FCC Takes Steps Toward USF, Intercarrier Comp Overhaul

The USF overhaul was lauded by all the commissioners as an important step toward fixing what they agreed was “a broken system.” Industry interests, especially big telcos, have promised to support Chairman Julius Genachowski as he works through the rulemaking (CD Jan 28 p4). Verizon and USTelecom issued statements praising Tuesday’s vote.

Despite the consensus that the fund and compensation rules should be changed, Genachowski is threading a needle. Democratic Commissioner Michael Copps said he wants USF and intercarrier comp orders to roll out this year and said the proposed Connect America Fund “will require a commitment to shared sacrifice and ability to rise above the clamor for whatever piece of the status quo has been beneficial to any one private interest.” Commissioner Mignon Clyburn said she’s worried that Tuesday’s notice will “start new disputes about intercarrier compensation” and hopes industry will “work with us on developing both immediate and long-term solutions.”

Commissioners Robert McDowell and Meredith Baker each said the contribution factor has skyrocketed. The rulemaking notice doesn’t take up contribution. “As with many government programs in general, the trends on both the spending and the taxing sides of this equation are simply unsustainable,” McDowell said. He lashed out at net neutrality advocates, saying they're “pushing us to impose Internet network management conditions” on broadband subsidies, a goal he said is “unnecessary and would be counterproductive.” The high-cost fund has jumped from $1.7 billion in 1998 to $4.4 billion today, Baker said. “Consumers pay for this,” she said. “This is real money from real people. It is our obligation to ensure that money is spent wisely to achieve the goals set out by Congress.”

Genachowski has told colleagues that he wants as much support as possible from industry and public interest groups. He challenged potential critics Tuesday to come up with their own constructive proposals. “To those who say the Connect America Fund should fund the highest possible speeds and all bells and whistles: Bring us your specific proposals -- but you must show us how much it would cost and who would pay for it,” Genachowski said. “To providers concerned the Connect America Fund won’t help them build out wired or wireless broadband networks but will support only their competitors or providers in other areas: Work with us to maximize the number and types of providers that can compete for support."

Negotiations were less contentious among the various offices than on some other recent major orders, FCC officials said after the meeting. One minor bone of contention was the extent to which the NPRM would use language similar to that in the net neutrality order asserting that the FCC had the authority to act on USF and intercarrier compensation under Sect. 706 of the Communications Act, two officials said. McDowell and Baker were successful in asking that the language be taken out and the NPRM at this point just asks questions about the commission’s jurisdiction.

"Chairman Genachowski was spot-on in pointing out that 25 percent of households are wireless-only, and that fact has to be taken into account when implementing reform, especially with LTE on the horizon,” said Lukas Nace lawyer David LaFuria, who represents cellular interests. “For many rural and low-income households, a wireless device is the only means of accessing the Internet and therefore reform must allow rural citizens to choose the service that best suits their needs, and does not lock them into a single technology option for broadband.” Free Conference Call CEO David Erickson, whose company will be active in the aspects of the proceeding involving what are called “traffic pumping” and “phantom traffic,” said he thinks he wants to sell the commission on a “high-volume access tariff solution that we have brought to the table. … We feel that thus far in this process, the FCC has been very willing to hear us."

Wireless Wants Fair Treatment

Rural Cellular Association President Steve Berry told us he remains concerned that the FCC’s USF work has centered too much on wireline. Most association members receive USF support, he said. “Many months ago I wrote Genachowski a letter and suggested that the Wireline and the Wireless bureaus should be co-equals on the restructuring of USF,” Berry said. “The wireline guys are losing subs at a record pace. They're losing somewhere around 70,000 wireline subscribers a month throughout the United States. Where are they going? They're going to wireless. The way the program is structured and the way it has been structured, it favors wireline.”

Berry said the Wireless Bureau did seem to play a part in writing the NPRM, but it remains to be seen whether that will mean the restructured fund will treat wireless more fairly. “In the Wireline Bureau, I still do not get the feeling that they see wireless as a replacement for wireline,” he said. Berry said payouts to wireless providers have been frozen since 2006: “We're not the problem with increasing the cost of the fund. It’s on the other side of the ledger.” Wireless pays in three times more than it gets back, Berry said. In the last nine years, wireline has taken $25 billion out of the fund compared with a little more than $3 billion for wireless, he said.

Wireless Communications Association President Fred Campbell told us that although many details are still emerging, a key question is whether the FCC will create a separate mobility fund or wireless will have to compete with wireline, possibly through reverse auctions. “In many ways wireline and wireless services are substitutable, but having access to both … would benefit consumers by offering greater choice,” he said. Campbell said it’s unclear how wireless will be treated in the order. He said the commission should have a final rule within a year. “We'll continue to focus on the role that wireless plays in this proceeding, especially reverse auctions, because to the extent you rely on reverse auctions in a market-driven way, wireless would seem to have a decent chance of playing a significant role,” he said.

CTIA President Steve Largent said in a statement that USF and intercarrier compensation have been too focused on wireline. “The FCC has recognized that the current universal service system, with its emphasis on legacy wireline voice technology, does not reflect market or technological realities,” he said. “As it exists today, the high cost Universal Service Fund is administratively complex, guarantees profits for incumbent wireline networks and promotes inefficiency. Similarly, the antiquated intercarrier compensation system imposes a convoluted and imbalanced set of rules on communications providers that ultimately reduces consumer choice and obstructs innovation."

The Rural Telecommunications Group said it “agrees with the FCC’s finding that in order to achieve the fundamental goals of universal service, the transition process must be a shared sacrifice.” The group, which represents smaller carriers, said its “members are … working to ensure that unserved areas of the nation receive vital mobile services.”

Sen. Jay Rockefeller, D-W.Va., chairman of the Senate Commerce Committee, congratulated the FCC on approving the rulemaking notice. “Updating this program -- by sharpening its focus on areas of the country without modern communications infrastructure and by improving accountability -- is the right thing to do. If this is done well, we can help provide broadband and wireless service to every corner of this nation. This is vital to our future economic and global competitiveness -- and essential to making sure no American is left behind in our digital age."

In separate actions, the commission also voted to issue rulemaking notices that would eliminate decades-old requirements for comparably efficient interconnection and open network reporting data, as well as opening questions on changing the Form 477. That drew swift condemnation from Free Press. “Today’s FCC meeting agenda finally makes it clear that Chairman Genachowski’s oft-repeated mantra of running a ‘data-driven’ agency is nothing more than an empty slogan that he’s unwilling to back up with actual policy,” Research Director Derek Turner said in an e-mail. “It is simply stunning that on the same day the FCC is proposing to hand over billions to industry to build broadband networks, it is still asking whether it’s a good idea for the agency to collect basic data about where broadband is deployed and how much it costs.”