Friday, October 1, 2004 - The Progress & Freedom Foundation Blog

The Universal Service Quagmire

"Universal service means universal service." That was the message from an Illinois Supreme Court decision last week when it reversed the Illinois Commerce Commission's decision to limit state universal service support to a single connection to a home or business, known as a "primary line restriction." By statute, the ICC had been directed to follow, at a minimum, the FCC's list of supported services. Since the FCC currently requires support for all lines, so must the ICC, according to the court.

This decision followed on the heels of a slew of comments submitted to the FCC following the Federal-State Joint Board's recommendation that a primary line restriction be adopted to "preserve the sustainability of the universal service fund." This recommendation essentially amounts to a rear-guard action to protect against further (and potentially substantial) increases in USF demand, as states designate an increasing number of wireless companies and CLECs as being eligible to receive universal service support. The alignment of the parties on this issue is notable. To varying degrees, Qwest, Verizon, AT&T, SBC, NASUCA, Cox and a number of state commissions support the restriction. Parties such as BellSouth, wireless interests, Sprint, NTCA, USTA and rural ILECs oppose it.

The adoption of a primary line restriction has some appeal from an efficiency standpoint (the usage of efficiency being admittedly tortured in this context). Universal service policy is already rife with reliance interests, and expanding the availability of funds to a new set of carriers only increases these incentives. But while the restriction is consistent with the "everybody gets a connection" ethos of universal service, it is inconsistent with the "we support networks, not individuals" reality by which universal service funds are distributed. I say this in full recognition of the 5th Circuit's pronouncement in Alenco v. FCC that the Telecom Act "only promises universal service, and that is a goal that requires sufficient funding of customers, not providers." Agreed. But the point here is that, due to the high-fixed, low-marginal cost nature of networks, designing an individualized subsidy may be exceedingly difficult.

In the end, then, administrability matters and could be dispositive. NASUCA, for instance, has recommended that customers be given the option of choosing which line receives support through the use of a ballot, with support going to the primary carrier (normally the ILEC) if no carrier is designated. The program would be administered by USAC. But the cost of this approach is unknown and the possibility of fraud and waste are not irrelevant factors considering USAC's experience in administering the e-rate program.

The best part, if you've been able to suffer through this entry, is that the whole issue may prove to be moot anyways. The Senate Appropriations Committee has amended an appropriations bill which would bar the FCC from enforcing a primary line restriction. This is a cause for pessimism, as the road for any meaningful universal service reform will ultimately run through the guardians at the gate in the Senate.

And all of this over an issue that is arguably tangential to the fundamental question of how to square universal service policy with the shift to an IP-based world.

posted by @ 2:21 PM | General