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Universal Service Reform and Universal Broadband
On January 29, 2008, the Federal Communications Commission (FCC) released three Notices of Proposed Rulemaking (NPRMs) asking for public comment on reforming the Universal Service Fund (USF) and recommendations made by the Federal-State Joint Board on Universal Service (Joint Board) in November 2007. The Joint Board’s proposal includes a recommendation that the current definition of services supported by the federal USF be expanded to include high-speed, broadband Internet access. In doing so, the Joint Board explicitly said the nation's communications goals should include achieving universal availability of broadband Internet services at affordable and comparable rates for all rural and non-rural areas.
One of the FCC’s NPRMs seeks comment on the Joint Board’s recommendations while another seeks comment on whether the FCC should employ a pilot program -- and, specifically, a pilot program to disburse high-cost support targeted to broadband Internet access services -- to test the use of reverse auctions as a method for distributing high-cost support and adopt a pilot program to replace the current high-cost support received in a particular area. Public Comments are due on April 17, 2008. Reply comments are due on May 19, 2008. (WC Docket Nos. 05-337, 96-45, FCC 08-4) Below is a recap of the Joint Board’s recommendations concerning broadband and information about how to participate in the FCC’s proceeding.
A New Broadband Fund
The Joint Board envisions the FCC creating a new Broadband Fund tasked with:
- funding construction of facilities for new broadband services to unserved areas,
- facilitating construction to enhance broadband service in areas with substandard service and;
- continuing operating subsidies to broadband Internet providers serving areas where low customer density would suggest that a plausible economic case cannot be made to operate broadband facilities, even after receiving a substantial construction subsidy.
The Joint Board suggests capping the Broadband Fund at $300 million/year. Funds would be generated in savings from a transition away from current USF programs aimed at supporting telephone service in high-cost (mainly rural) areas.
States would administer Broadband Fund grants which would be distributed and audited by the Universal Service Administration Corporation (USAC). The Joint Board does not propose a specific algorithm for the state allocations. However, it suggests that a major input factor should be the number of residents of each state who are unable to purchase terrestrial broadband Internet service at their residences. And, before awarding grants for construction, states would be required to develop and publish detailed maps of their unserved areas.
The Joint Board also recommends that the FCC consider state matching funds to leverage federal monies. Each state would be entitled to base funding for expanding the geographical areas with available terrestrial broadband service. States could receive supplemental funding when they generate matching funds.
The Transition
The Joint Board recommends that high-cost universal service support in the future be delivered through three distinct “funds,” each with separate distribution mechanisms and separate funding allocations: 1) The Broadband Fund referenced above; 2) The Mobility Fund to support infrastructure buildout for wireless voice services in unserved areas; and 3) The Provider of Last Resort (POLR) Fund to support wireline carriers who provide this function. These three funds would operate within an overall funding cap of $4.5 billion/year with the Broadband Fund capped at $300 million and the Mobility Fund envisioned to receive $1 billion/year. The primary objective of the Mobility and Broadband Funds would be the expansion of geographic coverage, and support from these funds, the Joint Board recommends, should be targeted for capital spending for new construction in unserved areas.
Support under existing programs would be transitioned over a period of years to the new three-part funding structure. Part of the aim of the three separate funds is to eliminate much of the current duplication of support by ultimately providing support to only one wireline, one wireless, and one broadband provider in any given area, once the transition is complete.
The Joint Board identified five current support mechanisms for high-cost areas: 1) High Cost Loop Support, 2) Interstate Common Line Support, 3) Interstate Access Support, 4) Local Switching Support, and 5) High Cost Model. The Board recommending capping each of these support mechanisms at their 2007 spending levels during a transition period of undetermined length.
The Joint Board identifies several possible changes to existing legacy programs, including:
- gradual elimination of the “identical support rule”;
- applying a rates test as a condition or an adjustment to cost-based support;
- considering carriers’ costs on a comprehensive basis, as opposed to separate programs for loop and switching costs;
- considering unregulated revenues in calculating carriers' need for support;
- making the Local Switching Support mechanism more sensitive to high costs; and
- providing more limits on support for operating expenses.
