Has the FCC Abandoned Universal Service?

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The concept of universal telephone service at reasonable rates has been around since the early 20th century, and codified into law in 1934. As early as 1913, the U.S. government recognized that the AT&T monopoly was a good vehicle to ensure a universal network, at that time meaning interconnection to other networks. As time and regulation went on, the term “universal service” was broadened to encompass service to all customers.

The Communications Act of 1934 formally included the concept in its preamble, calling for “rapid, efficient, Nation-wide, and world-wide wire and radio service with adequate facilities at reasonable charges…to all the people of the United States.” AT&T initially raised its long distance rates to help pay for universal service. Over the next several decades, a series of jurisdictional cost separations and settlements plans between the AT&T/Bell System and the Independents – under auspices of the FCC — embodied mechanisms to foster the goals of universal service at reasonable rates.

The Telecommunications Act of 1996 codified the Universal Service Fund, and established several major goals for Universal Service. It also expanded the heretofore single function of high cost support for qualifying RLECs, to include funding for three additional entities: support for low income telephone customers, telecommunications services for rural health care providers, and telephone, internet and internal connections for schools and libraries. While broadened by this act, the basic goals of Universal Service had been well established for nearly a century.
Subsequent FCC orders, however, began a steady erosion of funding to the one group for which Universal Service support was originally intended — the nation’s high cost RLECs. Imposition of increasing local rate floors, phased reductions in the interstate Rate-of-Return, limitations on operating expenses and capital expenses, and most recently, the machinations of the ACAM process, have conspired to reduce — in many cases substantially — the high cost support of some of the country’s smallest RLECs.

The FCC’s ACAM approach, which substitutes statistical models for actual company costs, uses an arbitrary budget mechanism to cap Universal Funding regardless of actual need. Its introduction turned into a kind of “bait and switch,” where initial offerings were reduced significantly due to over-demand and arbitrarily imposed underfunding caused by that budget mechanism.
It seems that in recent years, limitation and control have been the FCC’s major goals in providing Universal Service support to RLECs, i.e., substantial limitations on the level of funding, and ever-increasing control of the process, culminating in ACAM. The original and most long-standing goal — universal service at reasonable rates in high cost rural areas — has taken a backseat to the Commission’s quest to impose its power over RLEC Universal Service Funding.

Hopefully, the newly constituted FCC will act on one or more of the many suggestions before it, to restore USF support to levels that will again fulfill its lawful Universal Service obligations.