The U.S. is “at the 25-mile marker in a marathon” with the circulation today of a draft proposal for Universal Service and inter-carrier compensation reform, said FCC Chairman Julius Genachowski in an address in Washington this morning. Genachowski said he has put the proposal on the agenda for a vote by the commission at the end of October.

As expected, the proposal aims to transition today’s voice-focused Universal Service program to one focused on broadband. If adopted, Genachowski said, the plan “will spur broadband buildout to hundreds of thousands of homes and businesses beginning in 2012,” ultimately “connecting millions of unserved Americans who are being left out of the broadband revolution” and spurring “billions of dollars in private investment and very significant job creation.’

Genachowski highlighted key points of the proposed plan, which appears to hold few surprises for anyone who has been involved in the first 25 miles of the reform marathon.

In addition to ensuring that all areas of U.S. can get broadband “with capacity and latency comparable to urban broadband,” the proposal also includes what Genachowski called “one-time shot-in-the-arm” funding for mobile broadband. Funding for the mobile broadband program and for certain price cap areas would be awarded through a competitive bidding process, he said.

As recommended in the brokered USF reform proposal made by large and small telcos in July, the draft proposal would award funding for other price cap areas based on a cost model, while rate of return carriers would obtain funding based on their actual costs—subject to some restrictions aimed at curbing what Genachowski called “wasteful and inefficient” aspects of today’s plan. For example, the proposal would not fund broadband service in areas where a competitor offers service without subsidies.

As expected, the draft reform proposal also promises to constrain the size of the Universal Service fund and recommends using satellite—or potentially unlicensed wireless solutions—for bringing broadband to the highest-cost unserved areas.

Proposed inter-carrier compensation reforms include phasing out terminating access charges over a period of years—another idea borrowed from the brokered solution—and providing a revenue replacement mechanism for carriers.

In addition, Genachowski said the draft reform plan pledges to “immediately close loopholes like phantom traffic and traffic pumping and other arbitrage schemes” and will “provide certainty” about compensation for VOIP calls.

Promising additional details at a later date, Genachowski also said the plan aims to “promote efficient interconnection as carriers transition to an IP world.” He noted that today’s system “actually discourages investments in 21st century Internet protocol networks because companies fear losing the subsidies they receive for connecting calls using traditional telephone technology.”

Rural telcos should be encouraged that, based on Genachowski’s initial remarks, the reform proposal does not appear to have tinkered much with the carefully brokered telecom industry solution despite protests from cable and wireless companies and even from certain corners of the rural carrier market.

Over the next few weeks, we may see some tweaking to what Genachowski outlined today as other commissioners review the proposal. The other commissioners have endured the reform marathon, too, however—and I wouldn’t expect to see any major surprises from them, nor would I expect to see any of them voting against the proposal.

Rural telcos also should be happy to hear that the FCC seems to have a sense of urgency about the rural call completion problems they have reported.

“Our record shows that an increasing number of calls to rural areas—which typically require paying high ICC charges to the local phone company—are not always being completed, possibly because [other] carriers are seeking to avoid those charges,” said Genachowski.

In addition, he recognized that “this is a real public safety concern.”



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11 thoughts on “FCC Chairman Outlines USF/ICC Reform Proposal

  1. The FCC is struggling in this area. Telcos are struggling, Here is a radical idea. Require Telco and Cable Companies to upgrade to fiber optics by the year 201X, to solve our infrastructure issues with speed, and be the only nation that has 2 all wired providers. Both Telco and Cable companies are nearing the end of their life cycles in the access plant (copper and coaxial). Labor makes up 50-80% of the cost of the build. If they built, they could share in the costs, lowering the costs siginficantly. As a a parallel, that is how we got copper upgraded to fiber in the Oceans. Interesting ATT, MCI, Worldcom, FT, BT, DT, and many more could put their differences to the side to upgrade to what all agree is the optimal network solution. We have competition on old technologies keeping us from moving forward. Imagine Telco and Cable companies having to compete more on customer service and product innovation vs. legacy technology. Also, FCC….we don't need a line to everyone's home anymore. Wireless in the very low dense areas (with fiber to towers), meets the bandwidth need. Candidly, it is those long loops that drove USF in the first part.

    1. Here is solution too. Do not regulate too much FCC. The larger carriers are the probelem areas as far as not reaching ALL areas with their broadband offerings. Instead they are steadfast on collecting large fees form users and USF and giving their stockholders large dividends, building LARGER than needed offices or rewarding unneeded execs MASSIVE salaries or bonuses. The AT&T, MCI or others listed do NOT offer optimal solutions for the majority of the rural communities. They want free service or transport for their services. Look at the small independent companies in the US if you want to see who is offering the BEST, most reasonable broadband.

  2. Not all rural telcos share your enthusiasm. This proposal has many flaws, not the least of which turns USF into a slush fund for big telcos …

  3. Does the plan have flaws? Yes. But all things considered, it's better than the alternative. We're not going to get everything we want. Better to get something. Wake-up – the world may pass us by if we don't act.

  4. It is best to play all angles – if you haven't been already! Continue to fight for a better deal AND re-position your operations and your network for high bandwidth and efficient capex and operations.

  5. Seems to me that the govt is picking winners with this plan. I think it's a missed opportunity. The FCC could have really shaken things up and instituted some real change, bringing many more players to the table. Instead, they leave it to the incumbents to basically do the same thing they've been doing all along. Is this just rearranging the deck chairs on the Titanic?

  6. I agree completely with SavingfortheFuture above. The rural industry is still holding their breath as to the details of the plan. Rural telcos have almost always built out and upgraded their facilities as they should have, while the rural areas that are still not built out are served by the price cap companies. Why? Simply because they didn't want to spend their money. So now when the price cap companies read the tea leaves and saw the FCC was going to force them to buildout broadband to their rural service areas, the price cap companies saw this as an opportunity for a money-grab from the USF and they again got their way. To them, it's not about serving their rural customers with broadband – it's all about the money! It's the cold hard truth.

    1. With shareholder-owned price-cap companies there's a natural incentive to not invest in areas that don't contribute to profit. With rate-of-return companies there's a natural incentive to invest more because it leads to a greater return. As others have stated, companies are following the money.

      It's not clear to me how effective the FCC's new plan will be in expanding broadband in those areas that are unserved. He talked about 18 million unserved, but I'm not sure how he figured that half of those would be served in a few years. On the other hand, there were more numbers, like $1B/year saved by wireless consumers, that didn't seem substantiated, either. If the FCC removes identical support, the reason for the growth in USF, wouldn't that put a greater burden on consumers as wireless carriers make up for the loss of income by adding it to customer bills?

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