If all of these potential savings from legacy programs are examined seriously and promptly, the Joint Board concludes, potential savings could be significant. Together with the possibility of stretching federal dollars with state matching funds, the Joint Board believes that adequate funding can be provided for the Broadband Fund and the Mobility Fund without unduly burdening the customers who must pay USF contributions.
“Fighting a Bear with a Fly Swatter”
The Joint Board recognizes that the FCC must modernize the USF for the digital age and extend broadband’s reach to those who can benefit most, a national goal voiced by President Bush in 2004. However, the Joint Board’s recommended decision may fall short in providing the resources needed to meet the nation’s broadband challenge.
FCC Commissioner Michael Copps, a member of the Joint Board, indicated that the $300 million a year proposed by the Joint Board misses the mark. If the broadband deployment cost is estimated at $1000 per line (a potentially low estimate), a $300 million per year fund would add a maximum of 300,000 more broadband connections -- increasing the nation’s penetration level by only about 1 percent. “That’s like fighting a bear with a fly swatter,” Commissioner Copps said at the time of the Joint Board’s decision.
The National Exchange Carrier Association (NECA), an association of local telephone companies, estimates the challenge as much bigger than the $300 million the Joint Board proposes. NECA estimates the additional investment cost of upgrading 5.9 million rural telephone access lines to 8 mbps -- a level capable of delivering voice, video, and data to rural customers -- is $11.9 billion. Adding operating expenses, overhead expenses, and depreciation expenses, plus a return on investment, translates into a $3 billion annual revenue requirement, as estimated by NECA. Such a number can only be offset, if we transition the fund from analog to digital support.
Recovering the extra $3 billion a year, the amount NECA estimates broadband upgrades will cost on a going forward basis, would increase universal service contributions only by an estimated 50 cents to a dollar per month for USF contributors. However, these increased costs can be negated and avoided through a simultaneous reduction in analog telephone USF support, an expansion of broadband competition, and increased subscriber revenue to the broadband provider (from the availability of triple play services), combined with other policy measures. Together such measures could substantially reduce or even eliminate the need for increasing USF support payments while also facilitating the build-out of the nation’s broadband communications networks.
Expanding USF, Controlling Costs and Strengthening Rural Providers
Merely extending universal service support to broadband, without a commensurate decrease in analog support, could indeed increase costs to consumers who can’t afford to pay more. Instead, broadband support should be phased in over a limited timetable while phasing out support for analog service, spurring new competition, and enabling providers to offset the increased cost through increase subscriber services like the addition of voice over Internet Protocol (VoIP) and video to their broadband offerings. In fact, continued subsidization of outdated analog technologies may create disincentives for the digital transition policymakers seek to accelerate. As the US has done with digital television, the goal must include not only a transition to newer better digital services, but must also include a plan for moving away from older and limited analog services.
A complete transition to digital networks is not only essential for the economy and consumers, it is essential for the future financial success of rural telephone companies as well. It is becoming increasing apparent to providers that IP communication provides a better form and more efficient communications network. IP can cost less; enable voice, video and multimedia; provide high-value services such as presence and instant messaging; and enables higher-quality wideband speech. For digital phone services, it can enable new features not possible in today’s outdated analog phone network. Nearly 90 percent of broadband-enabled phone service early adopter households claim the same or better voice quality and service reliability than traditional landline service.
Where’s the Link to the 21st Century Lifeline?
The Joint Board recommendation could, if properly funded, do a great deal to build broadband infrastructure in unserved areas, but may do little to meet the 21st communications needs of low-income consumers. Although the Joint Board recommends expanding the list of supported services, it does not intend that a carrier must offer all supported services (voice, mobility, and broadband) in order to receive any high-cost support. As envisioned by the USF’s Low Income Program funds could not be used by low income households that could greatly benefit from high-speed Internet connections.
