FCC Chairman to Unveil Reform Proposal Concerning USF, ICC Oct. 6, Officials Say

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By Paul Barbagallo

Federal Communications Commission Chairman Julius Genachowski plans to unveil his proposal for reforming the Universal Service Fund and intercarrier compensation systems Oct. 6, according to agency officials.

FCC staff members made the announcement to reporters during an Oct. 4 briefing, but refused to provide any details about the proposal. Officials said they expect the full commission to vote on the proposal at the agency's next open meeting, slated for Oct. 27.

For weeks now, lawmakers and members of the telecommunications industry have been pressuring Genachowski to finalize an order for consideration by the three other FCC commissioners.

As it stands, Oct. 6 marks Genachowski's official “white copy” deadline to begin circulating an order among commissioners. Customary procedure calls for Genachowski to deliver proposals he intends to bring up for vote at an open meeting exactly three weeks prior to the actual meeting date.

Most Agree Fund Is Broken.

Securing the votes necessary to adopt the proposal would be a substantial victory for Genachowski. Both systems are linked in the overall revenue stream that telecommunications carriers receive for their services. Both systems are considered broken by nearly all observers and badly in need of reform. But both systems remain, for the time being, intractable.

Though Genachowski's office has been considering numerous proposals, the crux of any final order will be to transform the Universal Service Fund from a program that subsidizes plain old telephone service—or POTs—to one that subsidizes high-speed internet service, as outlined in the agency's National Broadband Plan. To do that, the agency will look to eliminate the Universal Service Fund's $4.6 billion “high-cost” fund in three phases over the next 10 years, with the money shifted to a new “Connect America” fund.

Since its inception, the fund has drawn from a surcharge that consumers pay on interstate telephone calls. For the most part, these consumers bear the burden of the subsidy, and the decline in revenue from traditional long-distance calling is shrinking the base for contributions to the fund. (Most consumers pay a “Universal Service” line item surcharge on their monthly bills. Though not required, a telephone company can recover the required USF contributions directly from a customer through such a line-item charge.).

The FCC announced in September that the proposed universal service contribution “factor”—the monthly contribution surcharge on long-distance calls—for the fourth quarter of 2011 will rise to 15.3 percent, the second highest all-time level. The current rate stands at 14.4 percent. An all-time high rate was set during the first quarter this year, at 15.5 percent.

Eyes on ‘Traffic Pumping,' ‘Phantom Traffic.'

As part of his proposal, Genachowski will also try to revamp intercarrier compensation, the exchange of payments among carriers for originating and terminating traffic. Through the years, the system has developed into a complicated patchwork of payment amounts, depending on the type of traffic and carrier.

The proposal will likely target two controversial practices. The first is “traffic pumping,” a scheme by which a small, rural carrier with high intercarrier access fees will partner with a service provider, often a “free” pornographic chat-line operator or a free teleconferencing service, to drive voice traffic to their networks.

The second sore spot is “phantom traffic,” traffic intentionally disguised to avoid being identified for billing purposes.

Industry stakeholders had no immediate comment on the FCC staff announcement Oct. 4. Several reserved comment till Oct. 6, after Genachowski provides more detail.