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FCC Caps Wireless USF Subsidies

The FCC capped the amount of USF proceeds wireless and other carriers can collect.

Wireless and other competitive eligible telecommunications carriers (CETCs) will be capped at the support they were receiving from the states they serve as of March 2008.

“This action is essential to preserve and advance the benefits of the universal service program while we consider comprehensive reform,” FCC Chairman Kevin Martin said in a prepared statement.

The move was expected, much to the chagrin of the wireless industry, which has taken billions of dollars in high-cost fund money even as the USF contribution base declines. Bell companies and other incumbent telcos supported the decision.

FCC commissioners included two exceptions: carriers other than the incumbents serving tribal or Alaska Native regions will continue to receive USF support at uncapped levels. Also, CETCs that file their own cost data can be exempted from the cap.

Telecom analysts for investment firm Stifel Nicolaus said the cap will help the Bells and rural incumbents such as CenturyTel and FairPoint. Those carriers are more dependent on the USF and have feared that wireless growth will “spark a broader backlash against the subsidy program,” Stifel analysts wrote in a May 2 note to clients.

It’s a different story for wireless/CETC providers such as Sprint, Alltel and US Cellular, the analysts said. Their USF subsidies now will be curbed and even could decline. None of the companies had official remarks on the matter, nor did wireless association CTIA.

Analysts said the FCC now is likely to turn its attention to overhaul efforts, examining matters such as contribution mechanisms and the identical support rule. However, they said, chances are good the FCC won’t act this year, because of the presidential elections.


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