Getting Universal Service Reform Right for Consumers


Universal Service Fund (USF) reform can be complex, arcane and downright mind numbing. But the subject is vitally important. On October 27th, the FCC will cast a historic vote. Getting it right will advance our communication goals for decades. Getting it wrong will retard competition and innovation.

Despite the complexity of detail, there is one overarching principle that must guide the FCC in its final hours and will be the standard by which the outcome is judged. Simply put, will the Order be focused on the best interests of the American people, or will it be designed to protect incumbent telco business models and stock prices?

There is no greater mechanism for maximizing consumer welfare than competition.

The last century, policymakers accepted that the communication market was best served by government-supported monopoly. The term “universal service” was actually coined by Theodore Vail in 1907 as a basis for justifying the efficiencies of a monopoly. The government accepted that compact at a time when only 35 percent of homes had phone service and abided by it for nearly 80 years until divestiture, though not without regret.

Today, 98 percent of homes have telephone service and in the 1996 Act we came to recognize that competition is the key to bringing consumers more choice, promoting efficiency, driving technological innovation and encouraging fresh investment. Competition is not a “risky experiment.” It is more proven than monopoly business models or government computer models in bringing the highest value to consumers.

The cable industry has built broadband to 93 percent of America, without government subsidies or benefits. We want universal service reform that will give us a fair chance to compete for the right to deploy broadband in those remaining areas where it is admittedly economically difficult to serve.

Considering the overall objective of delivering broadband to all Americans, it is astonishing that the FCC is considering a regime in which the largest incumbent telcos would be granted the inherent right to all of the available money in certain areas, before any other industry (which are equally able and committed to serve) has a chance to compete. Cable is the leading broadband provider in the nation, but it will have to stand in line behind wireline telephone companies. Wireless is one of the most exciting ways for accessing the Internet (homage to Steve Jobs) yet they stand in the consolation line as well. And what is the harm of allowing competition?

If cable fails to show up to serve, telcos get the money. If cable competes for the subsidy, but is not the best provider, it will lose and the telco gets the money. If cable competes and wins, the consumer is the winner and will get broadband service for the first time from the most efficient and effective provider.

At bottom, behind the rhetoric, the telcos want the government to ensure that they do not have to compete. No need to be efficient. No need to have the best offering. No need to go the extra mile for consumers. Show up and you get to claim the pot.

We also hear the tin siren call that you have to embrace monopoly in order to get broadband deployed faster. Theodore Vail would smile ear-to-ear listening to his old rationale for government-sanctioned monopoly getting new life. But sacrificing important competitive principles for expediency is backward and wrong. Moreover, the promise of quickness is wildly exaggerated. The FCC will have to build a model and design a bidding process no matter what. Once those efforts have been completed, a competitively neutral distribution mechanism (such as the county-wide bidding approach that NCTA proposed last week), takes no more time than a monopoly approach.

This stuff is hard and complex. It has taken over a decade to get this reform effort on a path to passage; it will likely be another decade before it is fundamentally changed again. Any reform that is not (1) fiscally responsible; (2) competition friendly; and (3) technically neutral will be a travesty.

It will be an expensive government program that does not drive America toward the future, but instead just pays expensive homage to our past—paid for by cash-strapped consumers.