THREE FUNDS

What the Joint Board did accomplish in its recommendation was to provide a summary of the tangled issues and interests at stake, including what expenses the fund should cover, which carriers should receive funding and how those carriers should be chosen.

The board's proposal recommends the creation of three separate high-cost Universal Service funds: one for broadband, one for mobility and another called Provider of Last Resort (POLR) that essentially perpetuates the existing wireline voice program. The plan would cap the overall high-cost fund at $4.5 billion, which is about its current level. The majority of that, or about $3.2 billion, would go toward the POLR fund, leaving $1 billion for mobility and $300 million for broadband.

“We view it as a positive step that mobile wireless is part of the universal service picture for the [FCC],” said Paul Garnett, assistant vice president of regulatory affairs for the Cellular Telecommunications Industry Association.

To date, wireless carriers have received USF money mainly through the Competitive Eligible Telecommunications Carrier (CETC) program, which many say is the root of today's funding problems.

Under that program, wireless carriers offering service in high-cost rural areas have collected funding at the same level as incumbent wireline carriers that have higher costs. The incumbents' higher costs stem, in part, from a requirement that they must deliver service to every customer in their entire region, an obligation currently known as “carrier of last resort.” CETCs have not faced the same obligation.

In an apparent attempt to curb the flow of USF money to CETCs, the Joint Board proposed that only a single carrier should receive funding for each of the three programs in each territory.

“One provider with [POLR] responsibility makes sense,” said Curt Stamp, executive director of the Independent Telephone & Telecommunications Alliance. “The reason you have a Universal Service program is it's uneconomical to serve high-cost areas in the first place, and to fund multiple providers doesn't make a lot of sense.”

The plan also recommended that incumbents should receive POLR status, at least for now, but left open the possibility that an alternative method for selecting POLR could be used in the future. The only method specifically mentioned in the plan, however, is a reverse auction, in which carriers would bid to determine who could offer service at the lowest cost — an idea that has received strong backing from FCC Chairman Kevin Martin.

Numerous telecom carrier organizations oppose that idea. “A reverse auction basically creates a bidding war for the lowest possible quality of service, and that's inconsistent with the concept of Universal Service,” said Dan Mitchell, vice president of legal and industry affairs for the National Telecommunications Cooperative Association.

Another concern is that reverse auctions could create funding problems because they likely would be held every 10 years or so, said Stamp. “If you have to go to the [financial] market in Year 9 of a 10-year auction cycle, you may have trouble getting funding,” he said.

If the POLR designation were to be opened up beyond the incumbents, potentially carriers with CETC status today could seek to be appointed POLR. They or the incumbents also could seek to become the mobility provider or even the broadband provider.

The plan recommends, however, that CETCs be reimbursed based on their costs rather than the incumbent's. And while incumbents are delighted by that prospect, the Rural Cellular Association, which represents many CETCs, is skeptical.

“What costs will be identified as those to be accounted?” said Eric Peterson, executive director of the RCA. “We have seen no proposal or definition in that regard, and there are different costs associated with wireline versus wireless.”

The Joint Board clearly attempted to assuage CETCs with its mobility fund, which at $1 billion represents almost the same amount paid to CETCs under the current program. But both the mobility fund and the broadband fund would target unserved areas and would cover only construction costs. Groups representing Independent telcos argue that's not enough. They say backhaul costs to Internet points of presence can be very high for rural carriers and that those costs should be covered on an ongoing basis.

With that in mind, carrier groups are questioning the dollar amount dedicated to broadband. “They want to fund broadband with the money found in the couch cushions,” said Stamp.

Rose also said that the Joint Board recommendation failed to define broadband and that advanced applications require more bandwidth every year. Rural carriers have made substantial progress in deploying broadband at today's data rates, but many areas may need upgrading in order to support the same advanced capabilities being rolled out in metro areas, Rose said.

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