Today, in a 4-0 vote during its October Open Meeting, the Federal Communications Commission (FCC) approved an Order to reform the Universal Service Fund (USF) and the intercarrier compensation (ICC) system.

This summary relies on FCC Staff’s presentation of the Order and the Commissioners’ statements during the Open Meeting. The Order has not been released and the FCC has given no indication of a release date. As a result, there is relatively little detail to report. We will release a further Alert that includes more detail after the Order is released.

The FCC has posted an Executive Summary of the Order that is available here.

Universal Service Reform

With respect to USF reform, FCC Staff indicated that the Order will not affect current contribution mechanisms, and stated that the contribution aspect of USF will be addressed in a Further Notice of Proposed Rulemaking to be released with the Order. Commissioner McDowell indicated in his remarks that the FCC’s goal is to complete USF reform in the first half of next year.

Aspects of USF reform that will be addressed in the Order include:

  • Establishing the Connect America Fund (CAF) – The Order will transition existing USF funds for the support of broadband deployment in rural and underserved areas. Commissioner Copps noted in particular that tribal lands are the most underserved areas in the nation, with broadband penetration in the single digits. Chairman Genachowski predicted that 600,000 Americans will have access to broadband as a result of CAF funds by the end of 2012, and the remaining 20 million Americans without broadband will have access to it by the end of the decade.
  • Establishing the Mobility Fund – The Order will establish the Mobility Fund, which will be part of the CAF, to support the deployment of mobile broadband. Up to $300 million will be allocated initially to the Mobility Fund in 2012, with a significant amount going to support mobile broadband in rural areas.
  • USF Cap – The Order will restrain the growth of the current USF by capping the size of the Fund at its existing level of approximately $8 billion.
  • Eligibility and Reverse Auctions – As part of the goal of keeping a cap on USF distributions, the Order will restrict access of USF funds to new entrants and will introduce a competitive bidding process among providers for obtaining universal service support.

Intercarrier Compensation Reform

With respect to ICC reform, FCC Staff stated that the Order’s first goal is to address so-called “access stimulation,” as well as “phantom traffic,” which is traffic that has been disguised such that it cannot be identified accurately for billing purposes. Staff did not provide any detail on how to curb access stimulation and phantom traffic, but did indicate that the Order would “immediately close loopholes” in the Commission’s rules. 

FCC Staff also stated that the FCC ultimately will transition the ICC system to a bill-and-keep regime after a multi-year step-down period. The only details provided during the Open Meeting regarding this transition were that the Order will immediately cap all interstate access rates and most intrastate access rates as of its effective date.

Additional ICC issues addressed in the Order include:

  • IP-to-PSTN and PSTN-to-IP Traffic – Such traffic will be subject to the same transitional rates as traditional telephony traffic in order to achieve symmetry in the treatment of traffic.
  • CLEC-CMRS traffic – Staff stated that the Order will provide a mechanism for competitive LECs and wireless carriers to obtain compensation for the traffic that they exchange. The Executive Summary, however, states that a bill-and-keep regime will govern all LEC-CMRS compensation for intraMTA traffic.
  • IP-to-IP Interconnection – Carriers must negotiate IP-to-IP interconnection in good faith. The Executive Summary states that the Further Notice of Proposed Rulemaking will include proposals for specific IP-to-IP interconnection rules.
  • Transition Fund – LECs that are adversely impacted by the transition to bill-and-keep and cannot make up the revenue shortfall through retail price increases will have access to a limited and temporary fund.
  • Role of State Commissions – Although the FCC is claiming authority over most intrastate ICC rates, it indicated that the states will continue to play a “significant” part in enforcing and monitoring the ICC system.