Members of a House committee said yesterday that the five-year, $1.2 billion Universal Service Fund to provide rural communities with broadband was broken, reports the Washington Post. The Universal Service Fund missed many unserved areas while channeling hundreds of millions of dollars in subsidized loans to companies in places where service already exists, charged the committee.
“If you don’t fix this, I guarantee you this committee will,” House Agriculture Committee Chairman Collin C. Peterson (D-Minn.) told James M. Andrew, administrator of the Rural Utilities Service at the U.S. Department of Agriculture. “I don’t know why it should be this hard.”
The Washington Post reported that since 2001 more than half the money has gone to metropolitan regions or communities within easy commutes of a mid-size city. An Internet provider in Houston got $23 million in loans to wire affluent subdivisions, including one that boasts million-dollar houses and an equestrian center.
CTurn, a WiMAX operator headquartered in Salem, Oregon, received a $24.5 million loan in 2006 to deliver broadband to parts of Oregon and Washington. But CTURN President Pat Turnidge makes no apologies.
“Are there some competitors out there? Sure,” Turnidge said, “but there’s virtually no place in America where there isn’t some sort of broadband.”
The Universal Service Fund (wikipedia), is a $4 billion program that subsidizes telephone access in rural and poor areas. USF funds are provided to multiple carriers, both wired and wireless.
The cellphone industry blasted the panel’s recommendation to enact an emergency cap on USF funding, says RCR News. “The Joint Board’s bias toward legacy wireline networks will undoubtedly disadvantage rural consumers,” said Steve Largent, president of cellphone association CTIA. Analysts at Stifel, Nicolaus & Co. predicted the FCC would adopt the Joint-Board’s proposed cap on high-cost support later this year, but added it is less clear how the panel and federal regulators will address long-term USF reforms.
Verizon is pushing for reform. They think the U.S. government should cap USF at its current funding levels, and require carriers to bid to provide service in areas where subsidies are needed. Currently Verizon’s big city business largely makes them ineligible for the subsidy. But with the 700 MHz auction expected later this year, Verizon may be positioning itself to be a recipient for RUS funding.
Currently, USF funding is available to carriers with a high cost of delivering service. It has helped small rural phone companies and discouraged large phone companies because big city phone operators have a lower cost (on average). That tends to make them ineligible for the subsidy. Currently, universal service funds are allocated by state PUC’s.
Last week, Rep. Stephanie Herseth Sandlin (D-S.D.) introduced legislation to close loopholes that allow areas that “are neither rural nor suffer a lack of service” to collect the loans and loan guarantees.
The USDA has been drafting new regulations to address the problem since late 2005. Rep. Mike McIntyre (D-N.C.), who chairs the subcommittee overseeing rural development issues, yesterday directed Andrews to send the proposal to Congress within 10 days. “I’m disappointed these regulations are still under wraps,” McIntyre said.
“Flat fees based on working telephone numbers would minimize incentives and opportunities for carriers and customers to avoid contribution obligations,” the CTIA argues. Incumbents are pushing for a numbers-based plan, says Telephony, largely because they believe it levels the playing field and keeps newcomers, such as Voice over IP providers, from avoiding financial support for USF as they launch service. The FCC has already announced its intention to impose USF fees on VoIP.
Currently the Universal Service Fund (“USF”) is financed by telecommunications companies (as a line item on your phone bill). Contributions are a percentage of the interstate and international revenues. The percent is determined on a quarterly basis by dividing the demand for all four USF programs (high cost (telecom), low income, rural health care, and schools and libraries, a.k.a. “E-rate”).
