FCC Seeks to Direct USF to Broadband Support

Published December 31, 2009

The Federal Communications Commission is formulating plans to change the Universal Service Fund from supporting just traditional telephone service to also supporting buildout of broadband networks. The FCC also plans to spur broadband growth by offering incentives to private-sector firms instead of concentrating on large, government-directed projects.

Charged by Congress with releasing a National Broadband Plan by March 17, the FCC intends to encourage competition in the private sector, according to FCC spokesman Mark Wigfield. The broadband plan should address “deployment, adoption, affordability, and the use of broadband to advance” public policy goals, he said.

Part of that plan will involve using the USF to support companies providing broadband access in areas where it is economically less viable.

Balancing Interests
But balancing limited resources among those competing for them is a difficult political problem, according to Larry Darby, president of the Washington, DC-based telecommunications consulting firm Darby and Associates. He notes there is fierce competition for government resources among various geographical areas as well as among wireline carriers, telephone companies, cable television operators, and wireless telephone providers.

“It’s hard to balance these priorities,” Darby said. “You’re trying to serve five or six different worthy objectives with a single policy instrument, and the policy scientists tell us that you can’t do that. There’s going to have to be give and take, and that’s what is going on.”

Darby says universal access to telephone service actually has already been achieved and the USF is really being used to keep rates low on traditional voice telephone service. The current debate is over whether the subsidy to telephone service should continue or the USF funding should be redirected to encourage adoption of broadband and wireless access.

Voice Market in Flux
Bartlett Cleland, director of the Center for Technology Freedom at the Institute for Policy Innovation in Lewisville, Texas, says it is vital to understand technology has outgrown the whole idea of universal service and the USF system.

“Holding prices down for wireline service—or any mode of service, for that matter—discourages new entrants into the marketplace,” Cleland said. He notes consumers are becoming more willing to drop wireline service when the monthly price for wireless telephone service is only a few dollars more.

He says that trend indicates universal wireline access is not as valuable as it was before the recent rapid advancements in wireless technology.

USF Seen as Outdated
Cleland and Darby both point out the Telecommunications Act of 1996, which established the $7 billion federal USF, covers overlapping technologies, which in itself indicates it’s out of date.

“The states determine eligibility to receive federal USF support,” said Cleland. “In addition, many states have their own universal service programs for low-income residents, and half have programs for local phone companies that provide service in ‘high-cost’, usually rural, areas.”

“Both the federal and most state USF funds are in need of review, overhaul, and phase-out,” he argues.”Total federal universal service spending increased from $1.8 billion in 1997 to $6.5 billion in 2005. Much of the increase is due to regulators’ efforts to transfer subsidies from ‘hidden’ carrier charges to ‘explicit’ fees and funds.

Cleland added: “This is little comfort if it brings no added accountability or limits. And the system is rigged to grow out of control.”

Pining for ‘Free Money’

“One of the things economists agree on is there is an unlimited demand for free money,” Darby said. “So all of the potential providers in these rural areas wanted to be declared Eligible Telecommunications Carriers (ETC), which permits them to draw subsidies from the USF.”

To illustrate the problem of allocating the USF, Darby suggests a likely scenario.

“Suppose you have an area where there’s both cable and telco service but there’s no wireless service,” Darby said. “Is the wireless provider eligible to be an ETC and draw down on the fund there?”

Alternatively, other geographical areas without wireless service or with only wireline carriers can make a strong case to receive funding priority for broadband.

Those unresolved questions make for a heated debate over money, Darby says.

“Should you use this money to provide broadband to people who already have a wireline carrier or two, or do you use this money to underwrite a wireless carrier to provide a second or third path in other areas? There is no national policy on that,” Darby said. “That is a part of the current debate, and it’s very hotly contested,” he added.

Dumping the USF
Cleland points to the negative technological, economic, and political costs of continuing to support the USF, suggesting the program has outlived its usefulness.

“Subsidizing high costs reduces incentives to develop and deploy low-cost technologies,” Cleland said. “It is unfair to expect some people, who are not necessarily well-off themselves, to pay more so that others—who are, perhaps, very well-off—may pay less.”

Loren Heal ([email protected]) writes from Negoa, Illinois.