FCC Issues USF-ICC Reform Order, Ushering in New Era

November 30, 2011

RTFC Capital Connections | Vol. 23, No. 11

In mid-November, the Federal Communications Commission (FCC) issued its long-awaited order reforming the Universal Service Fund (USF) and intercarrier compensation (ICC) regimes.

The 750-page order and further notice of proposed rulemaking, which was adopted at the FCC’s October 27 meeting, would replace the high-cost portion of the USF with a new Connect America Fund (CAF) focused on accelerating the rollout of broadband and voice services to unserved and underserved areas. The CAF would be capped at $4.5 billion, which is the current level of the high-cost portion of the USF. For the first time, universal service for mobile broadband was made a commission objective, and $500 million of the CAF will be put toward the rollout of mobile broadband through a new Mobility Fund.

In the area of ICC, the order immediately curtails “wasteful arbitrage,” including traffic pumping, in which carriers artificially inflate traffic volumes to increase ICC payments, and phantom traffic, in which identifying information is missing or masked in ways that prevent accurate intercarrier billing. Longer term, the order transitions to a new formula for ICC that reduces regulated charges between carriers and introduces a new recovery mechanism borne by consumers.

FCC Chairman Julius Genachowski called the order a “once-in-a-generation overhaul of universal service, keeping faith with the nation’s long commitment to connecting all Americans to communications services.” But many details of the new regime are not yet finalized. In a November 21 statement, rural telco associations NTCA, OPASTCO and WTA said they “remain concerned” how specific aspects of the order, as well as items still left to be addressed, could affect rural telcos.

“We remain committed to working through these details with the FCC and ensuring that policy-makers understand the ultimate impact of the order on rural America,” said NTCA CEO Shirley Bloomfield. “It is essential that the order and the final outcome of the further notice of proposed rulemaking eliminate lingering regulatory uncertainty so that small rural carriers can attract capital and operate high-quality rural broadband networks.” The full text of the order is available at www.fcc.gov.

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