Capping High-Cost Support Proves a Point of Contention in National Broadband Plan

Some said the FCC can’t even begin to consider using the high-cost Universal Service Fund to support broadband until it clears up jurisdictional matters. The Telecommunications Act of 1996 requires universal service of telecommunications services, but the FCC has defined broadband as an information service, said the Small Company Committee of the Louisiana Telecommunications Association. The commission doesn’t have the authority to create a broadband-based fund, such as the Connect America Fund, it said, and doing so “would be in direct contravention of Congressional mandates.”

The proposed cap on high-cost USF support received support from the larger carriers, but not the small carriers that rely upon it. A per-line cap would be “the simplest sort of cap to implement and probably the most effective,” said the NCTA. Thus, “if an ILEC’s line count decreased, its support would decrease as well,” it said, which would level the field for ILECs and CLECs. At the least, the commission should adopt a study area-level cap, NCTA said. A per-line cap is a bad idea because rural carriers receive support to build networks, not lines, said a group comment from the National Exchange Carrier Association, National Telecommunications Cooperative Association, Organization for the Promotion and Advancement of Small Telecommunications Companies, Western Telecommunications Alliance, Rural Alliance and a few dozen state associations. “Major components of RLEC network costs are fixed and, within a reasonable range of output, do not go up or down significantly as consumers subscribe to or discontinue local exchange service,” it said. The rural group said it’s “inconceivable” to think that long-term broadband needs can be met by keeping the fund at 2010 levels.

The cap should be set at 2010 funding levels, minus the amount of improper payments made, said Comptel. There were “unconscionably high erroneous payment rates,” according to inspector general reports from 2006, and voice customers pay the price, Comptel said. Verizon supports a study-area level cap at 2010 levels. The American Cable Association said it supports an overall cap on the fund, but not caps on individual components or providers. Also, small carriers should be allowed to opt-out of the Connect America Fund and continue drawing from the high-cost fund, it said. Freezing Interstate Common Line Support would cause most companies to dip into negative cash flows by 2015, the rural groups said. USTelecom said the support to ILECs from the high-cost fund has been stable -- it’s the support to CETCs and low-income funding that drove the increases in fund size, it said. Because the commission has just begun looking at other elements of the fund and hasn’t fleshed out the Connect America Fund proposal, it’s “premature to set an arbitrary number” on the USF size, it said. AT&T said it won’t oppose efforts to cap the high-cost fund, but the commission should allow carriers to make up those lost revenues through their customers.

Auctions and bidding also received mixed support. Qwest said competitive bidding for the opportunity to serve a geographic area would be “more efficient.” It suggested that a bidder propose the geographic boundaries of the unserved area it wants to serve, then others could bid to provide broadband service to the same area or an unserved area that overlaps by at least 50 percent. It suggested capping support at $3,000 per location passed, with those with lower per-location costs getting priority. Such a system would encourage a “race to the bottom,” the rural providers said. “Overzealous (or unscrupulous) bidders will be motivated to submit bids that are far lower than what is actually needed to provide sustainable, affordable services,” they said. If the winning bidder fails in its responsibilities, there will be no carrier of last resort to pick up the pieces, they said. Ranking bids based on subsidy-per-household doesn’t account for variations within a service area, they said. AT&T said using reverse auctions, in which the FCC sets the geographic boundaries, would result in higher bids than if providers could set their own boundaries.

Several commenters said an economic model for targeting support is too vague to be assessed. But the South Dakota Public Utilities Commission said experience with another model, the Hybrid Cost Proxy Model, raises questions about using models. That model initially “resulted in no support in South Dakota for its non-rural incumbent carrier, Qwest, even though Qwest serves a number of highly rural areas.” It would be even harder to develop a model that accurately reflects costs for rural carriers, it said. The National Association of State Utility Consumer Advocates said a model could be a more equitable means of providing funding -- if the model is a good one, which the proposed model is not. AT&T said the FCC “risks wasting time and resources -- for both interested parties and the Commission itself” by asking about the underdeveloped model and how to go about transitioning to it before detailing the Connect America Fund.

Wireless Weighs In

CTIA suggested a handful of tweaks to the USF to make the program more effective. Among them: The FCC should resist cutting competitive eligible telecom carrier support absent an “alternate mechanism,” adopt the NPRM’s “common sense proposals for reform” of legacy LEC support and adopt long-term changes that don’t otherwise disadvantage wireless. “An overwhelming consensus has emerged that comprehensive reform is necessary for the legacy high-cost support mechanisms,” the association said. “CTIA recognizes that this reform, and the transition to new support mechanisms focused on broadband and mobility, will necessitate changes for all recipients of support, ILECs and CETCs alike."

The Rural Cellular Association said USF support is critical for many small wireless carriers. “USF support can mean the very survival of many rural and regional wireless carriers, and it is imperative that the FCC avoid ‘flash cuts’ as it begins its proposed restructuring of support,” said RCA President Steve Berry in a statement. “Numerous studies show that consumers continue to choose wireless over wireline, and wireless carriers should have a phase down period equal to wireline carriers.” RCA weighed in against single-winner reverse auctions, which would “inhibit competition, especially in rural and regional markets."

US Cellular also urged that the USF should not pick winners and losers. “A single dominant carrier, which receives all of the available universal service support to the exclusion of other competitors, would destroy competitive market dynamics,” the carrier said. US Cellular criticized the national plan for not addressing high-cost support for wireless carriers. “Although the NBP admits it lacks a ‘comprehensive data’ set that provides an accurate look at broadband availability, it goes on to conclude, without substantial support, that ‘government intervention will [not] be necessary to enable a robust mobile broadband ecosystem in most parts of the country,'” the company said. “If that statement is meant to imply that commercial mobile wireless carriers do not need support to build networks throughout rural areas, then it is demonstrably incorrect.” Wireless carriers will need USF support to install low-powered cell sites, femtocells and other hardware in rural areas, US Cellular said.

"CETCs are a critical link in the delivery of universal services to underserved consumers,” T-Mobile said. The FCC “should reject policies that prematurely terminate support to CETCs serving increasing numbers of customers, while continuing support flows to incumbent local exchange carriers regardless of the continuing decline in their customer numbers."

Satellite broadband providers need not pay into or receive funds from a broadband CAF, said Hughes Network Systems in its comments. Requiring Hughes to pay into such a fund would be ironic and unfair since “the sole purpose of such funds would be to subsidize the build out of competing terrestrial networks,” the company said. Support from the fund isn’t necessary for the company to continue to invest private capital to expand and upgrade satellite services, it said. WildBlue and parent company ViaSat however said satellite broadband should have a role in USF, considering the technology can offer quality service throughout the country for relatively low costs. The FCC should remain technology neutral in making changes to the fund, they said. For instance, getting rid of the state-by-state approval for eligible telecommunications carriers would lift the handicap on national services, WildBlue and ViaSat said.