Gerald Brock, a former chief of the FCC’s Common Carrier Bureau has penned a position paper calling for the immediate abolishment of the access charge system. Now a professor of telecommunications and public administration at The George Washington University, Brock argues in his paper titled “Abolish Access Charges Now,” that the access charge system “retards technological progress by creating incentives to maintain old technologies and rate structures.”

That’s a good point—as is Brock’s argument that the access charge system creates arbitrage opportunities, a topic Telecompetitor has covered extensively in the past. But small rural telcos have argued, correctly I think, that the immediate phase-out of today’s access charge system would be disastrous for them unless an equivalent recovery mechanism were also to be established immediately.

Need for Recovery Mechanism?
Brock’s paper doesn’t discuss a recovery mechanism because he apparently believes no such mechanism is needed. According to Brock, small telcos don’t need access charge revenues to bring affordable voice service to high-cost areas.

“Although early access charges were designed to provide subsidies, the identifiable subsidies have already been removed from access charges and the previous subsidy revenue incorporated into USF payments,” Brock writes in his paper, citing what he calls a “17-year phase-out” that was completed in 2001.

To support this view, Brock notes that USF high-cost support payments grew from $2.9 billion in 2002 to $4.5 billion in 2009. But he fails to recognize that a large part of this growth resulted from competitive—primarily wireless–carriers obtaining duplicate funding at the same level of support as the incumbents.

Brock notes, quite correctly, that the funding that rural telcos receive under today’s high-cost program (which is still voice-focused) actually goes toward infrastructure that also supports broadband services. But you’ve got to ask why that’s a bad thing. Rural telcos would argue that this is a key reason why they have been able to extensively deploy broadband throughout their service areas—and as the FCC gears up to transition from a voice to a broadband-focused program, there would seem to be little point in attempting to change that now.

Access Charge Alternatives
Brock argues that new sources of revenue, such as providing unregulated Internet access service, “can compensate for declining historical sources of revenue (such as regulated access charges) in order to cover the cost of assets used for both regulated and unregulated services.” That’s quite an assertion—and if it were true, I doubt rural telcos would be arguing so strongly for a gradual phase-out of the access charge system. Certainly rural telcos recognize that broadband is the future—but on the broadband side, as on the voice side, many of them are finding that it’s not possible to recover the cost of a network build-out by selling service at market rates without a support mechanism. Indeed that’s why the plan to transition the Universal Service program to focus on broadband is being made.

As an alternative to access charges, Brock recommends that the industry use an alternative approach based on reciprocal compensation—and it appears that the FCC plans to eventually transition to that methodology over a period of five to eight years, while also phasing in an access charge revenue recovery mechanism. I doubt Brock’s paper will cause the commission to deviate from that plan. Nevertheless it would be a good idea for rural carriers to voice their undoubtedly major concerns about what Brock is advocating.

Brock’s paper was published by The Free State Foundation, which calls itself a “free market-oriented think tank” located in Rockville, Maryland, which is located in suburban Washington D.C.

Image courtesy of flickr user cogdogblog.