Competition for all except in rural markets

Competition for all except in rural markets
We've heard many statements from FCC Chairman Kevin Martin regarding the value of competition in the telecom, cable and broadband markets--how the upcoming 700 MHz auction will foster broadband for the masses. Most recently at the National Cable & Telecommunications Association annual convention, Martin proclaimed that competition is the reason he is pushing for the a la carte sale of cable channels and a relaxation of franchising requirements for phone companies.

"I have tried to apply such technologically and policy neutral positions across all platforms," he told the audience. "I have and will continue to side with the new entrants into the market in which you are the incumbent."  

But Chairman Martin doesn't seem to have the same philosophy when it comes to wireless operators and their push to compete with rural landline companies for universal service fund (USF) dollars to give rural consumers a choice of service. 

Earlier this month, the Federal-State Joint Board--which is dominated by Martin--recommended to temporarily limit universal service support for wireless operators in rural areas while landline operators have no limitations. The board, consisting of FCC commissioners, state regulators and a consumer advocate, is looking for a long-term solution to fix a broken USF system that has a skyrocketing tab and believes stopping wireless from drawing on the fund will help stop the bleeding temporarily.

With passage of the Telecom Act in 1996, mobile operators were allowed to draw from the USF to promote better availability of services and price for low income areas along with hard-to-reach rural areas like Indian reservations. All telecom operators are required to contribute to the fund, which would be paid into a central fund and dispersed among the programs. But the amount coming out of the fund has risen from $1.8 billion in 1997 to $7.2 billion in 2007.

Wireless operators--with their ability to roll out services faster and less expensively than their wireline counterparts--are turning out to be the biggest growth area for USF. Wireless support has grown from $50 million just five years ago to nearly $1 billion now. Alltel is the largest recipient of this funding, drawing more than $300 million a year to serve regions such as the Pine Ridge Indian Reservation in South Dakota, one of the poorest counties in America.

However, as mobile operators draw more customers away from rural landline companies, the more federal money these incumbents get because the per-line subsidy rises. Therefore, incumbents have no incentive to fight for customers.

Several members of Congress have correctly called foul on the board's move, declaring the recommendation anti-competitive as it hurts choices for rural consumers. Rep. Ed Markey (D-Mass.) said in a letter to Chairman Martin earlier this month that he's concerned the commission is favoring particular wireline carriers over competition.

What's more perplexing is that Martin, speaking at the CTIA trade show in March, called for universal service to be provided in a technology-neutral way. Access should be assured using the most efficient technology, which in rural areas is often wireless, he said. So why hurt rural consumers in the interim if that is the conclusion the commission will end up with?

The short-term cap recommended by the Federal-State Joint Board is supposed to end Nov. 1, when the board is expected to issue a second recommendation on longer-term proposals for fixing the USF. The board would like the FCC to act on follow-up recommendations within one year from the date of its next action. As such, the cap could stay on wireless providers until the FCC takes action on the recommendations. Moreover, the board isn't bound by the Nov. 1 date. There will be no hell to pay if it misses the deadline, and that means wireless operators and their customers could languish well beyond six months as federal regulators fight over the best way to fix a broken USF system. -Lynnette