Saturday, November 19, 2011

FCC issues proposed order creating Connect America Fund

The U.S. Federal Communications Commission has released its proposed order revamping the Universal Service Fund (USF) that has for decades subsidized plain old telephone service (POTS) in high cost areas. The USF will now be directed to support Internet connectivity as the Connect America Fund (CAF). The CAF will instead subsidize telecommunications infrastructure to serve what the FCC estimates to be 18 million Americans who involuntarily remain off the Internet “grid” because it costs too much to connect them.

Whether the proposed order would achieve that and do so in a timely manner is an open question. The executive summary of the rather inscrutable 759-page document states that “[w]hile continuing to require that all eligible telecommunications carriers (ETCs) offer voice services, we now require that they also offer broadband services.” But a close reading of the order shows no indication the FCC will expand the telcos’ existing common carrier obligation to provide voice service to all (and not just some) premises in their service areas to encompass Internet. For example, paragraph 1090 on page 398 of the proposed order:

Under section 214 of the Act (the federal Telecommunications Act of 1996), the states possess primary authority for designating ETCs and setting their “service area[s],” although the Commission may step in to the extent state commissions lack jurisdiction. Section 214(e)(1) provides that once designated, ETCs “shall be eligible to receive universal service support in accordance with section 254 and shall, throughout the service area for which the designation is received . . . offer the services that are supported by Federal universal service support mechanisms under section 254(c).” Although we require providers to offer broadband service as a condition of universal service support, under the legal framework we adopt today, the “services” referred to in section 254(e)(1) means voice service, either landline or mobile. (Emphasis added).

That sounds like POTS and not Internet. In addition, there is no reference in the proposed order to Title II Section 214(e)(3) of the Telecommunications Act of 1996 that empowers the FCC to "determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof." So it appears that telcos could continue to not serve some areas even while accepting CAF subsidies to serve others -- thereby perpetuating the existing problem of broadband black holes.

It’s also unclear from the proposed order how unserved areas in states where the incumbent telco has relinquished its carrier of last resort status would be able to benefit since these carriers would appear to be ineligible for CAF subsidies. Or whether telcos, even if eligible for CAF subsidies, would accept them. In California, for example, telcos have generally shunned generous subsidies available through the California Public Utilities Commission to offset the cost of constructing infrastructure to provide Internet connections to premises in unserved and underserved areas of the state.

Finally and perhaps most importantly, given that many people have and continue to “cut the cord” to landline voice service, will there be enough money to be had from phone bill surcharges that have historically funded the USF to sustain the CAF?

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