Legal Alerts and Articles
FCC Takes First Step Towards Reforming Universal Service Fund
On April 21, 2010, the Federal Communications Commission (FCC or Commission) released a Notice of Inquiry (NOI) and Notice of Proposed Rulemaking (NPRM) soliciting public comment as the first step towards reforming the existing Universal Service Fund (USF) program. The USF program has come under fire in recent years because the USF contribution factor has escalated from under 6 percent in 1998 to more than 15 percent today, and because it does not support broadband services (only voice). Initial comments with respect to the NOI and NPRM are due sixty days from their publication in the Federal Register and reply comments are due ninety days from publication in the Register.
Background
The goal of the USF program has been to ensure that consumers have access to telecommunications services in areas where the cost of providing such services would otherwise be prohibitively high. While the existing system has been successful in facilitating access to affordable voice services throughout the nation, it was not designed to specifically promote access to broadband services.
The Commission’s NOI and NPRM follow on the heels of its March 16, 2010 Joint Statement on Broadband which states that “[t]he nearly $9 billion Universal Service Fund (USF) and the intercarrier compensation (ICC) system should be comprehensively reformed to increase accountability and efficiency, encourage targeted investment in broadband infrastructure, and emphasize the importance of broadband to the future of these programs.” On the same day, the FCC delivered to Congress a National Broadband Plan recommending that the Commission adopt cost-cutting measures for existing voice support and create a Connect America Fund (“CAF”) to support the provision of broadband communications in areas that would be unserved without such support, or that depend upon Universal Service support for the maintenance of existing broadband service.
The FCC’s reform effort is influenced substantially by the National Broadband Plan. The Plan recommends the creation of a CAF to address the broadband availability gap in unserved areas and to provide any ongoing support necessary to sustain service in areas that require public funding, including those areas that may already have broadband. In addition, the Plan recommends that the Commission direct public investment toward meeting an initial national broadband availability target of 4 Mbps of actual download speed and 1 Mbps of actual upload speed. The National Broadband Plan used an initial target of 4 Mbps actual download speed and 1 Mbps of actual upload speed to develop an analysis of the number of people that lack access to broadband capability today. The Plan estimated that 14 million people living in 7 million housing units in the United States currently do not have access to terrestrial broadband infrastructure capable of meeting this target, referred to as “the broadband availability gap.”
The National Broadband Plan states that the Commission’s “long range goal should be to replace all the legacy High-Cost programs with a new program that preserves the connectivity that Americans have today and advances universal broadband into the 21st century.” Specifically, the Plan recommends that the new CAF adhere to the following principles: 1) the CAF should only provide funding in geographic areas where there is no private sector business case to provide broadband and high-quality voice grade service; 2) there should be at most one subsidized provider of broadband per geographic area; 3) the eligibility criteria for obtaining broadband support from the CAF should be company- and technology-agnostic, so long as the service provided meets the specifications set by the FCC; 4) the FCC should identify ways to drive funding to efficient levels, including market-based mechanisms where appropriate, to determine the firms that will receive CAF support and the amount of support they will receive; and 5) recipients of CAF support must be accountable for its use and subject to enforceable timelines for achieving universal access. The Plan also recommends that the FCC create a fast track program in the CAF for providers to receive targeted funding for new broadband construction in unserved areas, and create a Mobility Fund to provide one-time support for deployment of 3G networks, to bring all states to a minimum level of 3G (or better) mobile service availability.
The NOI
In its NOI, the Commission seeks public comment on a range of issues, many of which are related to the National Broadband Plan. Significantly, the NOI highlights the need for comment from insular areas and tribal governments. According to the NOI, “we request comment on whether there are any unique circumstances in insular areas that would necessitate a different approach.” In addition, the NOI states “[w]e encourage input from Tribal Governments on all of these issues, and specifically ask whether there are any unique circumstances in tribal lands that would necessitate a different approach.”
Among other things, the NOI seeks comment on whether the Commission should use the National Broadband Plan model as the starting point for developing a cost model to use in determining future support for broadband-capable networks that provide voice service. Comments are invited on any aspect of the National Broadband Plan. The NOI also seeks comment on whether the Commission should base any new CAF support on the forward-looking economic costs of an efficient provider, rather than on historic embedded costs. Keeping in mind that the plan recommended that funding “be company- and technology-agnostic”, the NOI seeks comment on what technology platforms should be included in the forward-looking cost model if the Commission decides to base broadband support on the forward-looking economic costs of an efficient provider. The NOI also seeks comment on what geographic area the Commission should use in calculating the cost of deploying a network and providing services.
Another area in which the Commission seeks comment is with respect to an expedited process for providing funding to extend networks in unserved areas. Among other things, the NOI seeks comment on the best way to create an accelerated process to distribute funding to support new deployment of broadband-capable networks in unserved areas during the period that the agency is considering final rules to implement fully the new CAF funding mechanism. In addition, the NOI seeks comment on whether some form of competitive procurement auction would be an efficient method to determine subsidies for the extension of new broadband-capable infrastructure in unserved areas.
The NPRM
The National Broadband Plan recommends that the Commission cut inefficient funding of legacy voice service, and refocus Universal Service funding to directly support modern communications networks that will provide broadband as well as voice services. In its NPRM, the Commission proposes to contain growth in legacy High-Cost support mechanisms as a critical first step to transitioning to a more efficient and accountable funding mechanism.
The NPRM generally seeks comment on controlling the size of the High-Cost program, and on specific steps to cut legacy High-Cost support. Specifically, the Commission seeks comment on capping legacy High-Cost support provided to incumbent telephone companies at 2010 levels, which would have the effect of creating an overall ceiling for the legacy High-Cost program. In addition, the NPRM seeks comment on the costs and benefits that would be realized by converting all rate of return carriers to price cap regulation or other incentive regulation. The NPRM seeks comment on whether the Commission should convert Interstate Common Line Support (ICLS) to a frozen amount per line, which would have the effect of limiting growth in the legacy High-Cost program. In addition, the NPRM seeks comment on the elimination of Interstate Access Support (IAS).
Consistent with recommendations in the National Broadband Plan, the NPRM seeks comment on whether the Commission should issue an Order to implement the voluntary commitments of Sprint and Verizon wireless to reduce the High-Cost funding that they receive as competitive eligible telecommunications carriers (“ETCs”) to zero over a five-year period as a condition of earlier merger decisions. In addition, the NPRM seeks comment on whether the Commission should phase out remaining competitive ETC funding under the existing funding mechanisms over a five-year period, and target the savings toward the deployment of broadband-capable networks and other reforms in the National Broadband Plan.
Again, it is significant to note that the Commission specifically seeks comment from insular areas and tribal governments. According to the NPRM, “we request comment on whether there are any unique circumstances in insular areas that would necessitate a different approach.” Similarly, the NPRM states “[w]e are particularly interested in input from Tribal Governments on these specific proposals, and specifically ask whether there are any unique circumstances in Tribal Lands that would necessitate a different approach.”
The USF is America’s largest telecommunications subsidy program, redistributing nearly $9 billion per year. Reforms to expand the program’s reach to encompass broadband networks could have effects, intended or unintended, on the ultimate USF contribution factor, thereby directly impacting communications service providers which presently contribute to the program. Moreover, reform could impact Universal Service (both voice and broadband), and Universal Service benefits in insular and tribal areas. In the past, insular and tribal areas have been remarkably successful in ensuring that they receive the benefits of USF distributions.
If you have questions or are interested in submitting comments by the deadline, please feel free to contact us.
April 2010