On October 27, 2011, the FCC unanimously adopted sweeping reforms to the communication industry in the areas of voice and data services. Much of this is arcane “legalese”, but it will have sweeping effects to communication businesses and their customers. So I will attempt to give a synopsis of the effects of this reform on the customer level.
First, to set the framework–the FCC has promoted a public policy for some time that all Americans have the right to telephone services. Obviously, in rural areas, the cost to provide that service has historically been quite high. For nearly 80 years, rural telephone companies have been subsidized in these “high cost” areas through low cost loans from the government to build plant. In 1997, Congress mandated an additional funding mechanism known as the “universal service fund”, where customers of telecommunications providers (including wireline, wireless, and VoIP) in “low cost” areas would contribute a percentage of the interstate services on their bill to the fund, which aggregation was used to subsidize customers in “high cost” areas. Since 1997, the percentage of contribution has steadily grown and sits presently at 15.5% of interstate and end user services.
There are arguments on both sides as to whether this fund has been effective (or not) in promoting the public policy initiatives of the US government, but what is undeniably clear is that the fund is an expensive “tax” for 96% of the voice services customers in the country. There has been a sense for some time that things needed to change.
Enter the “Connect America Fund”. With this Order issued last week, the FCC has effectively created a fund to subsidize broadband deployment in the rural parts of the US, and is effectively transitioning the existing funding framework of the Universal Service Fund for the CAF. Said another way, subsidies for voice services in rural areas are being phased out over the course of the next 5 to 9 years (depending on the company), and those same funds will be made available for rural telcos to deploy broadband data services to their customer base. The fund will be “budgeted” at the same level it is presently, with the idea that the CAF fund will not grow beyond current funding levels. In the summary of the order, there was language to suggest that the USF cum CAF would see attrition as the public policy goals associated with broadband deployment were achieved, reducing effective “communications tax” burdens on customers of telephone, cable, and wireless companies over time.
There were many other changes dictated by the Order, including an entire revamp of the intercarrier compensation system (the way companies compensate one another to reach end users on another network), jurisdiction policy (will State public service commissions continue to regulate “intrastate traffic”, or has VoIP made jurisdiction a moot point?), Interconnection Agreement framework (the standard agreements carriers sign with one another to exchange traffic), and so on. Arcane indeed.
What is clear is that our users will continue for an indeterminate time to subsidize FCC public policy initiatives as they have in the past, but the tide may be turning. Technology is making it easier and less expensive for all companies to provide voice and data services. Over the course of the next few years, I hope and expect that all communication companies will become independent and self sustaining, reducing the subsidy burden on the industry as a whole.
Until next time…
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