Small carriers question FCC's phone subsidy reform

The new broadband plan shorts mobile broadband, leaves small carriers hanging, some critics say

The U.S. Federal Communications Commission's vote Thursday to shift long-time telephone subsidies to broadband deployment generated praise in the telecom industry, but other groups questioned the move.

The FCC voted to transition the so-called high-cost program within the Universal Service Fund -- the main subsidy fund for telephone service, with an annual budget of US $4.5 billion -- to broadband deployment in rural areas, with funding beginning in 2012 and ramping up in later years.

Several companies and groups praised the decision, with proponents saying a move to broadband was long overdue. The FCC's vote redefined "the 21st century basic service, which all Americans should have access to, as broadband instead of traditional voice," Bob Quinn, AT&T's senior vice president for federal regulatory affairs, said in a blog post.

Representative Anna Eshoo, a California Democrat, also praised the FCC. The revamp of the USF program, and a related FCC decision on the fees carriers bill for carrying each others' traffic, "will increase access to broadband in rural America, eliminate duplicative subsidies," and bring the programs into the 21st century, she said in a statement.

But some rural providers of voice and mobile services said the FCC's decision raised concerns. The FCC's limit of about US$500 million a year for mobile broadband doesn't make sense, said Eric Graham, vice president of C Spire Wireless, formerly Cellular South.

That decision runs counter to the goal of the FCC and President Barack Obama's administration to have universal broadband across the U.S., he said. "Wireless is the most efficient and timely deployment option to meet that goal, yet the FCC's inability to untether itself from the wireline monopoly model of the last century deals a tragic blow to our nation's competitiveness at home and abroad," Graham said in a statement.

Mobile carriers, through taxes on bills, currently provide about 67 percent of the funding in the USF's high-cost fund -- which the FCC will convert to a broadband deployment fund -- but they will only receive about $500 million of the broadband fund's $4.5 billion, Graham said.

Rural carriers also complained that the FCC didn't decide how to set up a broadband fund for so-called rate-of-return carriers, which are generally small, rural telecom providers with high costs. The FCC on Thursday issued a further notice of proposed rulemaking to ask for more comments on a broadband fund for these small carriers.

Rural telecom trade groups the National Telecommunications Cooperative Association (NTCA), the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) and the Western Telecommunications Alliance (WTA) praised the FCC for moving forward with USF reform. For years, U.S. lawmakers, FCC members and members of the telecom industry have called for the agency to revamp the program and refocus it on broadband.

The three groups urged the FCC to move forward with a broadband plan for rate-of-return carriers. The FCC said it expects those small carriers to receive about $2 billion a year in broadband subsidies when the Connect American Fund for broadband is fully implemented.

TDS Telecommunications, a large rate-of-return carrier based in Wisconsin, is concerned that the FCC opened the door, in its new rulemaking, for reducing the percentage of profit that rate-of-return carriers can get for interstate services they provide, said Drew Petersen, vice president of external affairs and communications for the carrier.

In addition, TDS Telecom is concerned about the delay in a decision about the rate-of-return, or RoR, broadband fund, he said.

"Our contention is pretty transparent and simple -- that the FCC had a great opportunity to adopt longer term USF reform for rate-of-return carriers today," Petersen said. "Instead, those contemplations were put into the [further notice], which means we are unsure of how the RoR Connect America Fund will work for RoR carriers."

But several other people praised the FCC's action after years of debate on how to fix the USF. The FCC "deserves credit for taking steps to reform the existing arbitrary, bloated, and inefficient" USF and intercarrier compensation programs, said Randolph May, president of the Free State Foundation, a free-market think tank. "To fund the existing subsidies, consumers pay much more than they should for communications services."

May praised the FCC for moving toward a competitive bidding process for awarding broadband subsidies to unserved areas. "Over time, this market-oriented reform should result in significant savings to consumers by reducing subsidy payments to inefficient communications providers," he said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is

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Tags broadbandregulationinternettelecommunicationtelephony3g4gat&tInternet service providersU.S. Federal Communications CommissionBob QuinnAnna EshooFree State FoundationRandolph MayC Spire WirelessDrew PetersenEric GrahamTDS Telecommunications

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Grant Gross

IDG News Service
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