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FCC adopts Universal Service and inter-carrier compensation reform order

Order borrows heavily on brokered solution, but defers determining details about how funding for rate of return carriers and satellite providers would be awarded. VOIP providers will pay access charges.

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As expected, the FCC today adopted an order aimed at reforming today’s voice-focused Universal Service program to one focused instead on bringing broadband to areas where it is not available and ensuring ongoing support for broadband. Plans to phase down inter-carrier compensation (ICC) and to require VoIP providers to pay ICC also are encompassed in the reforms, which appear to borrow heavily on the brokered reform proposal made by large carriers and small telco associations. The order also leaves several key areas for further resolution—including how funding for rate of return and satellite carriers will be awarded and how to treat calls that are connected via the Internet protocol.

Today’s reforms “put us on the path to get broadband to everyone by the end of the decade,” said FCC Chairman Julius Genachowski at the monthly FCC meeting today where reforms were adopted in a unanimous vote.

In addition, the proposed reforms “will unleash billions of dollars of private section infrastructure spending in rural areas, creating hundreds of thousands of jobs.” Genachowski said.

Genachowski also emphasized that today’s order will not just benefit people in rural areas. “It will grow the size of the overall [online] marketplace and [create] a boost for Main Street businesses all over the U.S.,” he said.

Today’s reforms will “eliminate the hidden subsidies in wireless and long-distance phone bills,” yielding a benefit of more than two billion dollars annually, Genachowski added. “Consumers will get more value for their money and less waste.”

Divvying the dollars
As expected, the FCC plans to cap the new broadband-focused Universal Service program at the same $4.5 billion annual level of support that currently goes toward the high-cost voice program. But how the commission plans to divvy up that funding is a bit different from what the brokered solution proposed.

Although price cap carriers hoped to be allotted $2.2 billion, they will instead receive no more than $1.8 billion. And wireless carriers, who would only have received only $300 million in the brokered solution, initially will receive up to $300 million to bring 3G or 4G service to areas that cannot get 3G today and ultimately will get up to $500 million in ongoing support for mobile data service.

The FCC’s budget also allocates $200 million for two programs that were not detailed in the brokered solution. This includes an initial $50 million rising to $100 million for tribal areas and $100 million for the most remote areas. The most remote areas represent less than 1% of the U.S. population and can be best served by “non-terrestrial” providers—apparently satellite providers, the FCC said.

Rate of return carriers, who primarily serve rural areas, will receive the same $2 billion recommended in the brokered solution—and as expected, funding for competitive carriers will be phased out. Commission staffers described a five-year phase-out for the competitive carrier program.

How funding would be awarded
The FCC envisions USF reform occurring in two phases. Initially reforms call for freezing support for the high-cost fund and allocating up to $300 million additional funding for price cap carriers that agree to quickly deploy broadband to areas that are currently unserved. The exact duration of Phase 1 was not specified.

For Phase 2, the FCC provided details on how the process for allocating funding to price cap carriers and wireless carriers would change. As expected, the funding available for individual price cap areas would be determined based on a forward-looking cost model to be developed through a “public process.” Price cap carriers would have a right of first refusal to bring broadband to the unserved areas at the funding level determined by the cost model. If they refuse, a reverse auction would be held.

The mobility program also will award funding based on a reverse auction.

But the commission essentially deferred making a determination about how funding would be awarded for rate of return carriers in Phase 2 or for the remote area/ satellite program. Instead, the commission plans to seek further input on how funding for those programs should be awarded.

The commission did not detail at today’s meeting how funding for tribal areas would be awarded, but it is possible that those details are included in the order, which has not yet been released.

ICC reform
The FCC provided few details about its plan to phase down ICC charges, although one staff member said the reforms initially will cap interstate and intrastate access charges with the ultimate goal of moving toward a “bill and keep” approach via a “transition path.” She also referenced an access charge replacement mechanism, although details of that mechanism were not provided.

Based on what was said, ICC reforms appear to be in line with what was proposed in the brokered solution.

As expected the FCC also said it would require service providers to pay access charges on calls that originate or terminate on the PSTN. In addition officials said the order takes steps to prohibit access charge arbitrage, including access stimulation and phantom traffic.

Although the order apparently does not address how IP-to-IP interconnection should be treated, FCC officials said the order does require all carriers to negotiate such agreements in good faith. In addition, the commission said it will seek comment on how calls connected directly via IP should be treated.

One of the more surprising comments made at today’s meeting was that all carriers would be on an “equal footing” in their ability to obtain ICC compensation—a comment that appears directed at meeting the requests of cable operators, who have asked for greater ability to collect access charges.

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© 2014 Penton Media Inc.

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