Hearing of the Senate Commerce Subcommittee on Communications, Technology, and the Internet of the Senate Commerce Committee - Transforming the High-Cost Fund for the Broadband Era

Statement

Senator John Kerry (D-Mass.), Chairman of the Commerce Subcommittee on Communications, Technology, and the Internet, today renewed his call to make Internet access available and affordable to all Americans. This morning, the Commerce Committee held a hearing entitled "Transforming the High-Cost Fund for the Broadband Era."

"Broadband service is increasingly the platform over which Americans communicate and access information, and no American should be shut out due to geography, income, or disability," said Sen. Kerry. "We must revisit, restructure, and reform the universal service system that today guarantees access only to traditional voice telephone service and use it to connect all Americans to the Internet at broadband speeds."

As the Senate Commerce Committee considers reforming the Universal Service Program to subsidize broadband rather than telephone service, Senator Kerry urged the committee to update the outdated equation that allots subsidies based on the size of the company providing service, rather than the service level in a particular area. This equation has unfairly kept parts of Massachusetts with little or no broadband service from receiving the support they need to gain broadband access.

Senator Kerry's full statement is below:

Mr. Chairman, thank you for holding this hearing. Broadband service is increasingly becoming the platform over which Americans communicate and access information. As such, some level of access to it is an increasingly essential service. And Americans should not be isolated from it due to geography, income, or disability.

To keep faith with our tradition of ensuring that all Americans have access to essential services at affordable rates, we must revisit, restructure, and reform the universal service system that today guarantees access only to traditional voice telephone service and use it to connect all Americans to each other over the Internet at broadband speeds. The National Broadband Plan presents a strong proposal from which to initiate that process.

The program must evolve to reflect an evolving level of telecommunications services in the market. And through reform, we must make sure the billions we spend to execute on that mission are spent effectively and efficiently and focused on increasing the number of Americans who receive and connect to our broadband network rather than on the size of the companies that receive the subsidy. Today very little USF support goes to Massachusetts and the reason for that has nothing to do with how well or poorly connected our households are. Broadband funding has to focus on households and how well connected they are and measure success by improving those numbers.

In their submissions of comments for the National Broadband Plan, our state experts called for a cap on high-cost support as well as an elimination of the identical support rule. The underlying principles guiding those suggestions are a commitment to financial sustainability of the program as well as more efficient and fair distribution of funds. I echo those principles.

The purpose of the High-Cost program has always been to help ensure that consumers have access to traditional telecommunications services where the cost of providing that service would otherwise be prohibitively high. These areas, typically rural areas, are the so-called "high-cost" areas. Telecommunications carriers that receive high-cost universal service support utilize this funding in order to subsidize the cost of telephone service assessed to consumers. In theory, due in part to this subsidization, consumers in rural areas have access to and pay rates for telephone services that are "reasonably comparable" to those in urban areas.

The current High-Cost program, however, is not cost-efficient. Support is provided to carriers through a patchwork of programs in which support is dependent not upon the characteristics of the area to which support is directed but instead is dependent upon the size and the regulatory classification of the carrier. Smaller, more rural carriers typically are recipients of USF high-cost funding. As a result of the current high-cost framework, in 2008 Massachusetts carriers ranked roughly 44th in the United States for the amount of high-cost support received. In contrast, Massachusetts ranks roughly 6th in total USF contributions. For instance, according to annual FCC estimates provided by the Federal-State Joint Board on Universal Service, in 2008 Massachusetts state contributions totaled roughly $163,789,000 , but Massachusetts providers received a total of $36,467,000 in federal USF support payments - only $2.365 million of which went towards high-cost support (see below). Since 2006 alone, this equates to a $5 million reduction of total USF support for Massachusetts, but an increase of contributions by over $7 million. Since 2002, this reflects roughly a $10 million reduction in total USF support but an approximate contribution increase of over $25 million.

I support universal service and I am committed to the values that make it possible. Almost 95% of American households subscribe to telephone service today. That is because it is available to them, it delivers the voice service it promises, and it is affordable. That is the measurable success of our existing universal service system. But as we declare that significant victory over the telephone divide that would have existed without universal service, there are lessons learned that we should apply to broadband going forward and we have to recognize that the modern communications system poses some new challenges in a time of increased fiscal constraints. And we have to make sure that we fund services with the end user in mind.

I look forward to working with you and the FCC on this challenge. It should be a top priority for the agency and for this committee. Thank you.

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