Wednesday, February 23, 2011

Tech Policy Institute: 60% of USF Monies Go To "Inflated Overhead Expenses" 02/23/2011 San Francisco - The Technology Policy Institute, the Washington think tank supported by an array of often competing cable, telco, and tech giants including Google, today released a report that gives more support to the urgent need to reform the federal Universal Service Fund (USF).

The short but detailed report entitled The Universal Service Fund: What Do High-Cost Subsidies Subsidize? by research VP Scott Wallsten outright calls for "radical reforms" of the program now, as policymakers respond to the current "push to include broadband as part of USF".

The top line finding developed by Wallsten, who reviewed data from "1,400 recipients of high-cost subsidies from 1998 to 2008", is that "over half of subsidies, or $.59 of every dollar, paid through the High-Cost Universal Service Fund go to general expenses of firms, not to directly providing support to high-cost lines."

At the strategic level, the report argues "that the most useful reform would be to focus more on low-income assistance instead of high-cost areas." In the interim, Wallsten says that the current high-cost subsidies need to be fixed. The fix needs to be carried out by the Federal Communications Commission that oversees the fund, via the Universal Service Administrative Company (USAC) that does the actual disbursement of monies.

Wallsten recommends the Commission move immediately on 4 points:

  • Strongly consider subsidies for satellite broadband.
  • Move away from "cost-based, rate-of-return regulation," which gives "incentives to inflate reported costs."
  • In high cost areas served by multiple providers, target the subsidy to the lowest-cost provider, "not to whatever the incumbent already receives."
  • Consider auctions "to define the level and distribution of subsidies." 

Our Take: The TPI report is a concise, yet well documented, read that lays out the clearly needed policy goal of reforming USF. The Commission needs to "walk and chew gum" at the same time here. FCC needs to move toward support of broadband facilities and services with cost effective USF subsidies only as it reforms the subsidies themselves. We in the industry need to lead the charge to see that happen. 

No one can expect the America public to keep paying through the nose for a system clearly out of whack. As Wallsten shows us, USF is now mostly rewarding companies that know how to game the system, rather than providing cost effective support for either high cost areas or low income subscribers. Yes, America needs USF to support broadband. First America needs to reform USF.

Cue the screaming from those companies, and their trade associations, that are best gaming the system today. Press releases and agonized cries to follow immediately.
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