USF debate must address two sides

In the entire rancor over the future of the Universal Service Fund, most of the attention has been focused on the contribution side of the equation, with endless debates over who puts in for the fund and how much. A Senate hearing, multiple press conferences and a flurry of prepared statements last week largely shied away from the issue of revamping the distribution methodology used for USF.

However, if the entire system is to be adjusted to fit today's ever-changing technological and competitive landscape — a stated goal of almost all involved in the debate — both sides must be addressed. One of the reasons distributions have been glossed over, save for pronouncements from various entities that rural carriers must receive enough to deploy and maintain voice and/or broadband, is the diversity of opinion.

“The distribution side is very difficult,” said David Cohen, vice president of policy for USTelecom. “On the contribution side, there's at least some agreements being developed.”

Part of that difficulty comes from the significant increase in distributions to competitive eligible telecommunications carriers (CETCs). Testifying before the Senate Committee on Commerce, Science and Transportation, CenturyTel CEO Glen Post said his company's funding has actually decreased over the last three years despite a jump in overall distributions (see figure).

“The real growth in the fund has been in the CETC side,” he said. “The rural telephone companies have only increased 0.46%.”

Providing support to CETC's, mostly wireless carriers providing primary-line service, generally hasn't been an issue in the past because they lacked market presence. However, as more users move to wireless as their primary means of communication, the impact has been a double whammy for incumbents reliant on USF, Cohen said.

Because distributions to both CETCs and incumbents are based on the cost of the latter in each specific area, each customer a CETC wins from an incumbent makes the pool over which costs are divided that much smaller. The result is an increase in funding per-subscriber for both the incumbent and the CETC. “We don't object in general to the concept of CETC's. However, we don't think that the current system of designation needs to be looked at,” Cohen said.

One group that likely won't be applying for CETC status any time soon is voice-over-IP (VoIP) providers, which have been the main target of those wanting to expand the contributor pool.

Jack Nadler, a partner with Squire, Sanders& Dempsey, said most ISPs and, by extension, VoIP providers, have put their effort on avoiding making direct contributions to the USF. As significant users of incumbents' bandwidth, Nadler argues, that group already pays USF fees through monthly service charges from carriers. “As users, [the ISP community] want a small, focused program,” he said.

DISTRIBUTION OF HIGH-COST SUPPORT BETWEEN CETCS AND ILECS 1998 THROUGH Q4 2005*