Thursday, May 1, 2008

FCC to Cap High Cost Support Under the Universal Service Fund

Seeking to stem the growth of the Universal Service while it pursues larger reform measures, the FCC adopted an interim
cap on payments to competitive eligible telecommunications carriers (ETCs). Total annual support for competitive ETCs will be capped at the level of support that they were eligible to receive in each state during March 2008.

Currently, consumers pay more than 11 percent in USF fees on their interstate phone bills. Growth in contributions to the fund is largely attributable to competitive ETCs, who receive USF support based not on their actual costs, but on the costs of the incumbent provider,
even if the competitive ETC's costs of providing service are lower. USF payments to competitive ETCs have grown from approximately $1.5 million in 2000 to more than $1 billion in 2007. Left unchecked, this staggering growth threatens the sustainability of the USF program and forces consumers to pay excessive and ever-increasing contributions to the fund.

The order contains limited exceptions from the cap: Competitive ETCs serving tribal lands or Alaska Native regions may continue to receive traditional support at uncapped levels for serving those historically underserved areas. Also, competitive ETCs that file their own cost data may obtain an exemption from the cap. Finally, the order addresses a number of pending competitive ETC petitions, while making clear that such petitions will not increase the amount of the adopted cap.

In a statement, FCC Chairman Kevin Martin wrote: "Changes in technology and increases in the number of carriers that receive universal service support, however, have placed significant pressure on the stability of the Fund. A large and rapidly growing portion of the high-cost support program is now devoted to supporting multiple competitors to serve areas in which costs are prohibitively expensive for even one carrier. These competitive ETCs don't receive support based on their own costs, but rather on the costs of the incumbent provider, even if their costs of providing service are lower. Indeed, growth in required contributions to the Fund is largely attributable to these competitive ETCs. High-cost support to competitive ETCs has grown from approximately $1.5 million in 2000 to well over $1 billion in 2007. Left unchecked, this staggering growth threatens the sustainability of the Fund."

Writing in opposition, FCC Commissioner Michael Copps stated "I dissent from today's decision to cap high-cost support for competitive eligible
telecommunications carriers (CETC) because it falls woefully short of the fundamental, comprehensive reforms needed to meet the overarching telecommunications challenge of the Twenty-first century. That challenge, both by statute and by necessity, is to encourage the deployment of basic and advanced telecommunications to all of our citizens and to ensure that the Universal Service system, which accomplished so much in the 20th Century, can do so again now. Today's decision does nothing meaningful to meet that challenge; indeed, it only deflects us from the goal. The outcome is an illusory band-aid that is supposed to contain costs but, in reality, imposes the much heavier cost of lost opportunity to reform Universal Service and put America back in the vanguard of advanced telecommunications. As a result of today's vote, real reform is on the back-burner. What a pity!"

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