Industry Officials Protest GOP Plan To Use USF Funds for Deficit Reduction

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Telecommunications industry officials are pushing back against a Republican proposal to redirect $1 billion in Universal Service Fund dollars toward deficit reduction, arguing that it would be legally untenable and detrimental to efforts to make broadband a supported service under the program.

Unlike a traditional taxation scheme, the fund is sustained through surcharges tacked onto most consumers' telephone bills and distributed among companies to subsidize the cost of providing service to rural areas. But as part of ongoing budget talks, House Majority Leader Eric Cantor (R-Va.) has proposed diverting $1 billion of the $8 billion-a-year fund to help reduce the deficit.

“The deficit issue represents a bit of a disconnect,” said Joshua Seidemann, director of policy for the National Telecommunications Cooperative Association, who spoke during a July 19 event sponsored by BroadbandCensus.com. “The USF doesn't come in under general revenues. These are fees essentially paid from one company to another. They get washed through the Universal Service Administrative Company [the administrator of the fund]. But they never come from general revenues collected by taxing authorities in the United States. Using USF for deficit reduction is more or less reaching into an envelope that was never designated as a tax.”

Not surprisingly, the GOP proposal has elicited sharp protest and even hints of legal action from companies that stand to lose the most USF funding, such as the rural incumbent local exchange carriers. Speaking at the same event, Hank Hultquist, vice president of federal regulatory for AT&T Inc., agreed that there are “legal issues that are not well understood.”

Hultquist said the budget talks have only reinforced the notion that there are not “unlimited means to bring about our goals in universal service.”

“It might be a great thing if we had the money in the fund to deploy fiber-to-the-home [technology] to every house through the Universal Service Fund, but the cost of that will be quite high,” he noted.

The U.S. Telecom Association, which is currently working on a proposal to revamp the Universal Service and intercarrier compensation systems to present to the Federal Communications Commission later this month, has written to President Obama, Vice President Biden, and leaders in the House and Senate objecting to the substance and timing of the GOP proposal.

“We respectfully request that any final budget agreement respect the enormous effort being undertaken by the FCC and all USF stakeholders to bring reforms to fruition by not diverting these funds away from their important, intended purpose,” wrote Walter McCormick, USTelecom's president and chief executive officer, in a letter late last week.

The FCC first voted in February to begin the lengthy, complex process of reforming the USF and the current structure for companies to compensate each other for connecting calls—two systems that, if modernized, could hasten the deployment of high-speed internet services nationwide, a key goal of the agency's National Broadband Plan.

As part of the omnibus rulemaking, the agency has proposed eliminating the USF's “high-cost” fund—the largest part of the universal service program with a 2010 budget of $4.3 billion—in three phases over the next 10 years. The money would be shifted to a new “Connect America” fund to subsidize the cost of providing broadband internet service in areas where, absent such support, broadband would not be available, such as rural and sparsely populated regions of the country. With $1 billion extracted from the fund, industry stakeholders believe reform would be far more difficult to achieve.

“While we understand Congress is scrambling to resolve the deficit issue, our lawmakers should not tap into the Universal Service Fund as a last-minute solution,” said Tony Clark, president of the National Association of Regulatory Utility Commissioners, and John Burke, chair of NARUC's telecommunications committee, in a joint statement. “The Universal Service Fund receives no federal monies and should not even be under consideration in this debate.”

By Paul Barbagallo