U.S. carrier investment in broadband infrastructure has decreased as a result of caps imposed on high-cost Universal Service support, says a study issued today by University of Southern California professor and former FCC Chief Economist Simon Wilke. The study, titled “An Economic Analysis of the FCC’s Modifications to the High-Cost Local Loop Support Mechanism,” was commissioned by rural broadband association NTCA, U.S. Telecom Association and the Western Telecommunications Alliance.
The method that the FCC chose for imposing caps involves quantile regression, Wilke said on a conference call this morning (although I think he meant to say “quintile”?). As Wilke explained, the impact of the regression methodology cannot be predicted in advance, making it difficult for an individual company to determine whether it is in danger of exceeding the cap. As a result, carriers are delaying or canceling planned network upgrades, Wilke said.
In the report, Wilke looked at what the impact of caps imposed last year would have been if they had been imposed in 2006. Over a period of several years, one quarter of high-cost funding recipients would “face a significant risk” of seeing funding capped, explained Wilke.
As an alternative to the current methodology, Wilke and representatives of the three telecom association research sponsors recommended that the FCC use caps as a trigger for a further review.
“Triggers make sense,” said Shirley Bloomfield, CEO of the NTCA. Triggers, she said, would “force the FCC to determine why” a company exceeded average cost numbers. She noted, for example, that a natural disaster could cause a company to spend more heavily on infrastructure in comparison with other carriers.
Other ideas the FCC should consider include imposing caps less frequently than once a year and making an annual adjustment for the number of lines lost in rural areas, Wilke said.
The NTCA and WTA are accustomed to acting in unison on policy matters. But to date USTelecom — which represents large and small carriers in metro and rural areas — has largely stayed out of matters specific to smaller rate of return carriers.
The USF cap issue, at least for now, pertains only to smaller rate of return carriers. Nevertheless, on today’s call USTelecom President Walter McCormick made a point of saying that on the cap issue the three associations are “speaking with one voice.”
