Federal Communications Commission (FCC) Chairman Julius Genachowski (News - Alert), in a webcast this morning (full text here), highlighted the recommendations outlined in an order his staff will be circulating to the full Commission on the reform and modernization of the Universal Service Fund (USF) and the Intercarrier Compensation (ICC) system. The order will be the topic of consideration at the FCC’s open meeting October 27.

The wind up and the pitch

Reading from his iPad, Genachowski started with recognition of the passing of Steve Jobs and used a Jobs quote from 1985 to emphasize why modernizing the USF and ICC is critical.

“The most compelling reason for most people to buy a computer for the home will be to link it to a nationwide communications network. We're just in the beginning stages of what will be a truly remarkable breakthrough for most people as remarkable as the telephone."

He then launched into a long series of anecdotes and explanations as to why the current regime for assuring universal service, especially in rural areas of the U.S., is broken and must be fixed now. Lack of action is not an alternative because it imperils the country’s economy today and going forward. As the Chairman stated, “It's not just a theory. It's a fact. Broadband has gone from being a luxury to a necessity for full participation in our economy and society.” 

In fact, one thing that is universal is bi-partisan agreement that the current regime — where a shrinking pool of USF funds, resulting from a lack of regulation, the contribution of VoIP calls and an ICC system that unfairly distributes funds with little or no accountability and does not target funds where there is need for constructing new infrastructure — is not sustainable.  He elaborated by pointing out how the USF is outdated, wasteful and inefficient. He also cited how the ICC system not only is forcing consumers in various parts of the country to pay higher bills to subsidize inordinately low bills for consumers in selected areas, but also how it has created competitive distortions that companies “have exploited in devious ways to game the system,” and how it actually discourages investment in IP networks because companies fear that will mean the loss of their subsidy. 

Like a good lawyer (which he is), the opening case he laid out was exhaustive and persuasive. In fact, his impassioned closing for his brief against the status quo was impressive. As many others have concluded, the status quo is no longer an option. The costs are too high. We have to act. 

For your consideration

So the point was made, including a call to action, but what is being advocated?

Stating that the order prepared by the staff was developed with the focus that the interests of the consumer come first, and that, if adopted, it will spur broadband buildout to hundreds of thousands in 2012 and put us on a path to universal broadband access by the end of the decade, Genachowski outlined the proposed reforms. He was careful to point out the work and process that went into the effort and that, as a result, the proposals wed the best ideas of past reform along with new ideas generated from a variety of stakeholders and the staff. Here is what is being put forth. Fair warning, it is complex and some of the benefits from this list need to be viewed in the context of the full speech. They include:

• Concluding the reform and modernization of the USF’s Lifeline program.
• Continuing reduction in ICC rates which started ten years ago.
• Helping consumers through constraining the contribution burden for USF and phasing down the ICC subsidies buried in their wireless and long distance phone bills
• Transitioning the USF to a Connect America Fund (CAF) with two goals:
  • Ensuring universal availability of robust, scalable, and affordable broadband to homes, businesses, and anchor institutions in unserved areas
  • Ensuring universal availability of mobile broadband through a new Mobility Fund including a “one-time shot-in-the arm” to accelerate deployment of 4G networks
• CAF will ensure support is not used to supplant private investment:
  • Funding will be targeted exclusively at areas with an unsubsidized competitor
  • Competitive bidding and strict guidelines and accountability practices will be phased in to promote competition for CAF and those willing to invest in new network construction with the first phase built into the Mobility Fund
• Reforming of rate-of-return regulation with the goal of convincing those who manage their businesses wisely to invest in extending their broadband reach
• A clear and meaningful waiver process
• An overhaul of the ICC to:
  • Reduce hidden subsidies paid by consumers
  • Shut down harmful arbitrage schemes and close loopholes like phantom traffic and traffic pumping and other schemes where carriers divert wireless traffic to wireless ones to avoid paying ICC charges
• Provide certainty about compensation for VoIP calls
• Define a new and purportedly key role for state regulators

In regard to the ICC, the proposal is intended to enable a phasing down of ccess rates over a measured but certain multi-year transition path, starting by bringing intrastate access rates in line with interstate rates. The first target of opportunity to be tackled is call termination where it is a fact that most ICC arbitrage occurs.  Genachowski stated that: “To help companies with the transition, we will employ a tightly controlled recovery mechanism. We will permit some companies to receive transitional support from the Connect America Fund, but such support will be accompanied by obligations to serve the public consistent with universal broadband goals, as well as oversight and accountability….We will also acknowledge the importance of promoting efficient interconnection as carriers transition to an IP world, and will put forth specific proposals in that area.”

