Genachowski outlines USF reform plans: “Status quo is no longer an option”

After a volatile industry debate that has been ongoing for years and which reached a peak in recent months, FCC Chairman Julius Genachowski today said the commission has drafted a specific plan for transforming today’s voice-focused Universal Service and inter-carrier compensation programs to focus instead on broadband. In an address in Washington, Genachowski outlined the key points of that plan and said he is circulating it to the other commissioners with the goal of gaining their approval of the plan before the end of October.

That approval is likely to be forthcoming, as other commissioners have been involved in reform plans--and unlike some policy issues, USF reform is a bi-partisan concern.

Noting that broadband has gone from being a luxury to a necessity, Genachowski said, “The status quo is no longer an option.”

Plan borrows heavily from brokered solution
As outlined, the proposed plan appears to draw heavily on the brokered reform solution proposed by small and large telcos back in July (CP: Rural carrier associations confirm agreement with large carriers on broadband USF funding), although Genachowski insisted that the interests of consumers were the most critical and that the plan was not shaped by any individual group of stakeholders. Without specifically referencing the brokered solution, Genachowski today noted several elements included in the draft reform plan that are outlined in the brokered solution, such as:

-- Constraining the fund size
-- Broadband service capacity will be “comparable to urban broadband”
-- No support for areas with where an unsubsidized competitor offers service
-- A competitive bidding process for awarding funding for some price cap areas. For other areas support initially would be based on a cost model but would shift to competitive bidding in later years
-- Rate of return carriers to be reimbursed based on actual costs incurred. Genachowski added, though, that the proposed plan will provide “appropriate incentives to invest efficiently.” That, he said, includes “improving accountability, using benchmarks to ensure reimbursable expenditures are reasonable, and extending commonsense limits on reimbursements for corporate operations expenses.”
-- One-time funding to accelerate mobile broadband deployment. Genachowski referred to this as a “shot in the arm.”
-- Terminating access charges to be phased down over a period of years, starting by bringing intrastate access charges in line with interstate charges.
-- Access charge revenue recovery mechanism to be created.

The commission’s thinking on USF reform was initially triggered by suggestions made in the National Broadband Plan and many of those suggestions carried over into the brokered solution. But key changes proposed by the telcos included directing funding largely toward incumbent carriers and retaining the rate of return system for small rural telcos.

In outlining the draft reform proposal, Genachowski also outlined a few new twists on the brokered solution. For example, although the brokered solution proposed serving the highest cost areas using satellite service, Genachowski said the draft proposal discusses using unlicensed wireless as well as satellite for those areas (CP: Broadband wireless makes quiet gains in rural broadband market).

Good and bad news for VoIP
Communications service providers outside the incumbent telco inner circle will be disappointed that their arguments against the brokered solution appear to have had little impact on the FCC. Wireless and cable companies had argued that the plan favors the incumbents (CP: Cable and wireless associations protest proposed USF reforms), but that does not to appear to have changed the FCC’s thinking about how broadband Universal Service funding would be awarded.

The service providers that are likely to see the most negative impact as a result of proposed reforms, however, are the VoIP providers. In his address today, Genachowski appeared to indicate that a wide range of VoIP carriers could see themselves subject to paying ICC charges. Genachowski said the draft proposal “will provide certainty going forward about the compensation for VoIP calls that either begin or end on the public switched telephone network, ensuring symmetry in the treatment of such traffic.”

On the plus side for VoIP as a technology, however, Genachowski said that the draft reform proposal will eliminate disincentives for carriers to interconnect VoIP calls with one another directly in IP form. Although he did not provide details, Genachowski said “We will acknowledge the importance of promoting efficient interconnection as carriers transition to an IP world, and will put forth specific proposals in that area.”