Policy

House Duo: Tap Modem Cash

11/22/2005 5:54 AM Eastern

A House draft bill would require cable operators to contribute modem revenue to the federal program that subsidizes affordable telecommunications services in rural areas of the United States.

The proposal was recently floated by Reps. Rick Boucher (D-Va.) and Lee Terry (R-Neb.) in a draft bill they spent six months preparing. After receiving comments from cable and other affected industries, the two plan to introduce a bill in January.

Requiring cable to share modem revenue to fund universal-service programs would be a first and no doubt costly.

Earlier in the year, former Federal Communications Commission chairman Michael Powell calculated that under current FCC rules, cable would need to contribute about 10% of its modem revenue, or roughly $1 billion annually.

Cable companies that offer circuit-switched and voice-over-Internet-protocol service do pay into universal service, and some actually receive money from the fund.

Although cable operators are not required to fund the FCC's $2.25 billion annual "e-rate" program to wire schools and libraries to the Internet, they are entitled to receive money when hired as vendors.

The Boucher-Terry bill is designed to eliminate regulatory disparities that have existed for years between cable and phone companies with regard to data services.

Cable has been able to shield $10 billion in annual modem revenue from the universal-service program because cable-modem service is classified as an information service. Information-service providers -- whether a cable company or America Online Inc. -- are exempt from the program.

Digital-subscriber-line services offered by the Baby Bell phone companies were not exempt because DSL had been classified by the FCC as a telecommunications service. The commission changed that a few months ago by reclassifying DSL as an information service. In a few months, DSL will no longer directly support universal service.

The Boucher-Terry draft would ensure that any provider of high-speed-Internet access would need to contribute to universal service. That would include cable, phone, satellite, wireless and broadband-via-power-line providers.

In FCC filings, the National Cable & Telecommunications Association has urged the agency to ensure that as a threshold matter, the fund isn't wasting money. The NCTA said the FCC should first consider funding universal service by taxing phone numbers before thinking about cable modem revenue as a source of funding.

If the Boucher-Terry bill becomes law, universal service would, for the first time, help to finance broadband deployment in rural America. Traditionally, the program ensured affordable voice service.

September