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Universal Service and USF Reform: Establishing a Rational and Efficient System

This presentation discusses the need for reform in the Universal Service Fund (USF) and outlines a proposed rational and efficient system. It emphasizes the importance of serving rural areas and addresses the challenges faced by telecom providers in low-density populations. The presentation also explores the cost factors and investment requirements for expanding broadband services in rural areas. Additionally, it poses five fundamental questions to guide the development of a comprehensive and funded Universal Service Fund.

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Universal Service and USF Reform: Establishing a Rational and Efficient System

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  1. Universal Service and USF Reform: Establishing a Rational and Efficient System Presentation to NASUCA Mid-Year Meeting San Antonio, TX June 28, 2011

  2. CenturyLink Qwest Fiber Network Qwest CenturyLink CLEC Service Area CenturyLink IP / MPLS Core Qwest POPS CenturyLink Fiber Network CenturyLink: Network Map and Service Territory Upon Merger Close, Served Approximately: • 17 Million Access Lines • >5 Million Broadband Customers • >600,000 Video Subscribers w/ growing facilities base • In 37 States

  3. CenturyLink in Texas • 286,000 access lines • 106 exchanges • 6 operating companies • 22.9 HH per square mile average density • Largest exchanges served: • Killeen • Porter • Humble • San Marcos • Small, rural exchanges (HH density/square mile) • 74 exchanges below 20 • 47 exchanges below 10 • 23 exchanges below 5

  4. Population Density Matters • ILECs bear expensive COLR obligations to service all customers; a burden unique only this class of provider, and very important in areas of low population density • CenturyLink serves vast tracts of rural America; in addition to urban centers like Denver, Las Vegas, Seattle, Phoenix, and Minneapolis • Line Density (loops/sq. mile):Service Area (sq. miles): • AT&T 101 AT&T 602,391 • Verizon 155 Verizon 229,569 • CenturyLink 29 CenturyLink 699,521 • Much of CenturyLink’s service area has fewer than 10 households per square mile • Competitors routinely avoid serving low density areas • If COLR, ICC & USF reform is not handled properly, there is a real risk of leaving rural areas behind

  5. Historically COLR Costs Have Been Buried • When the entire territory (study area) in a state is averaged, it is assumed that revenues earned in low-cost Franklin can be used to offset the cost incurred in serving high-cost Petroleum. • Migrating USF distributions from a study area basis can better align funding with costs – and (generally) away from competition. • Legacy EQ receives $0 High Cost funding (except IAS access replacement) under the study area system; a wire-center system would fund the higher cost exchanges. Preble, IN Monthly Cost: $73 Petroleum, IN Monthly Cost: $100 Indy Metro Franklin, IN Monthly Cost: $28 Salamonia, IN Monthly Cost: $104 *Costs for voice network. Principle holds true for broadband.

  6. Sweet Springs, Missouri Investment OverviewDistance and Density Drive Costs Wire Center Total Lines Served 1,077 122 sq. mi. Investment per Line $6,610 City Center Lines Served 138 per sq. mi. Investment per Line $2,650 Outside City Center Lines Served 2.4 per sq. mi. Investment per Line $17,960

  7. Population Density Example: ILECs Serve Higher Cost Areas Brookneal, Virginia 2,600 Access Lines • Network deployed deeper into rural markets • Deployment not a choice: subject to state and federal obligations • Continuing service obligations lead to ongoing capital expense requirements • Cost of service far exceeds viable business case parameters

  8. Rural Broadband Will Need Support • Broadband has become a necessary component for business, education, health, and in the lives of consumers • Market forces are working for most consumers: • large-scale broadband network development, broadband devices, software development, and application development. • However, consumers in the most rural portions are not served • Universal service funding will be required if national public policy to serve “all” remains in place • Must avoid unfunded mandates and minimize investment risk during transition Principle: Competition in the cities must not deprive the rural areas of needed universal service support

  9. Universal Service: 5 Fundamental Questions The government buys jet fighters, computers, light bulbs, etc. It should “buy” universal service similarly. #1 Determine what “it” is • Define broadband service, speeds, other parameters #2 Determine the areas that need universal service support • Target to high cost areas; given rate comparability policies #3 Determine the cost of achieving universal service • Calculate the total cost of qualifying high-cost areas less expected customer contributions #4 Determine rules for vendors to implement universal service policy • Provide requirements for those who receive funds and deliver on the promise of universal service #5 Determine how to fund the Universal Service Fund • Apply surcharge applicable to all providers to establish a broad, competitively neutral contribution mechanism

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