Little Support for Big Cable's USF Reform Proposal

Last week a number of commenters weighed in on the National Cable and Telecommunications Association proposal to overhaul the federal Universal Service Fund by establishing procedures for reducing the amount of universal service high-cost support provided to rural rate of return carriers (RLECs) in areas where NCTA claims there is extensive unsubsidized facilities-based voice competition.

The National Exchange Carrier Association (NECA), which administers the revenue pool among its members for access provided to long distance carriers, filed comments opposing NCTA's petition for a rulemaking, arguing that NCTA appears to have overstated the extent to which cable telephony services are actually available in rural areas and that the supposed benefits of NCTA's approach are illusory and far outweighed by the harms it would cause.

A coalition of rural incumbent local telephone companies also opposed NCTA's petition. First and foremost, NCTA's two-step process and the standards it establishes, the companies write, should be rejected because it does not meet the requirements of Section 254 of the Act. Section 254 demands that rural areas should have access to telecommunications services at rates reasonably comparable to urban areas. Yet, if the only voice offering is a cable VoIP service, which the Commission has found is not a telecommunications service, subject to the obligations of telecommunications service providers, the requirements of the Act cannot be met. Similarly, NCTA's first-step criteria for determining which areas meet the threshold for reducing or eliminating high cost support fail to meet the standard of the Act and should be rejected. First, as the Act requires service to all consumers, not just 50% or even 75%. Second, a state-made finding that an ILEC's rates no longer need to be regulated does not equate to a finding that consumers will continue to have access to telecommunications services reasonably comparable to those in urban areas and at reasonably comparable rates, or that the state has found effective competition.

The United States Telecom Association also suggests the FCC reject the petition and focus, instead, on comprehensive reform of the high-cost universal service system.

The National Telecommunications Cooperative Association says the petition, if adopted, would halt deployment of broadband facilities in many high-cost rural areas, increase retail broadband prices in these areas significantly, and harm the affordability and comparability of broadband services to many consumers living in these areas indefinitely.

Small cable operators, represented by the American Cable Association (ACA), agrees with the underlying premise of the NCTA Petition that High-Cost funding in competitive areas should be reformed to eliminate inefficiencies. While the NCTA proposal applies equally to all carriers receiving universal service support, in contrast, the ACA believes it is necessary to strike a balance between the need to improve the efficiency of the fund with the objective of ensuring a fair opportunity for smaller, potentially more vulnerable providers. Thus, a primary difference between the ACA proposal and the NCTA proposal is that the ACA's proposal allows for small carriers of 100,000 lines or less to continue to draw from the fund as they do today. While reform is obviously necessary, the FCC should proceed cautiously as it relates to small service providers, as the ACA did by including the 100,000-line exemption in its proposal.

The Rural Cellular Association said that NCTA's approach would create a host of problems. The Universal Service for America Coalition, which consists of four of the nation's leading rural providers of wireless services, says NCTA asks merely whether any non-Eligible Telecommunications Carriers ("ETCs") serve 50% to 75% of consumers in the area or whether the state has deregulated the incumbent local exchange carrier's retail rates rather than asking whether consumers in a given area have access to reasonably comparable services at reasonably comparable prices. Because of this the petition fails to consider:

1) Whether the non-ETC serving a rural, insular, or high-cost area does so by relying upon implicit subsidies, which Congress and the FCC have recognized should be eliminated in favor of explicit and transparent subsidization; or, more importantly,

2) The potential impact on consumers that would result from the elimination of explicit support for serving the area.