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The principle of universal service is that all Americans need access to affordable communications.  In the last century, universal service programs connected virtually the entire nation to telephone service.  Now, in the 21st century, when high-speed Internet has become the essential communications tool for jobs, innovation, economic growth, education, healthcare, public safety and building communities, our goal must be to connect every American, regardless of where they live.  To do this without imposing new funding burdens on consumers means eliminating inefficient rules and bad incentives that have plagued the Universal Service Fund for years. 

That’s exactly what the Commission did last year when it voted unanimously to reform and modernize the Universal Service Fund, it set the express goal of bringing broadband access to the more than 18 million Americans, mostly rural, who lack it.  The centerpiece of this modernization is the Connect America Fund, or CAF, which transforms the old voice-centric universal service fund for rural areas into an engine for rural broadband deployment.  To meet these goals without growing the fund beyond its current size, the FCC also imposed long-overdue fiscal responsibility and accountability measures, limiting the universal service fees paid by consumers and business across the country.

Today, we take two important steps toward reaching these goals.

First, we are launching CAF with this first phase (Phase 1) by taking $300 million in savings recovered through reforms and directing it to provide an immediate boost to connect up to 400,000 homes, businesses and anchor institutions that currently lack access to high-speed Internet.  In other words, we’re not expanding the size of the Universal Service Fund – we’re cutting waste and stretching every dollar to do more.  Companies that accept the money – as well as the strict accountability measures and buildout requirements attached to it – will help deliver broadband to hundreds of thousands of unserved Americas in rural communities. This benefits not just the unserved but the entire nation by expanding on-line markets, streamlining communications, and jump-starting growth.

Our timetable and accountability measures are aggressive: Starting today, carriers will have 90 days to accept the Commission’s funding offer.  In addition to tough buildout requirements that must begin in the coming months, we expect carriers will invest private money into these projects, too.  The accountability measures and buildout requirements may cause some carriers to opt out.  That said, we’ll connect hundreds of thousands of Americans even if carriers accept only a portion of the money.

Second, in the same vein, we are freeing more broadband funding for over 2 million lines served by 500 rural carriers – without increasing the size of the Fund – by implementing another set of reforms.  These reforms will increase fairness, fiscal responsibility and accountability in another Universal Service Fund program known as High Cost Loop Support, or HCLS.

HCLS provides close to $800 million annually to offset the typically high capital and operating costs of small, rural carriers serving sparse populations.  But unfortunately, HCLS sometimes allowed carriers to open the spigot to USF funding as wide as they wanted.  Because those who spent the most got first priority, efficient carriers lost support to those that spent more. There was no way to judge whether subsidized expenses were warranted or fair.

Last October, building on a proposal from a group of rate-of-return carriers in Nebraska, the Commission unanimously voted to set benchmarks for reimbursable capital and operating expenses, which will allow us to evaluate and limit subsidies if warranted by comparing similarly situated carriers. Since then, we have improved our benchmark methodology by reviewing hundreds of pages of comments, holding dozens of meetings with rural carriers, and seeking impartial peer review of the original proposal. Based on all this data and review, our improvements include additional variables to account for cost-related factors like soil type and deployment on federal park lands; making allowances for recent investments; a more gradual phase-in to allow carriers time to adjust to the new rules; and an expedited, streamlined process for carriers to address concerns regarding the data about their service territory.

Under the revised method we adopt today, over 500 carriers serving over 2 million lines across the country will get more funding, which they can use to expand broadband. About 100 carriers that have unusually high expenses will have to take steps to bring their operations more in line with their peers. But to help these companies adjust, we will phase in these changes over time and have provided a rigorous but fair waiver process to ensure existing service isn’t disrupted.

Ultimately, the consumers who pay for universal service, consumers who directly benefit from expanded rural networks, and all who value a vibrant, ubiquitous broadband network are the winners in the changes we’re implementing today.