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FCC Holds Final USF Reform Workshop in Nebraska

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WASHINGTON May 20, 2011- The Federal Communications Commission held its final in a series of Universal Service Fund reform workshops, featuring key industry officials in Omaha, Nebraska on Thursday.

One of the key reforms that the FCC has proposed in its USF reform proposal is the use of reverse auctions as a new mechanism for the distribution of funds.

Currently, funds are distributed to all carriers within a specific area as long as they provide the required services. The reverse auction proposal would limit government funding to a single entity that would provide service to the entire service area. Providers would enter into an auction wherein the company that could provide the service with the lowest level of government funding would win funding.

The proposal has received a mixed reaction by the telecommunications industry.

“Reverse auctions will result in what amounts to a government-sanctioned monopoly for the auction winner. Lack of competition in turn leads to higher prices, more regulation and less buildout in rural America,” said Johnie Johnson, CEO of Nex-Tech Wireless. “The one-time funding decisions that reverse auctions would entail would not promote competition over time, leaving customers with substandard broadband service.”

Johnson proposes that instead of funding the companies the USF should provide customers with funding to select their choice of providers. By funding consumers Johnson believes that rural providers would have to compete with each other on a continuous basis thus ensuring innovation and network improvements.

Wendy Fast, owner of Consolidated Telephone Company, said that reverse auctions would leave the losers with large stranded investments in infrastructure they have built out, but would no longer use. Fast claims that with only a single provider, service quality would drop. Also, if the auction winner were to go bankrupt, customers would face serious problems.

Instead of reverse auctions, Fast suggested that the Commission uses rate of return regulation. According to Fast 92 percent of companies that are on rate of return regulation rules have deployed broadband.

“If the FCC adopts either reverse auctions or a yet undefined cost model with right of first refusal, uncertainty will increase, which will stifle investment and run the risk of creating new “unserved” areas where service exists today,” Fast said. “ With proper constraints, rate‐of‐return regulation provides the confidence and appropriate incentives to encourage investment and responsible upgrades, which is the result the FCC is seeking.”

Lisa Scalpone, general counsel at Wild Blue Communications, supported the reverse auctions proposal saying that it will allow for the most cost effective service to win.

“Reverse auctions harness competitive forces to allocate limited funding resources efficiently - provided auction rules are competitively-neutral, technology-agnostic, and market-based,” said Scalpone.

Scalpone said that if the Commission pursues auctions there should be strict deadlines for deployment along with quality of service requirements.

Teri Ohta, Senior Corporate Counsel at T-Mobile, supported the idea that any recipient of USF funding should be required to provide proof that the firm is able to provide the service they claim.

Rahul Gaitonde has been writing for since the fall of 2009, and in May of 2010 he became Deputy Editor. He was a fellow at George Mason University’s Long Term Governance Project, a researcher at the International Center for Applied Studies in Information Technology and worked at the National Telecommunications and Information Administration. He holds a Masters of Public Policy from George Mason University, where his research focused on the economic and social benefits of broadband expansion. He has written extensively about Universal Service Fund reform, the Broadband Technology Opportunities Program and the Broadband Data Improvement Act

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