House Duo: Tap Modem Cash


Washington— A House draft bill would require cable operators to contribute revenue from cable-modem services to the federal program that subsidizes affordable telecommunications services in rural areas of the United States.

The cable proposal was recently floated by Reps. Rick Boucher (D-Va.) and Lee Terry (R-Neb.) in a draft bill they spent six months preparing. After receiving comments from cable and other affected industries, the two plan to introduce a bill in January.

Requiring cable to share modem revenue to fund “universal service” programs would be a first and no doubt costly.


Earlier in the year, former FCC chairman Michael Powell calculated that under current agency rules, cable would need to contribute about 10% of its modem revenue, or roughly $1 billion annually.

Cable companies that offer circuit-switched and voice-over-Internet protocol service do pay into the universal service fund; some actually receive money from the fund. Although cable operators are not required to fund the FCC’s $2.25 billion annual “e-rate” program to wire schools and libraries to the Internet, they are entitled to receive money when hired as vendors.

The Boucher-Terry bill is designed to eliminate regulatory disparities that have existed for years between cable and phone companies, with regard to data services.

Cable has been able to shield $10 billion in annual modem revenue from the universal-service program because cable-modem service is classified as an information service. Information service providers, whether a cable company or an outfit like America Online, are exempt from the program.

Digital subscriber line (DSL) services offered by the Baby Bell phone companies were not exempt, because DSL had been classified by the FCC as a telecommunications service. The FCC changed that a few months ago by reclassifying DSL as an information service. In a few months, DSL will no longer directly support universal service.

The Boucher-Terry draft would ensure that any provider of high-speed Internet access would need to contribute to universal service. That would include cable, phone, satellite, wireless and broadband-over-powerline providers.

“We are going to equalize treatment for all of the platforms, and cable is not going to like it because it’s going to bring them into the same mix and put them on parity with the phone companies,” Boucher said in an interview.

Boucher added that he didn’t expect the parity provisions to change unless cable and phone companies unite to express opposition.

“Any special pleading for special treatment is going to fall on deaf ears,” Boucher said.

In FCC filings, the National Cable & Telecommunications Association has urged the agency to ensure that as a threshold matter, the fund isn’t wasting money. NCTA said the FCC should first consider funding universal service by taxing phone numbers before thinking about cable modem revenue as a source of funding.

“It’s better to look at the picture after those steps have been taken,” said Daniel Brenner, NCTA’s senior vice president of law and regulatory policy.

If the Boucher-Terry bill becomes law, universal service would, for the first time, help finance broadband deployment in rural America. Traditionally, the program ensured affordable voice service.


Even though the bill would expand universal service’s contribution base and broaden its mission, Boucher said he was optimistic about House passage.

He said he expects that House Energy and Commerce Committee chairman Joe Barton (R-Texas), a strong critic of the e-rate program, won’t hold up the bill if it enjoys broad support on the panel.

“You’re going to see comments from Joe Barton — 'I don’t like universal service and I think we ought to repeal it,’ ” Boucher said. “As chairman, he is not going to carry that out. As chairman, he is going to process a bill that enjoys broad support in his committee and this bill is going to enjoy very broad support in his committee.”