Three Keys to USF Reform – Fair, Simple and Efficient

Later tonight, I have the pleasure of speaking at a very timely FCBA Continuing Legal Education event on Universal Service Contribution Methodology. Well, this CLE is not timely in terms of my ability to watch Game 4 of the NBA Finals, but is incredibly timely in that the FCC recently opened a contribution methodology proceeding, through which the FCC will consider changes to the way it collects money for the Universal Service Fund (USF). Program costs are projected to be approximately $9 billion this year alone, and roughly 44 percent of the contribution burden falls on wireless providers and their customers. CTIA is committed to working with the Commission to craft a revised USF contribution system that is fair, simple and efficient – so, in that sense, tonight’s CLE is certainly timely.

As we will talk about tonight, and as we will argue when comments are due on July 9^th, there is much that can be done to improve the current contribution system, which suffers from some significant flaws and administrative hurdles. While we may not have all the answers, CTIA looks forward to developing a contribution plan that provides greater clarity to all contributors about their obligations, particularly for new and innovative services. We also believe that a revised collections system should minimize distortions in the marketplace, by not giving competitors an unfair cost advantage over one another.

But making the contribution system fair and simple is only half the battle. To control the USF’s impact on American consumers, the Commission must remain steadfast in its efforts to make the program more efficient.  The biggest single component of the USF subsidizes high-cost areas, and amounts to about half of the total fund.

Late last year, the Commission adopted significant reforms designed in part to encourage efficiency and impose some fiscal discipline. CTIA didn’t agree with all of those reforms – particularly the Commission’s decision to reduce support for wireless service in rural areas. But CTIA strongly supported the Commission’s overall efforts to increase efficiency in the program.

The FCC must hold the line on some of the initial reforms targeted at driving some efficiency into the rural incumbent LEC support mechanisms. In particular, the FCC still guarantees small rural landline telephone companies a hefty, monopoly-era return on their investments – like water or power companies – even though most of them compete with wireless carriers and cable companies.  These companies serve less than 10% of the customers in the country, but receive about half of all the support for rural areas. The Commission implemented some common-sense measures to address the most egregious cases, such as the “race to the top” rules that rewarded small telephone companies for inefficiency. Now some are trying to undermine these reforms – even though, as several federal courts have observed, the USF isn’t intended to help carriers, it’s intended to help customers. The FCC has taken some important steps in this direction, but contribution reform won’t really matter if the FCC weakens its resolve on keeping the fund efficient.

The FCC has a major task ahead of it to craft a fair and simple USF contribution system. As it does so, however, it must remain steadfast in its reforms for small telephone companies to keep the fund efficient. In USF, as with the NBA Finals, the FCC will need to keep up the momentum, right through the proverbial Game 7.