Recent news reports suggesting that the FCC may levy a new “tax” on Internet service are sparking a wave of negative reaction from both free market-oriented and public interest groups. Free Press has had longstanding concerns. On Tuesday, the free-market Heartland Institute joined in. But it remains unclear at this point how much support there is at the FCC for contribution reform or a move to broaden the program to place a fee on retail Internet access service.

FCC Commissioner Robert McDowell will continue to push for USF contribution reform, though he still has an “open mind” about steps to take next, he said in an interview. McDowell has long championed taking on the contribution side of USF (CD Jan 9 p1). The FCC approved an order in October addressing the distribution side of USF and an order on the USF’s Lifeline program in January. In May, the FCC released a 182-page further notice of proposed rulemaking on contribution reform.

Comments filed on USF contribution reform show little agreement and point to the need for more discussion, Verizon and Verizon Wireless said in FCC reply comments. That conclusion was seconded by many companies and groups filing replies this week. Though many suggested short-term fixes, most agreed there is little consensus to move to a numbers-based or connections-based approach.

The FCC should broaden the range of companies paying into the USF so the fund will remain sustainable in the long term, said the NTCA, OPASTCO and Western Telecommunications Alliance in an FCC filing Monday. The groups filed in response to an FCC request for comment on its proposed rule on USF contribution reform (CD April 30 p4). The groups said they support assessing USF fees on text messaging, one-way VoIP calls, retail broadband Internet access and any enterprise communications service that utilizes a telecom component. The FCC should also adopt a “bright line” contributions rule that would determine service-specific designations, the groups said. The commission should continue to levy USF fees based on revenue, and should adopt contributions reform in stages, the groups said. “The Commission should first expeditiously resolve basic approaches and certain major issues that are ripe for action, and do so in the manner as discussed herein,” the groups said. “Following that, it should deal with more complex and less ripe issues at a later date in an ongoing further rulemaking and/or separate clarification orders as the consequences and unresolved issues of the initial reform become more apparent” (http://xrl.us/bnjnf2).

Of the dozens of comments filed this week in response to the FCC’s rulemaking on USF contribution reform, there was little agreement about whether to stick with a revenue-based system for assessing contribution fees, to move to a system that uses connections or numbers, or even whether to assess fees on broadband service. The only universal sentiment that might be teased out of the plethora of comments filed is that, as AT&T put it, the current system is “dysfunctional.” Carriers differed, but generally supported a modified revenue-based system, while VoIP providers preferred a connections-based system.

Special access reform and FCC Chairman Julius Genachowski’s initial push for a vote on an order rejecting AT&T and Windstream pricing flexibility petitions are expected to be key areas for questions July 10 when commissioners are scheduled to appear before the House Communications Subcommittee for an oversight hearing. Other likely topics include USF/intercarrier compensation reform, progress on a voluntary incentive auction of broadcast spectrum and other spectrum issues, the Verizon Wireless/cable AWS deals and privacy regulations, said government and industry officials.

The Ad Hoc Coalition of International Telecommunications Companies supports USTelecom’s call for long-term, comprehensive changes to the FCC USF contribution system, the group said in a letter to the agency Wednesday (http://xrl.us/bm4ha3). The group, which includes several domestic and foreign long distance service providers, called out the “Carrier’s Carrier Rule” as “one of several irrational and inefficient processes in need of immediate reform.

A numbers-based USF contribution methodology would be relatively easy to implement and monitor, and provide stability and predictability in contribution obligations, members of the Ad Hoc Telecommunications Users Committee told FCC Wireline Bureau officials Thursday (http://xrl.us/bm3252). A “pure” numbers methodology is “still the FCC’s best option,” and would allow business users to contribute their “fair share” while not unduly burdening consumers, said the group representing some major companies that buy telecom services. A methodology based on connections to the Internet or network would be “viable,” but only if obligations are applied fairly, they said. A revenues-based methodology “has inherent flaws” that already plague the existing funding mechanism, they said.

Work at the FCC is intensifying on changing the Lifeline program that funds phone service for poor people, commissioners from both parties said Friday. A new draft of the Lifeline order circulated Tuesday night, prompting Commissioner Robert McDowell to return to Washington from a World Radiocommunications Conference in Geneva, he noted. Both McDowell and Commissioner Mignon Clyburn told a panel at the Minority Media and Telecom Council conference that the order tries to address waste and other inefficiencies in the subsidy program. Clyburn voiced support for the idea of broadband pilot tests, while McDowell said increases in one part of the Universal Service Fund mean all phone customers must pay more in USF fees unless there are other cuts.

Almost three months after the FCC approved a Universal Service Fund/intercarrier compensation reform plan, major industry players continue to seek significant changes. Comments were due last week on a further rulemaking notice approved as part of the order. How USF dollars ultimately will be divided as the fund is reconfigured to primarily pay for broadband is the key question addressed in most filings. They show that the FCC still has a huge job ahead as it continues to tackle changes to the USF. Numerous petitions for reconsideration have been filed in response to the Oct. 27 order. A second round of comments focusing on intercarrier compensation issues is due Feb. 24. Next week, the commission will begin to tackle Lifeline reform. Also looming are likely changes to the contribution side of USF.