Markey frets USF aiding carriers, not consumers: Broadband, WiMAX could complicate funding equation if included in reform

House telecom subcommittee Chairman Edward Markey (D-Mass.) pressed Federal Communications Commission Chairman Kevin Martin on reverse auctions and other aspects of a universal service fund reform effort that the lawmaker worries could undercut pro-consumer and pro-competition goals at the heart of the 1996 telecom act.
“I am concerned . that rules adopted several years ago by the commission to implement the 1996 act’s universal service provisions seem less focused on the best interests of consumers than on ensuring the financial well-being of particular companies operating in certain geographic markets,” said Markey in a letter to Martin that included a series of questions. “As you know, the central purpose of the universal service provisions of the 1996 act is to benefit consumers, not telecommunications carriers. In addition, competition was an overarching goal of the legislation. . Further, advances in technology were expected to make networks deliver supported services more efficiently, not in a more costly manner.”
Though not explicitly stated, Markey appears to be taking aim at incumbent wireline carriers in rural areas, which are the biggest beneficiaries of USF high-cost support. To a lesser extent, cellphone carriers have tapped into the fund under a subsidy formula based on a landline cost structure rather than the more economically efficient wireless model. That being the case, it is no coincidence cellular carriers dominate the field of competitive eligible telecommunications carriers, or ETCs, that Martin largely blames for unsustainable growth in USF high-cost support at a time when the contribution base is shrinking.
Mobile-phone carriers do not want USF high-cost subsidies capped in their sector while rural landline carriers continue receiving financial aid from the federal government. The wireless industry also does not buy into Martin’s vision for reverse auctions whereby only the lowest bidder for USF high-cost support receives full government backing, arguing other telecom carriers also should be eligible for some lesser level of federal subsidies.
Skeptics argue Martin’s reverse-auction approach could deteriorate into a race to the bottom, perhaps achieving fiscal discipline at the expense of service quality and communications functionalities. Complicating matters is a growing view that broadband access should be built into the USF reform equation, a line of thinking that could benefit mobile-phone carriers offering high-speed Internet access and wireless broadband firms hoping to capitalize on widespread deployment of WiMAX technology.
Markey said USF “modernization should occur in a manner that reduces unnecessary growth in the universal service fund and ensures long-term stability. As a general matter, I believe consumer contributions to universal service must produce quantifiable, social and economic benefits in terms of affordable service, enhanced networks, and a robust, competitive marketplace. Any modernization plan also should be consistent with Congress’ belief that universal service would evolve over time as technologies change, as well as with the larger, pro-competitive framework that Congress established in the 1996 act.”
South Dakota’s top regulator said USF support has been instrumental in expanding wireless telecom service in his state.
“One of the primary reasons we are seeing this kind of development is due to companies’ access to the federal Universal Service Fund,” said Dusty Johnson, chairman of the South Dakota Public Utilities Commission. “The USF is collected from all telecommunication carriers, then disbursed back to qualifying carriers to build infrastructure in high-cost areas, among other things. The idea behind the USF is that everyone should share the cost of providing service to as many people as possible because as more people get connected, the value of everyone else’s connection goes up.”
“It’s encouraging to see this rate of wireless development, particularly in the rural areas of South Dakota,” added PUC Vice Chairman Gary Hanson. “We have witnessed steady growth in cell tower buildout in recent years and South Dakota is currently outpacing the national trend.”
Markey and other lawmakers are weighing in as a Federal-State Joint Board nears issuance of recommendations on USF reform. While much emphasis has been given to getting USF costs under control, lawmakers cool to the idea of a single-winner reverse auction and capping high-cost support-temporarily or permanently-appear to be attempting to re-frame the debate in the broader context of consumer welfare, competition and broadband access.
With telecom reform legislation unlikely and net neutrality supporters and foes apt to cancel each other out in debate this year, USF reform is emerging as the top telecom issue of 2007. Markey asked Martin to reply to USF reform questions by May 4.