First off, this last thread's title was offensive, so I changed it. The current Administration is not doing much that previous ones didn't do, and that's the problem. The FCC sees the spectrum as a source of revenue (auctions), and Congress sees the FCC as a source of subsidy money to rural states.
USF exists because the Telecom Act requires it. USF replaced an even uglier system wherein rural telcos charged really really high switched access per minute rates to LD carriers at either end of the call. VoIP would have killed that anyway... so now there are explicit cash subsidies. Let's set aside the smaller parts of USF (Schools & Libraries, Rural Health Care, and Low Income) and focus on the one on the table now, High Cost Support. This is the one that gets the bulk of the tax money anyway. The statutory requirement is that rural telephone rates be comparable (not identical) to urban ones. So if it really costs $100/month to provide telephone service in East Overshoe, then the East Overshoe Telephone Cooperative is entitled to USF to let them hold down the rate. But it's a lot more complicated than that. Cost is averaged across a "study area", which is in general the operating territory of one (historic, pre-merger) telephone company in one state. So South Central Bell- Mississippi is one study area, and South Central Bell- Tennessee is another. Verizon has at least two study areas in California, though, one ex-Contel and one ex-GTE. CenturyTel has a heap of them all over the place, as does TDS. The point of averaging across a study area is that low-cost urban areas cross-subsidize high-cost rural ones. So Qwest in Omaha is supposed to subsidize Qwest in the rural parts of Nebraska. Thus the big recipients are the small telephone companies who do not have urban areas. That would be bad enough, but a small telephone company typically has a separate corporate structure, including IT, CS, etc., which supports very few subscribers. So the OpEx per subscriber can be really high too, because small telcos are inefficient. If TDS or CenturyTel buys them, they often keep the study areas separate... cost goes down but the money still flows! (The pending NPRM does however at least open the issue of merging study areas.) And the Bells, especially Qwest/USWest, have sold off a lot of rural areas. So they have lowered their average cost. This doesn't lower their rate, though, because they don't get USF anyway, and they are on price caps, not rate of return, so they keep their rates and raise their margins. The rural chains that buy the rural turf eventually (this takes a couple of years, though again the pending NPRM may reduce this interval, which the FCC cutely calls "The Parent Trap") get new subsidy flows for them. So we're screwed both ways. When TA96 passed, the FCC at the time was pro-competition (Hundt, Kennard) and they wanted to make USF pro-competition too. So they created the "Equal Support Rule". This is a tiny bit like Jeremie's suggested voucher system. A USF-eligible carrier is called an ETC (eligible telecommunications carrier). A Competitive ETC (CETC) could move into an area whose ILEC got USF. The CETC would then get the same amount *per line* as the ILEC-ETC. So if East Overshoe Telephone got $80/month/line, then Northern Wireless could get $80/month/line for selling a fixed-wireless telephone line (using their cellular network and a POTS-phone adapter). Northern Wireless (I made that name up but it alludes to a once-huge CETC) would not need to show its own costs, as competitors don't fit the ILEC accounting model. Now you'd think that this was a great idea, like a voucher, but it had a big problem. The ILEC-ETC is usually under Rate of Return regulation. So their profit margin is fixed. Most of their costs are fixed too. So if the CETC takes lines away, the ILEC-ETC is still entitled to keep the subsidy level needed to maintain their rate of return and the same low prices. So they keep their subsidy, and USF ends up paying twice! This is the FCC's justification for wanting to do away with competitive ETCs entirely -- they could have simply removed Equal Support, but they're killing CETC in toto, regardless of what the law actually says. A few years ago, they capped CETC support. If a new CETC comes into an area, their subsidy comes out of other CETCs, no longer equal support. The total is supposed to phase down to 0 over five years. BTW the biggest CETCs were cellular carriers, including Sprint, AT&T Mobility and its predecessors, and some Verizon Wireless acquisitions. VZ and I think Sprint agreed to phase out their CETC support as merger conditions. CLECs got a rather small share of the pie. WISPS need not apply, since they're not carriers, and the support was technically for voice. Oh, voice? Well, the real scandal of USF is that the ILEC-ETC is allowed to do practically anything so long as it's useful for voice. They can build Fiber to the Ranch, for $20,000+/home (CapEx) or more, or $1000/month per sub (though they propose making it harder to get >$250/line/mo), if it also delivers voice, *even if* they already have copper to the ranch *and* an unlicensed WISP. Check out Border to Border in Texas. So USF does fund broadband; it just does it indirectly, by letting them build a broadband-ready network with subsidy money. The ISP they run across it is then "incidental", not *directly* subsidized, but if the wire or fiber is already there, how much does more it cost to drop on broadband Internet? Thanks to this policy, many rural ILECs have better broadband coverage than unsubsidized Bells. We pay for this. USF is funded by a tax on "interstate telecommunications". That includes long distance calls, circuits, and interconnected VoIP (assumed 64.9% interstate, IIRC, but I'm typing this off-line on my laptop in a rural location -- I haven't paid VZW for tethering and for some reason it no longer works on my cell phone ;-] ). This is technically a "fee" rather than "tax" because it doesn't go to the Treasury's General Fund, but it is enforced like a tax (big fines if you don't pay). It goes to USAC, who runs USF. It's a self-adjusting tax. Every quarter, they compute a new rate, and it takes effect automatically. It started out around 3% and is now around 15.5%. The FCC's new set of proposals has a couple of major impacts. It continues the phase-out of CETC support. It also creates a new fund, "Connect America", which explicitly covers "broadband", as if that were a noun. (Broadband what? It's an adjective.) This will be distibuted by reverse auction; the ETC who asks the least to serve a given area gets the exclusive support. If may be the ILEC. Whether or not it's the ILEC, the ILEC-ETC *continues* to get their current support. Connect America is incremental. So the ILECs can get even more. BTW there's a separate pending proposal to create a new USF to fund mobile wireless -- licensed CMRS, not WISP. This may be related to the recently announced 98% goal, though it seem to me that Verizon had planned that for its LTE network anyway! BTW the Frontline Wireless plan that almost happened in 2007 was required to have 99.3% population coverage, though (speaking as one of their network designers) that was sort of optimistic, and a sane proposal (that might have happened) would have needed a lower number. -- Fred Goldstein k1io fgoldstein "at" ionary.com ionary Consulting http://www.ionary.com/ +1 617 795 2701 -------------------------------------------------------------------------------- WISPA Wants You! Join today! http://signup.wispa.org/ -------------------------------------------------------------------------------- WISPA Wireless List: wireless@wispa.org Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/
