The FCC's comprehensive reform of the USF and ICC system adopted at its October 27 meeting will divert funding from "plain old telephone service" to broadband deployment in rural areas by creating a new Connect America Fund with an annual budget of up to $4.5 billion. The FCC said that this action has the potential to be one of the biggest job creators in rural America in decades, estimating that approximately 500,000 jobs will be created over the next six years by expanding high-speed Internet access to over 7 million Americans living in rural areas. The FCC also made Mobile Broadband an independent universal service objective for the first time and will provide mobile broadband with dedicated support through a new separate $500 million Mobility Fund, which will reduce the funding available for many rural wireless carriers under the current system. The complex reforms will be phased in for different types of carriers currently receiving funding, with rural carriers receiving an extended transition period but also incentives for more efficient use of funding and increased accountability.
The FCC's reforms to the ICC system will ultimately reduce the cost of terminating a long distance call to zero and remove the hidden subsidies that resulted in arbitrage practices, such as "traffic pumping" and "phantom traffic." The FCC adopted a multi-year transition that will immediately cap most termination rates and then begin gradually reducing and phasing out these rates for different types of carriers, with a transition period of 9 years for rural carriers. The FCC also clarified that VoIP carriers are obligated to pay for traffic that they exchange with carriers. The consensus among analysts was that the reforms were generally positive for Verizon and AT&T, as well as for major independent wireless carriers such as Sprint Nextel and T-Mobile, but problematic for wireless carriers that still rely on USF funding. The decision may provide a modest opportunity for satellite providers to get access to USF money but will be difficult for VoIP carriers that may need to pay for transport. Court challenges are expected, including from state regulators objecting to federal preemption of intrastate access charges.