FCC Chairman Julius Genachowski is taking an aerial view of revamping universal service and intercarrier compensation in a new rulemaking notice. It takes up in general the necessity of subsidizing and deploying high-speed broadband but leaves contentious questions like the contribution factor for another day, commission and industry officials said. As expected, the FCC circulated a rulemaking notice late Tuesday for the commission meeting Feb. 8. The commission wants to use “market-driven, incentive based policies and increased accountability” to shift universal service money to “near term support for broadband deployment in unserved areas,” the agency said in a news release. It seeks to adopt measures to address intercarrier compensation (ICC) “arbitrage, as well as a long-term transition from current high-cost support and ICC mechanism to a single, fiscally responsible Connect America Fund,” the FCC said.

A mobility fund offering only the $100 million to $300 million proposed by the FCC won’t be enough to meet the many needs for mobile deployment, said CTIA and many of the wireless carriers it represents, in reply comments to the commission. Commenters also said there’s widespread concern about a proposal to use reverse auctions to determine which carriers get funding. The comments arrived at the FCC as it announced that a rulemaking to overhaul the Universal Service Fund is scheduled for a vote at the Feb. 8 commission meeting. (See the related report in this issue.)

Nullification of FCC net neutrality rules through the Congressional Review Act topped a list of communications and technology priorities for Republicans on the House Commerce Committee. Also listed in a staff memo Tuesday as “key issues” this year: Spectrum auction legislation, revamping the commission’s processes, broadband stimulus oversight and a Universal Service Fund overhaul. Colin Crowell, former aide to FCC Chairman Julius Genachowski, said on a panel Wednesday at the State of the Net Conference he doubts that the GOP’s planned resolution of disapproval concerning net neutrality will succeed.

Payphone operators’ request for emergency cash and long-term Universal Service Fund support was panned by Sprint-Nextel, Verizon, USTelecom and TracFone Wireless. The American Public Communications Council filed a petition last month asking the FCC for about $57 million in emergency Lifeline money and for a proceeding on whether payphones should receive universal service support permanently (CD Dec 6 p6). The petition drew support from the Florida Public Telecommunications Association, which said that the collapse of the payphone industry “has been greatly exacerbated in Florida and other states … due to the introduction of ‘free’ governmentally supported cell phone service offered by TracFone and more recently Virgin Mobile.”

Congress is unlikely to take up a total rewrite of the Telecom Act until late this session at the earliest, telecom trade group executives said Tuesday on a Broadband Breakfast panel. USTelecom, CompTel and the National Telecommunications Cooperative Association will be busy early this year lobbying members on broadband issues, they said. But “the next two years are going to go by pretty fast,” and “there just won’t be enough time to address all the issues that we'd like to see addressed,” said Qwest spokesman Tom McMahon.

FCC Chairman Julius Genachowski is expected to circulate by Tuesday a proposed rulemaking notice that will focus on using universal service funds to support broadband deployment, an FCC official said. The notice has been expected (CD Dec 1 p2). It’s expected to focus on reform of the high-cost fund and intercarrier compensation but will not discuss the contribution factor, the official said. The notice is expected to focus on the short- to medium term, essentially turning USF into a “broadband for America” fund, but will ask questions on how to handle a long-term overhaul of the system, the official said. There is broad consensus that universal service is long overdue for a rethink, but Genachowski and his staff are walking a fine line because it will be difficult to make changes without asking some sectors to give up on millions of dollars in support.

CTIA supports “elements” of the Federal-State Joint Board on Universal Service’s recommended decision on changes to the low-income Universal Service Fund program, the group said in an FCC ex parte filing. The association reported on a meeting last week with Wireline Bureau officials. CTIA supported the board’s recommendation of the use of a national database for determining consumer eligibility for low-income Lifeline support, the filing said. “CTIA urged the Bureau to ensure that establishment of the database is done in a comprehensive manner that accommodates modern communications and addresses issues of waste, fraud and abuse,” the filing said. “Additionally, CTIA urged the Bureau to consider the national scale of the USF low-income programs and avoid a patchwork of 50 separate databases for eligibility without a national aggregation point."

Frontier Communications, which took over Verizon’s lines in 14 states last July, is set to increase rates for its FiOS video products due to rising cost, executives said in an interview. Broadband deployment and other Verizon transaction obligations as well as access revamp will be Frontier’s priorities this year, they said.

The IRS properly assessed AT&T more than $505 million in taxes from universal service payments made to the company because the funds should be considered income and not capital contributions, a three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans ruled last week. AT&T had lost its case on summary judgment at a lower court and appealed, arguing that its money it got from USF was capital contributions that shouldn’t count as gross income for tax purposes. The panel upheld the summary judgment, ruling that under both the relevant statutes and the Supreme Court’s 1973 U.S. v. CB&Q Railroad decision the government’s intentions in handing out the money are determinative. AT&T officials did not respond to a request seeking comment. An FCC spokesman declined to comment. The court’s decision concluded that the transferor didn’t intend the funds to be a contribution to capital, tax expert Rob Willens said. The funds instead were intended to be a supplement to AT&T’s income to compensate it for the lost revenue and increased costs it incurred in serving low-income, high-cost users, he said. Transfer of funds, as the court said, didn’t exhibit the “characteristics” of a contribution to capital as set forth by CB&Q, Willens noted. He said states would also tax these amounts because most, if not all, states use federal taxable income, with certain adjustments, as the tax base.

Interconnected VoIP subscriptions jumped 22 percent to 26 million in 2009, while the number of switched access lines fell 10 percent to 127 million, the FCC said Wednesday in a report on local telephone competition. The number of wireline retail connections fell by 6 percent to 153 million in 2009, the report said. The report may show a decline in the total number of wirelines, but VoIP still relies on wireline broadband connections and many wireless services still rely on wireline facilities, said a spokeswoman for the National Telecommunications Cooperative Association. Policymakers “must make sure that high-cost support mechanisms are available to support the deployment and maintenance of critical network facilities,” she said.