Financial analysts: Large carriers will recommend cost model for broadband Universal Service program

A broadband universal service reform proposal from six of the nation’s largest telcos expected later this week will recommend using a cost model to determine the maximum level of support for high-cost areas, said Stifel Nicolaus analysts. The proposal also envisions the use of a reverse auction to award funding, but only if the incumbent carrier declines to provide broadband service at the calculated support level.

Other key elements of the expected proposal, according to the Stifel Nicolaus analysts, include:

• Reducing terminating intrastate access charges over the next two years to interstate levels and then reducing terminating charges to $.0007 per minute over the following three years.
• Assessing access charges on VoIP calls at the level of interstate access charges or reciprocal compensation rates “depending on the carrier and/or the circumstances” before being reduced to $.0007 along with other voice traffic.
• Creating an access charge replacement mechanism for rural telcos, in part by enabling local phone service rates to rise to $25- $30 a month, by increasing the subscriber line charge, and from additional USF support. Verizon and AT&T (and perhaps some other large carriers) would not receive the additional USF support, nor would CLECs or wireless carriers.
• Keeping high-cost USF at current levels, including keeping rate-of-return carriers at their current levels.
• Phasing out high-cost support for wireless carriers and shifting much of that funding toward high-cost areas where the incumbent is one of the larger telcos.
• The proposal is expected to have the backing of Verizon, AT&T, CenturyLink, Frontier, Windstream and FairPoint, the Stifel Nicolaus analysts said. The US Telecom Association also was involved in creating the proposal, according to the analysts.