Expansion of Universal Service Fund Debated

Published July 1, 2009

A subcommittee of the House Energy and Commerce Committee is contemplating legislation to require that the Universal Service Fund add broadband services to its mandate to provide telecommunications services to unserved and underserved areas.

Congress should “future-proof” the USF, declared the subcommittee’s chairman, Rep. Rick Boucher (D-VA), at a key hearing in March, “by requiring that all recipients offer broadband at preset minimum speeds to receive support.”

That statement, experts say, shows how Congress is groping with how to rescue what is largely considered one of the Federal Communications Commission’s most troubled programs in a new technological age.

Meanwhile, President Barack Obama has tapped FCC member Jonathan Adelstein, a South Dakota native, to head up the Rural Utilities Service—an agency that was just handed billions to spend under the stimulus bill.

Future of the USF

Experts are skeptical about Congress reforming or streamlining the USF to make it as effective as promised.

“Political reality will not allow for abolishing the USF or any related programs designed to ‘subsidize’ rural areas, poor consumers, and others with political stroke in Congress,” said Joseph P. Fuhr, a professor of economics at Widener University in Chase, Pennsylvania. “The same is true about making USF programs more efficient and effective.

“What needs to be done is less relevant than what can be done, given political realities,” Fuhr added. “Economists favor reverse auctions, vouchers, and direct transfers to consumers rather than corporate agents on their behalf. But the politics are such that only second-best solutions are feasible.”

Spending Blind

Fuhr also said the stimulus package, which is funding the RUS, is characteristic of current political reality. Congress required the FCC to come up with a national broadband policy while also allocating more than $7 billion to the RUS and charging the National Telecommunications and Information Administration with answering a long list of political and policy-intensive questions, such as “What is broadband?” and “What is an unserved area?”

Fuhr said it’s best to let markets handle broadband deployment in rural communities.

“The opportunity is there and has always been for markets to serve rural areas,” Fuhr said. “And, given time, they will do so—just as they brought wireline phones to most communities.”

Questioning USF’s Value

Steve Titch, a telecom policy analyst for the Reason Foundation in Los Angeles, notes the broadband funding from the stimulus package is a onetime event whereas the USF is funded at about $7 billion annually—primarily as monies from urban firms subsidize the rural companies. But those funds subsidize older, less-efficient technologies.

“Where’s the benefit from [previously invested] USF funds?” Titch asked.

The better approach to rural broadband development was suggested but summarily dismissed in the stimulus debate and congressional hearings, according to Fuhr: tax relief, tax credits, tax forbearance, regulatory restraint on network builders, and other ways to offset the enormous capital cost and risk of broadband investment in rural areas.

“As a practical matter, those are the only ones that will work in the long term,” Fuhr said. “Governments are schizophrenic in the attitude toward broadband. On the one hand they tax broadband-providing networks at twice the average for other services, while also subsidizing construction of such networks.

“It’s inconsistent, but it’s government at work,” Fuhr said. “[G]overnment financing the entire broadband buildout, as suggested by some administration advisors, will not happen.”

Phil Britt ([email protected]) writes from South Holland, Illinois.