July 25, 2016 - 4:45 pm
By Michael O'Rielly | Commissioner

Commission leadership recently indicated that we will issue final rules for a new mobile-only universal service subsidy program by the end of this year.  While I remain greatly skeptical about the timing and value of doing so, given our experiences and the changes that have occurred over the past five years, it seems reasonable that if we are going to have this fund it must be structured and operated far better than today’s wireless universal service fund (USF) spending.  We owe it to those Americans that could benefit from a functionally-sound program and, more importantly, to those consumers and businesses that pay for our universal service programs.

Since it appears that the purpose and structure of the program are still up for discussion and debate, I am putting forth some key elements that will guide my review of any reform.  Without addressing most, if not all, of these points, it is hard to see how a unanimous, bipartisan vote can be achieved.  

Background

In the late 1990s, wireless carriers became eligible to receive federal universal service high-cost support to offer voice services.  Over the subsequent years, wireless carriers’ interest in FCC funding led to rampant and unexpected growth in the program.  This included multiple carriers receiving money for the same areas, as well as for areas that could be served without subsidies. 

To restrain overall program spending until comprehensive high-cost USF reform was enacted, the Commission implemented two changes in 2008.  Specifically, the Commission proposed to suspend its identical support rule, which provided USF support to competitive eligible telecommunications carriers (CETCs) based on the incumbent local telephone company’s cost rather than their own, and it enacted an interim cap (i.e., funding freeze) for existing support on a per state basis.        

When the Commission enacted comprehensive reform in 2011, it answered many, but not all, of the pending questions regarding wireless carrier participation in the high-cost program.  In particular, it established Mobility Fund Phase I, a one-time spend of up to $300 million awarded via reverse auction; adopted the general parameters for Mobility Fund Phase II, which would provide up to $500 million per year over a longer-term; issued an FNPRM to provide the granular details for the Mobility Fund Phase II; and officially eliminated the identical support rule.  At the same time, the Commission established a five-year phase down of existing wireless support, as a transition to Mobility Fund Phase II, contingent on that fund being operational by June 30, 2014.

Since the Commission did not complete final rules for Mobility Fund Phase II by the self-imposed deadline, the phase down of existing support was paused.  By the best of our count, this means that, in 2015, 218 wireless carriers still received approximately $578 million, which is well more than the Commission intended to devote to a wireless-only program.  During this time, the requirements to receive the funding have not been adjusted, even as technology has advanced.  Further, the key flaws of the existing support (e.g., duplication, not targeting unserved areas, over-subsidization) have not been resolved.  In fact, these flaws have been magnified because wireless providers have deployed 4G LTE service to over 99 percent of Americans.  Unsubsidized carriers are now overlapping and providing broadband services to the very same people in which subsidized carriers are still receiving frozen funding tied to the provision of basic voice service.    

Fundamental Concerns

Serious questions should be raised over whether there should be a separate subsidy program for wireless carriers.  Specifically, it seems illogical that we would have a technology-specific fund when the wireless and wired worlds are merging.  Even the most objective person would see them as substitutes, rather than complements, which is backed up by user perspective and behavior.  For example, Pew Research Center’s Home Broadband 2015 report states, “many ‘smartphone-only’ users say that the reason they do not have broadband at home is because their smartphone lets them do all they need to do online, underscoring the device’s utility for those without a home high-speed subscription.”  To say otherwise would ignore the vast improvements made over the last few years regarding wireless broadband and voice capabilities.  And it’s only going to get better as “5G” wireless functionality is developed and deployed.  Beyond just using wired and wireless networks for the same purposes, we are not far from the point when users can seamlessly jump back and forth between systems, including satellite, for all desired communications without blinking an eye.   

Subsidizing a decade or more of construction and operating costs for a mobile provider in an area should also raise significant budgetary concerns.  At $500 million, the new Mobility Fund would equate to more than 10 percent of the total high-cost program budget.  At a minimum, the budget should be re-evaluated in light of the widespread deployment of 4G LTE.  This is particularly important because precious funding will be needed elsewhere.  For instance, almost everyone realizes the strong likelihood that the Commission will run short of money to address today’s most difficult unserved portions of America, better known as remote areas, where consumers have no access to the Internet beyond perhaps dial-up or legacy satellite systems.  A mobile-only fund will eat into our finite resources, which are appropriately limited given the impact on consumers and businesses that pay extra fees on their bills to support universal service.  

