Page 9 - PCCA Journal 2nd Quarter 2012

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PCCA Journal|2
nd
Quarter 2012
9
The new law also required spending to support commu-
nications services for schools and libraries, rural health care
providers, low-income consumers, and, somewhat paradoxi-
cally, the operations of competitive carriers. In essence, in
markets where a single incumbent needed USF support in
order to remain viable, the USF would now support two or
more similarly situated carriers. Mixed results ensued: In
some instances, the availability of a supported competitor
created new consumer benefits, while in other areas, the pro-
liferation of multiple competitors resulted mostly in duplica-
tive services and swelled the USF.
Funding for competitive carriers increased dramatically
from 2001 until 2008, when the FCC took steps to control
spending; funding for low-income programs has continued
to grow, increasing by 42 percent in 2010 alone. From 2006
to 2011, however, support for rural telephone companies
held steady, keeping pace generally with the
consumer price index. But because the USF was
perceived as a “rural telephone” program, USF
growth was perceived incorrectly as a “rural
problem,” even though increased USF spending
for schools, libraries, and low-income consum-
ers flowed to urban areas, as well.
Increasing policy-maker ire was compounded
by a series of audits, conducted by federal
contractors, that described widespread impro-
priety in the program. Subsequent audits by
industry experts, however, determined so-called
“improper payments” at 2.7 percent (a comparatively excel-
lent record among federal programs), but the damage of
“bad news makes news” had already been done. And while a
group of federal and state regulators providing counsel to the
FCC commended rural telephone companies for their broad-
band deployments, the FCC initiated a proceeding to amend
the USF program. In late 2008, the FCC seemed poised to
issue a series of revisions to existing regulations, but those
efforts were derailed when vigorous opposition to certain ele-
ments of a reform plan emerged. Ultimately, the FCC failed to
pass its proposal.
Mixed Messages From the Federal
Government—To Build or Not Build
Future-Proof Networks in Rural Areas?
As the FCC was embroiled in its attempts to reform USF,
infirmities in the national housing market and large financial
institutions precipitated staggering job losses and adverse
economic impacts across the national economy. In response,
Congress passed the American Recovery and Reinvestment
Act of 2009 (ARRA), known popularly as the “stimulus act.”
The ARRA funded infrastructure initiatives that were in-
tended to jump-start the economy. Among these were broad-
band network construction projects that were not otherwise
included in nor a part of regular USF funding. The ARRA also
ordered the FCC to create what would become the National
Broadband Plan.
During 2009 and 2010, the FCC hosted numerous public
workshops and solicited public comment on many aspects
of broadband, including technical issues and the role of
broadband in education, medicine, public safety, and civic
engagement. The National Broadband Plan was released in
2010, and caused an instant stir across the telecommunica-
tions industry. Notably, the Broadband Plan was accompa-
nied by FCC proclamations that 100 million people would
be connected to 100 Mbps service, but that in rural areas,
federal support would ensure service at only a rate of 4 Mbps
down/1 Mbps up. This result drew sharp rebuke from the
rural telecom industry, which accused the FCC of ignoring
universal service principles of “reasonably comparable” ser-
vice and encouraging a rural/urban digital divide.
Although the Broadband Plan did not establish any regula-
tions, it served as a basis for renewed efforts to reform the
USF. In early 2010, the FCC solicited public comment on new
proposals that threatened substantial reductions in support
for rural carriers; industry estimates predicted that 50 percent
of rural telephone companies would be cash flow negative
within five years, and 90 percent would be cash flow nega-
tive within the next decade. These results prompted an ag-
gressive campaign that included formal filings with the FCC,
public relations and media efforts, and intense lobbying on
Capitol Hill. At the same time, the rural telecom industry also
met with large and mid-size telephone companies, including
AT&T and Verizon, to negotiate a complex, multi-layered ap-
Continued on page 10
In early 2010, the FCC solicited public comment on new proposals that
threatened substantial reductions in support for rural carriers; industry
estimates predicted that 50 percent of rural telephone companies would
be cash flow negative within five years, and 90 percent would be cash flow
negative within the next decade.