Universal Service reform: What it means for schools

This article discusses the details of the FCC’s various proposals and highlights some key compliance questions that broadband providers, and the schools and libraries they serve, will need to consider as these proposals become reality.

High-Cost Reform

On July 29, a group of the nation’s largest incumbent local exchange carriers submitted the ABC Plan. This is the highest-profile concrete proposal to date to implement Universal Service reforms that would reduce intercarrier payments and—for the first time—provide federal high-cost support directly for broadband facilities and services.

On Aug. 3, the FCC issued a Public Notice seeking comment on this plan, as well as two competing views offered by state regulators and rural local telephone companies, respectively. On Aug. 18, Google, Skype, Sprint, Vonage, and the Ad Hoc Telecommunications Users Committee filed an alternative proposal to support broadband adoption, explicitly foster IP-to-IP interconnection, and modernize the Universal Service funding mechanisms. Various other interests, including cable and small wireless providers, also have weighed in.

The comments, which were due to the FCC Aug. 24, have produced a massive record for the agency to review. Nevertheless, this appears to be the FCC’s best chance to enact comprehensive intercarrier compensation and Universal Service reform—which has stymied the agency for over a decade—since its late 2008 efforts under former Chairman Kevin Martin.

Today, even as broadband plays an increasingly central role in filling the nation’s day-to-day communications needs, services such as internet access, eMail, voice over Internet Protocol, text messaging, and others have reduced overall demand for voice telephony and blurred the distinctions between local, long distance, voice, data, intrastate, interstate, and international services, upon which this legacy regulatory framework is based.

Under that legacy framework, when two or more telephone companies interconnect their networks to complete a voice call, the originating and terminating local exchange carriers may receive revenue from up to three primary sources: the end user (customer), the carrier with which they interconnect, and—in areas of the nation where the costs of service are significantly above national averages—federal High-Cost Universal Service Support Mechanisms. Today, none of these payments support broadband internet services directly.

The ABC Plan would reduce the terminating intercarrier compensation rate for most calls to $0.0007 per minute and create the CAF, which was described in the FCC’s National Broadband Plan. The CAF would distribute some $2.2 billion annually, nearly equal to the total e-Rate funding available today, to support deployment of facilities and provision of broadband services to residential and business locations at a speed of at least 4Mbps downstream and 768Kbps upstream. CAF support would be available in areas where there is currently no private-sector business case for doing so, because it would cost too much for providers to offer service—and specifically in areas where there is no unsupported broadband competitor as of Jan. 1, 2012, and that exceed the plan’s high-cost benchmark.

In addition, the ABC Plan would create the AMF, a fund to provide $300 million in support for mobile broadband deployment, including a portion that would be available for installation of satellite broadband equipment for a limited number of subscribers in the highest-cost areas of the nation. While the AMF is not described in as much detail as the CAF, it fills a complementary role, as a provider would not be permitted to receive both CAF and AMF for the same facility.

The Google Plan would separate the CAF into two components. The Broadband Build portion would be technologically neutral by not providing wireline carriers with a “right of first refusal” for CAF support, and by ensuring “efficient broadband build-out” by considering the costs of alternatives to wireline technologies. The Broadband Operations portion would be contingent on the provider’s showing of need based on “all current and foreseeable revenues,” which would have to be reassessed periodically, such as every three years.

The Google Plan also proposes that recipients of these funds must adhere to more stringent safeguards than apply to universal service funding today, such as those applicable to the Broadband Technology Opportunities Program (BTOP), administered by the Commerce Department’s National Telecommunications and Information Administration (NTIA), and other federal grant programs. The Google Plan specifically proposes to impose independent audit requirements, background screening for key individuals, and detailed annual and quarterly reporting requirements on support recipients.

Finally, the Google Plan proposes (1) to replace the current funding mechanism, based on interstate, end user, and telecommunications revenues, with a mechanism based on the number and bandwidth of each user’s connections; and (2) to take steps to foster IP-to-IP interconnection by, among other things, establishing a bill-and-keep default for traffic that originates or terminates on an IP network.

Either plan would, for the first time, offer explicit federal high-cost support directly for broadband facilities and services. If the FCC takes this step, community anchor institutions—such as schools and libraries—in areas of the nation without broadband service today might find that, not only will service become available, but this service might be eligible for e-Rate support as well.

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