Boucher bill boosts boatloads of big bucks for broadband build-out in boondocks
One more element has been added to the full-court governmental press aimed at extending broadband to as many people as possible: a bill recently introduced in the House would reform the 13-year-old, multi-billion dollar Universal Service Fund (USF). The proposal would (among other things) explicitly declare high-speed broadband to be a “universal service” and, therefore, eligible for subsidization from the USF – thus freeing up boatloads of big bucks for broadband build-out in the boondocks. Dubbed the “Universal Service Reform Act of 2010”, the bill is a bipartisan effort sponsored by Reps. Rick Boucher (D-VA) and Lee Terry (R-NE).
The USF was created by the 1996 Telecom Act, but its roots go deeper than that – back at least to 1934, when the FCC was born. The U.S. has sought to assure that every American has access to essential telecommunications services. Historically, such services have entailed mainly standard old telephone service. Putting the consumer’s money where the government’s mouth is, the 1996 Act provided for the establishment of a fund (the USF) to be used to subsidize the provision of affordable telecommunications services in certain circumstances.
USF subsidies go to: (a) “high cost” areas, mainly rural and sparsely-populated in nature, where delivery of service could otherwise be prohibitively expensive; (b) low income consumers in need of basic local phone service; (c) rural health care providers for both telecom and Internet services; and (d) schools and libraries, to assure access to various telecommunications services. Subsidies for each of these groups are managed by separate divisions within the Universal Service Administrative Company, the non-profit corporation established to oversee the day-to-day operation of the USF. (The USF gets its funds from telecommunications providers, who in turn get the funds from their customers.)
The Boucher-Terry bill focuses primarily on the USF program for delivering telecom services to “high cost” areas.
The existing patchwork of USF “high cost” programs is in many ways irrational, overly complex, and inefficient. For example, eligibility for certain types of support is based on company size or regulatory classification rather than on the costs of serving the area. Furthermore, the USF now supports carriers generally on the basis of their actual costs of providing service, whether or not they or someone else could have done it for less.
Although many aspects of USF are ripe for reform, its most egregious shortcoming, in the eyes of many, is clearly its failure keep up with technology – i.e., to fund broadband. (The current “high cost” program supports only voice service.) Significantly, in this post-Comcast regulatory environment, the Boucher-Terry bill would address that conundrum by giving the FCC express authority to direct USF funds to broadband services.
Would consumers have to pay more for the proposed changes? The bill mandates that any reforms will not “unreasonably” increase the contribution burden on consumers (i.e., the line item charge for USF that appears on your phone bill). To make this mandate mathematically possible, the bill would reduce support to certain carriers, expand the contribution base, and perform other feats of legislative legerdemain designed to balance the fund with the greatest of ease. Nonetheless, consumers may not feel entirely reassured by the guarantee that rate hikes will not be “unreasonable.”
The following is a recap of some of the bill’s key provisions.
Broadband service funding. High-speed broadband service would be deemed a “supported service”. The catch here is that, in areas lacking high-speed broadband service, recipients of support from the “high cost” USF program would have tomake broadband service available within five years (either through their own facilities or through resale, including satellite resale). The bill would also allow the FCC to expand the universe of “supported services” down the line, so it won’t get stuck again as technology develops.
Reduced funding for incumbent carriers in competitive areas. The FCC would be required to develop a mechanism for reducing support to incumbent local exchange carriers in areas where at least 75% of households are able to get voice and broadband service from an unsupported competitor.
Competitive bidding for mobile wireless carriers. In an area with three or more qualified mobile wireless carriers, the FCC would have to pick no more than two applicants, using a competitive bidding process similar to that for a government contract. Primary factors would be the amount of the bid and the proposed minimum broadband speeds, but the Commission could consider other things, like existing service area and proposed speed of build-out. Winning bidders would receive a flat-rate subsidy for up to 10 years. In areas with fewer than three mobile wireless carriers, support would continue at the per-line level in effect before enactment. Furthermore, overall high-cost support to mobile wireless providers would be capped at the pre-enactment level.
