USF and ICC – changes are unveiled

ON Thursday, the FCC held an Open Commission Meeting that included a discussion of the reform on Universal Service Funds and Intercarrier Compensation (USF starts 30 minutes into the archive – and ends at minute 122). I finally found some time to listen. I thought I’d take very high level notes and point folks to PC World, which did a nice compilation of who likes the change and who’s not so thrilled.

Executive Summary –

The plan is to move to the Connect American Fund (CAF) which will allocate a $4.5 billion budget annually for rural, insular and hard cost areas.

One the transition is complete that will mean up to $2 billion for rate of areas with return carriers; $2.8 billion for price cap carriers; $500 million for wireless and mobile voice services – including up to $100 million for tribal areas and at least $100 million for remote areas fund.

CAF recipients will be required to send reports to state and federal overseers. The State Commissions will work with carriers of last resort and ETCs (eligible telecommunications carriers).

Price cap – CAF will support broadband in two phases:

  • Legacy cost support will be frozen & subject to broadband obligations ($300 million to commit broadband deployment to areas)
  • Creates a framework to provide support on forward looking price model. Incumbents will need to overtake statewide commitment (Except very high cost areas and areas with competitors). When incumbents says no – there will be a bidding mechanism for all ETCs)

Rate of return

  • Changes rules to support continued broadband deployment/investment
  • Allows them predictability of continued funding but requires more stringent monitoring
  • Looks to reduce interstate compensation 11.25%


  • Eliminates identical support rule
  • Phases down existing support

More on mobile

  • Phase I $300 million and $50 million in tribal areas and reverse auctions with a goal of 4G
  • Phase II $500 million per year to extend and support mobile networks ($100 million to tribal areas) in high costs areas


  • Arbitrage – combating phantom traffic
  • Billing key methodology for all ICT traffic with unified national framework
  • Caps all interstate and most intrastate effective on date of this order and establishes a transition path for the reduction
  • Some carriers will be eligible to receive cap support
  • VoIP/PSTN – will be subject to transitional ICC; will be considered equal; expect all carriers to act in good faith for IP calls

Copps Comments:


  • I would have much preferred a higher budget for the Fund—a budget that I believe consumers would accept because of its importance to putting the nation back to work and providing our kids with the tools they need for their futures.
  • The course we adopt today has two auction phases, with the second installment of mobility support dependent upon further Commission decision-making. Understanding the need for maximum predictability throughout these transitions, we will halt reductions in legacy support if for some unlikely and unanticipated reason the second auction phase does not take place as planned.


  • My enthusiasm here is tempered by the fact that end-user charges (under the label of “Access Recovery Charges”) are allowed to increase, albeit incrementally, for residential consumers.
  • While I understand the need for predictability in an ICC regime, I am pleased that my colleagues have retained a key role for states, including arbitrating interconnection agreements; monitoring intrastate access tariffs during the transition to bill-and-keep; and helping to implement our Universal Service Fund as well as, in many cases, their own state universal service funds.
  • There is inherent inequity in a system that funds the deployment of broadband off of assessments on interstate telephony. Once we ensure that double, triple and quadruple play services that benefit from Universal Service bear their fair share, we will not be subject to the unnecessary financial constraints that our current approach imposes. We also need
  • spectrum management decisions that avoid putting still more spectrum in too few hands. Among other good results, that would drive better mobility auctions.

McDowell Comments 

  • Also, today we are only addressing the high cost program of the distribution side of the Universal Service Fund. We are not addressing the entire Universal Service Fund, which currently distributes over $8 billion per year. To put that figure in context, USF is larger than the annual revenues of Major League Baseball. In separate proceedings, we will also reform the other USF spending programs. I cannot stress enough that all of the fiscal efficiencies that we will realize in the wake of today’s reforms will be lost if similar fiscal discipline is not applied to all Universal Service programs as well.
  • It is no secret that for years I have been pushing for contribution reform to be carried out at the same time as distribution reform. Obviously, that is not happening today; therefore we must act quickly. The contribution factor, a type of tax paid by consumers, has risen each year from approximately 5.5 percent in 1998 to an estimated 15.3 percent in the fourth quarter of this year. This trend is unacceptable.

Clyburn Comments

  • As you all know, I have a deep connection to rural America. Without comparable modern communications services enjoyed by their urban counterparts, those citizens will never adequately compete in our global economy. They need and deserve reliable fixed as well as mobile broadband in order to thrive. Without this critical broadband infrastructure, rural Americans would be forever left behind.
  • Most importantly, we have provided for replacement funding as intrastate access rates decline as a result of our reform which relieves the financial burden that would have been on states in their own attempts at reform. To that end, we also have carefully balanced ICC revenue replacement for providers, with the important goal of not burdening consumers with significant increases in their bills or overburdening the USF which is ultimately paid for by consumers.
  • Although the reforms we adopt today are extremely important for ensuring that basic and advanced communications services are physically available to all Americans, those services cannot be
  • truly available, if consumers cannot afford to purchase them, the devices they need to access them are not available, or if they cannot obtain the skills they need to know how to use these services. I appreciate those who have called for us to address these consumer needs today, and I agree with you that we need to do more in this area. Our broadband adoption task force is working diligently to find solutions to these issues, and I fully expect that we soon will be addressing the proposal in our Lifeline proceeding to adopt pilot projects for broadband adoption to benefit low-income Americans who qualify for the Lifeline program.

Genachowsi Comments

  • Over the next year, the Connect America Fund will bring broadband to more than 600,000 Americans who wouldn’t have it otherwise. Over the following five years, millions more rural families will be connected. And today’s Order puts us on the path to get broadband to every American by the end of the decade – to close the broadband deployment gap which now stands at close to twenty million Americans. We are also extending the benefits of mobile broadband coverage to tens of thousands of unserved road-miles, areas where millions of Americans work, live, and travel.
  • Today’s action will help connect anchor institutions, which can play a vital role – for example, in expanding basic digital literacy training – in a world where broadband skills are necessary to find and land jobs.
  • We did not rubber stamp or adopt wholesale the proposals of any stakeholder or group of stakeholders. Instead, we made our decisions on what’s right for the American people and our economy based on facts and data gathered in one of the most extensive records in FCC history, including hearings and workshops across the country, and more than 2,700 substantive comments totaling tens of thousands of pages.
This entry was posted in Digital Divide, FCC, Funding, Policy, Rural by Ann Treacy. Bookmark the permalink.

About Ann Treacy

Librarian who follows rural broadband in MN and good uses of new technology (, hosts a radio show on MN music (, supports people experiencing homelessness in Minnesota ( and helps with social justice issues through Women’s March MN.

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