Genachowski Defends USF Reform on Hill

Hammered with questions about impact on rural small businesses facing subsidy phase-outs

By John Eggerton -- Broadcasting & Cable, 7/18/2012 4:34:02 PM

FCC chairman Julius Genachowski spent a lot of his time on the Hill Wednesday defending the FCC's reform of the Universal Service Fund, specifically the decision to phase out support to areas with multiple subsidized carriers or where there is an unsubsidized competitor.

That came in a House Small Business Committee hearing on expanding that access, at which numerous legislators on both sides of the aisle had heard from small businesses in their districts that faced the phase-out of federal dollars. Their complaints included that the subsidy withdrawal could kill their companies, that the case-by-case waiver process the FCC included was burdensome and costly, and that the FCC's regression analysis model for capping the fund was unreliable.

A feisty bordering on testy Genachowski (testy is as ruffled as the chairman's cool, on-point demeanor gets in Hill hearings), pointed out, as he has before, that there were going to be transition issues for some of the companies as support was moved from those areas to unserved ones. He said the FCC was currently considering nine or 10 waiver requests, that the FCC had made that process as streamlined as possible, that filing requirements in terms of paperwork included important financial information the FCC needed, and that the waiver requests were for millions of dollars -- between $250 and $1,300 per sub -- so the FCC needed to determine if they were justified.

He pointed out that it was the FCC's duty to make sure that public money was going where it was most needed because if it was not there would be less to go to other places -- fill in the name of the state his interrogator represented. He also rejected the suggestion by one legislator that the subsidy phase-out would drive companies out of business.

Also testifying were National Telecommunications & Information Administration chief Larry Strickling and Rural Utilities Service (RUS) administrator Jonathan Adelstein. Strickling and Adelstein's agencies oversee billions in broadband deployment and adoption grants and loans.

One of the issues with the USF reform is that some RUS broadband loans have been secured with money from the FCC's USF fund. One legislator said a company had told them it was waiting to cash the RUS check until it could figure out the impact of the USF reforms.

Adelstein said the agency had asked a number of grantees to refile applications based on the USF changes.

Several legislators pointed to errors in the FCC's model for calculating the USF funding cutbacks. Genachowski conceded it was not based on perfect data, but on the best data available. He said the FCC was fixing problems when they arose.

He also made the larger point that some people have argued that the government should just stop the subsidies cold turkey. He disagreed, but added that reform had been needed for years, that it did not happen, and that the transition was challenging.

When one legislator suggested the imperfect model led to the kind of unpredictability that hurt small business. Genachowski countered that the FCC's previous inaction on reforms was itself unpredictability much of which the FCC was now clearing up.

Rep. Renee Ellmers (R-N.C.), was one of those relaying constituent concerns about the reforms. She asked how much input the FCC had gotten from rural carriers. The chairman pointed to written comments and workshops across the country. He also said the FCC continued to work with stakeholders to get input. He said the FCC's goals in reforming USF were to get broadband to those who don't have it, to do so in a fiscally responsible way, and to take into account business realities, like the impact on phasing out subsidies. But he said that where money is going to subsidize service where there is an unsubsidized competitor, there needs to be a transition. A fair one, he said, which includes the waiver process, but to spend money in an indefensible way rather than on unserved areas "did not make sense."

Other highlights:

Genachowski said that the FCC would take action on special access market reforms within the next several weeks.

The FCC has expanded its investigations into communications failures during the recent MidAtlantic storms to include seeking comment more broadly on reliable emergency communications. When asked about whether the FCC would allow the importation of broadcast emergency info between markets, he did not commit, but added there were communications failures of various media during the storms.