Senate Commerce, Science & Transportation Committee Reviewed Universal Service Reform

WASHINGTON, June 25, 2010 –Universal Service reform is one of the key components of the National Broadband Plan and a principal which many in the telecommunications industry believe needs to happen before the current system collapses.

On Thursday, the Senate Committee on Commerce, Science & Transportation held hearings to determine the state of the Universal Service Fund and to hear testimony to determine what should be done to reform it. While the hearing was titled “Universal Service: Transforming the High-Cost Fund for the Broadband Era” many of the Republican Senators spent a majority of their questions on reclassification not on universal service.

The National Broadband Plan aims to reform the Universal Service Fund by deconstructing it into two separate funds. The first fund would be the Connect America Fund which would replace the High Cost Fund; it would provide access to rural areas where no business case exists for corporate investment.

Additionally in comparison to the current High Cost Fund the CAF would only fund a single entity per geographic area which would limit costs. The second fund would help support the expansion of mobile broadband via the expansion of 3G and then 4G; this fund is called the Mobility Fund.

USF reform is one of the few topics where the majority of the FCC agree on and want to action upon quickly. Many of the democrats on the Senate Committee also seemed in agreement that reform is necessary. Senator Byron Dorgan (D-ND) compared the expansion of broadband to electricity and the highway system, something which the government must support due to its high cost and ability to transform society.

Dorgan also stated that he felt that the 1996 Communications Act gave the FCC the authority to transform the USF from telephone support to broadband. Senator David Vitter (R-LA) agreed that USF need to provide rural America the same level of connectivity as the rest of the country but emphasized the need to do so with a limited amount of regulation.

Senator John Kerry was unable to attend the hearing but released the following statement “The program must evolve to reflect an evolving level of telecommunications services in the market.

And through reform, we must make sure the billions we spend to execute on that mission are spent effectively and efficiently and focused on increasing the number of Americans who receive and connect to our broadband network rather than on the size of the companies that receive the subsidy.”

The first witness panel consisted of Federal Communications Commissioners Michael Copps, Mingnon Clyburn and Meredith Atwell Baker.

Commissioner Copps lead off the witness testimony calling for large scale reform. He then gave a short history of how the nation even in its early colonial days provided for necessary infrastructure.  “So those generations built roads and bridges, turnpikes and canals, regional and then transcontinental railroads, an interstate highway system, nationwide electricity grids and nearly universal plain old telephone service.  They did this, more often than not, by working together—private enterprise in the lead, to be sure, but encouraged by visionary public policy.”

Copps then advocated the need for universal broadband access as not only a source of  economic empowerment but also as a social necessity. “America’s future town square will be paved with broadband bricks.  Sustaining small “d” democracy by effectively informing all of our citizens in the Digital Age goes to the core of what we are trying to achieve in the National Broadband Plan”

When asked if expansion should be left to the market; Copps reaffirmed his belief that the market cannot bring broadband to all of America and the government must help.

Commissioner Clyburn then reiterated the statements made by Copps for the need for government support. She then went onto underline the problems americans who don’t have access face. “Children cannot use high-speed Internet to complete their homework, enhance their educational opportunities through distance learning, or apply for college online.  Parents cannot apply for jobs that require online applications, and they cannot access many other services and critical information that is only available online.”

Commissioner Baker also agreed with her colleagues on the need for reform but warned that the USF does not have an unlimited source of funds. In fact due to the increasing number of consumers getting VOIP services they are not contributing to the USF.

She then went onto rearticulate her position that any action must be done with “a light-touch regulatory approach”.

When the commissioners were asked by Senator Dorgan if potential reclassification would hurt infrastructure investment Commissioners Copps and Clyburn felt it would not.

Clyburn stated that she had met with investors from UBS, Goldman Sachs and Meryl Lynch who said that it would provide them with increased security. Commissioner Baker however disagreed and claimed that investors told her that reclassification would bring about “too much regulation”.

The second witness panel consisted of industry professionals and was composed of Jeff Gardner, CEO Windstream Communications; Delbert Wilson General Manager, Hill Country Telephone Co-op; John Gockley VP Legal and Regulatory Affairs at US Cellular, Paul Waits President of Ritter Communications and Keyle McSlarrow CEO of the National Cable and Telecommunications Association.

Jeff Gardner CEO of Windstream a firm which provides service to a majority of rural America agreed that USF needs to focus on areas where no economic case exists for corporate investment. He also urged that USF reform include a simpler mechanism for obtaining support so that smaller firms are able to participate.

Delbert Wilson who was representing the Western Telecommunications Alliance, Organization for the Promotion and Advancement of Small Telecommunications Companies and Organization for the Promotion and Advancement of Small Telecommunications Companies also believed that USF was crucial for the expansion for broadband to rural America but does not feel that rural America should have to make do with the slower speeds which the NBP proposes.

He felt that the plan “Discriminate[s] against rural consumers, by proposing to fund rural networks at speed standards that will render them obsolete almost as soon as they are built”.

John Gockley from US Cellular espoused the benefits of maintaining technological neutrality in the funding to allow for wireless to be on equal footing with wireline. Since wireless technologies are able to connect the most remote areas with the lowest cost they should be considered as an equal option.

Paul Waits from Ritter Communications urged the panel to proceed slowly and to take on responsible reform which can be sustained. Waits also stated that the base of contribution to the USF needs to be expanded. “The solution must include restoring the contribution base for the USF fee to effectively support the original intent of what constitutes universal service, must include all telecommunications service in its revenue base for collections, and be neutral to changes in technology.  The amount that individuals pay on their telephone bill to support universal service is simply too high and unsustainable.”

Commissioner Copps while not present during the testimony of Mr. Waits made a similar comment when asked about the long term sustainability of the USF. Copps said that broadband services may have to be taxed in the same way that telephone services are to provide proper funding.

Kyle McSlarrow from National Cable and Telecommunications Association provided the final statement in which he supported reform and agreed that technological neutrality ensured competition. He also wanted to ensure that waste is cut from the program.

Many of the Republican Senators felt that the FCC did not have the full authority to conduct an overhaul of USF and that the FCC should ask Congress for a new mandate.