4 Mbps download speed minimum for subsidy eligibility could leave out many satellite companies, said executives.
Exactly how much the industry contributes to the USF currently is a little unclear. Calculating from 2007 data, the most recent available, satellite services accounted for $38.2 million to $46.2 million of the $7.25 billion collected for USF that year. That number may not be a complete picture of satellite contributions since satellite companies may have contributed under other services and non-satellite companies may have paid into the fund under that label.
Many satellite companies see USF as a fund that has helped competitors expand into rural market particularly well suited for satellite services. “We have been paying into this fund for many years,” said Mark Bresnahan, Spacenet general counsel. “We've never seen any subsidies to support our customers. Though we have seen some of the money we put in go to much larger carriers.” If USF starts subsidizing broadband without including satellite, the fund may be essentially reducing the market for StarBand, Spacenet’s broadband service, said Bresnahan.
"Our concern is now [the FCC] is going to come back in and hit broadband revenues and again we are going find our customers aren’t on the receiving end of support,” said Bresnahan. Spacenet said it pays about 13.6 percent on eligible services, the bulk of which come from its enterprise services. “That’s a big number for us, whether we eat it or pass it on,” Bresnahan said. He advocated for a balanced approach to USF, where if the only entities eligible for subsidy provide service over 4 Mbps, then only companies that provide service over 4 Mbps should be contributors.
Other companies voiced similar concerns. The largest concern now from Inmarsat, which operates as a wholesaler and doesn’t contribute directly toward the fund, is the increased cost the fund imposes on the end user of the service, said Vice President of Government Affairs Diane Cornell. The end-user cost has the effect of reducing the amount of service bought from service providers, she said. The company is watching the proceeding closely and hopes the FCC takes a balanced approach on eligibility for contribution, said Cornell. “It’s a question of symmetry,” she said. “If there is a particular broadband threshold for contribution, there should be the same threshold for distribution. The consistent frustration that satellite operators have is that they have been contributing without receiving. In extending this policy in broadband world, we hope the FCC will think about including satellite equitably."
Satellite operators said they will also be watching closely. Intelsat hopes the USF isn’t “expanded too substantially,” which would “add to cost of telecom services,” said Deputy General Counsel Kalpak Gude. The definition of services eligible for USF contributions will also be a major worry going forward, he said. SES World Skies is “waiting to see what the FCC issues in fourth quarter and will evaluate them when issued,” said Joslyn Read, vice president of regulatory affairs. EchoStar also said it’s evaluating the FCC’s approach.