FCC Creates $4.5B Broadband Fund in Major Telecom Overhaul

In one of the most ambitious and complex undertakings in the recent history of the agency, the Federal Communications Commission on Thursday voted to modernize the multibillion-dollar fund that subsidizes telecommunications services and reform the convoluted and inequitable system by which telephone companies pay one another to connect calls.

The Democrat-led FCC voted unanimously to create a $4.5 billion fund the Connect America Fund that the agency anticipates will expand broadband access to more than seven million U.S. residents of rural areas. The agency also has moved to create a mobility fund that will expand mobile broadband access to tens of thousands of road miles and include dedicated support in tribal areas where telephone and Internet coverage remains scant. And over the next three years alone, the FCC will provide nearly $1 billion annually for mobility, FCC Chairman Julius Genachowski said.

We are taking a system designed for the Alexander Graham Bell era of rotary telephones and modernizing it for the era of Steve Jobs and the Internet future he imagined,” Genachowski said.

The FCC also has taken affirmative steps to significantly reform intercarrier compensation, the Byzantine framework by which U.S. telephone companies compensate one another to connect calls. Federal regulators and other critics have complained for several years that the system is busted, discourages investment in new technology and is characterized by illegitimate schemes to inflate carriers revenues.

Legacy access rates encourage carriers to maintain yesterdays technology instead of reaping the benefits of todays IP-based networks,” FCC Commissioner Michael Copps said. The hidden manipulations of intercarrier payments cost consumers billions of dollars each year.”

FCC Commissioner Mignon Clyburn said the agency has established a national approach for ICC reform, for both intrastate and interstate access rates.”

Explaining the importance of the decision in a research note today, Stifel Nicolaus analyst Christopher King wrote that the FCC has moved to phase out most ICC payments between carriers for exchanging traffic and give rural-oriented telcos and others a multi-year transition and other mechanism aimed at helping them adapt to the changes or at least soften the blows.”

Several U.S. telecom providers and organizations complimented Genachowski for tackling complicated regulatory issues that have been sitting at the commission for years.

No previous commission proceeding has been more complex or challenging,” said Walter McCormick, president and CEO of USTelecom, a broadband trade association in Washington, D.C. For nearly a decade, regulatory uncertainty in this area has been an overhang on capital formation, job creation, and economic growth.”

The compliments, however, were tempered by uncertainty over the details of the FCCs final written order and a notice of proposed rulemaking, which havent been released and could include hundreds of pages of complex reading and analysis for industry lawyers.

Stifel Nicolaus analysts, King said, anticipate court challenges from unhappy stakeholders, including state regulators objecting to federal preemption of intrastate access charges, with the validity of broadband USF support another core issue.”

The National Association of Regulatory Utility Commissioners, which represents state public service commissioners who regulate telecommunications and other utilities, raised concerns that aspects of the decisions preempt state authority.

Some elements raise a host of unanswered legal and procedural questions but also the specter of unintended consequences for consumers,” NARUC said. As we read through and digest the order, we will have more to say about these concerns.”


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