As we gear up for tomorrow’s event at Georgetown University marking the one-year anniversary of the National Broadband Plan, I guess the inevitable question is, are we there yet? Well, not exactly. But after a somewhat slow start, the FCC has really picked up the pace in the last few months on one of the Plan’s lynchpin proceedings – reform of the Universal Service Fund and intercarrier compensation.  In February, the FCC released a nearly 300-page NPRM. And just this week, the Chairman and his fellow Commissioners jointly blogged about their plans to complete this proceeding by the end of the summer.  As someone who’s been working on these issues for over a decade, all I have to say is “wow.”

Reform of these policies is the most significant thing the FCC can do to promote the objectives of the National Broadband Plan.  This is the point where people usually say something like, “these policies have done an excellent job of bringing about universal telephone service, but it’s now time to retool them for universal broadband.”  I’m not going to say that.  In my opinion, the high-cost universal service program has been a mess since its inception. And the intercarrier compensation “system,” has become a Rube Goldbergesque contraption optimized for little more than arbitrage and the generation of legal fees.

The principal failings of both USF and intercarrier compensation arises from the fact that they were grafted onto a system of public utility regulation that was originally built around local telephone monopolies. While USF and intercarrier compensation were both extended to certain competitive carriers, those extensions proved unstable and unsustainable.  Competitive USF subsidies were ultimately capped to prevent runaway growth, and competitive carrier access charges had to be subjected to a form of dominant carrier regulation. 

As the FCC now prepares for real reform of these vestiges of monopoly regulation, it must recognize that success depends upon making a clean break from the legacy regulatory monopoly model.  The way I think of it is that we must move from a universal service model built on monopoly public utility regulation to something that more closely resembles a procurement process.  By this I mean that the decision to accept universal service funding must be voluntary; that the obligations that go with it must be clearly defined and not subject to “post-contractual” modification; that the obligations must be for a defined period of time; and that there will be no universal service obligations except in those areas for which funding is provided.

If the FCC succeeds in making this transition from the regulatory “monopoly model” to the competitive “procurement model,” it just might be able to fulfill the promise of the National Broadband Plan.

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