The Federal Communications Commission has voted to change the Universal Service Fund, a decision that was widely expected and has been extensively discussed, the key elements having been widely discussed by commission personnel and industry participants.

There still will be legal challenges once the final rules are released, but the broad outlines of the new program likely will be unchallenged.

The single biggest change is the shift in support from “voice” to “broadband.”. Where investments in voice were the past objectives, now it will be broadband access which is funded. The other big change is to the intercarrier compensation rules.

The new rules require VoIP providers to pay intercarrier compensation, which will raise the cost of using VoIP services. While it is true that VoIP providers will pass those new charges on to their customers, the rules will reduce the price advantage many VoIP providers have had, compared with calling on public networks.VoIP prices will increase

Some consumers’ local phone bills will rise a bit More importantly for service providers are the changes in revenue received from the program. Some will gain, some will lose.

The rules are expected to initially cap interstate and intrastate access charges with the ultimate goal of moving toward a “bill and keep” approach. That might have some impact on “free conference call” services that traditionally have relied on high access rates to provide the “free” calling services.

The rules apparently will include cable operators more centrally in the intercarrier compensation scheme as well.

The FCC also makes mobile broadband a universal service objective for the first time in history, and will create a new “mobility fund” to support mobile broadband.

The new rules would phase out phone subsidies to phone companies over a period years. It would give current recipients of funding first dibs on getting money to provide broadband service in rural areas. Also, the agency would cap the size of the fund so consumers don’t face increasing fees every year to support it.

The new rules also are expected to include an ability for satellite providers to participate in the rural broadband program as well.

Legal challenges are expected, as some aspects of the plan will strike one or more stakeholders as “unfair.”

The FCC has defined “broadband” as a download speed of 4 megabits per second and upload speed of 1 Mbps. This definition artificially inflates the size of the rural broadband “problem” because it does not count 3G wireless, some small rural wireless Internet providers and basic satellite service as broadband.

Refusing to count these providers as broadband will inflate the cost of the subsidies by classifying more areas as “unserved” and necessitating higher subsidies to achieve the faster speeds. One suspects there will be further “clarification” of such matters.Unresolved issues

The plan also subsidizes at least two broadband competitors in rural areas through the Connect America Fund and a separate Mobility Fund.

If the goal is basic broadband connectivity in places that allegedly have no broadband at all, why not make all technologies compete for a single subsidy in these places before subsidizing two?

Some also will oppose the parts of the plan that “pick winners,” favoring some approaches over others. Wireless subsidies will be awarded based on competitive bidding from the outset.

Subsidies for fixed service to homes and businesses will transition from current payments to competitive bidding only over time. Satellite also is regarded as a special-purpose technology to serve the most remote areas, rather than a competitor that is almost universally available already.

Some consumers may pay, on average, an additional 10 to 15 cents a month on their

bills. But no additional charges can be imposed on consumer phone bills that are at or above $30 a month, the FCC said.

The agency will shift the fund’s $8 billion from funding phone service to high-speed broadband service over the next few years.FCC changes USF

Since the funding drives the purchasing, one clear implication is that less voice equipment is going to be sold. And when voice gear and software is sold, it will have to be more affordable, since rural and smaller operators now will have to finance the investments from actual end user revenues.

One suspects that outsourced voice platforms will become more important over time in rural markets, since the cost of voice infrastructure will no longer be subsidized. In other words, it will in the future make more sense to buy voice services from a third party than create those services using an owned switch.

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