Eighteen months of talks on broad telecom reform paid off with a comprehensive draft incorporating input from all members of the Senate Commerce Committee, Chmn. Stevens (R- Alaska) said Thurs. during opening statements before the bill’s markup. The draft folds in recommended language and in some cases entire bills backed by committee members from both parties, he said. But after starting promptly, the committee abruptly ended markup after only 2 hours. Work resumes Tues.

Correction: The NTCA said in a statement that the FCC should have used its USF order to extend universal service obligations to all broadband providers. The remarks were attributed to NCTA (CD June 22 p2).

Senate Commerce Committee negotiations on a hefty manager’s amendment to pending telecom reform legislation were expected to continue “well into the night and tomorrow,” a committee spokesman told us Wed. The committee is scheduled to markup Chmn. Stevens’ (R-Alaska) 3rd draft of the bill today (Thurs.). Some Hill watchers said the marathon meeting could spill into next week. The broad draft contains hot topics like net neutrality and preemption of state wireless regulation (CD June 21 p1), as well as issues like video franchising and Universal Service Fund (USF) reform.

The FCC Wed. placed universal service obligations on VoIP providers, setting a “safe harbor” of 64.9% of interstate revenue for their payments -- a figure based on the percentage of interstate revenue wireline toll providers report. The FCC also raised the wireless safe harbor from 28.5% to 37.1%. As wireless carriers already can, VoIP operators will be able to submit traffic study data to show they should pay less than the safe harbor percentages. FCC officials declined to comment on whether they will impose new rules on how such studies should be done.

House Commerce Committee Chmn. Barton (R-Tex.) took another swipe at the Universal Service Fund (USF), regaling onlookers at a hearing Wed. with examples of questionable use of USF support by seemingly flush rural telecom companies in Tex. A company in Big Bend, Tex., with 6,000 customers got $9.6 million in USF money, posted a 12.8% return on equity and paid $3 million in dividends to shareholders, he said: “It also runs a hunting ranch to entertain rural phone lobbyists.” A Tex. panhandle company got $2.6 million in federal USF money and “paid back more in dividends than it charged customers,” Barton said: A small telecom operating outside Houston gets “huge subsidies” to serve wealthy customers.

Schools and libraries are lauding Sen. Stevens’ (R- Alaska) telecom bill, saying it finally will legitimize the E-rate fund. The bill, which includes 3 E-rate provisions, is scheduled for markup tomorrow (Thurs.).

With the FCC apparently poised to impose Universal Service Fund (USF) assessments on all voice-over-IP (VoIP) providers this week, cable operators expanding into telephony with IP-based offerings face the unappetizing prospect of having to compete by markedly hiking their rates for those services or cutting into their profit margins.

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.

Decades of the Universal Service Fund contributed to 98% of U.S. households having phone service. This includes 88% of low-income households. But that feat hasn’t come cheaply, especially with the addition of the costly E-rate program that connects schools and libraries to the Internet. During 1998-2005, the USF spent $37.8 billion, according to the National Regulatory Research Institute, which pegs fiscal 2006 USF outlays at $7.3 billion. In fiscal 2006, requests for school and library funding alone will total $3.55 billion to be disbursed among 39,416 applicants, the Universal Service Administration Co. reported (CD March 22 p11).

The Universal Service Fund (USF) has grown more than 50% since 2000, much of the growth in the high-cost program that supports rural telephone companies, the Congressional Budget Office said in a report. Spending on the high-cost program doubled in the past 6 years and could more than double again in the next few years, “depending on the outcome of various legislative and regulatory changes that are under discussion,” CBO said in a report on “Factors that May Increase Future Spending from the Universal Service Fund.” The report was released Tues., a day before CBO Acting Dir. Donald Marron was to testify at a House Telecom Subcommittee hearing on universal service reform. USF outlays grew from $4 billion to $6.3 billion between 2000 and 2005, while revenue grew from $4.5 billion to $7 billion, CBO said. Revenues are a better gauge of the USF’s impact on the economy “since they take into account commitments that have been made but not yet paid for,” the report said. The report attributed much of the growth in the high-cost program to the advent of “cell phone companies that are new competitive entrants to rural markets.” CBO said demands for USF outlays could continue to rise depending on how policymakers treat the increase of competitors in rural areas, intercarrier compensation (ICC) reform and demands for the use of USF money to support broadband connections. The first 2 factors -- a growth in payments to wireless competitors and ICC changes -- could raise outlays by as much as $4 billion a year, CBO said. Increased spending for broadband can’t be measured, the report said, because it probably would result from legislative action “which CBO has no basis for predicting.” Raising the USF contributions fee could drive consumers to services that aren’t subject to USF fees, such as e-mail and instant messaging, the report said. On the other hand, there are several options for curtailing growth of USF spending such as limiting USF support in high-cost areas to one connection per household and basing support on each carrier’s own costs rather than the incumbent’s cost, moves that rural telephone companies have pushed. ICC reform could be structured in a way that would ease the pressure on the USF, the CBO said. Finally, budget pressures caused by speeding the deployment of broadband in rural areas could be eased by funding the new service outside the USF as “part of discretionary spending,” the study said.