Tweaks to Universal Phone Fund Could Wire In Cable

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For decades, cheap dial-tone access has been the norm, thanks to a federal program called universal service.

The program's egalitarian nature is intended to ensure that both poor and rich can place 911 emergency calls affordably, and that the farmer in a remote, high-cost area can make a local call just as inexpensively as the software engineer in a low-cost crowded city.

Through a combination of explicit subsidies and internal cost-shifting among phone companies, the universal-service program has driven the price of local dial-tone service down to a point where about 95 percent of all U.S. households are connected to the telephone network.

Now, the FCC is taking a closer look at universal service. It's concerned that if voice services migrate to the Internet, funding would decline unless Internet-protocol telephony providers are required to contribute a portion of their revenue to the subsidy pool.

That could mean new regulations for cable operators to ponder.

Some MSOs — such as AT&T Corp. and Cox Communications Inc. — already contribute to universal service as providers of traditional circuit-switched voice telephony.

But Charter Communications Inc., Comcast Corp. and Time Warner Cable are seriously considering rolling out IP telephony over their broadband facilities once the technology matures. Today, IP telephony over cable is exempt from universal-service requirements.

POINTED QUESTIONS

Instead of propounding tentative conclusions, the FCC has asked a number of pointed questions about the sustainability of universal service were technological innovations to cause funding to decline.

The FCC asked whether facilities-based broadband Internet access providers — including cable operators, wireless carriers, fixed-wireless providers and satellite carriers — should contribute a portion of IP telephone revenue toward universal service for the first time.

The National Cable & Telecommunications Association is studying the FCC's proposals but has not formulated a response, spokesman Marc Osgoode Smith said.

FCC member Kevin Martin, a Republican appointed by President Bush, said he was concerned about broadening universal service because he didn't want to see the Internet become a new stream of revenue for government at any level.

In recent speeches, Martin said he opposed applying such "legacy" regulations as universal service to cable operators.

Martin suggested universal service contributions by cable operators would be excessive, because operators already pay 5 percent of revenue in franchise fees to local governments.

Cole, Raywid & Braverman cable attorney Christopher Savage said MSOs could make the case that they should pay either franchise fees or universal-service fees — but not both.

"I think cable would have a very good argument that it would be improper to assess franchise fees on something on which universal-service fees are assessed," Savage said.

POSSIBLE SAVINGS

Some in cable believe operators might come out ahead by paying into the universal service fund in lieu of franchise fees, because universal service assessments can run below 5 percent of revenue.

In recent years, cable operators who wire schools and libraries at discounted rates have been allowed to tap into the universal service program.

Yankee Group senior analyst Michael Goodman doubts the FCC would conclude cable operators should contribute to universal service, mainly because IP telephony is a nascent product the FCC wants to encourage.

"If the idea here is to create a competitive market, providing disincentives isn't the way to do so," Goodman said.

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