Converting the Universal Service Fund to broadband could cause the fund to balloon unless policymakers first reexamine “the purpose, design, and management” of the subsidy program, the GAO said in a report. The report dated Tuesday deals with opportunities to reduce duplication in government, save tax dollars and increase revenue. GAO recommended that Congress give USF increased attention since it falls outside of the annual appropriations process. In a speech Wednesday, Aspen Institute’s Blair Levin said “waste, fraud and abuse” are buzz words that don’t grasp the USF’s real problems.

Rural carriers are gearing up to fight against the proposed cap on the Universal Service Fund and other objections they've found to the FCC’s rulemaking notice, association lobbyists said Tuesday. The cap, which would freeze the fund at 2010 levels, “has to be proven flawed,” Organization for the Promotion and Advancement of Small Telecom Companies Vice President Randy Tyree said on a conference call for members of several rural associations. It’s important that rural telcos and their supporters convince policy makers and legislators that the telcos are handling their USF cash well and that broadband will expand even further if the fund is allowed to expand, too, he said.

Feb. 26-March 1 National Religious Broadcasters convention, with House Speaker John Boehner, R-Ohio, Gaylord Opryland Resort and Convention Center, Nashville -- www.nrbconvention.org

The FCC must not forget rural areas as it seeks to revamp the Universal Service Fund and intercarrier compensation, former Sen. Byron Dorgan, D-N.D., said in an interview Friday. Dorgan, who recently joined the Arent Fox law firm as senior policy adviser, said Congress has worked a long time on USF but “doesn’t seem to be getting it done.” The Senate had worked on the issue, but has shown less interest “the last couple of years,” he said. “The question is, what will the FCC do as it rethinks” USF and intercarrier compensation, “and will it pay as much attention as is necessary to avoid having a digital divide in the future with regard to advanced services?” Dorgan is “tinkering around with an op-ed piece” about USF overhaul discussing the “dramatic changes that have occurred since I've been in Congress and still the urgent need not only for universal service but intercarrier compensation funding” for small telcos in rural areas, he said. “I come from a town of 300 people, and so I've always been concerned that whatever happens … there needs to be an understanding of the buildout of advanced services and the financial capability to do that in the rural areas.” Most high-speed broadband buildout goes to “the biggest cities where there’s the largest income streams,” Dorgan said. But the original idea behind universal service was that a telephone in a rural area is just as important as one in an urban location, he said. “That concept has to continue through the development of these advanced services. Otherwise you will leave a lot of parts of the country behind economically.”

The FCC appears to be leaning toward Title II-style regulation of broadband through its Universal Service Fund revamp, industry officials told us after examining the commission’s rulemaking notice on USF. “It’s clear to me that when you look at the questions they're asking around support, that seems where they're heading,” Voice of the Net Coalition Executive Director Glenn Richards said. “It’s a way to get broadband providers to agree to Title II-like obligations.” FCC officials didn’t respond to requests for comment.

Investment in wireless broadband is expected to result in creation and/or retention of 117,000 jobs in the 19 states that have the lowest broadband availability and penetration in the U.S., based on the premise of extending roaming obligations to data services and requiring interoperability among all carriers operating in the 700 MHz spectrum band, said a study by Raul Katz, a professor with Columbia Business School. But interoperability and data roaming challenges are barriers to investing broadband in rural areas, he said during a briefing Thursday. Another barrier is that a large portion of the public funds dedicated to broadband deployment are being assigned to fiber infrastructure, he said. The opportunity cost of not allowing smaller, rural and regional carriers to roam onto the national carriers’ networks or interoperate in the 700 MHz band is significant, he said. The Rural Cellular Association is this week briefing the FCC and members of the Congress about the study which RCA funded. Everyone talks about jobs and potential creation of 117,000 should be a real wake-up call for policymakers, said RCA President Steve Berry. Immediate action is needed to make data roaming and interoperability possible throughout the 700 MHz spectrum, he said. It’s critical that interoperability across devices designed to work in any one block of paired 700 MHz spectrum be enforced, the study said. And without automatic data roaming (similar to what exists in voice services), rural carriers will potentially face onerous terms when roaming onto national carriers. Regarding speeds, studies showed there’s a dramatic impact on productivity when going from dial-up speeds to around 5 Mbps, Katz said. Berry said in an interview after the briefing that state regulators can utilize their unique knowledge of local situations and help inform federal regulators and make broadband funding more targeted and flexible. A good USF system should be success-based and revenue and technology neutral, he said.

