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Cable’s USF Plan: Cut Telco Payments

12/13/2009 2:00 AM Eastern

Industry groups representing both large and small cable operators now have a plan to reclaim billions from the Universal Service Fund by reducing or eliminating payments to phone companies, then using those monies to subsidize broadband service.

The latest plan — introduced by the American Cable Association, which represents smaller, independent MSOs — came last week amidst a flurry of filings and activity on reforming the USF. Communications companies pay into that fund to subsidize service to low-income households and rural and remote areas.

At present, the fund primarily underwrites phone service, but the Federal Communications Commission and key legislators have said it needs to be expanded in a big way to accommodate the digital age’s version of lifeline communications: broadband. There have also been problems with waste, fraud and abuse that prompted the FCC’s review of the fund.

The National Cable & Telecommunications Association has already made its pitch to the FCC to reduce subsidies to incumbent local-exchange carriers (ILECs) in a petition for rulemaking filed last month. (Related story, this page.)

FCC chairman Julius Genachowski has signaled that he wants to extend the fund to cover broadband service and has told legislators a revamp of USF will be part of the national broadband plan due to Congress in February.

Cable operators agree that the fund should not subsidize large phone companies in areas where they compete with cable-delivered voice-over-Internet protocol phone service or other providers.

The ACA, for example, which represents small and midsized cable operators and telcos, has come up with a plan to free up $1 billion to $2 billion from the Universal Service Fund to help expand that program to cover broadband deployment.

ACA wants to cap the fund and “limit or deny” high-cost funding to telcos it says already face effective competition — including ACA members providing cable VoIP service — or are no longer subject to price regulation from states.

“ACA maintains that the USF, as currently structured, hurts consumers who pay into the system via their carriers and unfairly serves the interests of larger, entrenched incumbent voice providers who face competition, putting competitors at a decided disadvantage,” said ACA CEO Matt Polka in announcing the plan. “As a result, ACA recommends that larger incumbent voice providers subject to effective competition and free to price services as they wish should be largely ineligible to draw support from the USF program to subsidize voice services.”

The ACA draws a distinction between large telcos and smaller ones — close to 40% of ACA’s members are small telcos providing both video and voice. The group asks for a carve-out for telcos with fewer than 100,000 access lines, saying they should continue to be able to draw from the fund.

It also said that the fund should not underwrite the cost of multiple connections or handsets for a single user, including businesses, and that it wants the FCC to lower the de facto contribution base for cable VoIP providers.

The USF contribution currently stands at 12.3% of interstate and international revenue, but if a provider can’t separate interstate from intrastate revenue, it’s assumed that intrastate comprises 64.9%. The ACA calls that figure discriminatory and wants it lowered.

Co-opting the FCC’s current mantra, the ACA calls its plan to reduce funds to big carriers a data-driven, fact-based approach to dealing with “decades of difficult and ineffective oversight.”

“Anything that increases efficiency, targets funds better and controls the size of the fund deserves consideration,” Verizon spokesman David Fish said. “We will review these proposals.”

The ACA wants to use the money recovered from no longer subsidizing big telcos to help pay for broadband, but does not weigh in on whether the FCC should start collecting fees via broadband service as a way to subsidize rollouts.

The ACA does leave an opening in its pitch for a connections/numbers-based fee-collection system for taking a piece of cable-modem rentals rather than the 12.3% cut of revenues.

The National Cable & Telecommunications Association, by contrast, makes its position clear. “NCTA opposes the assessment of USF contributions on broadband services,” the trade group said in its filing.

Why not use broadband revenue to support broadband deployment? “There is simply no evidence … that there is an untapped pool of noncontributors that would be brought into the system,” the NCTA said. In addition, the group said, it could actually work against the broadband-adoption goals of Congress and the FCC.

“While subscription levels for local telephone service appear to be relatively unaffected by changes in the price of service,” the NCTA argued, “there is evidence that at least some portion of the population has not adopted broadband due to concerns about the price of broadband equipment and services. Given these consumer concerns, adding to the cost of broadband by assessing USF contributions would seem to undermine the goal of increasing broadband adoption.”

 

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