In hindsight, if we addressed comprehensive high-cost USF reform now, instead of in 2011, I suspect technology-specific funds for wireless networks would not exist.  We likely would have one uniform fund, agnostic with regards to technology, with funds awarded via reverse auctions across the board.  Thankfully, it’s not too late to make a course correction without upsetting the progress made so far. 

I would respectfully suggest that as an alternative to a mobile-only fund, the Commission should combine this funding with all other undecided and unallocated high-cost programs and tackle the open funding needs holistically.  This would simplify eligibility, reduce the overall cost for serving an area, provide greater efficiency and avoid the technology-limiting or incumbent-biased mandates.  In particular, it would seem to make more sense to complete the remaining Remote Areas Fund (RAF) decisions in conjunction with Mobility Fund Phase II.  First, many RAF-eligible citizens have no viable broadband option in their vicinity.  It is not about having a wired but no wireless solution; it’s about not having any solution at all, which should probably be a higher priority than making sure some consumers have both.  Also, addressing the RAF in light of the convergence of wired and wireless networks (including unlicensed Wi-Fi) would narrow the areas that need the Commission’s attention and subsidies.  To some degree, this is similar to how the Commission is approaching the CAF Phase II post right-of-first-refusal auction: all technologies can participate and let the best provider win.     

Notwithstanding these views, proponents of a separate, new wireless fund seem to be carrying the day.  To the extent they do, below are reasonable principles that should be applied to any new program for wireless carriers.

Six Principles for Reform

  1. Prohibit Overlap & Target Support – It makes no sense to subsidize a wireless carrier in an area that has another unsubsidized competitor.  If the market can support two carriers – especially one not receiving FCC money – why would we want to subsidize anyone?  A key goal should be to fund only those areas that do not already have wireless service of at least 4G capabilities.  As such, this should limit any Mobility Fund to narrow areas of America not already overlapped by our nationwide carriers.  In particular, the Commission’s Eighteenth Mobile Wireless Competition Report indicates that 99.6 percent of all Americans and 90.7 percent of the country’s geographic area has at least one provider of LTE.  Moreover, even in these limited areas, there still may be places that do not warrant subsidies because they are not high cost.  We need to exclude these areas rather than provide funding where the market is likely to resolve the situation. 
  1. Subsidize Only One Carrier – Assuming we can get funding targeted to where it is needed, we should not fund multiple carriers to serve the same area.  The main goal – especially with limited resources – should be to provide subsidies where competition cannot develop by itself and then only to one carrier.  Conducting a reverse auction will achieve this goal. 
  1. Phase Out Current Support – Some existing recipients of funds under the current wireless program argue that without continued subsidies, they may have to turn off certain unprofitable towers.  This has been labelled the “Rusty Tower” problem.  Much of this territory, however, is already covered by multiple 4G carriers.  At most, the Commission should design a very narrow phase-out of support for existing recipients, perhaps two years.  As mentioned above, it would be a waste to fund service, and towers, in areas where three or four other providers already offer alternatives.   
  1. Populations, Not Roads – In determining areas that remain unserved, the Commission has traditionally targeted population areas.  This makes complete sense as we are trying to serve where people actually live, work and function.  The alternative discussed of funding road areas leads to huge outlays for tiny portions of mainly unused roads and represents an inefficient use of funds.  In the end, this may mean that not every single square inch of America receives wireless signals. 
  1. Providers Must Offer Broadband – Currently, wireless carriers receiving existing support under the old program have few real service obligations.  This is no longer tolerable.  Every USF program that has been reformed recently has installed requirements for subsidy recipients to offer broadband of certain capabilities.  Wireless carriers under a Mobility Fund Phase II should be no different. 
  1. Finish RAF – As outlined above, I would prefer to address the RAF in conjunction with creating the Mobility Fund Phase II.  If that isn’t in the cards, the Commission needs to at least consider interaction between RAF and Mobility Fund Phase II when adopting Mobility Fund Phase II rules.  It would make no sense, for example, to fund a mobile provider in an area through the Mobility Fund Phase II only to end up funding another mobile provider through the RAF in the exact same area.  That would simply re-create the problem of subsidizing multiple providers in certain areas while other consumers are left completely unserved.  Considering those types of issues now would also help ensure that the RAF is not delayed.