The FCC earlier today adopted (but has not yet released) a substantial NPRM on universal service fund (USF) and intercarrier compensation (ICC) reform, signaling that the agency is ready (again) to engage anew in its decade long quest to reform these interrelated subsidy and compensation regimes that nearly all interested parties agree are unsustainable.

With roughly $4.5 billion/year in play on the high cost USF side and approximately $8 billion/year at stake on the ICC side, this is a proceeding in which many will want to weigh-in or at least track carefully. Yes, we realize that we said this 10 years ago and again back with the last swell of activity in 2008, but the timing and circumstances of today’s action, as well as the remarks of each Commissioner seem to suggest that odds of the agency taking concrete steps toward adopting meaningful reforms are higher now than they ever have been.

That said, it remains unlikely that the agency could adopt an order addressing comprehensive high cost USF and ICC reform before 4Q11. The process will be neither quick nor easy. And, as many will note, conspicuously absent from today’s NPRM are proposals for USF contribution reform. It seems strange that the fund is to be re-purposed to support broadband in advance of adopting a requirement that broadband providers contribute to the fund. Lifeline reform also gets punted to another day, but the agency promises it is working on getting to this soon. With the proposed USF Mobility Fund also on a separate track, it appears that the Commission has liberated itself from the notion that it must address all pieces of the puzzle at one time in one order.  

The centerpieces of today’s item are the broad, fundamental reform proposals for the high cost USF mechanism and ICC. As expected (and as described), the NPRM proposes to re-purpose the high cost USF mechanism to supporting universal broadband availability. Apparently tracking the FCC’s National Broadband Plan, the NPRM proposes to convert over time the current high cost mechanism to the Connect America Fund. The Commission seeks comments and will hold post-comment period workshops on the best way to get this done.

Eliminating CETC support, capping per-line support, implementing reverse auctions and redefining funding criteria are among the key proposals on the table. Also in scope is the all-important transition plan during which today’s mechanism will shrink while the new Connect America Fund begins to grow. Naturally, there will be much debate about whether the new fund should be smaller, larger or capped at a certain size. Comments made at today’s FCC open meeting suggest that most of the proposed alternatives and analysis are familiar. That said, the proposed move to a single subsidized provider system represents a dramatic change.

With respect to ICC reform, today’s item is said to call for near-term action on whether interconnected VoIP traffic is or is not subject to access charges. It is not yet known whether the item contains any language signaling how the FCC might resolve this issue or whether its resolution could have a retroactive reach.

“Phantom traffic” and “traffic stimulation” also are on the FCC’s near-term action items list and it remains the case that orders on these items could materialize in advance of a more comprehensive reform order. Today’s NPRM seeks further comment on each of these topics. Here, today’s remarks revealed more of the agency’s hand as both issues were characterized as arbitrage plays that need to be curbed.

With respect to broader, structural ICC reform, today’s NPRM is said to offer a model in which the FCC partners with the states to drive access rates down and to bring all traffic within the scope of section 251(b)(5). Unlike its predecessors, this FCC does not appear as eager to usurp the states’ jurisdiction over intrastate access rates. It also does not appear that bill-and-keep is a foregone conclusion, though the FCC does suggest that per minute rates eventually ought to be eliminated. Thus, the issue of IP interconnection and a transition from TDM networks may well evolve into one of the biggest pieces of the ICC fix.

Finally, with respect to both USF and ICC reform, the FCC states that its goal is to support investment in broadband networks and to spur innovation by modernizing USF and ICC, ensuring fiscal responsibility, demanding accountability and enacting market-driven and incentive-based policies which minimize disruption to carriers while providing clear paths through transition to comprehensive reform. It may well prove to taste great and be less filling, as well.

Naturally, there will be more to say when the item is released (and maybe for years after that). Stay tuned.