Wednesday, October 5, 2011

FCC Chairman Proposes Replacing USF with "Connect America" Fund

FCC Chairman Julius Genachowski outlined a "Connect America" plan to reform and modernize the Universal Service Fund (USF) and Intercarrier Compensation (ICC) system with the goal of expanding broadband infrastructure and extending mobile broadband to areas of the country where it is not currently available.

The plan calls for transitioning the $4.5 billion annual USF into the new Connect America Fund, which would have two core goals:

(1) Ensuring universal availability of robust, scalable, affordable broadband to homes, businesses and anchor institutions in unserved areas. The Connect America Fund would begin near-term build-out to hundreds of thousands of consumers in 2012, and would ultimately help get broadband to the 18 million Americans who can't get it

(2) Ensuring universal availability of affordable mobile broadband through a new Mobility Fund, which would be part of the Connect America Fund. Deployment of state-of-the-art mobile broadband would be extended to more than 100,000 road miles where Americans live, work, and travel. In addition to a one-time shot-in-the-arm effort to accelerate deployment of 4G networks in 2012, this Fund would provide significant ongoing support for rural mobile broadband.

Genachowski said the growth of the Connect America Fund would be constrained so as to limit consumer costs over the coming years. Unlike USF, the Connect America Fund would use a competitive bidding process among providers for obtaining universal service support, which would transition over time to a fully competitive system for distributing Connect America Fund dollars.

Regarding Intercarrier Compensation, Genachowski proposed the following 3 reforms:

The proposed ICC reforms include three main elements:

(1) Immediately close loopholes like phantom traffic and traffic pumping, and other arbitrage schemes like CMRS-in-the-middle, where some carriers divert wireline traffic to wireless networks to avoid paying ICC. The plan would also provide greater certainty about compensation for VoIP calls that either begin or end on the public
switched telephone network, ensuring symmetry in the treatment of such traffic.

(2) Phase down ICC charges over a measured but certain multi-year transition path, starting by bringing intrastate access rates to parity with interstate rates.

(3) Help companies transition by employing a tightly controlled recovery mechanism. The plan would permit some companies to receive transitional support from the Connect America Fund, but that support would be accompanied by obligations to serve the public as well as strong oversight and accountability.

  • In July 2011, A coalition of six of the leading carriers in the U.S., submitted a proposal to the FCC for reforming the Universal Service Fund (USF) and the Intercarrier Compensation (ICC) system. Members of the group include AT&T, CenturyLink, FairPoint, Frontier, Verizon and Windstream -- which collectively serve the vast majority of U.S. wireline customers, including those residing in high-cost rural areas, which are the primary focus of USF support.

    The big telcos said the key aim of their proposal is to speed broadband deployment to more than 4 million Americans living in rural areas. They also announced an agreement with three organizations that represent small carriers on a framework for complementary reform. Joining the companies in support of reform are the National Telecommunications Cooperative Association, the Organization for the Promotion and Advancement of Small Telecommunications Companies and Western Telecommunications Alliance.

    Core components of the proposal, called America's Broadband Connectivity Plan, include:

    Focusing the Universal Service Fund on Broadband Deployment

    Consistent with the National Broadband Plan, a new Connect America Fund (CAF) would transition the USF over five years to an exclusive focus on broadband deployment. Key features of the plan:

    • Connect virtually all Americans to broadband access within 5 years.

    • Do so without growing the $4.5 billion high-cost USF..

    • Target support to broadband deployment in areas where there is no business case for companies to provide service..

    • Promote efficiency by targeting support more precisely to identified high-cost areas, and supporting only one provider in each area.

    • "Broadband" is defined as a minimum of 4 mbps downstream and 768 kbps upstream (supporting robust education, health care and other applications).

    Rationalizing an Outdated Intercarrier Compensation System

    The proposal seeks to modernize intercarrier compensation to provide certainty, stability and a healthy foundation for growth to meet the needs of consumers.

    • Transition terminating intercarrier compensation to a low, uniform default rate of $0.0007 per minute over a five- to eight-year timeframe.

    • Eliminate, through new rules and lower access rates, costly arbitragescams that exploit today's outdated rules at the expense of broadband companies and consumers, as well as FCC resources, as the Commission chases after these fast-proliferating schemes.

    "After years of debating and discussing how to update the universal service and intercarrier compensation programs for the broadband era, a workable framework has emerged," said Hank Hultquist, vice president, AT&T Federal Regulatory. "To truly bring broadband services to all Americans, the rules of the road for the black rotary phone desperately needed to be updated for today's competitive, high-speed communications networks. We look forward to continuing to work with policymakers, Congress and others to ensure we accomplish this important goal this year."

    "This plan recommends significant federal regulatory reforms to achieve the goal of connecting more Americans to broadband," said Melissa Newman, vice president, CenturyLink Federal Regulatory Affairs. "The policy changes offered in this proposal also are necessary for bringing long-term stability and predictability to the nation's universal service program. We look forward to working with the FCC as it develops an order that ultimately will provide consumers with the support they need to connect to broadband and its many opportunities."

    "This proposal modernizes the USF and ICC mechanisms as our industry migrates toward a broadband-oriented future," said Mike Rhoda, senior vice president, Windstream Government Affairs. "Importantly, the proposal provides an adequate transition period for carriers to move from the current structure to one that will meet the changing needs of telecommunications consumers and help close the rural-rural divide that has persisted under the existing flawed framework."

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