“We need to move to collection for the Universal Service Fund that is technology-neutral ….I think telephone numbers are a good, easy mechanism to begin to address those issues.” FCC Chairman Kevin Martin (Republican) at a lunch hosted by Comptel in Washington DC.
“Universal service is a tax. We should call it a tax…It distorts the marketplace. There’s no question about it.” Senator John Sununu, Republican, New Hampshire.
After a brief quiet period, a political malestorm is emerging over the $7 billion Universal Service Fund, which despite reported mismanagement subsidies phone connections in the rural and remote parts of United States of America. It comes from the wireless, local and long distance companies.
In order to understand the lead-up to this battle lets go back in time.
1. A year or so ago when Verizon wanted to sell their rural lines, but that did not completely pan out.
2. A few months ago, Sprint-Nextel decided to get rid of about 187,000 local loop lines for what essentially was a firesale: roughly $175 a line. Funny, because these lines were sold wholesale for about $20 a month.
3. Last week, Valor, a small company with a little over 540,000 subscribers decided to swallow 3.4 million lines of AllTel, a rural ILEC, that wanted to focus purely on wireless.
Notable point in these examples, the desire to get rid of the rural lines. Which brings us to why the recent noise around USF. The universal fund, according to telecom insiders has been seen as a way for local operators to impose a subtle-tax on the long distance providers. Cellular carriers, which are mostly owned by the local carriers pay about 3% into the fund. Long distance carriers are paying a 11.1 percent fee towards the USF. Now that they own the long distance carriers – SBC (AT&T) and Verizon (MCI), it doesn’t make much sense for local phone companies to support USF.
However, there is something more sinister. With a massive multi-year build out of their FTTx or 3G Wireless networks ahead of them, the incumbents need to figure out a way to pay for it. Of course, if they don’t get rid of these lines, then the local operators will be forced to upgrade the unprofitable rural areas to fiber/broadband networks. That will upset all the carefully balanced FTTx/Broadband plans. If they don’t they will be accused of redlining against less affluent communities. And we know that is a political mustard gas, especially in election year.
“The big telcos — Verizon, SBC, BellSouth and Qwest — likewise won’t be able to build out their rural and small town properties and will more than likely dispose of them as soon as possible and practical,” says Allan Tumolillo, Principal with Transformation Research and Consulting in Maplewood, NJ. ”The telcos FTTH strategies pointedly ignore rural and small town communities in favor of the target-rich environment characterized by good income demographics, single/two family housing, reasonable density, and aerial construction.”
But how does this tie in with what politicians have to say? Simple, with the numbers based approach, the burden for the USF falls on everyone including the cable providers and VoIP service providers. The rural users will have to contribute to the kitty as well. In other words, it takes the load off the phone companies, which are now facing a higher tab because they own the long distance operators.
Bonus Link: Jeff Jarvis is still continuing his campaign again FCC which preaches higher morality, much like a nanny would.