Tuesday, October 21, 2008

The Time for Bold Action Is Now

With the FCC poised in early November to consider proposals to reform the outdated intercarrier compensation and universal service fund regimes, you will hear much talk in the coming days about how the FCC should not rush to judgment to decide issues of such complexity, especially with so many various “interests” affected. You’ll hear about wireless and wireless carriers; ILECs and CLECs in small, mid, and large sizes, and rural and urban varieties; VoIP providers; and so forth and so on. Much of this talk about protecting this or that particular interest, or actions favoring one type of service provider at the expense of another, will have a distinctly familiar “inside the beltway” ring. Pundits will be giving (hedged) odds as they try to figure out who the winning and losing companies will be.

It would be a mistake to buy the “don’t-rush-to-judgment” line. And it would be a mistake for the Commission to forget that the “interest” that really ought to matter in all this is the average American consumer, let’s say “Joe the Caller,” who now pays an 11% tax on every interstate call in order to fund the various unreformed universal service programs.

As for claims that the Commission may be rushing to judgment, in this instance the charge is well-nigh laughable. If the Commission takes any longer to take meaningful actions to reform the IC and USF regimes, it ought to plead guilty to negligence and beg for the court’s mercy.

Here are just a few excerpts from two different Commission decisions in 2001 expressing a sense of urgency regarding the agency’s need to comprehensively reform the intercarrier compensation regime:

“We believe it essential to re-evaluate these existing intercarrier compensation regimes in light of increasing competition and new technologies, such as the Internet and Internet-based services, and commercial mobile radio services (CMRS). We are particularly interested in identifying a unified approach to intercarrier compensation – one that would apply to interconnection arrangements between all types of carriers interconnecting with the local telephone network, and all types of traffic passing over the local telephone network.”

“The existing intercarrier compensation rules raise several pressing issues. First, and probably most important, are the opportunities for regulatory arbitrage created by the existing patchwork of intercarrier compensation rules.”

“We believe that there are significant advantages to a global evaluation of the intercarrier compensation mechanisms applicable to different types of traffic to ensure a more systematic, symmetrical treatment of these issues.”

And similar long-ago and oft-repeated statements exist concerning the need to reform the universal service regime.

Almost a year ago, I wrote a not so prosaically titled piece, “Put Universal Service Reform Near Top of FCC’s Agenda.” It urged the Commission to cap the high-cost fund, eliminate the identical support rule which provides subsidies to wireless carriers based on wireline carrier costs, and implement reverse auctions as a means of distributing subsidies. Commissioner Deborah Tate deserves credit for leading the Federal-State Joint Board to a point last year where the Board put on the table useful reform recommendations. And Chairman Kevin Martin deserves credit for working hard over the past several months to tee up a set of comprehensive proposals for the Commission to consider. (Of course, the Commission’s staff deserves much credit as well for its hard work.)

No doubt at all that the Commission is confronted with difficult decisions that, if they are to serve the larger public interest, which is to say, the long-run consumer welfare interest, won’t please everyone. Sure, there likely will be compromises and deals cut, and this is often a necessary part of the process of moving forward. But meaningful reform won’t be achieved and sound policy won’t be served by a pedestrian “split-the-difference” or “hold harmless” mentality.

In my view, the Commission should act boldly to adopt a unified and cost-based intercarrier compensation regime that eliminates the arbitrage opportunities that exist under the present rules. The existence of these arbitrage opportunities deters and misdirects investment and innovation to the detriment of all consumers and the general economy. And the Commission should act to implement a universal service system which targets subsidies in a much more narrow fashion than occurs under the current regime. The truth is that the universal service mission is essentially mostly accomplished with respect to provision of voice service. If broadband service is going to be subsidized, any such subsidies should be explicit, narrowly targeted to areas that lack service, and funded broadly, preferably from general revenues. Competitive bidding mechanisms, such as reverse auctions, should be employed to ensure that service is provided as economically and efficiently as possible. And the reforms must be implemented without undue delay and without long transitional periods that render them ineffectual or "obsolete-before-implemented."

The time for kicking the can down the road has past. The can is broken.

Again, I appreciate that the issues are complex and that their resolution involves making difficult choices. Nevertheless, the principles that should guide the Commission are relatively simple and fundamental.

We’ll discuss all of this at the FSF lunch seminar, “Archaic Intercarrier Compensation and Universal Service Regimes: Proposals for Reform,” this Friday at noon. For information and to register, click here.