Proposed USF reforms could threaten small telcos

Proposed reforms to the Universal Service Fund -- expected to be part of the National Broadband Plan next week -- are a mixed bag for small telephone companies.

On the plus side, the small telcos stand to gain one critical goal that they and others have been asking for -- support for broadband network deployment. The Federal Communications Commission plans to transition today's voice-based high-cost fund to a new fund, dubbed "Connect America" with the goal of bringing broadband to 99% of Americans by 2020 (although exact broadband speeds have not yet been revealed.) Small wireline telcos also will be pleased to learn that the FCC wants to phase down high-cost USF support for the competitive eligible telecommunications carriers that have caused the high-cost fund to grow in recent years.

But winnowing down the number of carriers receiving USF funding also poses a threat to small incumbent telcos. As anticipated, FCC officials said the new broadband fund will cover only one provider of fixed broadband services -- which could be fiber-based or fixed wireless -- in a geographic area. And there's no assurance that the incumbent will be that carrier.