Reforming Universal Service

Top of Mind

Reforming Universal Service

By Paula Bernier, Executive Editor, TMC  |  January 01, 2012

After years of discussion and debate, the Federal Communications Commission this fall finally made its move to address Universal Service Fund and intercarrier compensation. The FCC (News - Alert) in mid October voted unanimously to retool these systems, which it noted “have been widely viewed as broken, and long overdue for reform.”

Of course, a big part of the effort has to do with dismantling the USF, whose raison d’etre is to ensure affordable phone service to all. Instead, the FCC wants to channel money to a new Connect America Fund, which is being established to make broadband connectivity more accessible and affordable. The Connect America Fund will have an annual budget of no more than $4.5 billion, according to the FCC.

Broadband, which can support a variety of voice, video and data services, is now table stakes for most businesses, and its expansion promises to create new jobs and bring the country other economic benefits, the FCC and the Obama administration keep reminding us. The FCC estimates that by expanding high-speed Internet to more than 7 million people in rural America over the next six years the nation can increase economic growth by $50 billion and create approximately 500,000 jobs.

Verizon (News - Alert) in mid October came out in support of the FCC’s effort around USF and intercarrier compensation reform, which some reports indicate favors the largest incumbent service providers.

However, Vonage (News - Alert) CEO Marc Lefar notes that the shift of universal service funding to support the deployment of new broadband networks, rather than the build-out of traditional telephone networks, is also a positive development for the VoIP community.

 “Vonage is pleased with the FCC’s decision to overhaul intercarrier compensation and the Universal Service Fund,” says Lefar. “In the short term, we expect the decision will be neutral to positive for Vonage’s business, and in the long term, the decision will reduce our cost of telephony services by millions of dollars.

 “Moreover, the FCC’s order quickly eliminates intrastate access charges, which currently represent an antiquated fee structure and which Vonage has indirectly paid since the company’s inception. We believe the FCC's actions will be fundamentally good for consumers by eventually lowering prices and expanding the availability of broadband - they help Vonage and other service providers better deliver the high-quality, feature-rich, low-cost broadband communications services they demand.”

David Erickson (News - Alert), CEO of, however, is not a fan of this reform.

“This plan will severely damage competition in the telephony marketplace,” says Erickson. “Why? There is not one study or shred of evidence that the FCC’s ‘bill-and-keep’ policy covers the cost of completing a call on a phone network. Thus, small phone companies will lose money on every connection to large phone companies. With AT&T (News - Alert) and Verizon controlling 80 percent of the wireline customers and over 65 percent of the wireless customers in the United States, they will bill those customers and keep all of the proceeds, effectively starving the competition that has existed since the 1996 Telecommunications Act.”

 Recognizing the huge growth of cellular data and devices in recent years, the FCC with this reform effort is also bringing wireless into the mix by creating the Mobility Fund.

 “The Mobility Fund will expand advanced mobile broadband access to tens of thousands of road miles, where millions of people work, live, and travel, and will include dedicated support for Tribal areas,” according to the FCC.

However, C Spire Wireless, which says it’s the nation's largest privately owned wireless carrier, sees this effort as a setback for the mobile space.

“While many of the specific details have still not been publicly disclosed, this much is already clear: Today's decision runs counter to the administration’s goal of promoting broadband deployment,” Eric Graham, vice president of C Spire, which serves approximately 875,000 customers in Alabama, Florida, Mississippi and Tennessee. “Wireless is the most efficient and timely deployment option to meet that goal, yet the FCC's inability to untether itself from the wireline monopoly model of the last century deals a tragic blow to our nation’s competitiveness at home and abroad.

“While the rest of the world feverishly invests and promotes wireless broadband, the FCC has unilaterally abandoned the future for a backwards-looking approach that will retard the economy for years to come,” he adds. “The coup de grace is that, while wireless users continue to provide over 67 percent of the dollars for the Universal Service high-cost fund, with today’s order wireless users will now only benefit from approximately 10 percent of the high-cost fund’s support while also being forced to fund antiquated landline networks.”

As for the intercarrier compensation reform effort, the FCC says that’s aimed at eliminating hidden costs in consumer bills, and providing lower prices and better value for long-distance and wireless consumers.

“As part of this reform, some consumers may pay, on average, an additional 10 to 15 cents a month on their bills; but for every dollar in cost, reform will provide $3 in benefits for consumers,” the FCC says. “And no additional charges can be imposed on consumer phone bills that are at or above $30 a month (inclusive of most fees consumers pay on their bills), nor can such charges be imposed on low-income consumers served by the FCC’s Lifeline program. Any new charges will begin to decline after six years.”

This article originally appeared in the Jan. issue of INTERNET TELEPHONY magazine.

Edited by Tammy Wolf