Incumbent telcos would be the clearest winners, and small providers of interconnected VoIP the biggest losers, if the FCC and Senate proceed as they have been on changes in the Universal Service Fund (USF), according to interviews with industry executives and analysts. Satellite would benefit by becoming eligible under a new fund for places unserved by broadband.

Decades of the Universal Service Fund contributed to 98% of U.S. households having phone service. This includes 88% of low-income households. But that feat hasn’t come cheaply, especially with the addition of the costly E-rate program that connects schools and libraries to the Internet. During 1998-2005, the USF spent $37.8 billion, according to the National Regulatory Research Institute, which pegs fiscal 2006 USF outlays at $7.3 billion. In fiscal 2006, requests for school and library funding alone will total $3.55 billion to be disbursed among 39,416 applicants, the Universal Service Administration Co. reported (CD March 22 p11).

The Universal Service Fund (USF) has grown more than 50% since 2000, much of the growth in the high-cost program that supports rural telephone companies, the Congressional Budget Office said in a report. Spending on the high-cost program doubled in the past 6 years and could more than double again in the next few years, “depending on the outcome of various legislative and regulatory changes that are under discussion,” CBO said in a report on “Factors that May Increase Future Spending from the Universal Service Fund.” The report was released Tues., a day before CBO Acting Dir. Donald Marron was to testify at a House Telecom Subcommittee hearing on universal service reform. USF outlays grew from $4 billion to $6.3 billion between 2000 and 2005, while revenue grew from $4.5 billion to $7 billion, CBO said. Revenues are a better gauge of the USF’s impact on the economy “since they take into account commitments that have been made but not yet paid for,” the report said. The report attributed much of the growth in the high-cost program to the advent of “cell phone companies that are new competitive entrants to rural markets.” CBO said demands for USF outlays could continue to rise depending on how policymakers treat the increase of competitors in rural areas, intercarrier compensation (ICC) reform and demands for the use of USF money to support broadband connections. The first 2 factors -- a growth in payments to wireless competitors and ICC changes -- could raise outlays by as much as $4 billion a year, CBO said. Increased spending for broadband can’t be measured, the report said, because it probably would result from legislative action “which CBO has no basis for predicting.” Raising the USF contributions fee could drive consumers to services that aren’t subject to USF fees, such as e-mail and instant messaging, the report said. On the other hand, there are several options for curtailing growth of USF spending such as limiting USF support in high-cost areas to one connection per household and basing support on each carrier’s own costs rather than the incumbent’s cost, moves that rural telephone companies have pushed. ICC reform could be structured in a way that would ease the pressure on the USF, the CBO said. Finally, budget pressures caused by speeding the deployment of broadband in rural areas could be eased by funding the new service outside the USF as “part of discretionary spending,” the study said.

Incumbent telcos would be the clearest winners, and small providers of interconnected VoIP the biggest losers, if the FCC and Senate proceed as they have been on changes in the Universal Service Fund (USF), according to interviews with industry executives and analysts. Satellite would benefit by becoming eligible under a new fund for places unserved by broadband.

Schools and libraries are lauding Sen. Stevens’ (R- Alaska) telecom bill, saying it finally will legitimize the E-rate fund. The bill, which includes 3 E-rate provisions, is scheduled for markup tomorrow (Thurs.).

The FCC will fine Ga.-based Universal Telecom $20,000 for not making Universal Service Fund contributions or filing associated worksheets, it said. The long distance reseller didn’t respond to numerous FCC staff inquiries about these violations, the agency said.

The FCC should postpone action on plans to increase the wireless safe harbor for Universal Service Fund contributions and add VoIP providers to the contributions pool for the first time, the Small Business Administration Office of Advocacy said in a June 15 letter to FCC Chmn. Martin. The agency hasn’t properly analyzed either action’s economic effect or submitted a regulatory flexibility analysis meeting Regulatory Flexibility Act (RFA) requirements, the SBA said: “Doing so will bring the FCC into compliance with the RFA and will afford the Commission the opportunity to legitimately solicit input from small businesses on the regulatory costs of compliance as well as garner recommendations for significant alternatives that would minimize the impact on small businesses.” Last week NTCA also weighed in on the proposal, which is on the agenda for the FCC’s open meeting Wed. NTCA said it opposes eliminating DSL revenue from the USF contribution pot, which reportedly is a reason the FCC is considering expanding contributions elsewhere. NTCA urged keeping DSL revenue and adding revenue from cable, wireless, electric, satellite and other broadband access providers. NTCA said excluding such providers from the contributions base will “conflict directly with [Senate Commerce Committee Chmn. Stevens’ (R-Alaska)] telecom rewrite legislation which ties the future of universal service to broadband deployment throughout the United States.” NTCA said “the regulatory classification of cable and wireline broadband Internet access service as an information service does not preclude the Commission requiring all providers of broadband Internet access service to contribute.” The association backs raising the wireless safe harbor and adding VoIP revenue to the pot, it said. But it warned the FCC that the legal basis for doing so might be tricky if VoIP is classified as an information service rather than a telecom service.

In a George Washington U. debate Fri. that was mainly just a refresher for Web wonks, Amazon.com Vp Paul Misener pitched for online nondiscrimination, and Hands Off the Internet (HOTI) Coalition Co-Chmn. Mike McCurry for the free market crowd. Mostly, they awaited a 3rd draft of Senate Commerce Committee Chmn. Stevens’ (R-Alaska) telecom reform bill, which is expected to become public today (Mon.). The House rejected a strict net neutrality mandate this month (WID June 9, Special Report).

In a George Washington U. debate Fri. that was mainly just a refresher for Web wonks, Amazon.com Vp Paul Misener pitched for online nondiscrimination, and Hands Off the Internet (HOTI) Coalition Co-Chmn. Mike McCurry for the free market crowd. Mostly, they awaited a 3rd draft of Senate Commerce Committee Chmn. Stevens’ (R-Alaska) telecom reform bill, which is expected to become public today (Mon.). The House rejected a strict net neutrality mandate this month (CD June 9, Special Report).

The 3rd draft of a telecom reform bill from Senate Commerce Committee Chmn. Stevens (R-Alaska) addresses net neutrality but doesn’t assuage critics’ fears that network operators like AT&T and Verizon will be able to discriminate against content providers like Google and Amazon.com, sources told us Sat. It goes further than Stevens’ previous draft, which simply required the FCC to conduct a study on the controversial topic. The new version of S-2686 is expected to become public Mon.