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Universal Service Fund Should Focus on the Low-Income, Agree Broadband Experts

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WASHINGTON, July 21, 2009 – A panel of broadband experts agreed Monday that the Universal Service Fund should direct more of its funding to low-income areas and away from exclusively focusing on rural high-cost areas, where funds are not being spent efficiently.

The experts spoke during a panel discussion sponsored by the Technology Policy Institute, a market-oriented think tank on technology issues.

The term universal service, said Jonathan Nuechterlein, a partner at Wilmer Hale law firm, has two different meanings.

One meaning has to do with funding for broadband in high-cost areas where deployment is expensive, regardless of the residents’ income, and the other has to do with funding for low-income areas.

“Funding broadband,” said Nuechterlein, “is expensive” and is going to “increase the burden on the companies that end up subsidizing it.” One way to ensure that this money is spent efficiently is to “narrow the scope” by only funding broadband in “genuinely unserved areas,” he said.

The whole “cluster of issues” dealing with universal service legislation, said Nuechterlein, “is tied with inter-carrier compensation.”

Traditionally, small rural carriers depended on carrier-to-carrier networks to fund their expenditures, but because there are now ways to avoid public access charges, the whole system is “rapidly eroding,” he said.

Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research compared universal broadband service to apple pie. Although everyone wants it, said Rosston, “it’s not free,” which is why it’s important to balance the benefits of broadband deployment against the costs.

Rosston questioned the efficiency of bringing broadband access to the “last five or 10 percent of households” which are “very difficult to serve,” and at which point the costs might out way the benefits.

One problem with high-cost funding is that it is funded by the taxes of broadband subscribers across the U.S. “For every two people you get to subscribe in a rural area, one person in an urban area drops off,” he said.

Broadband adoption, said Rosston, cannot simply be left to the market, where industries try to find what consumers want and provide it. Broadband is unique from other types of products because many times “people don’t realize the full value of subscribing,” he said.

Rosston specifically recommended providing vouchers to low-income people who “would not otherwise subscribe” and link-up programs which are “very effective at getting people connected.”

The “bottom line” is that it is necessary to determine what the costs are, how to connect people, and how to get industries to compete to win customers, he said.

F.J. Pollack, chief information officer of Tracfone Wireless, said that his industry is unique because it focuses on serving the unserved and pays out of its own pocket for the universal service fees.

Tracfone Wireless actually gives away free cell phones and minutes to low-income families, he said.

Many of the people Tracfone Wireless serves, said Pollack, are on food stamps and Medicaid, 93 percent of them do not have internet access at home, and 86 percent would like to be connected to broadband, but cannot afford it either because they can’t afford a computer or can’t afford to get connected.

Of those who couldn’t afford a computer, 64 percent said they couldn’t afford to get connected unless provided with a free computer. Of those would couldn’t afford to get their computer connected, 44 percent said the service would have to be free, and almost all of them said the cost could be no more than $20, he said.

On the issue of funding for high-cost areas, Pollack emphasized the inefficiency of how money is spent, referring to it as a “cost plus” program. High-cost funding has increased in states such as Alaska, Kansas, and Nebraska, yet “this fund really does not reform, no matter who pays for it,” he said.

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