Three years ago, most rural phone companies didn’t stress over wireless carriers dipping into a chief source of revenue: the Universal Service Fund (USF).
Times have changed.
In an order granting Virginia Cellular designation as a so-called eligible telecommunications carrier (ETC), the FCC projected 112 competitive ETCs will receive approximately $32 million from the USF in the fourth quarter of 2003. That figure compares to $2 million in support in the first quarter of 2001. ETCs are allowed to dip into the fund to serve high-cost regions, areas of the country where it is more expensive than national averages to provide services.
“We are increasingly concerned about the impact on the universal service fund due to the rapid growth in high-cost support distributed to competitive ETCs,” the FCC said in the Virginia Cellular order released Jan. 22.
In February, the Federal-State Joint Board on Universal Service made recommendations to the FCC to help protect the USF following the flood of requests for ETC designation. The FCC has one year to make a decision.
The joint board led by FCC Commissioner Kathleen Abernathy endorsed crafting guidelines companies must meet to be designated an ETC. Many states rule on requests to be designated an ETC, though the FCC makes those decisions on tribal lands and in some states, including Virginia.
The joint board recommended the FCC adopt federal guidelines spelling out how states must conduct an analysis to decide whether to grant a request for an ETC designation, says L. Marie Guillory, vice president of legal and industry for the National Telecommunications Cooperative Association (NTCA).
“I think that’s a good start to have the states more seriously consider each application and determine” whether ETCs meet specific criteria, such as being financially stable and giving customers the option of choosing any long-distance carrier, Guillory says. “They actually went a long way to say states weren’t preempted from imposing additional guidelines in the process.”
That said, rural coalitions do take issue with aspects of the joint board’s report, particularly its recommendation to limit universal service support to a single “primary” line. Under current rules, phone companies receive support for all lines they serve, says Bob Anderson, president of the National Exchange Carrier Association (NECA).
Under the board’s recommendation, consumers would select a primary line. Anderson contends this proposal is not only unfair to rural phone companies who have built and upgraded phone plants in high-cost areas with the understanding they would be guaranteed access to federal funds, but it also would be a nightmare to administer.
“Our members have built out their networks to serve consumers’ needs. They have not based their buildout efforts on how many lines they could get support for,” NTCA CEO Michael Brunner said in a statement. “That goes against the very premise of these locally owned, small businesses. This recommendation instills a disincentive to invest.”
The joint board says its recommendation is necessary to protect the fund.
“I do not know at this stage whether I will ultimately vote to adopt a primary-line restriction of the sort discussed in this recommended decision, but it seems clear that the Universal Service Fund can no longer subsidize an unlimited number of connections provided by an unlimited number of carriers,” Abernathy, chair of the joint board, said in a statement accompanying the recommendation. “Nor do I believe the Communi-cations Act contemplated such a result.”
Responding to the concerns of rural phone companies, the joint board made recommendations designed to combat the perceived harm associated with its proposal to fund only primary lines.
Under one proposal, rural phone companies would receive lump sum payments to compensate the loss of support associated with second lines.
One of the biggest criticisms of the ETC program is that outsiders can get USF support to serve a high-cost area, yet they don’t have to meet all the same requirements as rural LECs. Anderson says everybody should play by the same rules. FCC Commissioner Kevin Martin apparently agrees.
“In my view, competitive ETCs seeking universal service support should have the same ‘carrier of last resort’ obligations [requirements to offer service throughout a service area] as incumbent service providers in order to receive universal service support,” he says. “Adopting the same ‘carrier of last resort’ obligation for all ETCs is fully consistent with the commission’s existing policy of competitive and technological neutrality amongst service providers.”
