FCC Gets Wide Range of Input on USF Reform (updated)

On August 12, the Federal Communications Commission received a ton of comments on modernizing the federal Universal Service Fund (USF) and supporting the deployment of broadband service. Most parties generally support the FCC's objective of reforming its universal service programs and policies to facilitate achievement of the ambitious goal of ensuring universal access to broadband for all Americans. The comments thus reflect a consensus that the FCC should gradually shift the focus of its high-cost support mechanisms away from legacy services to support broadband in a manner consistent with the principles laid out in US telecommunications law. However, that doesn't mean there were no complaints.

AT&T said that it felt it was "shooting in the dark" because the FCC sought comment on the minutiae of the National Broadband Plan's broadband assessment model (BAM) without first providing parties with access to the BAM or explaining whether a model is even necessary to distribute high-cost broadband funding under its yet-to-be created Connect America Fund (CAF), and, if so, why. And, AT&T adds, the FCC sought comment on how to reduce or eliminate legacy high-cost support without explaining whether and how such legacy support will be transitioned to any new broadband-focused mechanism. AT&T asks that the FCC: 1) immediately allow support under the existing, legacy mechanisms to be expended on facilities that support both voice and broadband, as well as by utilizing a competitive application process to disburse project-based funding for broadband; and 2) encourage investment by ensuring that only CAF recipients are subject to service obligations in supported areas, and relieving providers of legacy service obligations as their high-cost support under existing mechanisms is eliminated.

CTIA -- the lobbying arm of the wireless industry -- said the FCC has correctly recognized that the universal service system is on an unsustainable path, and currently ill-designed for supporting reasonably comparable mobile and broadband services for rural Americans. Reform is therefore urgently needed, and will require tough decisions to be made regarding changes and transition plans. The path to reform should begin with consumers, by focusing on the mobile and broadband services they demand. Ultimately, CTIA argues, the FCC's universal service policies must be measured against the National Broadband Plan's goals of ubiquitous mobile broadband, so the FCC must ensure that its short-term and long-term proposals for universal service are designed to achieve those goals. CTIA wants the FCC to commit to developing comprehensive reform and should permit explicitly mobile wireless providers to use existing support for the deployment of mobile broadband services.

The National Cable and Telecommunication Association comments that it is absolutely critical that this transition -- from supporting traditional voice services to supporting the deployment of broadband services to consumers -- be accomplished in a fiscally responsible manner that recognizes that the costs of this program are ultimately borne by consumers. NCTA therefore agrees with the statements of several commissioners that the agency should adopt policies "reforming the Universal Service Fund to support broadband . . . without increasing the projected size of the Fund." Through common sense reforms of the existing high-cost support mechanisms, the Commission can and should ensure that universal service support is used to deploy broadband facilities without placing additional burdens on contributors to the fund. The FCC should not allow the self-interests of current high-cost support recipients to dissuade it from pursuing the reform agenda set forth in the National Broadband Plan. Every year that the reform process drags on represents a windfall for certain companies at the expense of American consumers. Despite their protests, these companies, as well as their investors and lenders, have been on notice for years that universal service reform is coming and they have had ample time to plan accordingly.

Comcast, the largest broadband provider in the US, urges the FCC to: 1) cap the high cost fund at 2010 levels; 2) phase out support for competitive carriers and limit support to only one provider per geographic area, and 3) freeze and gradually eliminate interstate access support and interstate common line support.

CenturyLink, in the process of acquiring Qwest, believes that the FCC should develop a distribution plan that would ensure it does not undermine the progress that has already been made under the current universal service program. By stabilizing current USF receipts, and ensuring a smooth transition to the future, the FCC can better support networks to meet its broadband service goals, CenturyLink argues. The company says the FCC should adopt one funding mechanism for all supported areas in a targeted fashion to better align distribution with underlying economics and eliminate today's uneconomic cross-subsidies from state-wide and study-area-wide averaging. Rural and high cost areas should be funded regardless of the type, size, or regulatory classification of the provider. The FCC should therefore not waste time on adopting proposals that alter current study areas, which may also have unintended consequences to unrelated rules and policies. Furthermore, funding must continue to support networks by delivering support directly to the carriers building and operating the supported networks, rather than to consumers who may or may not purchase the mandated service offering, which would only increase the risk and thus cost of building the supported networks. And the funding mechanism should not take into account extraneous factors that do not affect advancement of broadband universal service goals, such as whether carriers are also providing unsupported services or how they finance their operations.

