FCC moves to switch phone subsidy to broadband

The U.S. Federal Communications Commission took the first step Wednesday toward a long-awaited transformation of a multibillion-dollar program that subsidizes traditional telephone service into a broadband deployment fund.

The FCC voted to launch a notice of inquiry (NOI) and a notice of proposed rulemaking (NPRM) in an effort to phase out the $4.6-billion-a-year, high-cost Universal Service Fund and replace it with a broadband deployment fund. The FCC's national broadband plan, released in March, recommended that the agency spend $15.5 billion over the next 10 years to subsidize broadband in rural and other hard-to-reach areas, and Wednesday's action is the first step needed to transform the USF.

Many people in the telecom industry have been calling for USF reform for years, with a major piece of the fund's traditional fee base -- traditional long-distance telephone service -- becoming less popular. At the same time, several groups have called for USF money to go into broadband, but USF reform is a complex issue with many competing constituencies, and the FCC has shied away from tackling the issue, until now.

"This item is an important milestone in our deeply important effort to ensure that every American, no matter where they live or what they earn, has access to affordable, high-quality broadband communications service," FCC Chairman Julius Genachowski said. "It will not be easy. But that is what we are committed to do."

In the NOI, the FCC will seek comments on how to cap the growth of USF and how to phase out funding for traditional telephone service in rural areas. The NOI and NPRM seek public comments on a model to determine levels of USF support for broadband in a way that's fair to rural carriers, the FCC said.

In an NOI, the FCC asks the public to generate ideas about a topic. The commission issues an NPRM when it is considering changes to its rules. An NPRM asks members of the public whether they agree with the proposed changes.

The USF items were among a handful of proposals the FCC voted on Wednesday as part of the first steps toward implementing the wide-ranging national broadband plan. Among the plan's goals are universal availability of broadband across the U.S. and 100M bps (bits per second) service to 100 million U.S. homes by 2020.

USF reform will require many compromises to reach the end goal, but reform is needed to fund broadband deployment in areas that don't yet have it, said Commissioner Michael Copps.

"Comprehensive reform is never painless and when it comes to building a new Universal Service system, shared sacrifice will be required from just about every stakeholder," Copps said. "Maybe, probably, this is why the commission has never successfully tackled comprehensive Universal Service reform before."

Robert McDowell, one of two Republicans on the five-member commission, also praised the move toward USF reform. He called on the FCC to reduce USF fees and to limit the growth of the fund as it transforms the program. The fees on some services that telecom carriers pay to support USF have grown from 5.5% in 1998 to 15% now, McDowell noted.

"If we have been able to agree on only one thing at the FCC, it is that the Universal Service subsidy system is antiquated, arcane, inefficient and just downright broken," he said. "Positive and constructive change must happen as soon as possible."

Media reform advocacy group Media Access Project praised the FCC for moving toward USF reform and for adopting items on mobile roaming and on set-top television boxes.

"Proposed reforms to the universal service fund have the potential to make the greatest impact of all, if and when federal support can be rationalized and redirected to provide a meaningful choice of affordable broadband service for people throughout the United States," the group said in a statement.

Copyright © 2010 IDG Communications, Inc.

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