Wider contribution base. Any provider that “offers a network connection to the public”, including Internet service providers, VoIP providers, and cable companies, would have to ante up. The FCC would be required to devise a new contribution calculation methodology, which could be based on (a) revenues, (b) telephone numbers and IP addresses, or (c) a combination of the two. To broaden the base even further, intrastate revenues (which are excluded under the current system) would be included in the contribution base, along with international and interstate revenues.
A new “high cost” model. The FCC would have to develop a new model for distributing “high cost” support that would factor in the costs of providing both voice and broadband service. The new model would determine these costs on a study area and wire center basis. Current rate-of-return carriers, however, would continue to receive rate-of-return support.
Intercarrier compensation. Intercarrier compensation reform (ICC) would be left to the FCC, which would have a year to complete an initial proceeding. To facilitate the FCC’s chore, the bill would extend the Commission’s ICC authority to intrastate traffic.
Miscellaneous. In addition to the foregoing high profile item, the bill would also: strengthen auditing; prohibit “phantom traffic” and traffic pumping; address rural health care support; and eliminate the “parent trap” affecting support after the sale of an exchange; carve out an exemption from the Anti-Deficiency Act; prohibit the FCC both from adopting a primary line restriction and from reducing high-cost support to tribal lands unless in the public interest.
Note for carriers interested in Lifeline-only designation. With respect to the “Lifeline” USF program – which focuses on service to low-income consumers, not “high cost” areas – the bill would codify the Commission’s TracFone line of forbearance cases by formally exempting Lifeline-only carriers (i.e., resellers) from the “own facilities” requirement of 47 U.S.C. §214(e)(1)(A). Boucher has also indicated a willingness to include Lifeline funding for broadband, which already been proposed by at least one other Representative.
Possible additions to the bill. Of course, we are at the very beginning of the legislative process which can drag on for a while, with plenty of opportunity (and incentive) for amendments along the way. For example, Boucher is apparently willing to work with Rep. Ed Markey (D-MA) on including his E-Rate proposals, such as broadband vouchers for students and supported access for community colleges and head start programs. More amendments can be expected.
Meanwhile, the FCC is also trying to overhaul the USF on its own. Chairman Genachowski has reiterated the Commission’s commitment to do so. In connection with the National Broadband Plan unveiled with considerable fanfare earlier this year, the FCC adopted a Notice of Inquiry and Notice of Proposed Rulemaking (NPRM) aimed at jumpstarting that overhaul process at the Commission level. While the FCC’s authority, under the current Communications Act, to achieve its ambitious goal is far from clear, the Commission has at least one important cheerleader on Capitol Hill. In a recent letter to Genachowski, Sen. Jay Rockefeller (D-WV) – who happens to be the Chairman of the Senate Committee on Commerce, Science and Transportation – has urged the FCC to focus more on unserved areas than on “the size and regulatory classification of the carrier.” Rockefeller’s letter was in response to a mining disaster in West Virginia and makes no mention of the Boucher-Terry bill (which would retain rate-of-return regulation for current RoR carriers).
Will the bill pass? Boucher and Terry have been working on enacting USF reform for many years, but Boucher is optimistic about this bill’s chances of passing, perhaps even this year. His optimism is based at least in part on the fact that a wide cross-section of the communications industry – including AT&T and Verizon, ISPs, cable, satellite, and rural telcos – has expressed support for the bill. Many mobile wireless providers, however, have stopped short of fully endorsing the bill because of concerns about its proposed bidding procedure.
Still, many players share Commissioner McDowell’s overall assessment of the current regime as “antiquated, arcane, inefficient, and just downright broken” and agree that the bill is a desirable first step toward comprehensive change. It proposes some long-overdue changes and attempts to balance various carriers’ interests, but leaves many contentious details to the FCC. We’ll keep you posted as the USF reform saga continues.