Why Is The FCC Subsidizing The Least Efficient Providers Of Rural Telco Services?

from the questions,-questions,-questions dept

Mon, May 12th 2008 1:39pm — Mike Masnick

The Universal Service Fund (USF) is a huge boondoggle for telcos, who keep getting more and more money out of it, with almost no oversight into what's done with that money. And, the way it's set up, it actually blocks more innovative (and cheaper!) services from being used to improve connectivity in rural areas. It's good to see others are beginning to notice this. News.com is running an article from Gregory L. Rosston at Stanford who points out that the USF rewards companies for being the least efficient providers. That is, by showing how much more it costs the telcos to provide for rural users, the FCC grants them even more money. In other words, the less efficient they are, the more money they get. Not exactly the type of incentives the FCC should be setting up -- but given FCC chair Kevin Martin's super chummy relationship with the telcos, perhaps it's no surprise.

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Filed Under: efficiency, favoritism, fcc, kevin martin, telcos, universal service fund

8 Comments

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bobbknight, 12 May 2008 @ 3:09pm

The Rip Off
The USF is and has always been a rip off.
Articles about the lack of oversight abound.
But look at all the other sink holes of Government collected cash, and people are surprised by this one?
This is the biggest reason I went VOIP.
Thats why I have always liked the idea of a simple majority in congress being able to lower taxes, and a supper majority needed to raise taxes.
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GHynson, 12 May 2008 @ 3:44pm

WTF!! Is A Telco?!?!
Heh,
I havn't used a Telco since broadband internet.
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LOL, 13 May 2008 @ 7:09am

Re: WTF!! Is A Telco?!?!
Do you have a Cell Phone? Do you use the internet? Don't kid yourself, somewhere along the line you're using a telcos equipment and they're getting a slice of your money.
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Justin Lorry, 13 May 2008 @ 9:55am

USF
This program has been around since the 80's. Kevin Martin has proposed to eliminate most of the subsidy by wanting to hold a reverse auction so that only a "carrier of last resort" that wins the auction gets the subsidy. The winner would basically bid to provide service for the least amount of government subsidy. That sets the right incentives.

Unfortunately, the Democrats (Adelstein and Copps) want to continue the subsidies to all. Oh by the way, Gregory Rosston at Stanford, was an FCC economist during the CLinton years who also supported keeping these subsidies and even expanded the program to include all the schools and libraries in the United States.
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Don't Let the Monopolies Fool Ya, 14 May 2008 @ 7:33am

Re: USF
Reverse auctions with one winner per area don't "set the right incentives" unless you're a very large carrier serving many low-cost/high-profit urban areas, like Verizon. Verizon has hired some Senators' former aides to lobby them hard, so as to keep all USF subsidies only for incumbent wireline carriers that have been "on the dole" for years. Unless you have those deep pockets, you're not going to win a reverse auction. With auctions, consumers in those rural areas would end up right where they are today: at the mercy of a single monopoly landline provider, with no wireless option, no other landline option, and no competition to bring down prices and expand the array of available services.

Rural consumers deserve the same services as their urban cousins. Wireless and broadband bring jobs, and wireless E911 brings better public safety. Don't our citizens deserve roadside emergency medical help regardless of whether they live in Montana or Maine, Oregon or West Virginia... or Boston or New York City? Representatives of rural areas should be interested in this matter. Wireless is a much less expensive way to bring economic development to less populated areas, but it still costs real dollars, and the FCC is trying to ensure that only Martin's chummy landline friends get that buildout funding. But more and more consumers are "cutting the cord," and ignoring the fact that people increasingly want the new technologies is like an ostrich sticking its head in the sand, or like those who denied the Internet was going to be big.

Stop the anticompetitive subsidy hoarding, I say, and let all of the technologies have their fair share if they can prove that they're using it for actual, efficient rural buildout and rural operations. Reward efficient providers, not those whose expenditures are high: you'll get more mileage out of it.
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Out with the Old, 14 May 2008 @ 7:41am

Still Subsidizing Grandpa's Technology
I've got no problem with dollars going to wireless and broadband to improve our telecom network, but why in the world is the government still paying companies to deliver just voice over twisted copper? At least make the companies deliver broadband for those dollars. Seems backwards to me, as if we're supporting horse-and-buggy companies in the jet age.
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For Pete's Sake, 14 May 2008 @ 7:54am

If You Care, Do Something
Griping about these problems with USF is fun, but it would have more effect if you contact the Senate and Reps for your area. They do notice if they get a lot of letters on a subject from their voters. If you care, write a concise, level-headed letter or email, not ranting, just stating your points and reasons why. Or call. You can look up your Senators and Reps and their contact info here: http://www.senate.gov/general/contact_information/senators_cfm.cfm
This will do a lot more good than all the blog responses you might post today.
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tommy thompson, 20 Jan 2009 @ 4:26am

