FCC to vote on overhaul of telecommunications industry

Journal Record, The (Oklahoma City), Oct 27, 2008 by Janice Francis-Smith

Federal regulators have quietly scheduled a vote to overhaul the nation's telecommunications industry on Nov. 4 - the day most other Americans will be preoccupied with the vote for the next president of the United States.

David LaFuria, general counsel and spokesman for a group called Connecting Rural America, doesn't like the timing of the Federal Communications Commission's scheduled vote. He also doesn't like the fact that neither he nor the rest of the general public have had a chance to look over the drafted order the FCC will be voting on next week. And even though he hasn't actually seen the drafted order, LaFuria thinks it may include a few proposals that he won't like one bit - especially the part about the federal Universal Service Fund.

The proposal under consideration by the FCC is intended to promote phone service expansion in rural areas, bring broadband to places that don't have high-speed Internet access, and address inequities in the system used to provide financial support to telecommunications providers.

The vote may result in more expensive telephone bills for customers and lost revenue for telecommunications companies. Many industry experts agree something needs to be done about the current structure, but express their concern over which companies might be hurt the most by the proposal to be considered Nov. 4.

Connecting Rural America describes itself as a "grass-roots coalition of advocacy groups, community leaders and elected officials working for equality in wireless telecommunications" supported by U.S. Cellular, the nation's sixth-largest wireless service carrier. U.S. Cellular provided the names of additional coalition members, which include the National Coalition Against Domestic Violence, the National Governors Association, the National Lieutenant Governors Association, and the League of Rural Voters, among others.

"We're not going to argue against reform," said LaFuria. "We want the fund to be more efficient. The problem only applies to the $33 million provided for wireless phone companies. It could mean significantly less money for wireless companies to use in rural areas. It could mean all of it; it could go to zero."

The Universal Service Fund, or USF, is administered by the federal government. Telecommunications companies across the country pay into the fund, and the money is redistributed to help companies expand service in rural areas. In areas with sparse population, it is not cost-effective for a company to invest in infrastructure just to reach a few new customers, so the federal government subsidizes rural service.

Because such a large portion of Oklahoma is rural, the state typically receives more from the fund than state telecom companies pay into it. Oklahoma companies pay about $74 million into the fund each year, said LaFuria, but get about $140 million back. Incumbent wire-line telephone companies get about $107 million per year from the fund to build and make improvements to the infrastructure in rural areas, while wireless companies get $33 million per year to build phone signal towers in rural areas.

In early October, FCC Chairman Kevin Martin gave an overview of some of the changes he would like the commission to vote on. Martin's plan would reduce the amount of USF money allocated to wireless companies because it costs less to build cell phone towers than it does for traditional phone companies to build wires and telephone poles. Under the current system, wireless and wire-line companies are reimbursed for their costs for building infrastructure at a similar rate.

Martin's proposal would also change the way telephone companies pay to pass calls through each other's networks, known as "intercarrier compensation reform." Under the current system, a phone company might find it cheaper to pass a call between two people in Oklahoma through phone interchanges in New York than to send a call through a more direct route, depending on which company they may have to pay for access.

Martin would replace current intercarrier rates with a flat rate system. Phone companies that would lose a substantial amount of money under the flat-rate system might make up their losses by increasing fees; Martin has suggested raising the federal cap imposed on such fees. Martin also recommended increasing the size of the USF fund by imposing a flat fee of $1 on any device with a working telephone number.

Martin's proposal would also use USF dollars to expand broadband service to all Americans.

John Harris is the chief financial officer for McLoud Telephone Co., based in an Oklahoma town with fewer than 4,000 people. The company gets 28 percent of its revenue from the intercarrier compensation fees, charging other telephone companies to connect calls to McLoud residents. The company gets about 40 percent of its revenue from the USF fund.

Imposing a flat fee on intercarrier calls would mean a significant loss in revenue for McLoud Telephone, he said. Martin's proposal would indicate that money could be recouped with additional USF funding, but as McLoud Telephone is already so heavily reliant on the USF fund, Harris is worried about the effect of shifting more of the company's financial burden onto the USF fund. But Harris agreed the USF system needs some tweaking.