FCC moves to formalize plan for broadband Universal Service program

A notice of proposed rulemaking adopted by the Federal Communications Commission at its monthly meeting today aims to formalize reforms to the Universal Service and inter-carrier compensation programs based largely on proposals made in the National Broadband Plan just under a year ago. As expected the NPRM proposed phasing out inter-carrier compensation and transitioning today’s voice-focused Universal Service program to instead focus on broadband, with voice carried as an application over the broadband infrastructure. The FCC adopted the NRPM through a unanimous vote by the five commissioners.

The NPRM has not yet been released, but senior FCC officials told reporters yesterday that it has about 250 pages. Based on information provided by FCC Attorney Advisor Joe Cavender and Acting Deputy Chief of Pricing Policy Randy Clarke at today’s meeting, the FCC envisions a two-step reform plan. And although many details about the second phase have yet to be resolved, the commission does make several specific recommendations in the first phase.

Universal Service reform

The small telcos that have the most at stake in the reform process will be pleased to learn that in the first phase, the FCC plans to maintain the current rate of return system. But the impact of some other Phase 1 reforms on small telcos is less clear. For example, the FCC recommends that reimbursement formulas should be modified to ensure that fund distribution is “more equitable,” Cavender said. That likely means that the FCC plans to shift more funding toward areas that cannot get broadband today—and according to previous FCC data, two-thirds of unserved households are in areas where the incumbents are price cap carriers such as AT&T and Verizon.

In Phase 1, the FCC also proposes imposing limits on the amount of funding any individual carrier can receive and to research benchmarks for allowable capital and operating expense. The FCC apparently believes that cost control measures such as these, along with a plan that Cavender called “rationalizing” the competitive eligible telecom carrier system, will free up funding to begin a program to bring broadband to areas where it is not currently available. Cavender said that the FCC is considering a plan to award these funds based on a reverse auction process.

Although Cavender provided few details about Phase 2, he said the goal would be to complete the transition from today’s voice-focused Universal Service program to broadband. The NPRM, he said, seeks comment on how ongoing support levels should be determined.

There was no discussion at today’s meeting about the target speed for the broadband program. But the senior FCC officials told reporters yesterday that the NPRM will have a specific speed recommendation—and based on data that FCC Chairman Genachowski cited in an address to the Information Technology and Innovation Foundation yesterday, it appears that the target speed is 4 Mb/s. Genachowski said in the address that as many as 25 million Americans do not have access to broadband—and a previous FCC study arrived at that number by using a 4 Mb/s target.

ICC reform

Another piece of good news for small telcos is that the FCC in Phase 1 wants to address access charge avoidance, also known as “phantom traffic”—a practice that has reduced the amount of funding available to small telcos. The NPRM, Clarke said, “seeks proposals to reduce incentives for waste and arbitration” and would require carriers to provide one another with sufficient information to bill for terminating calls. In addition, Clarke said, the NPRM aims to resolve whether VOIP calls that are interconnected with the public telephone network should be required to pay inter-carrier compensation and seeks comment on that idea.

In Phase 2, however, the goal is to phase the per-minute access charges that telcos pay to one another for terminating one another’s calls. To achieve that the FCC is considering two options—one that would involve working with the states to phase out both interstate and intrastate access charges and a second option in which the commission would “set the methodology and the states would implement it,” said Clarke.

As ICC is phased out, the FCC apparently plans to rely more heavily on the Universal Service program as a funding source for small telcos that require support on an ongoing basis. Perhaps for that reason, the FCC did not put a cap on the Universal Service contribution factor. The commission also did not take the opportunity to expand the base of companies that must pay into the Universal Service program as some small telcos had hoped it would do.