Universal Service High-Cost Subsidy Reform: Hindering Cable-Telephony and Other Technological Advancements in Rural and Insular Regions

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I. INTRODUCTION

Policymakers advanced the concept of universal service in an effort to ensure that all United States citizens receive widespread access to affordable telecommunications services. In developing the initiative, the Federal Communications Commission ("FCC") identified various areas that the universal service program should target, such as high-cost and rural areas. Regions that have fewer customers over which to spread fixed costs, and other factors such as less technologically advanced networks and rugged terrain, have inherently higher service costs. The universal service program provides subsidies to high-cost regions to ensure affordable telecommunications services to citizens in these areas.

The FCC recently initiated an effort to reform the current universal service subsidy allocation system by implementing a computer model that determines eligibility for funding using specific cost inputs to calculate the cost of providing service to rural and insular areas. Although the initiative certainly has merits, the program determines eligibility for subsidies in a manner that will reduce the availability of universal service funding in certain high-cost regions. Without these subsidies, some high-cost areas will likely be excluded from technological advancements in the telecommunications industry. This Note explores the problems associated with high-cost subsidy reform, using recent developments in cable-telephony to demonstrate potential negative impacts.

This Note provides a general overview of universal service in Part II, followed by a brief discussion of reform efforts for funding high-cost areas in Part III. A general discussion of recent innovations in cable-telephony follows in Part IV, along with reasons why high-cost areas will likely be excluded from these and other technological innovations, especially in light of the recent reform efforts. The discussion then shifts to the disproportionate impact that the reform will likely have upon local service providers and to the reality that many high-cost areas will likely be offered fewer technologically advanced services while rates for other telecommunications services will remain high. This Note concludes in Part V with recommendations for universal service reform, including the implementation of a specialized high-cost technology subsidy.

II. BACKGROUND ON UNIVERSAL SERVICE

"Universal service" refers to a public policy initiative designed to provide widespread access to telecommunications services. Ensuring that high-cost areas receive access to telecommunications services and technology provides great social benefits, including enhanced educational opportunities, improved medical care, widespread availability of information, and increased economic competitiveness.(1)

Most simply defined, universal service is an intertwined web of state and federal programs and regulations designed to promote affordable access to telephone and other telecommunications services through a series of subsidies.(2) Originally, the program only targeted widespread residential telephone service,(3) but the nation's entry into an increasingly complex and digitized era has presented many interesting opportunities to expand universal service to other telecommunications technologies, such as cellular telephones, cable television, and the Internet.

Although the fundamental concepts behind universal service emerged prior to congressional action,(4) statutory provisions form the basis for universal service today. Congress first discussed the principles of what is now referred to as universal service in the preamble to the Communications Act of 1934 ("1934 Act"), a statute primarily designed to affirm federal authority over the telecommunications industry. Although the term "universal service" never specifically appeared in the 1934 Act or in the corresponding congressional records, the preamble provided a strong affirmation of the concept--"For the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States . …

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