USF
Lest we forget, in 1996 the FCC, under President Clinton, created the Telecom Act of 1996, expanding USF contributions while also creating the PICC and coin phone surcharges. It has become both a Telcom and government cash cow. I am including a current article below from Network World regarding the declining number of CLEC provided local facilities in the US. The TA of 96 was supposedly enacted to widely open up local competition with the incumbent LEC’s and in return enable them to compete for long distance services beyond the LATA. As I am sure you agree, viable local competitive alternatives have really not been sustained and as a result of recent FCC decisions, as mentioned in the following article, the consumer now has fewer local services choices than probably existed pre-TA of 96!! I do not wish to debate the merits of the local services regulatory decisions made by the FCC, but rather would like to challenge the continuance of one of the many resultant TA96 fees created with this Act. My questions are the following and pertain to the PICC: • Pre-Subscribed Inter-Exchange Carrier Charge (PICC): Essentially, this TA96-created fee (circa 1996-97) was to be collected by the IXC’s from the end-user, who had no choice but to pay it while being prevented from no-pic-ing local services. Said fee was/is to be returned to the LEC’s (primarily the ILEC’s) as an offset to the presumed loss of local services revenue due to newly created competition. The IXC’s were to compete locally with the ILEC’s and the ILEC’s were to compete for interstate services with the IXC’s. As we all know, viable local competition never truly resulted and has waned substantially, with the emerging CLEC’s, i.e., ATT Local, MCI Local having been absorbed by SBC and Verizon respectively. ATT Local and MCI Local are now all but non-existent. Many of the other CLEC’s; XO, McLeod, Paetec, and Focal have gone through various stages of bankruptcy; either surviving greatly scaled down or disappearing completely. As there is effectively no local competition today with the US, why are the LEC’s continuing to reap the fiscal benefits of the PICC? With hundreds of millions of local CO lines, trunks, Centrex Lines, Local BRI/PRI’s still having PICC applied, I would estimate that the PICC represents a ILEC windfall, at the consumer’s expense, > $5B per year! • As I consult in the industry and occasionally must explain to my client’s the rationale for PICC, please explain why it has not been repealed in its entirety. I truly feel that with the addition of the FUSF Admin Fees approaching 1.5%, additive to the quarterly fluctuating FUSF fee of ~10%, there is no longer justification for yet another windfall fee such as the PICC. The dominant carriers (ILEC’s becoming IXC’s) are now highly profitable, and should no longer be allowed to profit at the customer’s expense. CLEC line share continues to decline CLECs claim 17.1% of all switched access lines in U.S., the FCC says. Competitive Local Exchange Carriers' share of end-user switched access lines in the United States declined throughout 2006, reaching a low not seen since 2004, the FCC reported this week. According to the FCC, roughly 17.1% of the 167.5 million end-user switched access lines in the United States belonged to CLECs in December 2006, down from 17.9% in December 2005. The CLECs' share of switched access lines has been in decline since June 2005, when the CLECs reported owning a peak share of 19.1% of switched access lines. The CLECs' 17.1% share of lines is the lowest share reported since December 2003, when CLECs reported owning 16.3% of lines used by local telephone customers. ________________________________________ The FCC report, which was conducted by the Industry Analysis and Technology Division of the FCC's Wireline Competition Bureau, also showed that the incumbent carriers trounced the CLECs in the residential market, where they accounted for 88% of the 101.5 million switched access lines used by residential customers. The CLECs fared significantly better in the business market, where they accounted for about a quarter of the 66.1 million switched access lines used by businesses. Overall, the CLECs owned 28.7 million of the switched access lines that delivered local telephone services in December 2006, vs. the 138.8 million lines owned by the incumbent carriers. The use of switched access lines to deliver phone services has been steadily declining since December 2000, when incumbents and CLECs reported a total of 192.4 million switched access lines. Since then, the total number of switched access lines has declined by more than 13% and now stands at 167.5 million. Subscriptions to mobile services, by contrast, have continued to rise, posting 229.6 million subscribers by December 2006, a 13% increase from December 2005 and an increase of over 127% since December 2000. The past few years have been troublesome for many CLECs. Despite the promise of the 1996 Telecommunications Act, which mandated that incumbent carriers allow CLECs to use their existing infrastructure to provide last-mile connectivity to their customers, roughly one-third of all CLECs nationwide filed for bankruptcy between 2000 and 2003, leaving the incumbents firmly in command of most local telephone service markets.
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