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MTA Commentary-November 28, 2007 – Federal State Joint Board Recommends Long-term Universal Service Reform

Six months ago, the Federal-State Joint Board on Universal Service recommended an interim solution to the burgeoning growth of the federal high-cost universal service fund. The Joint Board’s 7-1 decision was supported by the Board’s consumer advocate as well as both state and federal regulators from urban and rural states alike. The Universal Service Fund supports investment in high-cost telecom networks in order to ensure access by all Americans to quality and affordable telecommunications services. The Joint Board warned in May of this year that the universal service fund is in “dire jeopardy of becoming unsustainable.”

The threat to the sustainability of the fund has come from exponential growth in funding wireless carriers. Support to these companies has grown from $15 million in 2003 to over $1 billion this year. Without stemming the uncontrolled growth in funding of these companies, the amount of support given to wireless providers is expected to grow to $2.5 billion in two years.

Much of this new funding of competitive, mostly wireless, companies merely provides a subsidy to companies already offering complementary services in areas where universal service support already is used to help provide access to telecom services. Moreover, the support these companies receive is not tied to the companies’ costs, so there’s no way of knowing whether the support actually is needed.

The Joint Board in May recommended establishing an immediate cap on new funding of competitive carriers. Several critics of the proposal were leery that the “interim” proposal would become a “permanent” policy, given the glacial speed at which regulatory reform happens. The Board, however, said that in six months it would recommend long-term proposals for comprehensive reform of the universal service funding program.

Last week, six months after its interim recommendations were announced, the Joint Board kept its word and announced a series of long-term reform proposals.

The Joint Board’s recommendations announced last week would, if implemented, create three separate funds within the overall universal service fund: one for underlying providers of last resort; one for wireless voice service to unserved areas; and one for provision of broadband internet service to unserved areas. The Joint Board suggests that support may be targeted to only one service provider in an area and that support may be reduced or eliminated over time in areas with multiple providers.

The Board’s recommendations would impose an overall cap on the total amount of universal service provided at approximately 2007 levels. Within this cap, the Mobility Fund would be capped at $1 billion, and the broadband fund would be created with a $300 million funding cap. Mobility and Broadband funding would be allocated to states under a methodology which is yet to be determined. For the Broadband Fund, the Joint Board recommends that states develop a matching grant program.

Significantly, the Joint Board recommends that support be targeted to unserved areas. One of the major concerns about the current universal service program is that it subsidizes wireless carriers for providing service they already provide, and that it is not targeted to unserved areas. The Joint Board’s recommendations address this concern directly.

Another significant reform recommended by the Joint Board is the elimination of the so-called identical support rule, which awards subsidies to wireless carriers without regard to their actual costs. The Joint Board recognizes that this identical support rule has resulted in the subsidization of multiple voice networks in numerous areas and has greatly increased the size of the fund with no measurable benefits. It is no longer in the public interest to use universal service support to subsidize competition and build duplicative networks in high cost areas.

Of course there are many details to iron out. For example, terms like “broadband” and “unserved area” need to be defined. Allocation methodologies need to be developed, too. Also, it is important to ensure that rural states like Montana are not put at a disadvantage by having to come up with matching funds that they may not reasonably be expected to raise from a small population base.

Nonetheless, the Joint Board has made a number of constructive proposals for long-term reform of the federal high cost universal service program. The Montana Public Service Commission and Montana’s Congressional Delegation should voice their support for the positive contribution the Joint Board has made in initiating long term reform of the universal service program, the sustainability of which is essential for continued investment in the high cost telecom networks which are essential to Montana’s continued economic development.

Contact:

Geoff Feiss, General Manager

Montana Telecommunications Association

http://www.telecomassn.org

406.442.4316

[email protected]

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