Photo of Douglas Jarrett

Despite an energetic reboot earlier this year, the FCC’s most recent effort to reform the rules and policies for funding the Universal Service Fund—USF contribution reform—has lost momentum.  In its Further Notice, the FCC raised every conceivable issue and policy question and sought comment on each of them.  To no one’s surprise, countless services providers and other stakeholders expressed their positions in detail underscoring the undue complexity of the USF contribution rules.

The FCC’s longstanding position that USF contribution obligations are not “taxes” is a legal subtlety lost on customers to whom all the major carriers pass-through their USF contribution obligations.  The USF burden now falls disproportionately on Wireline customers—consumers, enterprises and state and local governments—that rely on circuit-switched voice and other TDM-based services as the Internet has emerged as the Nation’s primary data communications platform. And, with Wireless and VoIP taking center stage for voice, a shrinking number of users will bear an increasing burden as the USF revenue requirement continues to grow.

As Commissioner McDowell noted earlier this year, the contribution factor is too high and the contribution base needs to be expanded. The current system continues to falter under its own weight. The definitional issues and associated complexity obscure the fact that a contribution factor of 17.4% is intolerable. The rickety revenues approach impedes investment by new services providers that are not backbone ISPs having substantial retail customer bases.  Start-ups are discouraged from being end-to-end services providers and focus unduly on developing business plans to avoid a 17%+ surcharge that is likely to increase over time.  Maximum use of the “intermediate mile” fiber deployments that RUS and NTIA infrastructure grants enabled is being discouraged.

Rather than try to fix the current rules, the FCC’s limited resources should be redirected to developing a more straightforward, sustainable funding mechanism, such as connections or numbers. Obsessive focus on “equity issues” both in the revenues approach and those attributed to the alternatives is misplaced.  The negative consequences of the revenues approach are evident.  The revenues approach was developed prior to the emergence of Wireless and the Internet as the dominant telecommunications platforms.  That was 1997; fifteen years have passed. It’s time to move on.