Rockefeller: Time for USF Action Is Now

NCTA has ally in Sen. Warner in its opposition to telco right of first refusal
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FCC Chairman Julius Genachowski is already circulating his draft order on Universal Service Reform for a vote Oct. 27, but that didn't stop the Senate Commerce Committee from trying to light a fire under the effort Wednesday in a hearing on the FCC's USF reform.

"The Commerce Committee [is holding] a hearing on the need to move forward on these important proposals," Committee Chairman Sen. Jay Rockefeller (D-W. Va.) said in announcing the hearing last week. "We have a real opportunity to close the digital divide in rural America if we get this right. The time to act is now."

Rockefeller suggested that FCC officials didn't think the time for his hearing was now. He said that ones he had talked "were not happy" Commerce was holding the hearing, concerned that then the House might want to hold one too. An FCC spokesman had not commented at press time.

The senators had no specific FCC plan to vet since it has not yet been published, so the hearing included legislator suggestions on what the FCC should or should not do -- cap the fund, for instance, or don't subsidize where there is an unsubsizded competitor -- and comments on the telco-backed America's Broadband Connectivity (ABC) proposal, which the FCC plan is said to resemble.

National Cable & Telecommunications Association President Michael Powell, pointing out that it was his maiden voyage as an NCTA hearing witness -- he was a familiar face to Commerce committee members as FCC chairman -- said for all the arcane and difficult issues of USF reform, the key was to write those reforms with the consumer, not companies, in mind.

He said that the fund was not designed to maximize profits or guarantee loans, but to provide communications services to consumers at affordable rates. He echoed criticisms of the ABC plan, but said NCTA still agreed with the majority of it and called it a good starting point, though not the right end point.

He suggested that consumer focus would mean not giving a right of first refusal to incumbent phone companies for broadband subsidies when cable operators, given a chance to compete for it, might be able provide better, more affordable service. That was part of the 25% or so of the ABC plan NCTA has problems with and has sought to correct in filings at the FCC. When asked Powell conceded that the NCTA had offered a modification to the right of first refusal proposal, but said it remained opposed to the right generally, saying cable operators should have the ability to compete for those subsidies.

Powell had an ally in Sen. Mark Warner (D. Va.), who said he thought that incumbent telco right of first refusal was "too blunt an instrument." The FCC has recommended phasing in an auction mechanism for allocating USF support, but giving incumbent telcos that right of first refusal in the interim to speed broadband buildout where they already have plant via traditional USF phone subsidies. But Warner suggested a better approach might be giving them some kind of bidding credit in recognition of that already-built plant, but to let cable and wireless companies compete.

Powell agreed that it would be better for the FCC to move to reverse auctions (low bidder on providing the requisite service wins), saying that getting broadband a few months earlier -- though he did not even concede that point -- by having a right of first refusal was not worth interposing a "complex and time-consuming" process to build the model to determine those right of first refusal areas between  the FCC and what it does better than anyone else, which is to hold auctions.

He pointed out that the FCC is going to have to design the auctions anyway.

Warner also said that if cable were going to be competing for the USF broadband money, the reforms should mandate robust, timely and affordable interconnection, so that phone incumbents with that infrastucture could not drag their feet on interconnection. He said he was speaking from experience as a former wireless executive who lost a lot of money in the late 1990's dealing with carriers who found reasons not to get around to interconnecting.

Sen. John Kerry (D-Mass.) who had to exit the hearing for a Supercommittee meeting (he is a member), said at the outset of the hearing that he was concerned about the inequities of the fund, in which Massachusetts phone subs pay in far more than they get out of the fund. USF telecom company subsidies are passed along to subscribers.

Powell pointed out later in the hearing that it was a cross-subsidy, so that contributions and disbursements won't be equal, but he said that better, more granular, targeting of the money to the people who really need it would help make it more equitable. One complaint leveled against the current fund is that subsidies can be used to build out in more populous -- and profitable -- portions of areas targeted for funding, rather that the specific area of most need.

Kerry said he agreed with FCC Chairman Julius Genachowski that the USF fund was broken and needed fixing, including greater equity in distribution and migrating those phone subsidies to broadband.

Sen. Daniel Inouye (D-Hawaii) called the FCC reform proposals a concrete step forward, but said he was concerned the monies for tribal communities was insufficient, and also said that native communities in Hawaii and Alaska should be equally eligible for any funds allocated for native communities.

Rockefeller said that it was probably true that those tribal communities may not get all the money they want, given the way the economy is today, but that that was not a reason not to bite the bullet and reform the system, a reform he conceded would wind up making some companies and legislators and constituents unhappy since there was not a perfect solution.

He said reforms will pit sector against sector because true reforms means some vested stakeholders will be unhappy.

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