Small Ops Pan FCC Universal Service Plan


Federal Communications Commission
chairman Julius Genachowski last week
outlined the agency’s long-awaited plans to
update Universal Service Fund and inter-carrier
compensation regulations, circulating an order
for an Oct. 27 vote.

To help fix a regime he said was broken, unfair
and wasteful, the commission plan includes
providing symmetry in payments for terminating
Voice over Internet Protocol traffic. Th at’s
something the National Cable & Telecommunications
Association wanted.


But according to Genachowski’s Oct. 6 remarks
and a source familiar with the outlines of the order,
the plan also gives phone companies a right
of first refusal for broadband subsidies in highcost
areas. That’s something the NCTA and,
even more emphatically, the American Cable
Association, opposed.

USF is the fund paid into by telecom companies
— with the cost passed along to customers
on their bills — to subsidize phone service in rural
and hard-to-reach areas. Inter-carrier compensation
refers to the payments carriers make
to each other to exchange and terminate traffic.

Reforms of both were telegraphed in the National
Broadband Plan, to help increase broadband
deployment and recognize the growth of
IP voice service.

Genachowski said the plan is not a rubber
stamp for any one proposal,
likely a reference to the
most prominent of those,
the America’s Broadband
Connectivity (or ABC) plan
proposed by major telecoms.

Cable operators had
taken issue with some elements
of that plan.

Still, small cable operators
represented by ACA
saw Genachowski’s outline
as tilted too much in
favor of incumbent phone

ACA president Matthew
Polka said the order “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.”

That is because, according to a cable attorney
speaking on background, the FCC order gives
those telcos right of fi rst refusal on broadband
subsidies over a years-long transition to competitive

ACA and the NCTA had asked the FCC not
to grant, or at least to limit, that right of first refusal,
saying it precluded
cable ops
who might be able
to provide cheaper,
better service.

“It appears they
are going to give the
price-cap carriers a
right of first refusal,
and only later create
a competitive
bidding process for
the subsidies,” the
attorney said.

Telcos, in their
USF/ICC reform
proposal, pitched
the FCC on giving
them $1.8 billion
annually to provide
broadband in highcost

said that in some
areas it would take years
for that bidding process
to be instituted
and, in the meantime,
“our goal of getting robust,
scalable broadband
— with capacity
and latency comparable
to urban broadband —
over broad geographies
in rural price-cap areas
as quickly as possible
may be best achieved
through a phased approach
that ensures accountability.”

The attorney said that
based on Genachowski’s
speech and the attorney’s
understanding of
the FCC order, the pricecap
telcos would be getting
billions in subsidies
over many years before
the competitive bidding process kicks in.

Cable operators, even though they are interested
in and willing to bid for subsidies to provide
service to those areas, will be locked out of
that money, the attorney said.

It is a particularly big issue for small cable operators
— the ones in the rural areas where the
telcos will be getting that right.


The NCTA was generally upbeat about the
chairman’s speech, saying in a statement that
it “applauds the chairman for specifically
recognizing that high-cost support should
only be targeted to areas that are not already
served by cable operators or other providers
that have invested private capital to serve rural

Right of first refusal is a bigger issue for ACA.

On the intercarrier-compensation side, the
plan will provide for symmetry in the compensation
of VoIP traffic, something cable operators
have been asking for.

That did not sit well with Google, Skype
and Vonage, which provide voice services
that ride on Internet service providers’
broadband networks. In a joint statement,
they said they were troubled by the chairman’s
suggestion that IP services might be
subject to phone-style regulations — including
access charges — that they say were designed
for the analog era.


Key elements of the Federal Communications Commission’s Universal
Service Fund and intercarrier-compensation reform plan:


• Transition USF from phone to a Connect America broadband fund.

• Create a Mobility Fund to subsidize mobile broadband with a onetime
cash infusion and ongoing support for rural broadband.

• Phase in competitive bidding for USF subsidies.

• Target USF funding exclusively at areas without an unsubsidized competitor.


• Provide symmetry in compensation for VoIP and other voice traffic.

• Close phantom-traffic and traffic-pumping schemes that infl ate payments.

• Phase-down access rates, but provide some transitional support
money from Connect America fund.