A Good Day for Universal Service Reform

There were two positive developments yesterday for those, like me, who favor meaningful reform of the federal Universal Service subsidy programs.

First, the press reported that FCC Commissioner Robert McDowell has now voted to cap the high-cost Universal Service fund. The annual subsidy provided to support telecommunications service in high-cost areas is around $4.5 billion per year. The subsidy has been escalating rapidly in recent years, primarily because wireless carriers have been applying for and receiving support in ever increasing amounts. The cap, intended to be an interim measure, pending adoption of more comprehensive reform, is an important step in staunching the uncontrolled growth of the high-cost fund. After all, consumers already are paying an 11% surcharge (some would say, rightly, a tax) on all their interstate calls.

Commissioner McDowell has now provided the third vote necessary to implement the funding cap. In my view, he should have acted sooner in concert with the leadership that FCC Chairman Kevin Martin and Commissioner Deborah Tate have shown on the issue. But, as the saying goes, better late than never.

And the second positive development? At yesterday’s Free State Foundation seminar on USF reform, Neil Fried, senior counsel for telecom policy, House Energy and Commerce Committee, unveiled a Universal Service discussion draft bill, the “Universal Service Reform, Accountability, and Efficiency Act of 2008,” on behalf of Ranking Member Joe Barton. A full transcript of the seminar's proceedings, in which many good ideas were discussed, will be released in a couple of weeks.

Rep. Barton’s draft bill would accomplish fundamental reform in a way that, in my view, is consistent with recognizing what already has been achieved in making telecom services available to almost all Americans and consistent with acknowledging that new competition and constantly-evolving technologies have rendered the existing subsidy system wasteful and inefficient. Without elaborating here, it should be noted that Rep. Barton’s reform measure includes a permanent cap on the entire USF fund upon enactment, shifts the contribution mechanism to phone numbers rather than interstate revenues, focuses support on voice communications services, and relies on reverse auctions as a distribution mechanism, capped in each succeeding auction at the level of the previous winning low bid.

I will have more to say about Rep. Barton’s draft bill in the weeks and months ahead. For now, I will simply note that the draft received a generally warm reception at yesterday’s FSF seminar. For example, Colin Crowell, chief telecom staffer for Rep. Ed Markey, who chairs the House telecommunications and the Internet subcommittee, stated: “The draft is beneficial and positive to the debate….People are looking for reform of the system. . . . This helps contribute to the conversations we are having up here.” This was not intended by Mr. Crowell to be an endorsement of all of the ideas in the draft. But I took it to be a genuine and gracious acknowledgment that the Barton draft serves a very useful purpose in focusing on the tough choices that will need to be made if the country is to move towards a support system that is much more economically efficient – one that enhances overall consumer welfare -- than the regime we have today.

One of the choices highlighted at the FSF seminar by John Rose, President of the Organization for the Promotion and Advancement of Small Telecommunications Companies, is the extent to which subsidies for broadband services explicitly should be included in a reformed Universal Service program. Like the current regime, as a practical matter, Rep. Barton’s bill likely would not preclude support payments to winning reverse auction bidders from being used for broadband applications offered in conjunction with provision of voice communications. But, unlike the Joint Board and other proposals, it does not specifically direct funds to support broadband infrastructure.

So, Rep. Barton commendably has stepped forward and made an important contribution to the USF reform debate. (I know that Neil Fried, and most especially committee counsel Courtney Reinhard, worked very hard in putting together the discussion draft and they deserve much credit.)

I am pleased that Rep. Barton’s draft was unveiled at yesterday’s FSF event. And I am pleased that Commissioner McDowell yesterday provided the third vote at the FCC for the high-cost cap. All in all, a pretty good day on the long road to Universal Service reform.