FCC releases proposals to reform Universal Service Fund

[Associated Press]

The Federal Communications Commission is set to release several proposals aimed at reforming a government-subsidized fund to offset costs of deploying telecommunications services in rural and under-served parts of the country.

The agency will release three items suggesting a radical overhaul of the Universal Service Fund -- possibly as soon as later this week -- according to several FCC officials who spoke on condition of anonymity because the plan had yet to be made public.

The first will ask for industry feedback on a proposal long championed by Kevin Martin, the Commission's Republican chairman, known as reverse auctions.

It would designate one company to receive financial assistance from the fund in any given geographic area. Companies would compete against each other to become the designated company; those that ask for the lowest amount of assistance would be successful.

Currently there are few limits as to the number of companies that can receive subsidies in markets across the country.

Martin has advocated the reverse-auctions proposal as the best way to rein in the size of the fund, which is widely perceived as bloated and out of control.

A second proposed change would address an issue known as identical support. Currently, the amount that qualifying wireless companies receive from the fund is based on the rates paid to wired-line telephone companies in the same area.

But, the costs that wired-line companies face are far greater than those by wireless companies, and there have long been calls to address this discrepancy.

All five FCC commissioners have expressed support for this change in various public statements.

The final notice to be released by the FCC will formally put out for comment several of the recommendations made last year by the board of federal and state regulators that oversees the fund.

Martin, as well as Michael Copps and Deborah Tate, two other FCC commissioners, sit on that board.

The board's flagship recommendation was to specifically earmark a portion of the fund to help pay for the costs of deploying broadband Internet networks across the country.

The fund doesn't allow for money to be spent for this purpose, even though it is generally thought that many companies do in fact use it toward these costs.

Despite having voted for the board's proposed reforms, Martin has since expressed doubt about explicitly allowing the fund to be used to support broadband deployment.

His primary focus is on reducing the size of the $7 billion a year fund and he has publicly questioned where the money would come from to pay for broadband subsidies.

There are at least two other proposals for reform on circulation at the commission, neither of which has the requisite majority support to be released yet.

One calls for a temporary cap on the moneys received by wireless companies from the fund until more substantive reform is introduced.

The FCC struck deals with two of the largest wireless companies last year that imposed a cap on the money they received from the fund in exchange for winning agency approval for transactions in which they were involved.

One of them involved the $27.5 billion deal to take Alltel Corp. private by a unit of Goldman Sachs Inc. and TPG Capital Partners. Alltel is the largest recipient of subsidies from the Universal Service Fund.

Through the first nine months of 2007, Alltel received $224 million in subsidies from the fund, according to the Universal Service Administration Co., the not-for-profit group that manages the fund's finances.

The second was AT&T Inc.'s $2.8 billion acquisition of rural wireless-carrier Dobson Communications.

According to documents publicly filed with the agency, several senior executives from AT&T last week met with Robert McDowell, the third Republican member of the FCC. At that meeting, according to the documents, AT&T pressed the commissioner to support an industry-wide cap on wireless companies.

Every American who has any kind of telephone service pays a small proportion of every bill into the Universal Service Fund. For people who have multiple telephones, this can mean they are paying several dollars a month into the fund.

Any attempt to radically overhaul the fund would require the support of lawmakers on Capitol Hill. Several senators who sit on that chamber's commerce panel represent rural states that benefit strongly from the fund, and could prevent any in-depth reform from occurring.

article originally published at http://ww.businessweek.com/ap/financialnews/D8UBSFLO0.htm.

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