Flawed USF white paper based on faulty assumptions about fund mechanics

Representatives of the National Exchange Carrier Association (NECA), the National Telecommunications Cooperative Association (NTCA), the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO), the Rural Alliance, and the Western Telecommunications Alliance (WTA) refuted inaccurate assertions in a recently released white paper that a substantial portion of federal Universal Service Fund (USF) support goes to discretionary corporate expenses.

They found that faulty assumptions and erroneous calculations led the paper to overstate dramatically the portion of USF that supports such expenses. The paper, “The Universal Service Fund: What Do High-Cost Subsidies Subsidize?,” is based on a review of USF high-cost loop data submitted by NECA to the Federal Communications Commission. It asserts that “of each dollar distributed to recipient firms, about $0.59 goes to ‘general and administrative expenses.’” The associations, however, have identified several faults with the methodology used in — and the conclusion reached by — the paper.

First and foremost, the FCC’s recently released notice of proposed rulemaking observed that corporate expenses account for only 13% of high-cost loop support—not the 59% claimed in the paper. Furthermore, the paper demonstrates a fatal misunderstanding of how expenses are actually supported by USF. Strict application of the paper’s methodology (i.e., correlating any given expense account to federal high-cost loop support) would yield the impossible proposition that in aggregate a single dollar of USF support pays for more than $1.00 of expenses.