How AT&T exec defends Universal Service funds

Hank Hultquist, vice president of federal regulatory for AT&T, wrote an interesting series of blogs about Universal Service recently. In one of them, he offered some refreshingly frank commentary about the competitive carrier element of the program, which was triggered in part by data recently released by the Federal Communications Commission.

After reviewing that data, Connected Planet reported that AT&T is not only one of the biggest recipients of USF funding, but the company also receives about half of that total money for areas where it operates as a competitive wireless carrier — areas the company probably would have served anyway without the funding. 

Not surprisingly, Hultquist noted that AT&T pays “dramatically more” into the Universal Service Fund than it pulls out. But what was surprising was his take on the money AT&T collects on the wireless side.

Noting that these receipts are tied to whether an incumbent landline carrier receives funding in an area, Hultquist wrote, “None of the wireless subsidies are tied directly to investment in unserved areas.” He went on to say, “It’s almost as if the FCC put out a sign saying GET DOLLARS HERE.”

As for why AT&T opted to apply for those dollars, Hultquist wrote: “In a competitive business like wireless, it’s not easy to sit idly by while your competitors tap into a new revenue stream. Nor is it consistent with your shareholders’ interests.”

In other words, everyone else was doing it, so they did it, too.

It’s that kind of thinking that has created a situation where some service areas have a dozen or more competitive (almost always wireless) carriers collecting Universal Service support.

What Hultquist didn’t talk about (and what I also did not explain in detail in earlier coverage on this topic) was why regulators allowed this to happen. The short answer is that a separate Universal Service program was never established for wireless carriers.

If you talk to the people at the Rural Cellular Association, they will tell you that there are some areas of the country where rural wireless carriers, like their landline counterparts, have unusually high costs and would probably not be able to offer service without subsidies. Recognizing that, what would have made sense would have been to establish a program which, like the landline program, looked at how a carrier’s costs compared to average costs of delivering service — only in this case it would have been wireless rather than landline service. As with the landline program, the Universal Service Fund could have covered a portion of the difference between the wireless carrier’s cost and the average cost of delivering service.

Instead, regulators simply piggybacked wireless onto the landline program. They basically let any wireless carrier collect funding for any area where the landline provider had particularly high costs for delivering landline service—and they allowed the wireless carrier to receive essentially the same amount of funding per line as the landline carrier. That’s why Sprint Nextel gets $12,000 per year per cellular customer residing in a particular area of Maui — because it costs the landline carrier a lot to provide service there.

The National Broadband Plan recommends correcting this by creating a separate Universal Service Fund for wireless. Like the proposed reforms to the landline program, the new wireless program would focus on the cost of delivering data and voice, rather than just voice service.

Hultquist noted that AT&T supports these reforms because the company would like to see a “framework that’s rational and works for rural areas.”

In other words, AT&T would be happy to do without the USF wireless windfall, as long as its competitors can’t get it either.