As many as 7.1 million consumers potentially at risk
Washington, DC - Millions of economically vulnerable consumers in rural America could be forced to forego basic phone and other telecommunications services if skyrocketing payments from the Universal Service Fund (USF) to competitive eligible telecommunications carriers (CETCs), which are primarily wireless companies, result in substantial reductions in support to rural wireline providers, according to a study commissioned by the Coalition to Keep America Connected (Coalition).
USF has been tapped by a growing number of CETCs in recent years, requiring increasing outlays. This trend has raised concerns as to whether the system that supports networks upon which all telecommunications services rely can be maintained. An increase of total support for a larger number of carriers could result in limitations on support for the carriers that maintain underlying networks.
The analysis, which was released today at a conference sponsored by the Coalition and hosted by Hudson Institute, offers a quantitative examination of the impact on consumers of reduced USF support to rural telecommunications providers. By calculating the results of complete elimination of USF support, the report provides a baseline estimate on which other support payment reduction scenarios can be modeled. Specifically, the study finds that “eliminating the USF High-Cost Program (HCP) would put more than 2.7 million rural households at risk of losing access to affordable telephone service.” This number of rural households includes approximately 7.1 million Americans.
As a scalable tool for calculating the number of consumers at risk if there is any reduction in HCP, the study shows, for example, that a USF support reduction of 50 percent to such carriers “would put about 1.5 million households or roughly 3.9 million Americans at risk of losing access to affordable telephone service.”
Keybridge Research LLC performed the study. Robert F. Wescott, Ph.D., founder and president of Keybridge Research LLC, acted as principal investigator. Dr. Wescott served as Special Assistant to the President for Economic Policy at the White House and as Chief Economist at the President’s Council of Economic Advisers.
“This analysis finds that millions of rural households would be at risk of losing access to phone and other telecommunications services as the consequence of significant reductions in USF support to rural wireline providers. If unrestrained, rapidly rising payments to wireless companies very well could create such a scenario. The impact of a loss of basic phone service on a substantial number of consumers throughout rural America would be severe,” remarked John Rose, president of the Organization for the Promotion and Advancement of Small Telecommunication Companies (OPASTCO) and a member of the Coalition’s executive committee.
Other findings from the executive summary of the study:
• The wireline network infrastructure, which carries wireline, wireless and many IP voice calls, could itself be at risk due to the cascading effects of households potentially exiting the telephone network. To the extent that households discontinue service, rates for customers remaining on the network will increase because there would be a smaller customer base available to cover fixed network costs. These rising costs could cause additional households to discontinue service and could threaten the ability of carriers to maintain their networks to an even greater degree.
• Almost one-third of the households (31 percent) in areas that receive USF HCP support are considered to be at risk of losing access to affordable telephone service.
• To put these estimates into context, consider that the median household income in the U.S. in 2006 was about $48,500. For such a household to be classified as at risk under the criteria of this study, its telecommunications carrier would need to pass through an HCP support loss of at least $485 a year or about $40 a month. It is estimated that almost 1.7 million rural households would be at risk in the face of such a price increase.
• The ten states with the most households at risk of losing access to affordable telephone service are, from greatest to least households at risk: Texas, Alaska, Arkansas, Wisconsin, Oklahoma, Minnesota, Louisiana, Iowa, Kansas, and Georgia.
The Coalition released the study to inform policymakers and the public as the debate intensifies regarding the need to reform and strengthen the USF program. The program was created to ensure all Americans have access to telecommunications services that are comparable in price and scope. USF payments to CETCs, which are primarily wireless entities, have risen by more than 1,000 percent during the past six years. These increases, if uncontrolled, threaten the USF cost recovery support that makes it possible for wireline providers to deliver affordable telecommunications services in rural and other high-cost areas.
In an effort to avert the potential crisis examined by the study and caused by the rapidly rising payments to wireless companies, the Federal-State Joint Board on Universal Service (Joint Board) earlier this year recommended that the Federal Communications Commission (FCC) implement a temporary cap on such payments. A similar cap has been enforced on support that is provided to incumbent wireline carriers for well over a decade. The Coalition, which includes four leading rural telecommunications associations and more than 700 rural incumbent wireline telecommunications providers, strongly supports the temporary cap as a means of ensuring consumers maintain access to critical telecommunications services and as a matter of competitive neutrality between incumbent and competitive carriers.
Rose concluded, “These findings conclusively demonstrate the urgent need for a temporary cap on USF payments to CETCs. Without a temporary cap, millions of vulnerable Americans could be at risk of losing critical telecommunications services.”
For more information, please go to www.keepamericaconnected.org
