Lack Of USF Cap Remains Contentious Point On Compromise Bill

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There was much talk about consensus support Thursday at a hearing on a Universal Service Fund reform bill spearheaded by Rep. Rick Boucher (D-Va.), but there appeared still to be disagreement over whether or not the fund should be capped.

Communications companies pay into the fund to subsidize phone service, and if Congress and the Federal Communications Commission get their way, broadband service, to areas, particularly rural ones, where the cost is too high to make business sense.

The current version of the bill, whose primary mission is to transition the fund from phone to broadband subsidies, while holding the cost down and reducing waste fraud and abuse, does not cap the fund. The growth of the fund, more than doubling in a decade to about $4 billion, was one of the factors spurring calls for reform.
The FCC, which has made transitioning the fund to broadband one of its National Broadband Plan priorities, said in a report that it could significantly increase if not capped.

Industry witnesses basically supported the bill as currently constituted, with all saying in a perfect world that they would make changes, yet suggesting that changing or the removal of pieces now could upset the balance. Reflective of that tenuousness, bill co-sponsor Rep. Lee Terry (R-Neb.) said calling it a "compromise" might be the understatement of the year.

Most of the criticism of the bill came from committee Republicans concerned about the lack of a cap on the fund or a way to offset potential increase, led by ranking member Cliff Stearns (R-Fla.).

Stearns cited the FCC's input that the fund could increase without a cap, and said the bill should not proceed without "strong statutory assurances" that that was going to happen.

Rep Marsha Blackburn (R-Tenn.) said she, for one, was "extremely disappointed" that there was no cap on the fund, saying it looked to her like a "typical regressive D.C. tax." She said she hoped that some of the discussion could "re-center" on that issue before the bill goes to the floor.

Energy & Commerce Committee chairman Henry Waxman (D-Calif.) also said he had some concerns about costs, and just what some of the savings might be from proposed changes in the bill. He was also concerned about some of the broad waivers in the bill and their impact on the goal of deployment of broadband to "all Americans".

Addressing the former concern, Boucher asked Kathleen Grillo, senior vice president of Verizon, what she estimated the savings to the fund would be from the bill's provision requiring competitive bidding for wireless carrier support. She said anywhere from $200 million to $500 million. "That is pretty substantial savings," replied Boucher.

He also pointed to the bill's cutting off of funds to voice-based wireline phone service in areas with competition and looking at net revenues from all supported services when determining the level of support as ways to keep costs down.

On the bill's lack of a cap, Boucher said that even retaining the rate-of-return model rather than a rate cap, the FCC had plenty of discretion to set that rate. He asked Carol Mattey, deputy chief of the FCC's Wireline Competition Bureau, why such broad discretion would not be sufficient control of the fund, since there was nothing preventing the commission from lowering that rate from the current 11.4% if that appeared to make sense.

Mattey said the FCC could certainly change the rate.

Stearns asked whether that FCC report language signified that the commission meant that, as written, the bill would not control the costs of the fund.

Mattey said that as she understood it, the bill contained a provision directing the FCC not to "unreasonably burden" consumers (companies pass on their USF subsidy costs to their customers), and said the commission would "appreciate any direction from Congress" on what would constitute an unreasonable burden.

Standing up for the rate-of-return model was Shirley Bloomfield, CEO of the National Telecommunications Cooperative Association. She said it allows carriers to get --  if not a guaranteed rate or return -- at least some recovery of costs, recognizing they are carriers of last resort, going places others don't want to take on. She said the rate cap model encourages service where there is highest return and lowest risk, which does not work for encouraging rural build-outs.

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