FCC Reforms $4.3B USF Fund

The Federal Communications Commission today is expected to reveal their plan for overhauling the $8 billion Universal Service Fund that subsidizes phone service in rural areas, with the goal of redirecting the money toward broadband expansion.

The agency is also preparing new rules for how phone companies pay each other for phone calls. Virtually everyone in the industry agrees that the system is outdated leads to higher costs. The five-member commission will vote on the rules at a meeting Thursday morning.

The real game changer is the Universal Service Fund. The commission wants to use $4.3 billion of USF funds annually to subsidize rural broadband instead of telephone service. This won’t reduce universal service charges on anyone’s phone bill. But it could make faster or cheaper broadband service available in rural areas, if the FCC can successfully target the subsidies.

UPDATE: The FCC voted unanimously to comprehensively reform its Universal Service Fund and intercarrier compensation systems. Those systems have been widely viewed as broken, and long overdue for reform (pdf):

The FCC recognizes the growing importance of mobile broadband and makes it an independent universal service objective for the first time in history. Dedicated support to expand mobile broadband nationwide will be provided through a new Mobility Fund. The Connect America Fund will put America on the path to universal broadband and advanced mobile coverage without increasing costs to consumers. By eliminating waste and targeting support where it is most needed, these reforms put universal service funding on a firm budget, and they will impose strict new accountability on fund recipients.


The new Connect America Fund will have a firm $4.5 billion a year budget through 2017. Up to $2 billion would be available for small carriers serving mostly rural areas, $1.8 billion for large and mid-sized carriers like AT&T, Verizon and CenturyLink, and $500 million for mobile broadband.

The order creates a mobility fund that will start with $300 million next year and will eventually distribute $500 million annually to expand wireless broadband access along the nation’s roads and highways.

A commission proposal earlier this year defined “broadband” as a download speed of 4 mbps and upload speed of 1 mbps. This definition artificially inflates the size of the rural broadband “problem”, say critics, because it does not count 3G wireless or basic satellite service as broadband. Refusing to count these providers as broadband will inflate the cost of the subsidies, they say. The FCC argues that 3G is too slow and expensive to substitute for broadband.

FCC Chairman Genachowski outlined his plan in a speech earlier this month, reports The Hill, but the specific details are still a mystery to the general public.

The FCC’s plan is expected to borrow at least some features from a plan submitted by AT&T and the other big phone companies. It would fund wireless broadband where construction costs for wired access are highest. That plan suggested capping the size of the new fund at $4.5 billion annually, giving subsidies to only one provider in an area, and directing funds toward places where there is no business case for companies to provide service on their own.

Policy director Matt Wood at consumer advocacy group Free Press said the phone-company plan had “very little to do with increasing broadband adoption, and everything to do with allowing monopoly local phone providers to reach further into the pockets of consumers.”

Small rural phone companies have their own plan. They are apprehensive that the FCC will place limits on how they use their funding and divert money to wireless broadband.

The FCC may subsidize at least two broadband competitors in rural areas through the Connect America Fund and a separate Mobility Fund. This essentially presumes that fixed wireless service and 4G mobile are, and always will be, separate services, and every rural customer is entitled to both.

Still, broadband wireless standards like LTE-Advanced, planned for Sprint and Clearwire, can deliver both 1 Gbps (fixed) or 100 Mbps (mobile) from one tower. Even plain vanilla LTE, currently used by Verizon and AT&T, may be a viable “fixed” broadband solution. If a single provider delivers both phone and broadband access, then taxpayers may essentially subsidize the LTE build-out of both AT&T and Verizon.

Perhaps that would be a workable solution if taxpayers don’t have to construct a parallel $10-$15 billion LTE network, dedicated just for first responders. USF funds might provide broadband wireless for virtually everyone.

Meanwhile, ViaSat-1 was launched earlier this month. It plans to deliver broadband wireless service to rural areas – without subsidies. ViaSat says they can deliver 10 Mbps, nearly 10 times the speed of earlier broadband wireless satellites, to rural users.

White Spaces, using unused television frequencies, may also be well suited to deliver rural broadband, although speeds beyond 3-4 Mbps are unlikely.

The FCC estimated last year that 9.2 million U.S. households, or about 26 million people, don’t have access to wired broadband. Excluding those who can get broadband wirelessly, the number shrinks to 5 million households or 14 million people. That’s 4.5 percent of the population.

Posted by Sam Churchill on .

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