FCC Circulates USF/ICC Reform Order

FCC Chairman Julius Genachowski Thursday outlined the FCC's long-awaited reforms of the Universal Service Fund/Intercarrier Compensation (USF/ICC) regime in a speech at the FCC. He said that regime was broken, unfair and wasteful. Among the changes is competitive bidding for the funds, shifting them from phone to broadband, and giving VoIP a fairer share of ICC payments.

USF is the fund paid into by telecom companies -- then passed along to customers on their bills -- that subsidizes phone service in rural and hard-to-reach areas. ICC is the payments carrier make to each other to exchange and terminate traffic. The reforms were telegraphed in the National Broadband Plan.

His speech came the same day he circulated the order to the other commissioners the customary three weeks before the Oct. 27 monthly meeting, when the FCC had been widely predicted to vote on the item. The FCC had targeted a summer launch of the order, but pushed back the date.

Genachowski said the plan is not a rubber stamp for any one proposal, likely a reference to the most prominent of those, the America's Broadband Connectivity (or ABC) plan proposed by major telecoms. Cable operators had taken issue with some elements of that plan.

He pitched the reforms as a consumer-centric move to lower telecom bills and extend broadband, which he said has become a necessity for full participation in society. He said the reforms would save wireless consumers at least $1 billion through ICC reform alone, spur billions in private investment, cut in half the number of Americans "bypassed" by broadband (which he pegged at 18 million) within five years, and put the nation "on the path" to universal broadband by the end of the decade.  

The keys to the order are migrating the Universal Service Fund from phone to broadband, including instituting competitive bidding for subsidies, and subsidizing mobile broadband through a one-time infusion plus ongoing support. He said the plan retains a meaningful role for states in the intercarrier compensation regime.

And to achieve another goal, constraining the size of the $4.5 billion fund, the FCC for the first time will institute a competitive bidding process, which will be phased in, he said. "[W]e are not writing on a blank slate, and...a flash-cut to competitive bidding in some parts of the decades-old program risks consumer disruption, build-out delays, and other unintended consequences." He said some price cap areas will be moved to competitive bidding "quickly," while others will take years to shift.

In areas where the shift to competitive bidding has yet to be made, the commission will base subsidies on a cost model that will look to correct current rules that allow for expensive overbuilds of unsubsidized competitors by rate of return carriers.

"Our proposal will not eliminate states' carrier of last resort obligations," he said. "It will not eliminate states' responsibility for designating eligible telecommunications carriers -- those entities that can receive universal service support. To the contrary, states will have a vital and meaningful role in ensuring accountability for broadband build-out obligations, continuing their crucial responsibilities for protecting consumers."

The plan will provide for "symmetry" in the treatment of Voice over IP traffic, something cable operators have been asking for.

The chairman did not talk about the extent to which incumbent local exchange carriers would get right of first refusal on broadband funds, something the ABC plan advocated and cable operators had problems with. But he did talk about the USF system as being wasteful and inefficient, following that up with pointing out that "in many areas it subsidizes companies even though there is a competing provider -- typically a cable company -- providing voice and broadband service without a dollar of government support."

He said that goal of the plan will be to "ensure that support isn't used to supplant private investment." To that end, he said the broadband funds "will be targeted exclusively at areas without an unsubsidized competitor.

And for those companies who take issue with the reforms on legitimate grounds, the chairman says there will be a "meaningful waiver process, "to account for special cases and enable companies to obtain relief from any reforms they can demonstrate put consumers at risk of losing service."

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.