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The real story on the latest USF data

Competitive carriers in three states and Puerto Rico receive more funding than the ILECs; one Iowa study area has 19 competitive carriers.

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Several news stories recently came out as a result of data released from the Federal Communications Commission about the Universal Service program. What got the most headlines was the fact that AT&T and Verizon topped the list of funding recipients — a reality that generated no small amount of outrage.

Unfortunately for small rural carriers, a story also came out that was highly critical of two small carriers that received unusually large amounts of USF funding to provide service to areas that were unusually expensive to serve.  In the most extreme example that the FCC identified, this amounted to almost $18,000 per line given in 2009 to Weavtel, a small Washington telco, to serve just 17 lines.

The story noted that for some high-cost, low-population density areas, it would be cheaper to buy everyone satellite service than to subsidize landline connectivity. That’s an idea the FCC already suggested that would appear to make a lot of sense for about 250,000 U.S. households and could eliminate some excesses of the USF program.

But what the story didn’t say is something more outrageous than the USF paying a lot to bring service to 17 isolated Washington homes.

Six of the 10 small carriers with the highest per-line USF support, including one of the two referenced in the story, also have at least one competitive carrier collecting support at virtually the same level — and all or nearly all of these are cellular operators. Those carriers can collect what is commonly called “identical USF support” at virtually the same level as the small telco, even though their costs are not the same as the telco’s and unlike the telco, they are not required to provide service throughout the entire serving area. Sprint Nextel, for example, earned more than $12,000 per customer for serving 600 people in an ultra-high-cost USF study area (or small rural telco serving area) in Hawaii.

Many USF critics do not appreciate the extent to which competitive, primarily wireless, carriers have contributed to the fund’s excesses. The same USF data that provided fodder for the stories about AT&T and Verizon, as well as the one about Weavtel, also provides some vivid illustrations of the extent to which wireless carriers are milking the system.

· One USF study area in Iowa has 19 competitive carriers serving a total of 85,000 customers and receiving identical support at an average of $23 per line for a total of more than two million dollars.

· Some other study areas have fewer competitive carriers, but those carriers had more total lines and received larger dollar amounts. In a Mississippi study area, 15 competitive carriers serving a total of more than 900,000 customers received more than $86,000 in support at nearly $100 per customer. And one Alabama study area has 12 competitive carriers serving more than 1.3 million lines, earning $20.55 per line.

· Competitive carriers in three states — Hawaii, Mississippi and Nebraska — and in Puerto Rico actually received a higher total level of support than the incumbents. In Puerto Rico, the differential was around six to one, with two incumbents combined taking in just under $11,000, while seven competitive carriers raked in more than $63,000.

· More than half of the $435 million that went to AT&T in USF payments in 2009 was for areas where it operates as a competitive carrier and most if not all of those operations appear to be wireless. And about two-thirds of the nearly $680 million that went to Verizon was for areas where it has competitive carrier status. There, too, most, if not all, of the money involved appears to be for wireless operations. (In comparison the most excessive payment to an incumbent rural carrier — $300,000 to serve those 17 people in Washington -- appears infinitesimal.)

· All told, competitive carriers received nearly $1.3 billion in USF support at the same rate as the incumbent landline carrier, primarily for delivering wireless service in areas many likely would have served without the subsidy.

Small rural telcos have been complaining about identical support for wireless carriers for years and little has been done about it, despite numerous recommendations to do so (most recently in the National Broadband Plan) and despite little opposition.

The most credible defender of the existing rules is the Rural Cellular Association, which argues that many of its members would not be able to offer service without USF support. But undoubtedly those companies represent just a small fraction of all competitive carriers receiving identical USF support today.

Ultimately the solution may be to implement something like the mobility fund proposed in the National Broadband Plan, which aims to provide support for 3G service for wireless carriers in areas that are substantially behind the national average in 3G availability.

Seems like there ought to be some way of fast-tracking that recommendation so today’s ridiculous identical support system could be eliminated. The money saved could go a long way toward bringing broadband service to the 7 million U.S. households that cannot get broadband today.

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© 2014 Penton Media Inc.

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