“Continuity and Community Presence” in Universal Service

A few weeks ago, the FCC courageously requested public comment on the merits of using auctions to determine who gets Universal Service support to provide subsidized phone service in rural areas. One difficulty with a reverse auction is what, if anything, to do about stranded investment. What are the legitimate investment expectations that the incumbent provider deserves to recover?

Under the current system, the incumbent rural phone companies will be subsidized in perpetuity. Yet, cable VoIP service and wireless systems have been built in many rural areas without Universal Service support. Many of the competitors are now seeking their fair share. Chairman Kevin Martin noted Tuesday at a Senate hearing that these competitors received $1 million when he came to the commission but get $1 billion now.

Martin stood up for reforming Universal Service so it supports the best and most efficient new technologies, and he took a beating from Senate Commerce Chairman Ted Stevens (R-AK)–an ally of the incumbent rural phone companies–who, like most politicians, focused on who would be the winners and losers:

Stevens: By definition an entity with a fixed, embedded system having a wireless competitor would always lose. I don’t see if you put it on a competitive basis existing technology can possibly survive against new technology. So you automatically have a revolving door as far as Universal Service is concerned.

Martin: I hope that we develop a system that actually encourages the development and deployment of the best new technologies. We should be determining what’s the adequate level of service that people in rural areas deserve to be able to have, but then we want to make sure that we have a system that doesn’t freeze in place one set of technologies but rather encourages the most efficient technology: we need to have it over a lengthy enough period of time to allow [the carriers] to recover the resources that they’ve invested :

Stevens: A small rural carrier in a small community that’s met the needs of that community for years facing a national company that comes in and wants just to replace it completely with a wireless system : has got an enormous advantage over the local provider. I would hope you really take a look at the concept of continuity and community presence. Because the absentee owner : thay have no further interest in that community as the local provider–the home-grown provider who started the system–does : the existing local providers are just going to be wiped off the map–quick! And I hope that’s not the case.

Stevens is overreacting a bit. Although the incumbent wireline providers’ costs are generally higher compared to cable VoIP and wireless services, they are still superior in terms of quality and reliability. In some rural places the competitive services probably won’t be acceptable as a replacement for wireline service, but in others they might be. Reverse auctions probably would not be justitifed in the former, but they would be in the latter. This is all that Martin is saying.

The issue shouldn’t be who is more deserving, but who can provide the best value. When politicians and bureaucrats get to decide who is more deserving, it leads to back-scratching, cronyism and worse.

SHARE: