So let me get this straight
Sen. Claire McCaskill's remarks at a Senate Commerce Committee hearing on universal service this morning were memorable.
Universal service is broadly believed to be a swampy mess. Billions are collected from all of us to pay carriers for services that may be (1) the wrong services (i.e., not highspeed internet connections) provided (2) inefficiently to (3) the wrong people by (4) bloated and canny telephone companies. Let's paraphrase:
Universal service needs fundamental reform. You [Commr. Tate, chair of the Federal-State Joint Board on Universal Service] keep telling us that if we want to see reform we have to ask the next panel about it. [The next panel of witnesses was peopled by employees of rural, wireless, and wireline telephone companies.]
But that's an acknowledgement that the cart is driving the horse here. The next panel is filled with people who make money with universal service support. You're essentially saying that “the FCC is incapable of moving forward on reform unless everyone tells us it's okay.”
We thought you, the FCC, had statutory authority to act! You don't have to wait for all the people making money here to join hands and agree!
Commr. Tate responded that, well, the Joint Board did take a step - it made a recommendation. The Senators seemed not to be persuaded.
Here's what I (the blogger, not Commr. Tate) understand the recommendation to be. It's not comprehensive reform. On May 1, the Board recommended that swiftly-growing “high cost” support given to competitive carriers (for serving areas that are expensive to serve) be subject to an interim cap. From what I can tell, this cap won't be applied to the incumbent local phone companies. So it will constrain what wireless providers in rural areas will be able to do. And the incumbents will be able to continue along their merry way.
It's all very hard to believe, and the Senators seemed both frustrated and well-informed.
Back to Sen. McCaskill (paraphrase):
It doesn't matter what the Joint Board says. You at the FCC have the authority to fix this. But the people who have figured out how to access this money are driving the train, not sound public policy.
Look, this really is a fetid, arcane area in the dark basement of FCC regulation. Universal service is complex and graft-ridden and tied to political patronage. People say we can fix the collection mechanism by tying it to phone numbers - VoIP and otherwise - and fix the distribution mechanism by making everything a reverse auction. But there are miles and miles between this solution and where we're standing (or sinking). Meanwhile, an amazing technological age is passing people by, because USF doesn't fund highspeed internet access.
Luckily, the numbers are staggering (it's almost beyond count - they'll have to switch to the latter-day McDonald's formulation of billions and billions spent because it's getting hard to tell how many), so people should stay interested in this one for a while.
Commr. Tate seemed a little taken aback. She said, “I’ve never seen this much attention focused on
this issue.” Let's hope the focus continues.
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4 Responses to “So let me get this straight”
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Susan. This is indeed a swamp. And the senators exhibited problems understanding a basic underpinning of bringing competition to rural America - the identical support rule. In urban areas, there is no support for any carrier - so support is identical at zero. So whichever carrier gets the customer wins. Consumers choose from among many carriers for the services they want. In rural areas, the wireline carriers get all the support, so they have an advantage that prevents competitors, even wireless competitors who may be more efficient, from building networks that deliver high-quality service that can compete with the wireline carrier. So there has to be a system which provides the same amount of support on a per-line basis to competitors so that, just like urban areas, the market is level and whichever carrier gets the customer gets the customer's money and the support. That's competition. That's how consumers see the lower prices, wider local calling areas, E911, and other benefits, especially if support money is accurately targeted out to the most rural areas. What the wireline carriers want is for each new technology to have to submit a cost study which is very expensive and administratively inefficient. The answer is for the FCC to set a “per-line” amount that is equal for all carriers and let the market go to work. This puts the wireline networks at risk because a competitive market means that one of the 1300 wireline carriers may actually go out of business. This is something the senators want to protect against, even though the 1996 Act and the courts have said the support is for consumers, not for protecting individual carriers, or classes of carrier. Mr. Rooney's remarks that consumers should only provide funding based on the costs of an efficient carrier were right on the mark, but the Senators either didn't get it, or didn't want to get it. And that's unfortunate, because 11 years after the 1996 Act, the FCC is preventing rural consumers from seeing all of the benefits that the 1996 Act intended for them to have.
thanks, USFMan.
The “identical support” rule seemed to be perceived by some Senators yesterday as a problem in a different way than you describe — they thought it was odd that competitive carriers with lower infrastructure costs (that's their assumption) would be able to get the same amount of support as the first-comer. From what I could tell the “identical support” rule looked to them like a shortcut that created unfairness.
But I see your point - the cost study would be expensive to carry out.
What's wrong with a reverse auction distribution mechanism? That way the carrier can decide the per-line support it needs rather than the FCC doing that.
I ask because I really want to know, not for any other reason.
Susan
USF is broken in major ways, including who pays and why, who benefits and why, and what technologies should be eligible for subsidy and why. We can't deal with all these difficulties at once; Congress loves incremental solutions and the hearing dialog is an example of searching for some w/o a lot of success. But some steps are obvious: stop putting subsidy funds into copper wireline plant, start making all the players pay on some uniform basis; promote broadband technologies, including up front payments to encourage deployment. Since many providers lose out if these steps are taken , the FCC needs a strong dose of courage to proceed.
There are several reverse auction approaches being kicked around. In a pure form, an auction means one winner. So if you define an area (not easy to do with wireline and wireless carriers each having many different service boundaries) and everyone bids, one winner gets the support and the obligation to serve alll customers upon reasonable request.
Critics of that approach say it takes rural America back to pre-1996. Rural folks would get service from one monopoly carrier and are denied choices. Presumably the one carrier has to be rate regulated. Maybe we also need Section 251 obligations. Monopoly regulation - what a morass.
And, if a new carrier comes in one day later with a better mouse trap, it has a significant disadvantage because the auction winner is cemented in with a franchise to get support, probaby for a ten year term.
In one auction proposal at the FCC, wireless carriers would auction against each other to narrow down the field to one provider, and wireline carriers would auction against each other in every area where there is a competitive wireline network. Our research reveals that only a handful out of 1300 rural ILECs have competition from a wireline carrier, so they would never go to auction and indefinitely remain on their “cost plus” support that Senator McCaskill properly noted is like finger nails on a blackboard to an auditor.
Assuming Congress does not act, then the 1996 Act is the law of the land. Under that Act, the FCC is supposed to use universal service to help competition develop in areas that would not otherwise support competition - so that rural folks see the benefits of a competitive market.
The FCC has decided that best way to do it is to offer the same “per-line” support to all carriers. That replicates urban areas (which have identical support set at zero) in that the most efficient provider, or the one that consumers prefer, gets the customer and the support. Initially, you use the wireline carrier costs because they are an incentive for more efficient carriers to enter. There is no windfall because the newcomers with immature networks have to use whatever funds they get to build out.
However at some point as newcomers develop, the hard policy choice - which the FCC was poised to make - is to shift the basis of support away from the wireline costs and toward the cost of building an efficient network. After all, why should consumers fund the least efficient provider of services. In the end, a per-line amount is made available to all market participants, based on an efficient network, and then it truly matters not how many competitors enter. Because the total amount in the pot does not change and only those who can build a business with customer dollars and limited support dollars will enter.
The FCC spelled this out pretty well in its orders between 1996 and 2001. In regulatory time, they moved pretty quickly, got affirmed by the courts, and made a lot of progress. Since then, they have done absolutely nothing to advance the ball - thus the “crisis.”
Had the FCC properly implemented identical support in 2001 and made the system work efficiently, today we would surely have no crisis and with even minimal oversight, rural wireless networks would be way ahead of where they are today.