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ETC debate overshadows FCC inaction : Reverse auction has lukewarm support, skepticism and opposition

Wireless carriers providing government-subsidized service to high-cost rural areas have become the villains in the debate over how to rein in the ballooning universal service fund, a situation that could help explain why the Federal Communications Commission is sitting on a slew of wireless applications from 2003 and 2004 seeking government subsidies to bring communications to rural areas.
The FCC has not always moved at a snail’s pace on wireless applications for eligible telecommunications carrier status. The FCC handles wireless ETC applications for a handful of states, with state regulators carrying the lion’s share of ETC processing around the country. The states appear to have been less reluctant about acting on wireless ETC applications, which has given rise to multiple wireless carriers receiving USF support in underserved rural areas. While the current system gives rural consumers a choice of service providers, critics say current regime cannot be sustained.
One of the loudest critics of wireless ETC subsidies is the parent company of Verizon Wireless, the No. 2 mobile phone carrier in the United States. The other is FCC Chairman Kevin Martin. They are increasingly setting the agenda in the debate over universal service reform, calling for a ‘reverse auction’ approach that has been met with a mix of lukewarm support, skepticism and outright opposition. Under reverse auctions, telecom carriers bidding the least would win subsidies to serve rural areas. While proponents see reverse auctions as an efficient means to get the growing USF under control, the methodology has been described as a race to the bottom that could end up shortchanging rural consumers.
Martin’s disdain of the competitive wireless ETC environment dates back to 2001, the year he joined the agency under a different chairman and dissented from a ruling creating the current regime.
The FCC declined to say whether Martin, who became chairman two years ago, has adopted an unofficial policy to delay the processing of wireless ETC applications while policymakers pursue universal service reform.
Instead, the FCC stated: “Making sure that all Americans to have access to state-of-the-art telecommunications is a top priority for the commission. However, the current rate of growth of the fund is unsustainable and is putting the viability of universal service support in jeopardy. CETC (competitive ETC) USF payments alone have increased 101 percent per year since 2002 and if the commission were to approve all pending applications CETC support could be as high as $1.56 billion in 2007. We remain dedicated to ensuring the stability of the fund and look forward to the forthcoming recommendations from the Federal-State Universal Service Joint Board.”
The FCC statement reflects Martin’s remarks at a joint board meeting Feb. 20. Most, if not all CETC support, goes to wireless carriers. The joint board, which is studying options to reform the universal service system, will make recommendations to the FCC at some unspecified date. The FCC has a year to act on those recommendations.
“The increase [in the USF high-cost subsidies] is driven, in part, by the proliferation of new communications options for consumers,” Tom Tauke, executive VP of Verizon Communications Inc., told a Senate panel last week. For example, when a family with one wired line buys a wireless family plan with four handsets, the universal-service funding provided for that family increases by a factor of five. . Moreover, in many areas we are seeing three, four, even five wireless carriers receiving universal service funding. From a public policy perspective, this doesn’t make sense.”
Verizon has proposed separate wireless and wireline reverse auctions for high-cost rural areas. Skeptics claim such an arrangement amounts to a USF set-aside for wireline incumbent local exchange carriers.
Verizon Wireless does not seek ETC high-cost support, but Cingular L.L.C., Sprint Nextel Corp. Alltel Corp and smaller telecom carriers do.
Cellphone association CTIA backs the reverse auction concept, but favors a technology-neutral approach whereby wireless and wireline carriers would compete against each other. In addition, CTIA said losing entities in a reverse auction should receive some lesser level of universal service support-a proposition that keeps rural wireless competition in play.
Rural wireless carriers remain leery of the reverse auction idea.
While Verizon’s Tauke singled out wireless ETCs as a big contributor to the mushrooming high-cost universal service fund, the wireless industry gets less out of the USF than it collectively contributes. In addition, three-quarters of high cost support goes to incumbent local exchange carriers.
The universal service fund was about $7 billion in 2005, with subsidies designed to ensure that consumers in rural areas, low-income consumers, schools, libraries, and rural healthcare providers have access to affordable and high-quality telecommunications and information services.

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