Monday, October 24, 2011

USF Reform: Peering into the Sunset

When the ABC plan to reform the Universal Service regime was submitted to the FCC in late July by six telephone companies I wrote here and elsewhere that the plan represented "a major step forward in the effort to achieve a more efficient, technology-neutral, economically-sound universal service system." I still believe this to be true.
And I have said here and elsewhere that the ABC plan could be improved further by adopting some of the suggestions put forward by cable operators, such as modifying the "right of first refusal" component of the plan to transition more quickly to award all subsidies through a competitive bidding process.
No doubt the wireless and satellite companies have offered suggestions worthy of consideration as well.
With the FCC fast approaching a decision, even the most cursory review of the hundreds of "ex partes" filed in just the last few weeks demonstrates the intensity of the lobbying effort by all the various communications providers. This is not unexpected. Nor is it in any way a moral failing. With the FCC considering how to allocate high-cost subsidies amounting to $4.5 billion per year, it would be surprising if the various subsidy recipients, and potential recipients, didn't go "all out" to get as much subsidy funds as possible.
It is in the nature of government entitlements that recipients and potential recipients will not easily relinquish their "rights" to an entitlement without a real fight. Why would they?
This is why, along with a no-loopholes "hard cap" for the high-cost fund at $4.5 billion per year and a prohibition against subsidy payments to providers in areas already served, I have advocated a "sunset" date, say ten years, for whatever program the Commission adopts.  Along with my FSF colleague, Seth Cooper, I filed comments with the Commission last May stating:
Announcing a sunset date for ending high-cost subsidies will signal the Commission's seriousness of purpose in transitioning the USF and ICC systems to greater reliance on market forces. And such an announcement will crystallize the expectations of high-cost area providers, particularly those subject to guaranteed rate-of-return regulation: they should not rely on such subsidies in perpetuity. A reasonable sunset date will allow them time to make adjustments as needed to transition operations to a more market-oriented approach to providing services.
Since then, I have often urged, for example, including recently in this piece, the adoption of a sliding reduction of high-cost subsidies until the sunset date is reached.
It is not necessary to question the present need for subsidies for broadband build-outs to unserved areas to also recognize it makes sense to put a sunset date on the new regime. There has been too little attention paid, especially by self-declared consumer advocates, to the overall adverse impact on consumers resulting from the current 15% tax added on top of the regular charges for all interstate and international calls. Along with many other authorities, these FCC comments submitted by the Mercatus Center reference the empirical research that documents the welfare losses to consumers and producers attributable to USF surcharges.     
Of course, if money grew on trees, there for the picking, all of this would be merely academic. But it doesn't, not in Greece, and not even here in America.
Apart from what ought to be a general disinclination to establish expensive new entitlement programs that, by design, are never-ending, in this instance such an approach is especially foolhardy. The communications and information services marketplace environment is simply too dynamic and fast-changing to foresee what subsidies, if any, may be appropriate in ten years, and what form they should take.
A sunset in ten years, after a programmed phase-out, doesn't necessarily mean that high-cost subsidies could not be continued in some limited fashion after a thorough review of any demonstrated continuing needs. But it would mean that such subsidies would not just be continued willy-nilly absent such a thorough review.