USF Reform: Sticking To The Path Of Progress

Last fall, a unanimous FCC approved long-overdue reform to modernize the universal service fund (USF) and related intercarrier compensation (ICC) payments, crafting new mechanisms better suited to today’s competitive realities and furthering our national goal of extending broadband to all Americans. 

The FCC’s gradual transition plan and new framework promotes greater efficiency; instills needed fiscal discipline; and refocuses the program toward the needs of rural consumers, not rural companies.

Unsurprisingly, rural telephone companies that have long benefited from the old regime are fighting this progress. They have appealed the order in court, filed petitions for reconsideration at the FCC, and are waging a massive lobbying campaign to prevent USF from supporting broadband in a competitive era. These companies argue that the FCC should “let the dust settle” before taking additional steps. But continued action is essential to executing the FCC’s long-term blueprint for reform. 

If the FCC succumbs to backsliding, the nation would be left with a deeply flawed regulatory regime and the telecom marketplace would have far less certainty than exists today.

In their attempt to stop implementation of the FCC’s order, rural carriers claim that stalling reform somehow will create greater certainty but, ironically, uncertainty was the major impetus for reform.

While the old regime was riddled with questions about the growing size of the fund, the efficient use of high-cost subsidies in areas with unsubsidized competitors and the massive swamp of unpaid bills, unresolved complaints and unending litigation surrounding ICC, the new system provides far more certainty and clarity for marketplace participants.

The order also provides greater certainty to USF contributors by setting a firm budget that is designed to keep the high-cost support program at its current size. And it begins to transition funds from subsidizing every incumbent phone company to instead supporting only carriers that provide broadband where the private marketplace can’t deliver.

Eliminating support in areas served by multiple providers sends an important signal to private investors that they will not be overbuilt by government-subsidized providers, and puts carriers on notice that government funds will no longer be available in competitive markets.

Slamming the brakes on reforms would completely undermine the careful balancing of short and long-term changes envisioned by the FCC.  Because only a handful of reforms took effect when the order was adopted, efforts to “stop the clock” would leave the nation with largely the same flawed regime that the FCC spent the last decade trying to reform. 

The lack of certainty as to when, or even whether, additional USF reform would take place means that wasteful practices, like subsidizing telcos in areas that are 99-to-100-percent served by competitors, would continue indefinitely. The FCC found that there were 18 study areas where competitive providers serve 100 percent of the area. Over two years ago, NCTA identified dozens more areas where competitors serve at least 90 percent of customers. Taking expeditious steps to reduce or eliminate support in these areas will free up funding that can be used in areas where it is truly necessary.

The FCC faced a daunting task in modernizing the USF and ICC regimes.  While its decisions are not perfect, on balance they move in the right direction and at the right speed with safety valves in place that will allow the FCC to deal with legitimate exceptional situations through waiver processes established in the order. For too long, we lacked the collective will to reform universal service; we should not heed the calls to turn back now.

Steve Morris is vice president and associate general counsel at NCTA. Contact him at [email protected].

(Editor’s note: This blog first appeared on the NCTA Web site, and we are re-publishing it here with its permission.)