rural broadbandA long-awaited order for modernizing the Universal Service program for rate-of-return carriers is currently circulating within the FCC. Although details haven’t been released, a blog post from FCC Chairman Tom Wheeler offers some basic information about the order.

Importantly, the order proposes that the nation’s small rural rate-of-return carriers should be able to collect funding for high-cost lines that are only delivering broadband and not voice service – an important change as more and more consumers cancel, or would like to cancel, traditional voice service.  The order also calls for lowering the authorized rate of return for ROR carriers – a move that Wheeler said was made to “better reflect current financial market conditions.”

In addition, as expected, the order sets out a two-path approach moving forward, with carriers having the option of choosing either path.

Connect America Fund for Rural Carriers
As Wheeler put it, one of the two paths will enable carriers to continue receiving support based on “traditional rate-of-return principles” but would also “increase fiscally responsible management of the fund” and would “ensure that a reasonable portion of support is spent on new buildout to connect those that remain unserved.” Although Wheeler didn’t elaborate on what he meant by “traditional rate-of-return principles,” it likely was a reference to support based on embedded costs.

Carriers choosing the other path would see support based on a cost model – an approach similar to what has already been put in place for high-cost areas served by the nation’s larger price cap carriers. Wheeler also specified a 10-year term for the cost-based program, although he didn’t specify the duration of the more traditional path.

Wheeler also noted that the proposed order targets support to areas that are not served by an unsubsidized broadband provider.

Wheeler’s blog post does not indicate when the commission will vote on the order, but based on past actions, it’s likely that it will be voted on at the March FCC meeting. It’s more than likely that the order will be adopted, as two of the four other FCC commissioners were heavily involved in drafting the order — Republican Michael O’Rielly and Democrat Mignon Clyburn, both of whom Wheeler acknowledged in his post. He also noted that Shirley Bloomfield, CEO of NTCA – The Rural Broadband Association, and Walter McCormick, CEO of USTelecom, “personally engaged in principals-level meetings” with the commissioners.

According to Wheeler, everyone involved in crafting the order had to make compromises.

Reading Between the Lines
Surprisingly, Wheeler’s post does not mention the words “Connect America Fund” – although virtually all other FCC discussion about reforming the Universal Service program has referenced transitioning that program to a broadband-focused Connect America Fund. Perhaps this was just an oversight and not a deliberate choice on the chairman’s part.

Less surprisingly, Wheeler’s post says nothing about changes to the contribution base for the reformed program. The voice-focused Universal Service Fund traditionally has been funded by large and small carriers as a percentage of long-distance voice revenues — and some stakeholders have suggested that if the program will now focus primarily on broadband, it should be funded as a percentage of broadband as well as voice revenues.

Funding the program as a percentage of voice revenues has become increasingly challenging as carrier voice revenues decline, and if the contribution base is not broadened, some people are concerned that the program eventually could have to be phased out.

Perhaps reforming the contribution base is part of the order and Wheeler simply did not mention it. Or perhaps the commission has given up on that idea.

Wheeler’s post also sidesteps another controversial issue- whether or not the order calls for the CAF program to continue to have a program focused on wireless service, as the current USF program does. O’Rielly previously warned carriers to not to expect a wireless program,  but Clyburn recently expressed a different point of view. At the January FCC meeting she argued that rural Americans need both fixed and mobile broadband.

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