[imgcontainer left] [img:usfshoes+and+wires320.jpg] [source]”These Colors Don’t Run” by Jeremy Wagner[/source] There’s a move afoot to change the Universal Service Fund, originally set up to string phone lines to rural areas. [/imgcontainer]

Over the past two weeks, as health care legislation passed by a hair through the U.S. Congress, other policy changes have steadily unfolded that will improve the fortunes of rural community broadband.

The Yonder reported last week on how a flood of federal money to smart-grid projects can aid rural broadband efforts.  Now Rep. Rick Boucher (D-Va.) and Rep. Lee Terry (R-Neb.) have drafted legislation to reform the Universal Service Fund (USF), a program that collects money from telecommunications companies and distributes it to communications programs in underserved areas. Boucher and Terry want to divert a portion of this nearly $7 billion fund to support broadband projects in rural areas.

A short summary of the long USF legacy

The USF has its origins in the passage of the Communication Act of 1934, back when AT&T was the only telephone game in town. The Act mandated there be universal telephone service throughout the U.S., and AT&T promptly began charging higher phone rates to pay for the expansion.

When AT&T was split up in 1984, all local telecom companies were charged a fee that went into a fund to support universal service. The USF as we know it now was created by the Federal Communications Commission (FCC) in 1996 under Congressional direction. The Congress mandated that all telecommunications companies providing interstate long-distance service — including wireless telecom, paging and payphone providers — contribute to the USF.

Currently the USF supports four programs. The low-income program provides discounted installation and telephone service to those who meet the requirements. Qualifications for participating vary by state. Schools and libraries are eligible through the E-Rate program to receive 20%-90% discounts on telephone service, Internet access, and internal connections such as network wiring, depending upon the student/community income levels in the locality.

The High Cost Fund supports companies that provide telecommunications services in areas of the U. S. where it’s otherwise cost prohibitive to do so: “to ensure that consumers in rural, insular, and high-cost areas have access to telecommunications services at rates that are affordable and reasonably comparable to those in urban areas.”

The fourth program, Rural Health Care, gives public and not-for-profit healthcare providers discounts on telecommunications, installation and Internet connection charges related to patient services, such as sending x-rays to radiologists in urban areas.

The amount of revenue that a telecom company earns on all interstate and international calls determines how much each pays into the USF. There is some irony here, because even though money paid into the fund generally circles back to the telcos, they pass the fee back to customers by way of a surcharge on your long-distance calls. Currently, the surcharge is near 12%, and it’s expected to increase to 14% next year. Given that consumers ultimately are bearing the burden of financing the USF, pressure is mounting to improve how it benefits constituents.

USF as broadband project booster

What Boucher and Terry are proposing in their discussion draft of the legislation is to overhaul the USF in several ways, and to designate that money from the fund can be spent on broadband. It was originally reported that as much as $2 billion could be available, but the draft makes no mention of a specific dollar amount; however, in 2004 60% ($3.4 billion) of the USF went into the High Cost Fund. The draft recommends capping the USF at $7 billion, so 60% equals a potentially huge bankroll of $4.2 billion .

[imgcontainer right] [img:boucherneonfix320.jpg] [source]Daily Yonder[/source] U.S. Rep. Rick Boucher (D-VA), a co-author of legislation that would release USF funds for use in rural broadband projects. [/imgcontainer]

Though the potential dollars this USF reform could make available for broadband are quite large, the draft as it stands now is a good news-bad news sort of deal. The good news: here is more money for broadband. The bad news: the draft only indicates support for wireless providers. There’s a passing mention of satellite telecommunications, though it’s murky whether these providers would be eligible for broadband-targeted money. There’s no mention at all of fiber optic technology.

Since around 65% of the 1,100 infrastructure projects in the hopper for broadband stimulus grant consideration are proposing to use wireless technology, it’s safe to say that having the USF support wireless will definitely meet some communities’ needs. However, as the Rural Cellular Association pointed out in an xchange Magazine interview, “to truly modernize the Universal Service Fund, legislation should encourage competitive bidding across technologies and make subsidies portable with consumers.” According to the association’s CEO and executive director Steven Berry, “The legislation limits high-cost support to – at most – two wireless carriers in a service area, diminishing competition to the detriment of consumers.”

The percentage of the High Cost Fund that would eventually go to broadband isn’t specified in the draft either, but it is safe to assume that the money will come at the expense of rural telephone companies. The National Cable & Telecommunications Association, in an independent action, is pressing the FCC to make telephone and cable companies in areas where there is competition ineligible for USF funds.

The Boucher-Terry proposal would also expand the number of telecom-related services paying into the USF to include VoIP (Voice over Internet Protocol) and broadband providers, making the pie from which broadband funds would come bigger.

Another possibility would be for Congress to change the High Cost Fund into a Communication Enhancement Fund and make all communication technologies eligible for funding. In doing so, the federal government might impress upon rural telecos and broadband companies alike that advances in technology are quickly making the distinction between telecommunications services and data services obsolete. It’s a digital world now! Voice can be reduced to 0’s and 1’s, as can x-ray film, printed documents and all the other various media we use to communicate information.

[imgcontainer] [img:lee-terry-grglow500.jpg] [source]Republican Conference/Daily Yonder[/source] Rep. Lee Terry (R-NE), is co-author of a bill that would expand Universal Service Fund disbursements to rural broadband. In the past, rural legislators have resisted changes to the USF. [/imgcontainer]

If rural telcos face this reality, and think about themselves as now being in the digital data business, they may revamp their operations accordingly. By changing a business from moving “old fashion voice” to providing digital data services that include VoIP, a company could become eligible for funds that the Boucher-Terry legislation will make available. Such a reconfigured business would able to offer more services that expand its customer base. As communities build more and more broadband infrastructure, an increasing number of revenue opportunities will open up for businesses like these.

There’s a Congressional hearing to discuss this legislation on today, November 17. It would behoove rural communities to pay attention to the particulars of this bill. You need to provide input as the bill unfolds. In the past, rural Congresspeople have resisted changes in of the Universal Service Fund because they felt it would take money away from rural telcos and mean that their constituents would lose services. They may think differently about the USF now, in the context of the digital age. It’s not 1934 any more.

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