Federal Communications Chairman Genachowski previewed the universal service reform plan the commissioners are discussing in a speech today.
The speech offers a masterful summary of the myriad inefficiencies created by the current universal service subsidies and intercarrier compensation payments. Most of the examples highlight plain old-fashioned waste. The universal service program collects billions of dollars from telephone subscribers, then simply wastes a goodly portion of it by subsidizing telephone competition in places where unsubsidized service from cable or satellite already exists, subsidizing multiple mobile wireless competitors, and subsidizing local phone companies that have little incentive for cost containment because they are still subject to rate-of-return regulation. The intercarrier compensation system uses per-minute charges to collect billions of dollars from telephone subscribers and hands it to phone companies that sometimes charge as little as $8 a month for phone service. There’s also a race to game this system as the companies that benefit seek new ways to inflate the regulated charges they collect, and the companies that pay seek clever ways to avoid paying.
It’s a powerful brief for reform. Never thought I’d live to see the day whan an FCC chairman would say so many things that are substantiated by economic research.
Nevertheless, a few parts of the speech give me cause for concern about the solutions the FCC commissioners may be discussing.
First, the chairman claims that 18 million Americans live in areas without access to broadband — up from the 14 million estimated in the National Broadband Plan. The size of this figure suggests to me that the FCC is still over-estimating the number of people without access by defining “broadband” as a speed fast enough to exclude 3G wireless, many small rural Wireless Internet Service Providers, and satellite. Absent an adjustment in the definition of broadband, the subsidy program will be larger than it needs to be, and so telephone consumers will pay excessive universal service charges.
Second, the FCC still seems bent on subsidizing at least two broadband competitors in rural areas through the Connect America Fund and a separate Mobility Fund. This essentially presumes that fixed wireless service and 4G mobile are, and always will be, separate services, and every rural customer is entitled to both. If the goal is basic broadband connectivity in places that allegedly have no broadband at all, why not make all technologies compete for a single subsidy in these places before proceeding to subsidize two?
Third, there’s a certain amount of technological favoritism. Wireless subsidies will be awarded based on competitive bidding from the outset. Subsidies for (fixed) service to homes and businesses will transition from current payments to competitive bidding — faster for phone companies subject to price caps, slower for phone companies under rate-of-return regulation. Satellite is mentioned just once — in a sentence discussing how service will be extended to the most remote areas. This continues the pattern set in the National Broadband Plan, which viewed satellite as a special-purpose technology suitable only for remote areas. For reasons unexplained, the plan assumed that wired and wireless broadband could expand capacity in response to subsidies, but satellite could not.
In summary: The speech gave a great diagnosis of the problem and sketched out solutions that will surely improve things compared to the way they are now. But given that opportunities to actually achieve universal service reform (as opposed to just talking about it) come around rarely, there’s still room for improvement.
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