The Coming Battle for Universal Service Funding

In the past couple weeks, I’ve attended two meetings, IP Possibilities and the ACA Summit, where the national broadband plan was front and center. These meetings attract distinct constituencies – IP Possibilities brings the rural telco crowd and ACA Summit brings the rural cable crowd – constituencies that appear headed into battle for future universal service funding.

At both meetings, within the context of the national broadband plan, the future of the universal service fund (USF) and its shift from legacy phone support to broadband support were actively discussed. The so called ‘Connect America Fund‘ aims to transition funding away from supporting high cost areas for phone service to supporting those same areas for broadband service. The total USF currently stands at $8.7 billion, although all of this money is not subject to the new Connect America Fund approach. This transition is still very much a concept and I shudder to think of the complexity involved in it. We certainly don’t have the time nor inclination to explore all the details about this transition in this post. But two things are clear (at least in my mind) – 1) the USF will evolve and change; and 2) it will no longer be the sole domain of rural telcos.

At the ACA Summit, the driving force at the FCC for the national broadband plan, Blair Levin, had this to say regarding USF – “Cable companies should be allowed to compete for USF because we want the most efficient methods to close the broadband gap …” His thoughts were more than echoed by the small cable companies in the room, many of whom clearly resent the “unfair advantage” they feel USF gives their telco competitors. When/if USF becomes available for broadband support, rural cable companies will form a line at the door.

At the IP Possibilities conference Carol Mattey, Deputy Chief, Wireline Competition Bureau, FCC outlined the agency’s approach to USF reform and stressed the need for a transition period, where legacy network investments are made whole during this shift to broadband support. “It’s time for a new home,” said Mattey, using a move to a new home as an analogy for USF reform. Her line of thinking suggests that the new home is broadband. She went on to say that once you’ve decided to move to a new home, you stop investing in your old home. In this case, the old home is legacy voice.

Regardless of fairness perceptions and analogies, the USF will at some point be up for grabs. We don’t know yet what the new criteria will be to get a share, nor do we have a firm timetable. But more than likely, there will be competition, maybe significantly so, for USF and there will be winners and losers. The implications are more acute for rural telcos, who historically have dominated USF distributions. In a ‘Connect America’ USF world, that will no longer be a given.

In effect, the competitive landscape will broaden beyond the traditional marketplace, to include a new regulatory/policy marketplace, where broadband carriers of all types compete for USF. The national broadband plan advocates for this process to be complete by 2020. The battle lines are already forming.