FCC proposes major overhaul of Universal Service Fund, Inter-Carrier Compensation Systems
Perhaps inspired by the protesters in Egypt demanding the end to an outdated, bloated, aging, inefficient, and economically unsustainable regime, the FCC has finally taken up the task of systemic reform of the Universal Service Fund (USF) and Inter-Carrier Compensation (ICC). These two mechanisms – one a product of the 1996 Telecom Act and the other a result of the break-up of the Bell System back in the ‘80s – allocate billions of dollars in telecommunications charges and revenues among carriers. As with many grand failures, these systems were well intended. They were designed to compensate carriers fairly for routing traffic to and from each other, while also providing transparent subsidies to carriers who provide service in “high cost” areas.
Virtually everyone agrees that the systems do not accomplish their intended purposes either fairly or efficiently. But because there are so many parties that benefit one way or another – to the tune of billions of dollars – from the existing system, the FCC has been paralyzed for over a decade in its efforts to effect meaningful reform. Now, flying the pennant of the National Broadband Plan (NBP) in which reform of these mechanisms was called for, the FCC has launched a top- to- bottom overhaul of the two systems. The Commission’s original NBP action agenda called for these reforms to be initiated by the fourth quarter of 2010, but in the glacial scheme of action in Washington, a three-month delay counts as on-time.
The full text of the catchily-titled “Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking” has just been released. It weighs in at a hefty 289 pages – which explains why we haven’t sifted through it in detail yet. (We plan to do so shortly and will report on our findings, of course.)
But from what we have read already, the outlines of the proposal look very promising.
- The current system permits redundancy by funding multiple providers of basic service when one provider would be enough. The reform would eventually eliminate that problem by designating, based on reverse auctions, a single recipient of the USF support in any particular geographic area. That process should encourage providers to ask for the least amount of support they need to actually provide the required services.
- The current subsidy system does not establish incentives for some providers to operate efficiently. The reform will impose limits on reimbursement to address that problem.
- There will be a measured transition to the new scheme to avoid disruption of current structures. Expect major battles over how long the transition will be, since subsidy recipients will have to have the subsidies pried from their fingers.
- The Universal Service Fund will be re-dubbed the Connect America Fund in keeping with its new role in achieving the universal availability of broadband. This will require defining broadband for the first time as a supported service and repurposing current funding mechanisms toward broadband rather than plain old voice.
- Several of the different USF support programs will be consolidated or eliminated to reduce overlap.
- The ICC scheme will be revised to eliminate incentives for carriers to game the system by artificial arbitrage arrangements such as traffic pumping and phantom traffic.
- The new ICC regime will recognize IP-based telecommunications as the wave of the future and the system will recognize such traffic while eliminating artificial incentives to maintain legacy networks.
- The interplay between state and federal regulation of ICC will have to be rationalized. Some federal pre-emption of the field may be called for where permitted by the Communications Act.
- Workshops will be held to get input from the public on the issues. (Workshops are for some reason beloved by the Democrats on the Commission, though to us they often seem like an extremely inefficient way to gather data.)
Make no mistake: the task ahead is truly herculean (and here we’re thinking in particular of the Augean Stables). All of the entrenched interests which have so far barricaded themselves against change will be stacking their sandbags and summoning legions of lobbyists to their aid. But at least the battle is now joined.