Universal Broadband Is Key to US Global Competitiveness

File Under: 2006, Telecommunications

May 3, 2006

Current Universal Service Program Creates Bizarre Market Distortions and is Often Counterproductive
 
WASHINGTON, DC, May 03, 2006 –US telecommunications policy is hampering broadband deployment while subsidizing outdated technologies, Computer & Communications Industry Association (CCIA) President Ed Black told Congress today.

“The telecommunications landscape is not what it was 100 years ago yet we are still paying for a program that is tied to a world of black rotary phones,” Black said. “The Universal Service Fund has not kept pace with technological developments and Americans are paying the price for it.”
 
The CCIA President made the case for progress while testifying o n the Universal Service Reform Act of 2006 (HR 5072) before the House Small Business Subcommittee o n Rural Enterprises, Agriculture and Technology. Sponsored by Representatives Lee Terry (R-NE) and Rick Boucher (D-VA), the bill would reinvigorate the century-old concept of Universal Service, which was designed to provide ubiquitous access to affordable communications service for all Americans regardless of geographic location.
 
The Universal Service Reform Act of 2006 is a comprehensive bill and should serve as the framework for more extensive reform.  The provisions in the legislation offered by Reps. Terry and Boucher are a much needed first step.
 
CCIA favors updating Universal Service in a balanced manner that modernizes the distribution mechanisms to subsidize new technologies, not legacy o nes, expands the contribution base in a competitively neutral manner, and limits the unchecked growth of the fund.  Black added,  “Properly designed legislation can enhance the Universal Service fund so that it can fulfill its promise and advance the nation’s economy.” To do so it should:
 

• Contain a fair and balanced process to understand the true costs of building and maintaining a network in our new competitive environment.
• Structure the Universal Service Fund so that calculating the size of the fund is based on the amount of funds needed and used, not the amount collected.
• Curb the open-ended growth of the Universal Service Fund and target the funds toward needed areas.

As evidence of the need for reform, Black pointed out in his testimony, the current application of Universal Service funds has created bizarre market distortions because distribution is poorly targeted and inefficient.  There are two “effects” – the” Vail Effect” and “Nevada Effect” – that clearly demonstrate the flaws in the current system.
 
The “Vail Effect” creates subsidies to remote, expensive-to-serve areas, regardless of economic need, with the result that communities such as Vail are subsidized at the same rate as poor towns in Appalachia.
 
The “Nevada Effect” results in unequal access to USF funding because a statewide population density formula diminishes the ability of rural Nevada to access funds due to its two large urban centers.
 
In addition, many rural carriers actually realize a reduction in funding when customers take broadband service, which decreases the incentive for incumbent telephone companies to offer modern service.  As a result, Universal Service funding has morphed into a set of entitlement payments to a small group of largely rural incumbent telephone companies.
 
“Unless Universal Service is genuinely restructured in the new context of today’s rapidly evolving telecommunications and technology markets, it will serve to retard rather than advance the lofty goals it is designed to achieve” said Black.  “Access to advanced information services is essential for sustained economic development, particularly in rural areas, and is fundamental to the health of American economy for the 21st century.”

Contact: Will Rodger, 202-783-0070 ext. 105