FCC’s USF Reform Proposals Generate Controversy

May 20, 2010

RTFC Capital Connections | Vol. 22, No. 5

In a joint letter to Congress sent earlier this month, telco groups NTCA, OPASTCO and WTA warned that elements of the Federal Communications Commission’s (FCC) National Broadband Plan (NBP) and the commission’s approach to reforming the Universal Service Fund (USF) could “create a new urban/rural digital divide.”

On April 21, the FCC generated considerable controversy with its notice of inquiry (NOI) and notice of proposed rulemaking (NPRM) seeking comment on how best to reform the USF to match objectives laid out in the NBP. In their letter to Congress, the telco groups warned that the NBP’s minimum goal of 4 Mbps universal broadband availability for all Americans—while simultaneously pursuing the so-called 100-squared plan of providing download speeds of 100 Mbps for 100 million households by 2020—“guarantees that consumers, businesses and communities in high-cost, rural areas throughout the United States will receive severely inadequate broadband service, while more densely populated, lower-cost urban areas, which will be part of the 100-squared plan, will enjoy the benefits of speeds 25 times faster.” This would not only violate the comparability and affordability standards of the Communications Act, but also “greatly endanger investment, jobs and economic development throughout rural America.”

The FCC’s USF reform plan also contemplates eliminating rate-of-return regulation in order to keep the USF from expanding in size. NTCA said this “shortsighted approach” would lead to insufficient future broadband USF support in high-cost rural communities. OPASTCO said the approach would cut incumbent local exchange carrier funding, thereby “jeopardizing broadband progress that has been made in rural territories.” Both groups also noted the plan fails to pursue quick action to expand the USF contribution base and resolve intercarrier compensation and access issues.

Another controversial provision of the USF reform proposal involves using reverse auctions to distribute USF support. Not all commissioners embraced this concept, however. “While I am supportive of most of what we do today, the record will show that I have expressed concerns in the past about some of the suggestions put forward here,” FCC Commissioner Michael Copps said. The prospect of using reverse auctions—a form of competitive bidding for determining the level of USF support to serve a particular area—raises “many questions that still remain unanswered,” Copps said. RTFC opposes reverse auctions because they would hurt the financial viability of rural telcos, which have made significant long-term investments in rural telecommunications infrastructure over the years in support of the public interest (see “RTFC Tells FCC Reverse Auctions Will Hurt Rural Telcos,” Capital Connections, May 8, 2008).

The NOI and NPRM are available online at www.fcc.gov. Initial comments are due by July 12, with reply comments due by August 11.

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