The FCC Answers Critics on USF, Intercarrier Comp
06/10/2010
By Tara Seals
While the basic concept is universally agreed upon as being a good idea, the National Broadband Plan to bring broadband to every American has its share of critics when it comes to execution. One of the biggest bones to pick is the imminent demise of intercarrier compensation and the USF.
Marcus Maher, associate chief of the wireline competition bureau at the FCC, was on hand to discuss the issues at Thursday's Policy Summit at the Billing & OSS World Conference & Expo, and explained why he thinks the move is a necessary one.
In 2009 the American Recovery and Reinvestment Act tasked the FCC with developing a national plan to ensure all people have access to broadband, defined as 4mbps upstream and 1mbps down.
The FCC estimates that there are 7 million housing units in that boat, the equivalent of 14 to 21 million people. That would mean an estimated $24 billion is needed to serve all unserved areas. But these are just estimates. The FCC actually thinks it might be higher: 24 million people, or more – and that would mean more money required to fulfill the mandate.
Thankfully for taxpayers, the majority of the plan relies on private investment, with service providers expected to do the bulk of the buildouts themselves. That said, "there are some circumstances where that just doesn't make sense all the time, so the government will have to step in at certain points," said Maher. For instance, the FCC would fund a carrier to do the buildout in cases where there is no operator at all, or fund a competitor in areas where there is monopoly, with the expectation that competition would drive prices down, making broadband more affordable. It also would invest where there is no private investment business case.
One of the ways the FCC expects to fund its activities is by phasing out intercarrier compensation and the USF in favor of a single Connect America fund, plus a mobility fund to help states that significantly lag the national average for 3G catch up.
The 10-year, multistate transition away from the status quo has prompted an uproar from those that gain a significant amount of money from the existing setup for intercarrier compensation, which consists of policies that require long-distance carriers to subsidize local telecom. The IXCs are charged access fees, which are then paid to the local carrier for terminating calls.
"It's time to migrate the voice-oriented 20th-century USF to the 21st century broadband-focused reality," said Maher. "Those funds are an important revenue source for some, but the current scheme was not built for the modern world. And there are big issues."
For instance, per-minute charges when it comes to IP are irrelevant. And because intercarrier compensation is an important revenue stream for some local telcos, they require traffic to convert VoIP to TDM for termination in order to keep raking it in. Some make use of arbitrage schemes, redirecting calls to make them appear subject to a lower intercarrier rate than it is. Or, some strip the identifiers on the call so the IXC doesn't know who the terminating carrier is and can be mischarged. Meanwhile, there's the issue of traffic-pumping: free conference sites and so on that set up in a zone where the local carrier has high-access rates. Generating a lot of traffic means big intercarrier compensation bucks.
"Revenue reductions for carriers will be taken into account in this transition," said Maher. "We'll consider if there are other opportunities to recover some of that lost revenue, or if there are actions taken by the state." Meanwhile, "rate of return" carriers' access to replacement funds will be frozen. "Every company needs to earn a ROI and we need to think about what makes sense," said Maher.
The USF was created to keep telephone service available and affordable, especially for libraries, schools and rural areas. The problem is that it doesn't target the money evenly across hard-to-serve areas. Wireless providers are among the biggest recipients in underserved areas – primarily for voice, however, not broadband.
It will be a major overhaul. "If these regulatory changes were easy they would have been done a long time ago," Maher noted. "But this is about building the networks of the 21st century for everyone, with a detailed strategy to achieve affordability. And it's also about the use of those networks for the advancement of national interests like community development, job creation, education, energy independence and so on."
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