Everything Old is New Again

On October 27 and 28, Hood River will be visited by a host of telecommunications industry and policy experts. The occasion is the Oregon Connections Telecommunications Conference, an annual gathering “to share ideas, experiences and knowledge about telecommunications.” This year’s theme seeks to “explore the importance and value of broadband telecommunications adoption and utilization for business, government, education, healthcare, public safety, communities and individuals.”

CUB executive director Bob Jenks will be on a panel discussing broadband (high-speed Internet connections) and the Oregon Universal Service Fund. The idea for universal service in telecommunications is an old one. Trying to figure out how it applies to modern telecom technologies like broadband is a new effort. Here’s a little exploration of the concept of universal service and why it’s still important.

What is Universal Service?

Universal service is a long standing goal of telecommunications policy. In the early days of phone service, promoting universal service was essential to the value of telephone service. Having a phone was not useful if other folks did not have phones. The value of everyone’s phone increased as phone service was extended to more and more communities. And as more communities received phone service, universal service focused on making sure that phone service was affordable for low-income and senior populations. By the 1990s, universal service was largely achieved. Phone service was available nearly everywhere at rates that were relatively affordable.

Congress, in the Telecommunications Act of 1996, laid out a vision of a more deregulated telecommunications system based on competition, rather than regulation. However, there was concern that this market approach could undermine universal service. Under a deregulated system, keeping rates low by averaging the cost between rural and urban communities may not be sustainable, but if rural areas raise the cost of service three-or-more-fold, it may be difficult for rural low income customers to maintain telecommunications service.

In a largely deregulated market, private companies often have incentives to focus provision of services only on those customers who have the most money or those who are the cheapest to serve. This means that lower-income customers and customers in more rural areas are at greater risk for lacking access to even the most basic telephone service.

What is the Universal Service Fund?

The Universal Service Fund (USF) is a system designed to address these and other issues related to ensuring universal service. The basic idea is that all telecom service providers contribute to a common fund that is then used to subsidize services in high-cost areas or target uses. Telecom providers are assessed a percentage of their revenue (primarily from interstate and international service) and most pass those charges on to customers, though they are under no obligation to do so. The contribution rate has more than doubled over the last decade, to around 15%, up from 7% back in 2001. Distributions from this fund may only be used in furtherance of the goals of universal service in four program areas: addressing high-cost service areas, making telecom service affordable to low-income consumers, strengthening service to rural health care providers and strengthening service to eligible schools and libraries.

Different states receive dramatically different amounts of this money, owing to differences in population and geography, as well as various political factors. In 2010, Oregon received total disbursements, across all four USF programs, amounting to about $95 million. For some perspective, Delaware received about $4 million, while California had disbursements of more than $616 million.

How is CUB involved with the USF?

CUB opposed the Telecommunications Act of 1996, but not because of the Universal Service provisions. CUB was concerned that parts of the Act, such as the prohibition on rate regulation of cable television monopolies, would cause rates to go up rapidly.

Today, any company that wishes to seek low income support for provision of Lifeline and or Linkup services in Oregon, through the Universal Service Fund, must first petition the Public Utility Commission of Oregon (PUC) to ensure that they are able and willing to abide by state laws and PUC regulations. This is primarily done through a docket wherein a given company petitions for status in Oregon as an Eligible Telecommunications Carrier (ETC) and Eligible Telecommunications Provider (ETP). If the company receives designation as an ETC or ETP the company can offer services such as prepaid wireless phone service, for which they may seek USF reimbursement.

CUB has a keen interest in the process of ensuring that USF money spent in Oregon is in fact used to the benefit of Oregon consumers. Alert readers may remember CUB’s involvement in this arena back in August of last year when Tracfone was applying for ETC status. Since then, no fewer than ten other companies have applied for, or are currently planning to apply for, ETC/ETP status in Oregon in hopes of claiming some of the USF money available here. CUB is actively involved in ensuring that any such applications are in the public interest with respect to the terms and services offered.

USF Reform: Applying Old Principles to New Challenges

Promoting access to and affordability of basic telephone service is widely recognized as an important societal goal. But just as our means of communication evolve, so must our goals and our views on “basic” or “essential” services. For example, fifteen years ago, the internet was a luxury and broadband internet, by today’s standards, really did not exist in any practical sense. Now many people consider internet service to be every bit as important as telephone service. And, with the advent and proliferation of VoIP, Skype and related technologies, the distinction between voice and data networks is disappearing. Nevertheless, large parts of the country remain without access to broadband internet and the US is lagging in its deployment of high-speed internet relative to other countries.

Hoping to get a better grasp on the problem, Oregon launched a broadband mapping project that is worth checking out, and a national map is available here.

Because of the above, the Federal Communications Commission (FCC) hopes to reform the USF. Specifically, the FCC plans to overhaul the fund to focus on expanding broadband. Precise plan details are still lacking but FCC Chairman Julius Genachowski is a proponent of universal broadband service. Indeed, the name of the fund would change from USF to the “Connect America Fund”. On October 6, 2011, the commission released an unofficial document, Genachowski Unveils ‘Connect America Fund’, that outlines the goals and elements of Genachowski’s plan.

While there is broad consensus that the changes will be significant and controversial, little else is known. Chairman Genachowski has made public comments suggesting that the reform will not mean an increased burden for customers. But, officials within his agency have anonymously suggested the opposite may occur. As usual, beneficiaries such as low-income customers, have the most to lose.

Notwithstanding the above, if done in the right way, CUB supports including broadband within a USF reform effort. This is because we live in the day and age where access to broadband internet service is becoming a fundamental public utility, like phone, electricity and water. But CUB recognizes that the devil is always in the details and the FCC is often subject to influence by the big telecommunications companies. CUB will be keeping a close eye on this as it develops.