Cable and wireless associations protest proposed USF reforms

The FCC may have narrowed the field of USF reform proposals down to three final contestants (CP: FCC narrows USF reform field down to three proposals). But those whose ideas didn’t make the cut—including associations representing cable companies and cellular network operators--are not giving up without a fight.

Cable associations send joint letter
Perhaps inspired by the strength-in-numbers approach used by large and small telcos to advance their ideas (CP: Three rural groups add support to USF-ICC reform initiatives), two cable associations this week wrote their own joint letter to FCC Chairman Julius Genachowski. In it the associations argue that Universal Service Fund reform proposals currently under consideration by the FCC are at odds with the Commission’s previously stated goals of ensuring that reforms would be technology-neutral and market-driven. Signing the letter were the CEOs of the National Cable & Telecommunications Association and the American Cable Association (CP: American Cable Association CEO: "Underserved is a dangerous term").

Under fire are proposals from the nation’s six largest telcos (CP: AT&T, Verizon and other price cap carriers send broadband USF proposal to FCC) and from associations representing the nation’s 800-odd small rate-of-return carriers—two of the three proposals on which the FCC is now focusing as it plans to transition today’s voice-focused USF program to one focused instead on broadband.

“A modern set of Universal Service and inter-carrier compensation rules should transition away from today’s incumbent LEC-centric approach and move toward a regime where there is no artificial advantage associated with incumbency and no disadvantage associated with using a particular technology or network architecture,” said the NCTA and ACA letter.

The small telcos, however, propose to direct broadband USF money for their service areas only to themselves, while the large telcos want a right of first refusal in their territories.

Rural Cellular Association
Also weighing in on USF reform over the past few days was the Rural Cellular Association, which also argued that the large and small telco proposals favor the incumbent telcos.

“Many of the reforms currently under consideration would rob [rural] Americans of any real choice in their broadband selection by largely cutting wireless companies out of the picture, and undermining the ability of those wireless companies to maintain and extend rural coverage,” said Steven K. Berry, CEO of the RCA in a statement.

Berry makes a good point. Although the large telco proposal for the broadband program does not rule out the possibility that a wireless carrier could win USF money, such an option would exist only in areas where the incumbent landline carrier opted out of providing landline broadband service.

I wouldn’t rule out the possibility that some price cap carriers might choose that option, especially considering that they may not want to meet the Net Neutrality requirements that are likely to be entailed. But I imagine it will be a rare rural exchange carrier that would opt out of the proposed broadband USF program. Yet it’s in rural areas that wireless carriers are least likely to be able to justify a mobile broadband deployment without USF support.

The FCC isn’t expected to leave wireless carriers out of the new USF program entirely. Instead the commission has suggested allotting $300 million to a mobility fund. But that’s considerably less than the $4.2 billion annually that’s likely to be allotted to the broadband program. And the FCC is only talking about target rates of 3G speeds for the mobility program—despite the fact that 3G data rates are likely to look mighty slow mighty soon.

Will dissenters make a difference?
What impact are these eleventh-hour entreaties from the cable and wireless industries likely to have on proposed USF reforms?

Not much, I suspect.

The FCC can argue that cable companies and wireless carriers have a shot at bidding to get USF funds anywhere the incumbent opts out. And although it would be preferable to have sufficient funding so that all Americans have both a wireless and a wireline broadband solution available to them, that’s unlikely to be accomplished without increasing the overall fund size and the FCC has made clear that it will not entertain that option. To the extent that it has been forced to choose between wireline and wireless broadband, the commission appears to be favoring a wireline approach—and considering the imprecision of wireless coverage and the usage caps typically imposed on wireless service, I would argue that that’s the right call.

The way things look to be shaping up, the FCC is essentially telling carriers that receive USF today that they have to get more done with the same amount of funding, which has left them precious little room to add any new recipients to the fund.

Viewed in that light, it’s not difficult to figure out how the $300 million for the mobility fund was calculated. Under today’s Universal Service program, wireless carriers are funded through the competitive carrier program at roughly $1 billion annually. But a lot of that money goes to large national wireless carriers that would have offered service without USF support. The FCC appears to have simply pulled out about 70% of the $1 billion, reasoning that about 70% is going to carriers that don’t need it, leaving about $300 million for the carriers that do.