MTA Commentary-Interim Cap on New Universal Service Support

MTA http://www.telecomassn.orgCommentary-Joint Board Recommended Decision
June 13, 2007

Montana’s rural telephone companies have deployed state-of-the-art broadband capabilities to the edges of their networks—usually offering megabit bandwidth capacity to ninety-five percent of their customers or more. They provide broadband service to over 250 communities throughout the state, and have established nearly 150 videoconference sites providing efficient and advanced distance learning and telemedicine applications, which link rural health care and education resources in remote parts of the state with medical centers and educational institutions in larger population centers. Montana’s rural telecom companies also provide the State of Montana with advanced, redundant, IP-capable E-911 service. These rural telcos continue to invest in advanced telecommunications network infrastructure and services; and they’re taking the “next step” in technology and service deployment by bringing fiber to the home, and building gigabit Ethernet backbones. Soon many of these companies will be offering advanced “triple play” services, bringing voice, data and video services to Montana’s rural communities.

Without the support of the federal universal service program, it is doubtful that these companies could provide affordable, quality telecom service to Montana’s rural consumers. Rates for essential telephone service in Montana could rise by $300 to more than $600 annually. And almost certainly, without universal service, continued investment in advanced telecommunications capabilities would be chilled.

The federal universal service program is supported by a fee paid by consumers of interstate telecommunications services. However, in the last several years, the size of the universal service fund, which helps support telecom investment in high-cost parts of the country like Montana, has grown exponentially. The reason for this unprecedented growth? More and more telecom companies—by and large wireless providers—are seeking, and being granted, eligibility to draw money from the universal service fund. In fact, support for newly designated universal service recipients has grown from $15 million in 2003 to $1 billion in 2006, and it’s expected to grow to $2.5 billion by 2009, without even granting any more universal service recipients. And the fee that consumers pay has grown to 11.7% of the interstate portion of their phone bills, the highest since its inception.

A federal-state joint board on universal service, comprising regulators and consumer advocates from both urban and rural states has voted 7-1 to place an immediate, interim cap on the amount of universal service doled out to these new universal service recipients. Existing wireline phone companies have had universal service support capped for years, but not the new recipients. Naturally, the new recipients are screaming foul. They say that investment in rural America will be stymied, even though under a cap, investment continues; it just doesn’t grow exponentially.

Here are some reasons why a cap on new universal service funding makes sense:

• Universal service now supports multiple telecom providers in areas where support is needed to sustain investment by only one company. Obviously supporting multiple recipients—especially in areas where more than one provider already offers service—creates duplication of effort, and balloons the size of the universal service support fund—the cost of which is borne by you and me.

• Yet, designation of multiple recipients has not materially increased the voice penetration rates in U.S. households.

• Universal service is designed to ensure that Americans have access to affordable, quality telecom service. It is not intended to subsidize competition.

• According to the Montana Public Service Commission, wireless service is a complement, not a substitute, for wireline service. Yet, wireless providers are being granted access to universal service support on the basis that they are providing competitive service.

• New universal service recipients receive the same amount of subsidy as current recipients, regardless of their actual costs. This leads in most cases to a windfall receipts by new recipients, at the expense of the universal service fund, and the consumers who support it.

It’s no wonder that the Federal State Joint Board on Universal Service has recommended a temporary cap on the amount of universal service received by these new, duplicative universal service recipients. In the words of the Joint Board, “without immediate action to restrain the [new] growth in [universal service funding], the federal universal service fund is in dire jeopardy of becoming unsustainable.” An unsustainable universal service fund would be devastating to investment in Montana’s telecom infrastructure, which supports both wireline and wireless networks, and increasingly forms the foundation for social and economic development opportunities in our state.

The Montana Telecommunications association, representing commercial and cooperative rural telecom providers in Montana, supports both the Joint Board’s interim recommendations, and looks forward to working with industry and government leaders to create a long-term solution to the funding problems facing the universal service program.

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Contact:

Geoff Feiss, General Manager

Montana Telecommunications Association

http://www.telecomassn.org

406.442.4316

[email protected]