Filing Comments
Interested parties may file comments with the FCC 30 days after publication of this the Notices in the Federal Register, and reply comments 30 days thereafter. Comments may be filed using: 1) the Commission’s Electronic Comment Filing System (ECFS), or 2) by filing paper copies.
Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/
For further information regarding this proceeding, contact Ted Burmeister, Attorney
Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau at (202) 418-7389, or theodore.burmeister@fcc.gov, or Katie King, Telecommunications Access Policy Division, Wireline Competition Bureau, (202) 418-7491, or katie.king@fcc.gov
Notes
1. High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking, WC Docket No. 05-337; CC Docket No. 96-45, FCC 08-22 (Joint Board Comprehensive High Cost Recommended Decision Notice)
(http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-22A1.doc).
High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking, WC Docket No. 05-337; CC Docket No. 96-45, FCC 08-4 (Identical Support Rule Notice)
(http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-4A1.doc).
High-Cost Universal Service Support; Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking, WC Docket No. 05-337; CC Docket No. 96-45, FCC 08-5 (Reverse Auctions Notice)
(http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-5A1.doc).
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2. USF is a subsidy program that mainly provides affordable phone service to people who live in rural areas and low-income households, and discounts Internet connections for school, libraries and rural health care providers.
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3. Two bills are currently moving through Congress that would require mapping of available broadband service. The Broadband Census of America Act of 2007 (H.R. 3919) would provide state entities with funding to collect data and create a national map that would depict to the 9 digit zip code or census tract level -- all public and commercial broadband service providers, the types of technology used and bandwidth tiers available in each area (see http://www.benton.org/node/6019). The Broadband Data Improvement Act (S. 1492) would also mandate the collection of broadband availability and subscribership data, and authorize grants to state non-profit, public-private partnerships in support of efforts to more accurately identify barriers to broadband adoption throughout a state (see http://www.benton.org/node/6206).
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4. The Joint Board notes that, in some cases, it may make economic sense to provide ongoing support for operation and maintenance of an existing network. However, over the longer term, the Joint Board anticipates that Mobility and Broadband support for operation and maintenance will only be available for a limited period of time. The Joint Board recommends that the Commission request comment as to the appropriate transition plan to wean a provider from Mobility or Broadband support once the objectives of geographic coverage in an area have been met.
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5. The areas to support with Broadband Fund and Mobility Fund awards will be determined by state commissions, and are likely to differ geographically from the areas used for granting POLR support, the Joint Board predicts.
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6. For more on the current support mechanisms for high-cost areas see Appendix A.
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7. The Joint Board notes that the rule has resulted in the subsidization of multiple voice networks in numerous areas and greatly increased the size of the high-cost fund. High-cost support has been rapidly increasing in recent years –- to almost $1 billion -- due to increased support provided to competitive ETCs. These carriers receive high-cost support based on the per-line support that the incumbent LECs receive rather than the competitive ETCs' own costs. The rule, the Joint Board finds, bears little or no relationship to the amount of money competitive ETCs have invested in rural and other high-cost areas of the country. The Joint Board concludes "it is no longer in the public interest to use federal universal service support to subsidize competition and build duplicate networks in high-cost areas." [emphasis added]
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8. In some areas, the combination of universal service support and funds from other mechanisms such as pools, high intrastate access charges, and average schedule reimbursement may produce very low consumer rates.
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9. Turner, Derek. Broadband Reality Check II. Free Press. August 2006.
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10. National Exchange Carrier Association. The Packet Train Needs to Stop at Every Door. June 2006.
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11. According to a March 2006 survey by Telephia.
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12. The Low Income Program has three components designed to ensure that quality telecommunications services are available to low-income customers at just, reasonable, and affordable rates: 1) Lifeline support reduces eligible consumers' monthly charges for basic telephone service, 2) Link Up support reduces the cost of initiating new telephone service, and 3) Toll Limitation Service support allows eligible consumers to subscribe to toll blocking or toll control at no cost.
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