FCC Advisory Board Releases Recommended USF Changes

An FCC advisory board late Tuesday issued its long-awaited recommendations for Universal Service Fund (USF) reform. The biggest changes would affect high-cost subsidies, put money toward broadband build-outs and, overall, seek to end duplicate funding.

All of this would be done by breaking the USF into three new units the Mobility, Broadband and Provider of Last Resort (POLR) funds. Carriers generally would get to collect money under just one of these umbrellas.

First, the joint federal-state advisory board, chaired by Commissioner Deborah Tate, said the FCC needs to cap subsidies to rural providers at $4.5 billion thats about equal to high-cost funding for all of 2007. The high-cost portion is what has ballooned the $7 billion USF to its levels of near-unsustainability. As it stands, the Bells pour the most money into the system, while rural LECs get the most out of it.

To fix the problem, wireless carriers which get subsidies for every number they provision, whereas LECs collect based on their network investments would be moved to the Mobility Fund. The so-called identical support rule would be eliminated and money would be doled out on a project-by-project basis. It would, in most cases, represent the only USF money wireless carriers would be eligible to receive.

A wireless provider who receives support under the new Mobility Fund would likely need only marginal Broadband Fund dollars to add broadband to its mobile network, the board wrote on Nov. 20.

Meanwhile, the Broadband Fund, with about $300 million available annually, would support the construction of new high-speed networks; the POLR Fund would pay wireline carriers to provide wireless voice services in unserved areas. The joint board said that, for now, the POLR Fund would be comprised of all existing support ILEC mechanisms.

The joint board proposal called for a high level of federal and state interaction in administering the USF changes. For example, the commission and the states will need to exercise care to avoid inadvertent duplication of funding, wrote board members. It further promoted the idea of reverse auctions as ways to administer the new broadband and mobility funds.

FCC commissioners now have up to one year to act, or not act, on the joint boards decision. The intervening months likely will see frantic lobbying as all sides [try] to push for changes favorable to their interests, wrote analysts for investment firm Stifel Nicolaus wrote in a Nov. 21 client memo.

FCC Chairman Kevin Martin said he particularly supports the recommendations to fund broadband build-outs.

Our universal service program must continue to promote investment in rural Americas infrastructure and ensure access to communications services that are comparable to those available in urban areas, as well as provide a platform for delivery of advanced service, he said in a statement.

The joint boards recommendation comes after years of study and debate. The FCC in 2002 and 2004 asked the board to review high-cost rules and submit ideas for reform. The board is made of federal and state commissioners and a number of other experts.

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