Sunday, July 31, 2011

USF Reform Is Not For Sissies

My beloved, late Aunt Betty, well into her 90s, was fond of saying: "Aging is not for sissies."
Well, neither is serious Universal Service Fund reform, which is long overdue.
So repeat after me: "USF reform is not for sissies."
As everyone who follows telecom policy knows by now, a group of telecom providers – AT&T, CenturyLink, FairPoint, Frontier, Verizon, and Windstream – has submitted a USF reform plan to the Federal Communications Commission. They call their plan the "American Broadband Connectivity" plan, or ABC plan.
Shortly after the plan was filed with the FCC, here is what I said:
"The USF reform plan represents a major step forward in the effort to achieve a more efficient, technology-neutral, economically-sound universal service system. Capping the USF fund, directing support only to unserved areas, eliminating subsidy payments to more than one carrier in an area, introducing competitive bidding, and making the remaining subsidies more explicit are all positive market-oriented steps. While I would prefer even more substantial reform with deeper subsidy cuts, it is now up to the Commission, for the benefit of the nation's consumers, to seize the opportunity presented by the plan to quickly accomplish at least this much reform."
As I said, I would prefer a plan that contemplates more substantial cuts in the existing subsidy levels. The present subsidies, which amount to $8 billion annually, require a nearly 15% surcharge ("tax") on all long distance calls to fund them. More than half of the $8 billion per year goes to fund subsidies that are distributed in an overly indiscriminate way to telecom providers in so-called high-cost areas.
In comments filed this past May in the FCC's USF reform proceeding, I urged, along with my FSF colleague Seth Cooper, that the Commission cap the high-cost fund and then lower it over time. And we called for sunsetting the subsidy program, say, in ten years, and then reviewing whether, in light of technological and marketplace developments, it ought to be renewed on some basis for a further limited period.
That said, I don't get to design the reformed USF regime, the FCC does. And as I said in my statement above, the ABC plan has several positive, market-oriented elements. Capping the size of the fund, providing subsidies only to presently unserved areas and only to one provider, employing competitive bidding to determine the low-cost provider, rationalizing the intercarrier compensation system to eliminate existing arbitrage opportunities, and making the subsidy regime more technology-neutral are all market-oriented steps.
Now the ball is in the FCC's court, and the agency would be derelict not to seize the opportunity to achieve at least as much reform as proposed in the ABC plan. Note the emphasis on "at least."
There is a public policy rationale for transforming the existing regime from support of narrowband voice service to broadband service. But only if this transformation is accomplished in a fiscally responsible way that enhances overall consumer welfare. This means ensuring that subsidies are not distributed any longer in an indiscriminate way that discourages the use of the most efficient technologies or deters the development of further competition.
I always try to maintain my innate optimism about the ability of good public policy to win out in the end, even though I know it doesn't always.
In this instance, now that the ABC plan has been submitted, I would be even more optimistic if Chairman Genachowski would call together his fellow commissioners, join them in a circle, and all holding hands, have them chant in unison: "USF reform is not for sissies."