FCC's USF reform likely to hit rural wireless carriers

The FCC is poised to vote on potentially far-reaching reforms to the $8 billion Universal Service Fund program as part of an effort to transform a fund that was intended to help pay for the deployment of telecommunications services in rural America into one that is more focused on broadband deployment. As part of that effort, which is expected to take multiple years, rural wireless carriers that have been receiving USF funds could see a reduction in their funds, analysts said.

FCC Chairman Julius Genachowski previewed the long-sought reforms to the USF and the Intercarrier Compensation Fund in a speech at the Information Technology and Innovation Foundation. Genachowski said the current approach is "unsustainable" and called for several key reforms, including:

  • Changes to intercarrier compensation rules to stop waste and reduce disputes that result when companies exploit loopholes.
  • A multi-year transition path, in partnership with states, to phase down intercarrier payments and shift any necessary recovery to USF.
  • Transitioning USF funding that is not being used efficiently to the FCC's Connect America Fund for expanding broadband access.
  • Performance goals and reporting requirements to increase the accountability of USF recipients.

Genachowski said the reforms will "allow more carriers an opportunity to expand their services through healthy public-private partnerships, including wireline, fixed wireless, mobile and satellite providers."

The rules aren't yet formal. However, analysts said the actions could reduce the payments rural wireless carriers have received from the fund. "I think they are going to be targeting some of the wireless funds that were going to competitive wireless carriers," Stifel Nicolaus analyst Rebecca Arbogast told FierceWireless. "It poses some risk that some of them will lose some of their USF funding."

"My sense is that some of the wireless carriers that have received USF funds in rural areas, the money is just not going to be spread out," Medley Global Advisors analyst Jeffrey Silva told FierceWireless. "It certainly appears at the outset that the reforms they are looking at would have a direct impact on those wireless carriers that have been major recipients of Universal Service support in rural areas. In fact, at the outset, they appear to be among the most vulnerable."

Silva cautioned that USF reform will be extremely complex and could pit politicians from rural areas against those from urban populations. Arbogast suggested that rural carriers affected by a cut in USF funds could receive money from the Mobility Fund, which the FCC proposed last year to fund mobile broadband deployments in rural areas.

The Mobility Fund will use a portion of the USF money that Verizon Wireless (NYSE:VZ) and Sprint Nextel (NYSE:S) voluntarily gave up in 2008. The fund will use between $100 million and $300 million to finance one-time capital infusions for 3G and 4G buildouts in rural areas. Additionally, the FCC proposed a reverse auction to determine which providers get support, which specific geographic areas will receive support, and at what levels.

For more:
- see this transcript of Genachowski's remarks
- see this Reuters article
- see this PC Magazine article

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FCC pushes USF Mobility Fund for 3G, 4G mobile broadband buildouts
Verizon seeking USF money for rural LTE buildout