In a surprise to no one, the FCC has adopted the Joint Board’s recommendation to cap high cost support to competing service providers in an effort to slow the rapid growth of funds needed to support these carriers.  Veteran USF observers will recall that almost a year ago, the Joint Board recommended this step, urging the FCC to act swiftly on the proposal.  But as we have seen, it takes monumental energy to change even slightly the $4 billion per year momentum of that subsidy program – or any subsidy program.   Briefly, the Commission decided (after getting the late support of Commissioner McDowell) that LECs could continue to receive massive high cost support subsidies (amounting to about three-fourths of the total funding) but competing carriers (primarily wireless operators who contribute most of the money to the fund) should be capped at the funding levels of this spring.  Because these are the newest recipients of USF funds, the FCC said, they are the ones causing the alarming growth in the funding requirements.   The FCC did grant ETC (eligible telecommunications carrier) status to dozens of new carriers in new geographic areas, but these ETCs will now have to divide the existing funding pie among themselves rather than simply getting a subsidy based on their subscriber numbers and the subsidy level of the LEC in their market, as in the past.  The capped funding level is measured on a state-by-state basis so that state PUCs do not have an incentive to grant ETC designations quickly in order to increase their state’s carriers’ percentage of the national pie.

The Commission did deviate slightly from the Board’s recommendation as a sop to the new entrants.  First, it set the cap at March, 2008 levels rather than the 2006 level sought by the Board.   This establishes a somewhat bigger pie to be shared.  Second, the Commission excused CETCs from the cap if they file their own cost support data like incumbent LECs do.  This escape valve had been provided to ALLTEl and AT&T in previous ad hoc orders, so it was to be expected here.  Second, it excepted carriers serving tribal lands or Alaska Native regions from the cap, ostensibly because the services provided by CETCs are less redundant in those areas than elsewhere.

Because the FCC action rather dramatically favors wireline carriers over non-wireline carriers in a realm that is supposed to be technology-neutral and competitively balanced, reconsideration petitions and/or judicial appeals are a virtual certainty.   Though the FCC pledged itself to timely action on permanent reform of the USF process, would anyone care to bet that this temporary “interim” cap will not still be in place three years from now?