June 19, 2009 3:32 PM

Are You There Gov? It's Me, USF Contributor (a/k/a "Taxpayer")

[Disclosure Note:  As I've mentioned previously, AT&T is a client of mine, and they share my views (and those of every other rational observer) on the urgent need for universal service reform--both on the contribution and distribution sides.  Unfortunately, for you (the reader), Bob Quinn (of AT&T) already came out with a quick, clever, and succinct statement on the health of the USF earlier in the week when he pronounced that the Fund was in a "death spiral"--meaning that the Fund's precarious status of quickly losing contributors would exacerbate the "per customer" pain caused by the fact that the Fund continues to grow on the distribution side, and so on, and so on . . . .  Regretably, for the reader, I dithered with a contribution factor post, and then opted for the relatively repetitious "fact, fact, fact" format.  Hang in there, though, it's got a great ending;-)]
Fact: Earlier this week, the FCC announced that the "contribution factor" for the federal Universal Service Fund (a federally-created subsidy pool designed to support telecommunications services to high-cost areas, low-income consumers, schools and libraries, and rural health care facilities), will reach an all-time high of almost 13% for the third quarter.  This means that the FCC has authorized telecom providers to add a surcharge to the phone bills of most Americans amounting to about 13% of the interstate telecommunications portion of their wireless or wireline services bill.  The surcharge is up from about 10% in the first quarter of this year.

Fact: The Universal Service Fund, in the past year alone, disbursed as much money as the total dollar amount of funds appropriated under the "broadband stimulus" provisions of the American Recovery and Reinvestment Act--about $7.2 billion.

Fact:  In a report to Congress earlier this month, the FCC listed the top ten highest per-line USF beneficiaries.  It's an interesting read, notable for two facts that seem counterintuitive.  First, in all but two cases (where year over year data were available), the highest per line recipients either retained or increased the number of access lines served, while subsidies per line also increased.  In other words, the subsidy trends tend to buck commonly-accepted notions of telecommunications being a high fixed-cost, low variable cost industry.  Thus, as line counts increase, one would intuitively expect the necessary subsidies per line to decrease, not increase.

Second, the highest per line subsidy recipients were generally located in service territories surrounded by large LECs (maybe "high cost" but "non-rural") that managed to provide service to what would appear to be similarly-situated territories, but at drastically lower per line subsidy contributions.

The report noted that one rural carrier received almost $17,000 per access line in 2008. House Energy and Commerce Committee Ranking Member, Congressman Joe Barton (R-TX) reacted with this statement:  "It is unreasonable to expect subscribers to pay more than 11 percent of their long-distance phone bills to subsidize scores of telephone providers in each geographic market, especially when other providers are serving the same markets without a penny of support."  Congressman Barton said this before he knew the contribution factor would be well above 11%.


Fact: According to an April report by the Universal Service Administrative Company ("USAC"), since adoption of the Telecommunications Act of 1996, the FCC has presided over a total wealth transfer of around $58 billion under the auspices of the Universal Service Fund--the bulk of which (about $49 billion) has gone to support the "high cost" portion of the Fund.   
USAC Report at p. 55.

Fact: Last June, the GAO issued a report on FCC/USAC administration of the high cost fund, and concluded that in the 10 period after Congress passed the Telecommunications Act of 1996, mandating that the FCC ensure that rural consumers have access to telecommunications services,

[the] FCC has distributed over $30 billion to carriers, with much of this support coming from fees charged to consumers. Yet, FCC has not established performance goals or measures for the program. Thus, it is neither clear what outcomes the program is intended to produce nor what outcomes the program has achieved. What we and the Joint Board found were differences in telecommunications services in rural areas across the country. For example, in some rural areas, carriers receive generous support and provide advanced services, such as fiber-to-the-home, while in other rural areas, carriers receive little or no support and provide basic servicesGAO Report at p.39.

OK, OK . . . I'll stop--but I could go on.  I just want you to know that these "facts" all point in the same direction, and they don't need to end here, but you get the point already.  So, what do all these facts mean?  You're probably thinking, this is a big problem, right?  And, therefore, someone's going to take care of it, right?   Well, yes, it is a big problem--every bit as big as I've made it out to be, and even bigger.  Unfortunately, though, remember how in school every day you blew off studying for that calculus, chemistry, you-name-it, final, you just got further and further behind (less material mastered, but more to learn, and you can't learn the last part until you learn the first part) . . . until the only realistic option was to drop or fail? 

OK, probably most you don't know what that's like (I don't either, I just have a good imagination), but that is the situation the FCC is in now.   And when you're in this situation, what do you do?  I've heard that a person might sit on the couch watching old "Duck Tales" cartoon re-runs, or go to the off-track betting parlor, but I don't know.  Likewise, if an agency is in this situation, it might focus on a more "fun" Congressional mandate--like writing a cool new broadband plan (and not even think about the USF in putting the plan together), or . . . even better . . . cast about for a fifth (or sixth, or seventh?) net neutrality principle.  In fact, I'd guess someone (or some Commission) would rather do just about anything in order to avoid doing what they had to do to get out of a deep hole that just keeps getting deeper. 

After all, the advantages of ignoring the problem are obvious.  If you're an individual, your teacher/boss could always forget, quit, or stumble into the part of the Amazon that has all those "River Monsters."  Similarly, if you are an agency, the same thing could happen with the committees of jurisdiction, or Congress could always solve the big problem for you.  It's a good thing this topic wasn't raised during Chairman Genachowski's confirmation hearing, and that it stays off the FCC's list of "Strategic Goals" on the landing page.  

Why act now, when any reader of astrology.com can tell you, the stars are clearly pointing to a brilliant Congressional rescue plan (or a big Rockefeller/Hutchison/Waxman/Barton Amazon fishing adventure)?  Even if this explanation fails to convince, it can't be denied that Congress is efficient.  And, with no other burning issues at hand, it seems clear that fixing the FCC's USF problem is bound to be a top priority for Congress any day now . . . .  And, hey, worst comes to worst, Congress could always offer the highest cost customers a one-time payment of say $10,000 to dump their subsidized carrier and figure out a way to get their own phone service.  Problem solved, right?

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