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Senate Hearing on USF/ICC: What is Fair Reform?

Hard Questions Asked about RLEC/ABC Plans, Rights of First Refusal, and State USF Equality

On October 12, 2011 the Senate Commerce Committee held a hearing entitled “Universal Service Reform – Bringing Broadband to All Americans.” The purpose of this hearing was largely to flush out details about the ABC and RLEC Plans as well as address many other specific aspects of USF/ICC reform—especially how the plans-at-large will impact consumers. This hearing was nothing if not comprehensive, and the Senators certainly did their homework to prepare challenging, thoughtful and hard-hitting questions. However, without anyone having seen the FCC’s draft rules yet, it was a stretch for the witness panel to say anything new and groundbreaking.

The panelists in the spotlight at this hearing included Kathleen Abernathy (chief legal officer and vp, Frontier Communications), Mary Dillon (president and ceo, US Cellular), Michael Powell (president and ceo, NCTA), Shirley Bloomfield (ceo, NTCA), and Philip Jones (commissioner, Washington Utilities and Transportation Commission). In other words: wireline ILECs, wireless, cable, RLECs, and states/consumers.  

The opening remarks by Senator John Kerry (D-MA) were a close reiteration of Genachowski’s speech last week (The ILEC Advisor: Finally – Genachowski’s Big Announcement on USF/ICC Reform), and Kerry seemed to focus on the shock-value arguments about USF being wasteful, inefficient and unfair. Kerry also referenced a recent Boston Herald article about the inequality of USF distribution between rural and non-rural states. According to the article, Massachusetts customers paid $169m into the fund in 2009 but only received $46m for schools, hospitals and low-income support…and a mere $2.4m for rural networks. Naturally, some are crying unfair, and the issue of state inequality popped up several times throughout the hearing.

Senator Jay Rockefeller (D-WV) “wholeheartedly applauded” Genachowski’s efforts on USF/ICC reform, but noted that “it is huge and complicated” and some parties will be unhappy with the results no matter what happens. Rockefeller emphasized—by saying twice—that broadband is the “essential infrastructure of our day,” and it is “what this country requires to compete internationally, something we do rather poorly.” He also commented that broadband deployment is important, but “we would be remiss if we did not also consider efforts to promote adoption.”

Testimony from the panelists did not really deviate from the positions that their respective industries have been advocating all along. For the wireless perspective, Dillon insisted that $300m is simply not enough for the Mobility Fund, and that reforms must recognize the wireless industry is growing while the wireline industry is shrinking. Powell argued for the cable industry: “while companies get the money, its consumers who write the check,” and it will be a “travesty and a lost opportunity” if the reforms are not competitively and technologically neutral.  State commissioner Jones expressed concern about state preemption and subscriber line charge increases. Wireline panelists Abernathy and Bloomfield both described their respective commitments to rural America.

If I had to name a theme for this hearing, I would pick Equality and Fairness. Unfortunately, there isn’t a uniform theory on what constitutes equal and fair when it comes to USF and ICC. Rockefeller asked what the essential elements of a fair system would be, and the responses varied. Abernathy replied that it is fair for companies receiving USF to accept a level of regulatory oversight in exchange. Dillon responded that it is fair to recognize the role of wireless as much as wireline. Powell’s answer was to focus on consumers, not companies. Bloomfield said it is important that companies do not “cherry pick” the most profitable unserved areas and leave the rest behind. She also said that sustainability is fair, and “infrastructure is not something you throw into the ground and walk away,” it is a “living breathing network that needs continued investment.” Finally, Jones argued that it is fair for states to remain a viable forum for consumers, because telecom is “a very complained-about industry.”

Senator Mark Warner (D-VA) stepped up during the Q&A and really asked a wide variety of good and challenging questions about the ABC and RLEC Plans, specifically about the ABC Plan’s Rights of First Refusal  (RoFR) proposal (The ILEC Advisor: Six ILECs Defend Rights of First Refusal Proposal). Warner said he “gets the idea” behind RoFR, but it seems like a “blunt instrument” and contrary to the spirit of competition. Warner asked if there is some middle ground between the ABC Plan’s proposal and no RoFR at all, possibly by utilizing some type of “sliding scale” where previous investment would be acknowledged. Abernathy responded that nobody is serving these areas anyway, and any other framework would probably take too long. Bloomfield clarified that RoFR is not included in the RLEC Plan.

RoFR came up in several more questions. Senator Kelly Ayotte (R-NH) asked what might happen if the RoFR proposal was completely replaced with reverse auctions. Powell replied that it is an exaggeration to say that a reverse auction model would take too long to develop, and the FCC is “the best expert in the world on auctions.” Senator John Thune (R-SD) specifically asked Powell if there was a way to tailor the ABC Plan to permit RoFR but also address the cable industry’s concerns. Powell stated that the cable industry agrees with about 75% of the ABC Plan, but it did not sound like there would be much “middle ground” when it came to resolving differences about RoFR.

Keeping with the spirit of fairness, equality, compromise and level playing fields, Senator John Boozman (R-AR) asked Dillon if there is any chance of a compromise on the size of the Mobility Fund somewhere between $300m and $1b. Dillon replied that $1b actually is a compromise and even that amount “doesn’t really cut it.” Abernathy pointed out that $300m per year is actually 10 times more than the amount of money envisioned for mobility in the National Broadband Plan—the NBP called for a one-time $300m investment only.

Overall, this hearing was informative but predictably lacked surprises. With the FCC’s draft rules already in circulation, but yet unknown to the public, I wonder if this hearing will have much of an impact on the end result. It may have been better if it were held after the release of the rules, so that the panelists could have really predicted the impacts of reform on their companies and customers.

The Senators who asked questions and provided anecdotes and information seemed to be looking for ways to balance all of the conflicting interests, which is certainly a daunting task. They also wanted answers that do not yet exist. We don’t know if the FCC’s rules meet the myriad definitions of fair, equal, level playing field, and compromise; but Senator Rockefeller insisted that we cannot keep putting off reform until everyone is happy—the nature of reform is that not everyone will be happy.

A full recording of the hearing, as well as testimony from the participants, is available here.

Reader Comments (2)

Finally "cherry picking" has come up. That's all the wireless, CableTV, CLEC and VOIP do, just pick the easiest and most convenient (ie profitable) customers. Only the ILEC's, and more specifically the Rural ILEC's have had the responsibility to serve ALL customers, and have been required to invest enough to accomplish it. Along with that requirement has been an assurance that funding would be available to repay those debts. Now the "cherry pickers" want the money, but no one wants to serve ALL customers. Wireless would need a tower in every yard, CATV would need a hundred times the investment for 10% more customers, CLEC's just can't do it, and VOIP misuse the existing infrastructure built by the ILEC's for their own benefit. No way they would build it. Why don't the eggheaded Washington elite get out to the real world and review the real rules that require ALL to be served, not just the loudest or the richest.

October 14, 2011 | Unregistered Commenterroger kilburg

The comment above is incorrect. WISPs -- fixed, terrestrial wireless broadband providers -- have been serving remote areas for 20 years now, without ANY government subsidy or incentive. The ILECs's businesses are unsustainable in these areas; they couldn't make it if they were not on the government dole. WISPs, on the other hand, can serve these areas without government bailouts or mandates. The ILECs are, quite simply, technological dinosaurs. We need to stop subsidizing the buggy whip industry and instead promote the deployment of 21st century technology.

October 14, 2011 | Unregistered CommenterBrett Glass

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