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ACA Unveils An Innovative Plan To Reform, Modernize The Universal Service Fund, Saving Billions Of Dollars

ACA's Forward-Looking Blueprint Shows How To Eliminate Costly Inefficiencies From The Current System And Use The Savings To Transition The USF To A Broadband-Supporting Program As Its Primary Focus Without Raising Taxes

PITTSBURGH, December 8, 2009 - Tackling one of the most difficult issues in the realm of telecommunications policy, the American Cable Association has unveiled an innovative and comprehensive plan to modernize the federal Universal Service Fund  (USF), a blueprint that details how to contain the cost of the expensive telephone subsidy program in tandem with making the program more efficient and providing funds for broadband without raising taxes.  Under ACA's plan, billions of dollars can be freed up and dedicated to new investment in critical broadband infrastructure in unserved and underserved communities where it is most needed.

"The current USF program has largely achieved its goal, with telephone subscription penetration at 95% and millions of consumers served by multiple providers of wireline and wireless service.  Given that market reality, ACA believes that the time has arrived to reform the USF and start it on a new mission of making broadband service available to all residents and businesses in the U.S. in a competitively and technologically neutral manner," ACA President and CEO Matthew M. Polka said.

With this novel, creative plan, ACA is entering the USF discussion for the first time at a substantive level, providing an analysis of the program's major problems in addition to offering solutions that offer a solid foundation so that ACA's diverse membership, comprised of traditional small cable and telephone companies that worked hard to develop the plan, can look to the future with confidence.

ACA's plan -- which took several months of diligent effort to prepare -- is a data-driven, fact-based approach that shows how to bend the USF cost curve as well as rinse away well-documented problems of waste, fraud and abuse. It would also deal with financial inefficiencies rooted in decades of difficult and ineffective oversight that have been a source of deep concern to the Government Accountability Office, the Office of Management and Budget, and Members of Congress who oversee the communications sector.

"By reforming the USF according to ACA's plan, the Federal Communications Commission could swiftly free up between $1 billion and $2 billion annually to support broadband deployment and adoption in unserved and underserved areas as well as provide carriers with operational subsidies and low-income households with direct support that they might need in order to obtain a broadband subscription," Polka said.

Under ACA's proposal, the USF program - which has been experiencing unrestrained growth -- would be capped at current funding levels, leaving the so-called high-cost fund with about $4.4 billion annually to allocate for existing and new purposes.  While maintaining support for truly small voice providers, ACA's plan would limit or deny high-cost fund support for telephone companies that face effective competition within their study areas or are no longer subject to price controls set by state regulators.

Further, ACA's plan would not allow high-cost program funds to underwrite the cost of provisioning multiple landline connections or multiple wireless handsets for a single end user, including consumers and businesses who can clearly afford to pay cost-based rates. ACA's call for a cap on USF spending is a reasonable step, having been endorsed by the USF Joint Board and implicitly by the FCC's recent decision to bar competitive eligible telecommunications carriers (CETC) from drawing additional money from the USF program on an interim basis.

"ACA maintains that the USF, as currently structured, hurts consumers who pay into the system via their carriers and unfairly serves the interests of larger entrenched incumbent voice providers who face competition, putting competitors at a decided disadvantage. As a result, ACA recommends that larger incumbent voice providers subject to effective competition and free to price services as they wish should be largely ineligible to draw support from the USF program to subsidize voice services," Polka said.

ACA's proposal, submitted to the FCC in connection with the Omnibus Broadband Initiative required by Congress, builds on the consensus reached by many in industry and government that without reform, the USF will place intolerable tax demands on consumers, will continue to distort competition in that entitlement-minded larger incumbents won't be weaned off their subsidies, and will possess a fundamentally backward-looking orientation because no new funding will be available to achieve the critical national goal of making broadband universal and affordable for all Americans.

"Over the past few months, ACA has striven to design a USF reform plan that remains neutral in purpose and effect by not favoring one industry segment over another or favoring one technology over another.  ACA endorses bringing the USF into the 21st Century by allowing subsidies to flow to broadband access providers but only if it is done so in a competitively and technologically neutral manner and is precisely targeted to aid users that lack access in areas that are unserved and underserved," Polka said.

A legacy of the 1984 break-up of the old AT&T monopoly, the USF program spends more than $7 billion each year to keep local telephone service affordable for low-income consumers as well as consumers in high-cost and rural areas.  About $2.4 billion of the total is set aside for a special program intended to subsidize broadband access for eligible schools and libraries. USF funding is derived from a 12.3% tax on the interstate and international revenue of telecommunications carriers.  Cable VoIP providers that cannot distinguish interstate from intrastate traffic must calculate their USF contribution by assuming as a safe harbor that 64.9% of their revenue is derived from interstate traffic, another discriminatory feature of the current system.

In its USF reform proposal, ACA endorsed creation of a contribution methodology based upon a hybrid numbers/connections approach, replacing the revenue-based model.  ACA also urged the FCC to lower the cable VoIP safe harbor because many ACA members provide VoIP using third parties that are incapable of providing a reliable breakdown of interstate traffic, which would likely show a much lower long-distance utilization.  Lowering cable's VoIP safe harbor is only fair given that the wireless industry's safe harbor stands at 37.1%, ACA said.


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About the American Cable Association

Based in Pittsburgh, the American Cable Association is a trade organization representing more than 900 smaller and medium-sized, independent cable companies who provide broadband services for more than 7 million cable subscribers primarily located in rural and smaller suburban markets across America.  Through active participation in the regulatory and legislative process in Washington, D.C., ACA's members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business.  For more information, visit http://www.americancable.org/


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