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Faulty Traditions Should Not Stand in the Way of Needed Reform

Faulty Traditions Should Not Stand in the Way of Needed Reform

Maxatawny FarmFor years, the Department of Agriculture Rural Utilities Service’s (RUS) broadband loan program has been repeatedly criticized by independent auditors, members of Congress and others for providing funding to areas where broadband services already existed, or weren’t exactly rural (like suburban golf course communities). Now, a new study, which NCTA commissioned and which was prepared by Jeffrey Eisenach of Navigant Economics, shows that flaws in RUS lending practices have extended into the similarly inefficient high-cost Universal Service Fund (USF), creating a double whammy for both taxpayers and companies that are trying to compete against these heavily government-subsidized operations. Before jumping into the results of the new study, it’s important to state emphatically that the cable industry is absolutely committed to ensuring that Americans have access to telephone and broadband Internet service – goals that we have been working on for decades. While government funding may be necessary to ensure that these goals are achieved in some high-cost areas, the current systems of providing this funding are in need of serious reforms. First and foremost, resources ought to be devoted specifically to extending broadband access to unserved areas.  Government funding programs, like USF, should be used to provide funding for the building of networks where it doesn’t make sense for private investment. We’ve previously discussed the critical changes that need to be made to government funding programs. For examples, see this 2009 post on broadband stimulus funding or this 2010 post on how to connect America to broadband in an affordable fashion. In February of this year, we talked about the necessary principles to consider for USF reform. Just last week, we argued that USF funds must be spent in an efficient manner. The key points of the Navigant Economics study released today can be deduced from its title: The Rural Utilities Service Should Reassess Its Reliance on Universal Service High-Cost Support to Leverage Broadband Loans. To cite a few examples from the document:
  • Inefficiencies in the two programs have created a vicious cycle in which consumers finance both the RUS loan and the universal service revenues that underwrite the loan, and where the burdens keep expanding as new RUS borrowings leverage higher USF payments from the high-cost fund, which in turn are used again to justify even more RUS lending.
  • Despite the fact that fundamental USF reform – which would reduce the level of USF support received by RUS borrowers – has been on the table for 15 years, and is well-known to be a top priority of the current Federal Communications Commission, the RUS has continued to treat USF subsidies as a stable source of revenue for repayment for loans with maturities of 20 years, an assumption that is highly questionable and seems unrealistic under the circumstances.
The study recommends that RUS should temporarily suspend new loans to recipients of USF funds and stop leveraging USF support to qualify applicants for RUS loans. It also suggests that after the FCC concludes its USF reform proceeding and new rules are in place, Congress and RUS can reassess whether a loan program continues to be needed and if so, how that program can be better coordinated with the USF program to eliminate the problems inherent in the current RUS regime. The time for reform is here, but let’s make sure we do it right and don’t let past traditions guide future mistakes.