A large coalition of rural carriers -- led by the National Exchange Carrier Association -- says the FCC's proposal to impose additional caps on existing high-cost support mechanisms without clearly identifying how future broadband mechanisms, such as the Connect America Fund (CAF), will actually work. The coalition says proposals to cap existing funding mechanisms may soon cause many RLECs to experience negative cash flows, jeopardizing both existing and future broadband commitments. To avoid further damage, rural carriers say, the FCC should immediately make clear that changes in existing programs will not be implemented at the present time. The FCC should then direct its full attention to developing a comprehensive plan that includes well-designed broadband support mechanisms that fully incorporate the service and funding objectives of the Telecommunications Act of 1996 and a smooth transition path that will assure affordable, high-quality service continues to be provided to customers without disruption. Such broadband mechanisms need to provide specific, predictable, and sufficient support that achieves reasonably comparable services and rates, as called for in the 1996 Act.

The National Association of State Utility Consumer Advocates and others say the FCC must develop a robust and flexible cost modeling approach. If the FCC develops a "good" cost model, then it will have the ability to address both the typical and atypical issues associated with satisfying the National Broadband Plan's objectives. However, the solution is not to rely on costs only, but to utilize a revenue benchmark. Use of a revenue benchmark would provide all necessary incentives for a carrier to maximize revenues, but will also reduce the amount of support needed. The use of a revenue benchmark would also have the advantage of promoting best practices, i.e., encouraging firms to deploy new services (e.g., video) on their broadband networks. NASUCA also addressed the FCC's proposed 4 Mpbs download/1 Mbps upload speed standard noting commenters who say it will disadvantage rural America, in light of the NBP's long-term goal of delivering 100 Mbps service to 100 million households. NASUCA continues to believe that satellite broadband should be considered as an option for the most difficult-to-serve cases. However, the claims that satellite broadband is the panacea for the nation's broadband problems are questionable. NASUCA does not believe that CAF, which should be focused on support for broadband for residential and small business consumers, should be expanded to also fund broadband buildouts to anchor institutions. Buildouts to anchor institutions should be addressed separately by the FCC.

NASUCA notes there are many, mainly rural, ILECs who advocate for the status quo of implicit support for broadband through rate-of-return regulation and existing universal service support mechanisms. NASUCA does not dispute that ROR regulation provides the regulated firm "incentives." However, there is little evidence that ROR regulation provides a uniform or reasonable incentive structure with regard to the deployment of high-quality and affordable broadband. Thus, regardless of the ultimate disposition of the issue of ROR regulation, the Commission should recognize that, among rural LECs, ROR regulation has led to widely varying results - with many areas served by only the lowest quality broadband services. By creating an incentive structure to deliver broadband, the Commission can improve outcomes and meet the objectives in the NBP. It is clear that "ROR regulation" as administered by the Commission and by the states does not inherently contain the incentive structure that is needed to satisfy the NBP's goals.

The National Congress of American Indians notes that of 150 parties filing comments in the proceeding, only a handful address the challenges faced by Native Americans. For this community, the high cost and Lifeline/Link-Up programs are critical. The commenters urge the FCC to create a Tribal Broadband Fund to encourage broadband deployment on Tribal Lands. The National Congress of American Indians also addresses the spectrum needs of these areas.

The Rural Cellular Association urges the FCC to design new funding mechanisms that are competitively and technologically neutral, that operate efficiently in targeting support to areas that are most in need, that facilitate competition and take account of marketplace success, and that are sufficient to ensure the comparability of services provided to consumers in rural and urban areas. The FCC's proposed 4 Mpbs download/1 Mbps upload speed standard "will ensure universal access, realistically balance the needs of rural consumers against the threat of a ballooning Universal Service Fund, and help to bring advanced broadband services to rural Americans at speeds comparable to those available in urban areas, thereby comporting with notions of regulatory parity." A requirement for higher broadband speeds, RCA cautions, would run the risk that the target would become a means of excluding wireless providers from the reformed Universal Service Fund.