In a speech delivered at FCC headquarters today, FCC Chairman Julius Genachowski outlined a proposal to reform and modernize the Universal Service Fund (USF) and Intercarrier Compensation system (ICC). If adopted later this month, the FCC says the plan will reform USF/ICC to provide dedicated support to extend mobile broadband to large areas of the country that are currently shut out from the benefits of advanced mobile services. (For more, see Raging Battle Continues Between ‘ABC Plan’ Friends, Foes?).??

Chairman Genachowski said, “If adopted by the Commission, the plan will spur broadband build-out to hundreds of thousands of homes and businesses beginning in 2012. It will help cut the number of Americans bypassed by broadband by up to one half over the following five years, and it will put us on the path to universal broadband by the end of the decade.”

The plan involves transitioning USF to a “Connect America Fund” with two core goals:

  1. ?Ensuring universal availability of robust, scalable, affordable broadband to homes, businesses and anchor institutions in unserved areas. The Connect America Fund would begin near-term build-out to hundreds of thousands of consumers in 2012, and would ultimately help get broadband to the 18 million Americans who can’t get it today.
  2. ?Ensuring universal availability of affordable mobile broadband through a new Mobility Fund, which would be part of the Connect America Fund. Deployment of state-of-the-art mobile broadband would be extended to more than 100,000 road miles where Americans live, work, and travel. In addition to a one-time shot-in-the-arm effort to accelerate deployment of 4G networks in 2012, this Fund would provide significant ongoing support for rural mobile broadband.

In addition, the growth of the Connect America Fund would be constrained. To help achieve this, Genachowski introduced a competitive bidding process among providers for obtaining universal service support, which would transition over time to a fully competitive system for distributing Connect America Fund dollars. This would be the first time competitive bidding has ever been used in the universal service fund.

On the ICC side, the proposed reforms include three main elements:

  1. Immediately close loopholes like phantom traffic and traffic pumping, and other arbitrage schemes like CMRS-in-the-middle, where some carriers divert wireline traffic to wireless networks to avoid paying ICC. The plan would also provide greater certainty about compensation for VoIP calls that either begin or end on the public switched telephone network, ensuring symmetry in the treatment of such traffic.
  2. ?Phase down ICC charges over a measured but certain multi-year transition path, starting by bringing intrastate access rates to parity with interstate rates.
  3. ?Help companies transition by employing a tightly controlled recovery mechanism. The plan would permit some companies to receive transitional support from the Connect America Fund, but that support would be accompanied by obligations to serve the public as well as strong oversight and accountability.

Reaction to the agency’s proposal was swift. American Cable Association President and CEO Matthew Polka issued the following statement in response:??

“Because any plan to reform the universal service regime will have a significant impact on consumers and competition in the broadband marketplace for the next 20 years, it must be forward looking, recognizing and taking advantage of today’s competitive marketplace and the hundreds of broadband providers across the country, including many offering a robust service over cable television infrastructure that is a preferred choice by most consumers. Unfortunately, the Chairman’s plan does not achieve this critical objective.?

“Instead, the Chairman’s plan locks in a sole-source contract worth billions of dollars for over 10 years to a handful of incumbent large telecom companies to deploy broadband at maximum speeds that are below average. It favors one small group of providers over others to the disadvantage of consumers. By excluding thousands of broadband providers willing, able, and eager to compete to provide service to consumers living in rural areas where government support is provided, it will deprive these consumers of receiving the best possible service at the lowest possible price.?

“In the weeks ahead, ACA will continue to work with the FCC, and hopes to see the needed fixes in the final plan.”     

And reaction was mixed from US.IP, supporters of the Tech/Users Framework for intercarrier compensation and universal service reform that include Google, Skype, Sprint and Vonage:

"We commend Chairman Genachowski, Commissioners Copps, Clyburn and McDowell, and the FCC staff on their hard work to reform the antiquated USF and ICC regulatory regimes. It is because we represent the innovation economy and the jobs and investment that fuel it, we strongly endorse FCC action in this area.  However, we are concerned that the Chairman’s comments today suggest that the Commission may subject burgeoning IP services to old-fashioned phone service regulations such as access charges.

"As we have said throughout this process, the FCC can meet its goals quickly, but must resist expanding a regulatory rate regime designed for the analog era.  We are committed to working with the Chairman, Commissioners and staff to create meaningful incentives for network modernization, grounded in technological and market efficiencies and opportunities for all."

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