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Lack of USF Cap Remains Contentious Point on Compromise Bill

There was much talk about consensus support Thursday at a hearing
on a universal service high-cost fund reform bill spearheaded by Rep. Rick
Boucher (D-Va.), but there appeared still to be disagreement over whether or
not the fund should be capped.

Communications companies pay into the fund to subsidize phone
service, and if Congress and the FCC get their way, broadband service, to
areas, particularly rural areas, where the cost is too high to make
business sense.

The current version of the bill, whose primary mission is to
transition the fund from phone to broadband subsidies while holding the cost
down and reducing waste fraud and abuse, does not cap the fund. The growth of
the fund, more than doubling in a decade to about $4 billion, was one of the
factors spurring calls for reform.

The FCC, which has made transitioning the fund to broadband one of
its National Broadband Plan priorities, said in a report that it could
significantly increase if not capped.

While industry witnesses basically supported the bill as currently
constituted, with all saying in a perfect world they would make changes, but
suggesting removing or changing pieces now could upset the balance. Suggesting
that tenuousness, bill co-sponsor Rep. Lee Terry (R-Neb.) said calling it a
"compromise" might be the understatement of the year.

Most of the criticism of the bill came from committee Republicans
concerned about the lack of a cap on the fund or a way to offset potential
increase, led by ranking member Cliff Stearns (R-Fla.).

Stearns cited the FCC's input that the fund could increase without
a cap, and said the bill should not proceed without "strong statutory
assurances" that that was going to happen.

Rep Marsha Blackburn (R-Tenn.) said she, for one, was
"extremely disappointed" that there was no cap on the fund, saying it
looked to her like a "typical regressive D.C. tax." She said she
hoped that some of the discussion could "re-center" on that issue
before the bill goes to the floor.

Energy & Commerce Committee Chairman Henry Waxman (D-Calif.)
also said he had some concerns about costs, and just what some of the savings
might be from proposed changes in the bill. He was also concerned about some of
the broad waivers in the bill and their impact on the goal of deployment of
broadband to "all Americans".

Addressing the former concern, Boucher asked Kathleen Grillo,
senior VP of Verizon, what she estimated the savings to the fund would be from
the bill's provision requiring competitive bidding for wireless carrier
support. She said anywhere from $200 million to $500 million. "That is
pretty substantial savings," said Boucher. He also pointed to the bill's
cutting off of funds to voice-based wireline phone service in areas with
competition and looking at net revenues from all supported services when
determining the level of support as ways to keep costs down.

On the bill's lack of a cap, Boucher said that even retaining the
rate-of-return model rather than a rate cap, the FCC had plenty of discretion
to set that rate. He asked Carol Massey, deputy chief of the
FCC's Wireline Competition Bureau, why such broad discretion would not be
sufficient control of the fund since there was nothing preventing the FCC from
lowering that rate from the current 11.4% if that appeared to make sense.

Mattey said the FCC could certainly change the rate.

Stearns asked whether that FCC report's language meant that
the commission meant that, as written, the bill would not control the costs of
the fund.

Mattey said that as she understood it, the bill did have a
provision directing the FCC not to "unreasonably burden" consumers
(companies pass on their USF subsidy costs to their customers), and said the
FCC would "appreciate any direction from Congress" on what would
constitute an unreasonable burden.

Standing up for the rate-of-return model was Shirley Bloomfield,
CEO of the National Telecommunications Cooperative Association. She said it
allows carriers to get, if not a guaranteed rate or return, at least some
recovery of costs, recognizing they are carriers of last resort, going places
others don't want to take on. She said the rate cap model encourages service
where there is highest return and lowest risk, which does not work for
encouraging rural build-outs.

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.