FCC Starts Looking at Contribution Reform

Everything’s up in the air as the further notice of proposed rulemaking on contribution reform contains many more questions than answers. The notice, approved unanimously by the FCC Friday, poses questions about what types of communications providers should contribute to the Universal Service Fund, how contributions should be assessed, and how to reduce the overall cost of contribution. The text of the notice was not released by our deadline.

Commissioner Robert McDowell, who again voiced his opinion that contribution should have been tackled along with distribution reform in one proceeding, called contribution reform “a vital cornerstone to any effort to modernize the Universal Service Fund.” A contribution factor that has risen from 5.5 percent to nearly 18 percent in Q1 of 2012 is “unacceptable because it is unsustainable,” McDowell said, calling it “a new form of bill shock” for consumers. “We must tame this wild automatic tax increase as soon as possible.” McDowell expects the commission to make a final decision on contribution reform “no later than this fall."

"The current system creates market distortions,” said Chairman Julius Genachowski. “Outdated rules and loopholes mean that services that compete directly against each other may face different treatment.” Massive changes in the marketplace have caused the contribution base to decline by roughly 10 percent since 2008. Friday’s notice aimed to increase efficiency, fairness, and sustainability, he said.

The notice proposes several potential methods for assessment of contribution obligations, said Chin Yoo of the Wireline Bureau. The methodology could consider services and providers on a case-by-case basis. Or the rules could adopt a general definition of interstate telecom providers who are required to contribute, and clearly identify those who are exempt. This approach could be more “future-proof,” Yoo said. The notice will also explore how to simplify collection from bundled offerings, and how to differentiate between wholesale and retail providers.

Long at issue is whether telecom providers will contribute based on connections or phone numbers. A connections-based system could assess providers a flat fee for each connection provided to customers, and the notice seeks comment on how to determine the flat assessment amount, and whether such a system should be service-based, facilities-based, or dependent on speed and capacity tiers. The system could also be a hybrid of numbers- and connections-based methodologies, officials said. The bureau also wants input on appropriate transition periods, how to reduce the costs of compliance and how to promote transparency for consumers.

"I recognize that implementing reform will not be easy,” McDowell said. “Precisely because today’s notice asks such a broad range of questions, all stakeholders will have an opportunity to find something controversial and undesirable, in their view.” McDowell urged commenters to “tell us what they like about any of the proposed ideas, as well as offer their new ideas,” adding that he would “pay particular attention to fact-based arguments."

Any contribution reform should even out how much wireless pays into USF, versus wireline, CTIA said in a statement after the meeting. “Program costs are projected to be approximately $9 billion this year alone, so it’s important the burden of paying for it is distributed fairly. Right now, roughly 44 percent of the contribution burden falls on wireless providers and their customers. CTIA remains committed to working with the Commission to craft a revised USF contribution system that is fair, simple and efficient."

The Rural Cellular Association fully supports moving forward on reform, said President Steve Berry. “Contribution reform is critical in the fast-changing communications environment and likely should have been tackled before reforming high-cost at the expense of wireless carriers,” Berry said. “The FCC should broaden the contribution base without imposing increased burdens on wireless carriers. The contribution methodology should take into account the explosion of IP-based communications. Broadening the contribution base would provide a more stable foundation for continued support as the industry evolves away from traditional forms of communication."

Pennsylvania Public Utility Commission member James Cawley is disappointed the FCC ignored “congressional intent” by not seeking the input of the Federal/State USF Joint Board on overhauling the USF contribution mechanism. He noted the state members of the joint board, which he chairs, had asked the FCC to refer to it the issue of the federal USF contribution mechanism reform. The state members also filed proposals on the issue last year, he said. Cawley worried the FCC is initiating one more rulemaking that “has major effects on public policy and where the outcome will largely depend on the numerous industry ex parte presentations and submissions to the FCC commissioners and staff,” he said.