Universal Service Fund (USF): FCC Goes Ahead with USF Reform

October 29, 2011, By Leo Xavier

Earlier, we explained to you about how the Universal Service Fund (USF) was formed, its goals and why there is an undeniable need to reform it. Now, the FCC has finally understood that the fund needs to be fundamentally reformed and directed towards the future.

The commission has come out with a plan to transform the $4.5 billion high-cost portion of the USF into a subsidy for providing access to broadband Internet and revamp the rates carriers pay each other to connect local calls.

According to FCC, the move would help to provide all US citizens access to high-speed internet connections within a decade and also provide $2 billion in benefits to customers.


As you might not have forgotten, earlier we detailed about USF’s four main programs which includes the High-Cost program, the Low Income program, the Schools and Libraries program, and the Rural Health Care program.

There were continued debates regarding the need to reform the fee because of reasons such as increasing costs to consumers, wasteful spending in the High Cost program, and the changing technological landscape.

FCC moves forward with the reform

FCC has approved the reform proposal for its USF and intercarrier compensation system. The long-awaited and hotly debated reform has come after FCC unveiled their “Connect America” plan earlier this month.

The reform will create a new Connect America Fund with an annual budget “of no more than $4.5 billion”.  The fund will be utilized to expand broadband to roughly 7 million currently unserved US residents.

According to FCC, the new move will create 500,000 new jobs over the next six years, and improve economic growth by $50 billion.

FCC also insists that the plan will help consumers save $2 billion annually (in case you didn’t know that number has been magically raised by $1 billion since the FCC presentation earlier this month).

The reform to its intercarrier compensation system will eliminate hidden costs in consumer bills. FCC says that the reform will require some consumers to pay, on average, an additional 10 to 15 cents a month, but insists that for every dollar put into the fund, consumers will see three dollars in benefits.

And for the first time in history, the commission is recognizing mobile broadband as a universal service objective. FCC has given approval for creating a new Mobility Fund that delivers $500,000 per year to help expand mobile broadband services, an amount which is insufficient according to the wireless industry.

The growth of the fund will be controlled all thanks to the commission’s decision to fix the annual budget at $4.5 billion. This will also protect consumers from increased contribution fees. FCC promises that the programs that provide subsidies where they are not needed will be eliminated.

FCC has also decided to take immediate action to end “traffic pumping”, a practice that has cost larger phone companies significant additional income in the past.

Reactions to the Reform

The reactions to FCC’s reform are generally positive. Most comments reveal the fact that they are yet to go through the decision fully, most probably since it came in some 500 pages.

AT&T was among the first to comment on it. They said: “While no one can say that it is thrilled with all aspects of what the FCC did today, we are cognizant that we shouldn’t lose sight of the forest — the significance of what this decision means to all Americans – through the trees.  In the future, the basic level of service that United States policy will encourage and fund will be broadband and not simply voice service. This is a significant achievement worthy of congratulations and its impact on all Americans should not be minimized.  With that said, we look forward to carefully reviewing the details of the FCC’s order before we can fully understand all of its implications”.

While Verizon has this to say on the reform: “Today’s action by the FCC to reform the antiquated universal service and intercarrier compensation programs is a milestone for consumers and the communications industry. Chairman Genachowski and the Commissioners deserve credit for tackling this difficult challenge and making the tough choices necessary to bring these programs into the 21st century. While we have not yet had an opportunity to review the order, the FCC’s overall approach apparently puts these programs on a sustainable path and will enable millions of American households to connect to the high-speed broadband networks that are playing increasingly important roles in our nation’s daily life”.

For too long, this system has been focused on supporting the technology of the last generation — basic voice telephone service. I am pleased it will now also tackle the challenge of the digital age — bringing high-speed Internet and wireless service everywhere in this country”, said Senate Commerce Committee Chair Jay Rockefeller. “I recognize that reform means that some stakeholders will be unhappy because they prefer the status quo, but our Nation’s communications infrastructure is too important to delay reform any longer.  Our economy cannot afford missing out on the opportunities broadband enables, such as expanding business, fostering innovation, increasing access to education and healthcare, and even transforming entertainment.  And consumers deserve more than a support system built only on the technology needs of the past.  So I commend FCC Chairman Julius Genachowski and his colleagues for this effort, and I look forward to learning more about the details“.

CEO of COMPTEL, Jerry James said, “Today, the FCC has taken a historic step to reform intercarrier compensation and to redirect what can only be called a broken universal service system to a more targeted system that encourages broadband. COMPTEL looks forward to reviewing the details of this order. All of this hard work will be meaningless; however, if the Commission does not maintain its focus on achieving a robust, competitive environment for IP-based services, and it will be from this perspective that COMPTEL will evaluate the FCC’s decision“.

Meanwhile, some came out with mixed reactions. The National Association of Regulatory Utility Commissioners said: “We are pleased with the proposals to prevent traffic pumping and eliminate inefficient fund disbursements, both of which are long overdue. We also appreciate that the agency recognizes the valuable and essential role Congress reserved to the States regarding carrier-of-last-report obligations and so-called ‘Eligible Telecommunications Carrier’ designations…That said, we and many of our members have a number of concerns about preemption of State authority in other aspects of today’s decisions. Some elements raise a host of unanswered legal and procedural questions but also the specter of unintended consequences for consumers. As we read through and digest the order, we will have more to say about these concerns. Overall, today’s decisions appear to be a mixed bag. It is too early to tell just what the ramifications will be for consumers, but we will be reviewing these plans in short order“.

The Rural Telecom Associations appear to be pleased with the FCC order to confirm that VoIP traffic falls within the ICC framework and to resolve long-standing concerns about so-called phantom traffic and other arbitrage schemes”. The FCC’s decision for an ICC restructure mechanism to help carriers of last resort continue providing affordable services in rural America is also being welcomed. “At the same time, the Rural Telecom Associations remain eager to push forward for a long-term USF reform plan that will provide greater certainty and sufficient support, and they remain concerned that parts of the current reform package will have substantial adverse impacts on rural consumers and the small, community-based carriers of last resort committed to serve them“.

Meanwhile, comments on the negative side includes that from Public Knowledge: “We are deeply disappointed that the Commission has once again evaded the central problem which threatens to bring down the entire plan — that of resolving the Commission’s authority over interconnected Voice Over Internet Protocol (VoIP) and broadband services generally.  The Commission requested comments on the authority issue, but declined to deal with it. VoIP services are becoming an integral part of the telecommunications network, serving millions of consumers. By declining to address this issue, the Commission is condemning the industry to more years of uncertainty, consumers and others will be powerless to complain about industry practices and the future of the network is left in limbo“.

C Spire Wireless also wasn’t pleased with the reform: “The FCC Thursday made broadband mobility for the first time a universal service goal, but is also cutting back support to multiple wireless carriers as a way to free up funds for more targeted, broadband-centric support, which will mean a net decrease in payments to wireless companies.”

The carrier’s VP Eric Graham said, “While the rest of the world feverishly invests and promotes wireless broadband, the FCC has unilaterally abandoned the future for a backwards-looking approach that will retard the economy for years to come“.

We will bring you more reports on the USF. So stay tuned to this space. In the meantime, you can place your comments in the box below. What have you got to say about the new FCC order?

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