The FCC made the right decision by putting off a fight over contribution reform to focus on reforming the high-cost Universal Service Fund distribution system, said National Broadband Plan architect Blair Levin. There are “too many moving parts” in the debate over contribution factor, so the commission focused on “low-hanging fruit” in its recent rulemaking notice, Levin said on a panel Wednesday sponsored by the Congressional Internet Caucus Advisory Committee. He was having an exchange with fellow panelist National Telecommunications Cooperative Association CEO Shirley Bloomfield. She said she “would have liked to see the FCC wrestle with contribution.” NTCA members are seeing up to 10 percent of their bandwidth gobbled by companies like Netflix and the situation is critical, she said.

The FCC should fix the “disparity” between what states pay into the Universal Service Fund and what they get out of it, Democratic Sens. Frank Lautenberg of New Jersey, Bill Nelson of Florida and John Kerry of Massachusetts wrote Chairman Julius Genachowski. “We appreciate the commission’s focus on constraining growth in the size of USF.” But the “disparity between USF support and contributions for our states is significant,” they wrote Thursday. New Jersey customers paid $4.68 into the fund for every dollar they got back; Massachusetts customers paid $3.66 for every dollar they got back and Florida customers paid $2.23 for every dollar, the senators said. “Although we support the concept of universal service and recognize the importance of universal access to broadband for all Americans, the USF desperately needs to be changed to address the numerous inequities and inefficiencies in its current administration,” the senators wrote.

Verizon Wireless wrongfully “pocketed” Universal Service Fund support without talking with states’ regulators and now is “seeking absolution for sins committed across the country” from the FCC, lawyers for competitive eligible telecom carriers said in an ex parte notice filed Tuesday. “There is no legal authority supporting Verizon Wireless’ position -- only the informal and non-binding staff advice that Verizon Wireless claims it was provided.” The lawyers responding to Verizon’s assertions last week that it had not used Alltel’s CETC designation to obtain USF for non-Alltel lines (CD Feb 22 p8). “Perhaps most disturbing about Verizon Wireless’ rather arrogant actions is the significant harm it causes to rural citizens,” the lawyers said. “We urge the FCC to refrain from interfering with ongoing state proceedings and investigations, and to follow the law and the facts to conclusions that serve rural consumers, not any one company’s interests. … It is disingenuous for Verizon Wireless to claim that the act of commingling should cause everyone to conclude that nothing can be done. Quite to the contrary, there’s a simple solution that is both just and reasonable.” The lawyers said the FCC “should immediately suspend all high-cost support to Verizon Wireless and open an independent investigation by the Enforcement Bureau,” wait for states to finish their review of Verizon’s eligibility and have support “disgorged” if it’s found that Verizon wasn’t an eligible carrier, and have Verizon Wireless start “anew” in its quest for USF support in the states. Company officials couldn’t be reached for comment Tuesday.

Arguments that Verizon Wireless wasn’t eligible for high-cost Universal Service Fund support in states such as Nevada “cannot be squared” with the FCC’s “rules and decisions,” the carrier said in meetings with the Wireline Bureau. “For example, in the Corr Wireless Order, the commission gave Verizon Wireless two options for receiving high-cost support: Option A, which would have capped the company’s universal service at levels established at the time of the Verizon Wireless-Alltel merger, or Option B, under which its ‘high-cost universal service support will be recalculated each quarter based on current data for that quarter,'” the carrier said in an ex parte notice released Friday. “Option B necessarily contemplates that Verizon Wireless and its affiliated companies remain eligible to receive high-cost support following Verizon Wireless’ acquisition of RCC and Alltel and furthermore, that its eligibility is not limited to legacy Alltel or RCC lines.” Verizon Wireless bought Alltel for $28.1 billion in early 2009 but agreed to phase out high-cost support 20 percent each year for five years as a deal condition. Competitive ETCs have accused Verizon of improperly obtaining USF support by using Alltel’s ETC designation to get support for non-Alltel lines. Nevada Attorney General Catherine Cortez Masto is investigating, and there are similar accusations in Wisconsin (CD Feb 7 p6). Verizon officials have cast the controversy as the result of state and CETC anxiety over commission plans to phase out competitive funding altogether.