Policy

Lobbyists Working Overtime Before USF Vote

10/24/2011 12:01 AM Eastern

Washington — Industry players were still weighing in
big time on reform of the telecom Universal Service Fund
last week, with Federal Communications
Commission aides
taking back-to-back meetings
before the sunshine period
kicked in prohibiting meetings
in the run-up to the agency’s
planned Oct. 27 vote.

One reason for the activity:
People familiar with the nonpublic
document said chairman
Julius Genachowski’s draft
of proposed reforms included
some elements that cable operators
were still hoping to nudge
in their direction, like a right
of first refusal for phone companies
and no hard cap on the
size of the fund. National Cable
& Telecommunications Association
officials had at least four
meetings at the commission.

‘MIND-NUMBING’ DETAILS

For another reason, negotiations
between commissioners and
the chairman’s office were still
ongoing, with another draft expected
to circulate by last weekend
(after press time for this
issue). FCC members were still
working out what one lobbyist
called “mind-numbing” details.

The Universal Service Fund
is a cross-subsidy in which contributors
make payments based on projected interstate and
international telecommunications revenue. That money is
then used to subsidize phone service to areas where there is
no business case for providing it, primarily rural and hard-toreach
areas. The FCC wants to shift the fund to subsidize the
rollout of broadband service.

At stake for cable operators is how many of the
billions of dollars in broadband subsidies will be
available to them.

A right of first refusal — essentially giving incumbent
telephone companies first dibs on billions
of broadband bucks in areas where they
have received phone subsidies from the federal
fund — is a big non-starter for the small and
midsized cable operators that would be shut out
of that money for several years, until the FCC
transitions to a bidding regime. The NCTA also
is strongly against it.

Highly placed FCC sources have said that the
right of first refusal was in the draft, but the document
has been modified so that the 10-year
subsidy and buildout window the telco industry
had sought in its so-called “ABC” plan had been
reduced.

Telco executives said the right of fi rst refusal,
which they predicted would probably not show
up as a term in the document, had been reduced
to five years from 10 years and that the buildout
schedule was yet to be determined. Such a
schedule would be tied to the broadband speed
the FCC will require.

A higher speed requirement could lead to a
lengthened buildout window, because the telcos’ plan —
on which some of the FCC plan is modeled — was based
on a specific architecture. “If this bill requires a different
architecture, that drives a totally different cost,” said
a telco executive who asked not to be identifed.

The telco executive also said it would be more of an
all-or-nothing or “more-or-nothing” regime, in which incumbent
carriers that elected right of first refusal would
have to provide service to every funded U.S. Census block
in their footprint in a given state. The telcos had proposed
a wire-center-by-wire-center election.

The American Cable Association, representing smaller,
independent operators, said modifications do not change
the basic inequity of the plan, which it said prevents competitors
such as its members from delivering
“more for less.”

Cable operators, particularly small
and midsized companies on the front
lines of rural buildouts, argue that they
should be able to compete for that money.
Genachowski suggested in outlining
the plan two weeks ago that the fastest
way to get broadband to those high-cost
areas was to give the money initially to
incumbent telcos that have been providing
subsidized phone service there.

Cable operators continue to have an
ally in Sen. Mark Warner (D-Va.) on the
issue of receiving a share of FCC funds. In
a letter to the FCC Friday (Oct. 12), Warner
said he was “very concerned” that the
reform proposal “appears to award the
vast majority of funding to incumbents
with little or no opportunity for competitive
broadband providers to participate.”

TERMINATION PAYMENTS

More to cable’s liking, the plan is said to
eventually target support to areas where
providers are not subsidized, and to, in
their view, more fairly compensate cable
operators for terminating voice traffic. Both of those items are on the NCTA’s
wish list, the latter being part of the intercarrier-
compensation portion of the
reforms.

Telco execs said the FCC plan is for
2012 to be a phase-in year, during which
incumbent telcos will receive an additional $300 million
in subsidies that will include areas where cable operators
are in part, but not all, of the area getting the subsidy.

The next year, they said, the subsidies will only go to
where there is no unsubsidized competitor.

The telco execs confirmed that the proposal currently
calls for cable to get essentially the same rate for
terminating phone calls as incumbent phone carriers
do, something Comcast had requested.

A source said the reform proposal also includes
tying USF monies to serving anchor institutions
with high-speed broadband, something
the Obama administration was promoting with
broadband stimulus funds.

While the wireless industry has been pushing
for migrating the fund’s current $1 billion for cell
phone support to broadband mobility support, the
figure in the draft is instead only $300 million or
$400 million (both figures were being mentioned
last week). According to an FCC source, that is primarily
because a lot of the current figure goes to
supporting multiple carriers and the FCC is looking
to reduce that duplication.

With all the last-minute negotiating — industry
players were given an extra day to meet with
FCC officials — the question is, might the agency
delay a vote? The same highly placed FCC officials said they did not think so, adding that they
believed all four commissioners were committed
to voting on something at the Oct. 27 meeting. The
summer target date for release of a reform proposal
had already been delayed.

TELECOM FOR ALL

The FCC’s primary goal in reforming the Universal Service subsidy system is to
migrate it from supporting phone service to deploying broadband. These are
USF’s original marching orders, from the 1996 Telecommunications Act:

• Promote the availability of quality services at just, reasonable and
affordable rates for all consumers.

• Increase nationwide access to advanced telecommunications
services.

• Advance the availability of such services to all consumers, including
those in low-income, rural, insular and high-cost areas at rates that
are reasonably comparable to those charged in urban areas.

• Increase access to telecommunications and advanced services in
schools, libraries and rural health-care facilities.

• Provide equitable and nondiscriminatory contributions from all
providers of telecommunications services to the fund supporting
universal service programs.

SOURCE: Federal Communications Commission

September