Is this really a step forward?

When you cut through the presentation theatrics and the policy-wonk attention to detail about the proposals, and even the re-branding of the USF as the CAF, there is a core question as to whether this really moves the ball forward and how much.

George Foote, partner at the law firm Dorsey & Whitney and a long-time industry observer had this reaction, “The Commission is matching one of its oldest obligations--universal service--with the newest technologies--broadband and wireless services. Along the way, it is rearranging winners and losers in the telecom industry.  The companies that deliver broadband and mobile service will see new revenues. Traditional wireline-oriented business practices are going the way of the telegraph. The USF reforms are consistent with other actions of the Commission to promote more and faster broadband service in the United States.”

Industry reaction has been along the lines of traditional Washington, D.C. protocol for such things. This is the practice where you praise the Chairman for all of his hard work, laud the goals of fixing a broken system and the objective of bringing broadband to everyone, and then whine about some aspect of the reforms that are objectionable.

For those of you unfamiliar with the process it usually goes like this:

• The details of the order will be circulated and anyone with an interest will issue a few press releases on the subject, and a couple of politicians might weigh in.
• The Commission will adopt the order and then the lawsuits will begin.
• Appeals will take place. The case some years from now might even get to the U.S. Supreme Court where it may be put on the calendar and hence decided.

Broadband deployment in an accelerated manner in rural areas will not take place as planned. Let us not forget there are still the LightSquared (News - Alert) imbroglio and the AT&T/T-Mobile (News - Alert) mine field to be navigated along with net neutrality and various “jurisdictionalization” issues and the death of the PSTN which are all intertwined.

The reality is, as laudable as the Commission’s efforts are in fixing what is truly broken and emphasizing the need for rural broadband accelerated construction and accentuating 4G, this still is working at the margins of what needs to be done.

A step forward? Yes, but a tiny baby step in the grand scheme of things. At the end of the day, we will still be left with a broadband map to play with and not an executable plan, and an annuity program for members of the Federal Communications Bar Association (News - Alert).

All of its good intentions aside, the big issue the FCC has failed to answer is why universal service is not classified as BROADBAND.  Going all the way back into the 1980s and the classification of certain services as “information services” instead of being common carrier ones, hence enabling dominant carriers to participate unregulated in emerging markets while controlling the underlying networks, the FCC has not reclassified universal service as anything more than basic voice.  

Chairman Genschoswki rails against the USF because it is not 21^st century friendly. The facts are that it was not 20^th century friendly as soon as computer networking appears on the scene. VoIP, whose phone calls do not respect arbitrary physical and jurisdictional boundaries, and wireless, as bypass for the current regime, are just the last daggers in the back.

A modest proposal

With a tip of the hat to satirist Jonathan Swift, I put forward for consideration the following modest proposal of my own.

The FCC’s mandate since its creation was to ensure universal service at affordable rates. If we are truly at a time where bold action must be taken, then it is time to do the right thing and have the FCC, for instance:

• Define universal access as broadband
• Define what broadband means for a household for some time frame to be strictly enforced according to a plan with the goal that it is to be revisited as markets progress and needs change
• Take the heat on its jurisdictional powers to regulate broadband in a quickly approaching all IP networking world
• Use the new definition as a guidepost for adjust subsidies to meet the new requirements that will flow out of establishing enforceable national broadband plan
• Level the competitive playing field with appropriate carrots and sticks that actually get used so that dominant players can be essential participants in helping make the future happen and entrepreneurs do not face the uncertainties of when and how unfair advantage may cloudy their ambitions

Is this practical? Probably not! It threatens too many interests. But, at least allow me my fantasy. Is it the right thing to do? Yes.

For those of us old enough to remember, IDSN (Integrated Digital Services Network at 64Kbps) was the broadband of its day back when defined as an international standard in 1988. If the FCC at that time had mandated it as basic service to be provided universally we would not be having this discussion because at least at a basic service level everyone would already have broadband, albeit lower-speed.

It is worth closing with the notion that those who do not learn from history are doomed to repeat it. Good for Chairman Genachowski, and likely the FCC to try and move us forward toward a universally connected country. However, from where I sit, this is not good enough. If the public switched telephone network (PSTN) is going to die supposedly around 2018 what is universal service then? The clock is ticking.

Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya (News - Alert), Alcatel-Lucent, Telcordia, HP, Siemens, Nortel, France Telecom, and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.