House Energy and Commerce Subcommittee on Communications and Technology Chairman Greg Walden (R-OR) today delivered the following remarks to the Oregon and Washington Telecommunications Associations on the Universal Service Fund, Intercarrier Compensation reform, and the proposed AT&T/T-Mobile acquisition:
Communications and Technology Subcommittee Chairman Greg Walden
Oregon Telecommunications Association & Washington Telecommunications Association
"It is a privilege for me to speak to you today in my capacity as Chairman of the House Energy and Commerce Committee's Subcommittee on Communications and Technology and as Oregon's Congressman from the Second Congressional District. This is the first time in history that an Oregon Congressman has chaired this sub-committee.
"I have approached my work in Washington from the perspective of an Oregonian small-business owner. My roots are in rural Oregon are several generations deep. I grew up working in cherry orchards and broadcasting. My wife, Mylene, and I at one time owned five radio stations. I know what it's like to run a small business and to deal with the FCC.
"And speaking of the FCC, what has impressed me the most over the past two years has been the ability of you, the carriers, to continue to invest in your infrastructure and bring jobs and broadband to the people of rural America. I view your work as critical to ensuring that rural Americans are not left off the broadband super highway, and your efforts are appreciated.
"As you all probably know, my subcommittee is tasked with overseeing two of the most scintillating topics in D.C: Intercarrier Compensation reform and Universal Service Fund reform. You can be sure that making progress on these fronts is one of the top priorities of the subcommittee.
"The Telecommunications Act recognized that the implicit subsidies of the monopoly era could not last in a competitive world, and that recognition has come home in recent years. The intercarrier compensation regime is broken. A carrier may charge more than 34 cents a minute or as little as $.0007 for terminating a call using the exact same facilities. Such divergent rates make little sense to customers and are ripe for abuse. They have diverted capital from productive uses like innovation and deployment to wasteful uses--be it free-conference-calling schemes to jack up access revenues or technical camouflage designed to protect some providers from paying lawful charges.
"Perhaps even more important for this audience is another fact: The intercarrier compensation system as we know it is not long for this Earth. Incumbent carriers collected about $9 billion in access revenues to support their local networks in 2005--only four year later, access revenues has declined to $6.3 billion. By the end of this year those access revenues could drop well below $5 billion. Competition from wireless carriers and VoIP providers has caused consumers to cut the cord on traditional phone service, thus eroding these access charge revenues. What is more, these revenues are not sustainable in an increasingly broadband world where minutes won't matter and voice will ride for free. Absent serious reform, this system of implicit subsidies will collapse under its own weight, thus potentially bringing down rural telecommunications networks with it and hindering high-speed broadband deployment in rural America. This cannot be allowed to happen.
"This is where universal service funding comes into play. Many states, including Oregon, have already taken steps towards intercarrier compensation reform by establishing state-level, high-cost funds to help ensure the continuing affordability of telecom services in rural America. We should learn our lesson from the past and recognize that additional state-level funding is crucial for reform--the states know their citizens better than the feds do; and they are in the best position to ensure that rural entrepreneurs that thrive on broadband aren't playing second fiddle to their urban brethren.
"Of course, the largest source of high-cost funding in the past has come from the elephant in the room--the federal Universal Service Fund. I am sure you are all aware of the existing waste and abuse in the high cost program--on both the wireline and wireless sides. I won't go into the details here but suffice it to say that the support from the high-cost fund has not always been targeted to those consumers in those rural areas who most need it most, which has created a rural/rural divide. And the mounting costs of the high-cost fund, along with declines in the USF funding base, have led to ever-increasing customer surcharges as high as 15% of the interstate portion of a customer's phone bill. In a word, the Universal Service Fund has become unsustainable. Reform is no longer an aspiration; it is a necessity.
"To achieve that end, the committee has been working with the FCC to implement several principles:
· Cap the high cost fund and each sub-fund and analyze each for waste, fraud and abuse.
· Use market-based, technology-neutral mechanisms--such as competitive bidding, models, and bench marks--to right size the Fund and target the subsidies to consumers in high cost areas who need it most.
· Subsidize unserved areas, but only those that are otherwise uneconomic for the private sector to serve keeping in mind the existing business and regulatory models that may need, where appropriate and on a reformed basis, access charge replacement in the form of continuing USF support.
· Wring out waste, fraud, and abuse from the high-cost fund and the rest of the Universal Service Fund by periodically re-examining whether areas remain "high cost" and creating performance measures to evaluate what works and get the biggest "bang for our buck."
· Migrate the Fund to support broadband deployment as reforms are implemented and the fund is put on sound financial footing.
· Focus infrastructure buildout on areas not receiving broadband stimulus grants or loans or other broadband subsides to avoid paying twice for deployment of the same infrastructure.
· Overhaul the contribution methodology to lower the administrative burden on businesses and to reduce the drag on efficiency it represents.
"I am encouraged by the FCC efforts on both intercarrier compensation reform and Universal Service Fund reform, and I appreciate the hard work of Chairman Genachowski, the other FCC Commissioners, and the FCC staff on these issues.
"I am also encouraged by an industry working group that has been meeting over the last few months to address these issues with these principles in mind. The success of reform efforts depends on the industry coming together and making the necessary compromises to implement these principles. I urge them to reach out to all segments of the industry and to redouble their efforts to reach agreement so the proposal can be filed with the FCC for public comment in the next few weeks. Any delay could imperil Chairman Genachowski's push for reforms this August, paralyze the industry with uncertainty, and further hinder deployment of high-speed broadband in rural America. If appropriate reforms are not implemented in the near term, my committee stands ready to act.
"Moving on to a lighter topic--mergers. As you know the AT&T/T-Mobile merger is pending. Proponents say the merger is necessary to deploy 4G mobile broadband service to all Americans as called for in the FCC's broadband plan and, more particularly, to rural America. Opponents have likened the proposal as step on the way back to the Ma Bell monopoly of the 1970s. Proponents claim there are plenty of competitors in the marketplace, pointing to Sprint, Clearwire, LightSquared, US Cellular, and the other smaller, regional wireless carriers all providing mobile broadband services. Opponents say that if 80% of wireless customers receive service from AT&T or Verizon, the national market will become a duopoly. Proponents say T-Mobile won't survive financially without the merger. Opponents say they will not survive with it. I do not pretend to know the future, but I do know this: It is far too soon to judge the merits of this merger. I will wait for the record to be complete and the evidence to come in before making up my mind.
"As you know Congress has no direct say in the matter. The Department of Justice and the FCC will make the decision as to whether to allow the merger, and if so, under what conditions. Nevertheless, my committee will hold a hearing on the merger at some point in the next few months. I will address two of my concerns:
· First, America's economic growth and vitality is dependent on competitive and innovative free markets. I am thus interested in learning whether the merger promotes competition for consumers and encourages innovation in the technology manufacturing sector. If not, it may lead the industry further into the watering hole of government regulation.
· Second, I am concerned about the 'public interest' conditions the FCC might place on the merger if approved. Conditions placed on any merger should be limited to those conditions necessary to address risks to consumers that arise as a direct result of the merger. Mergers should not be used to impose conditions that are better suited for generic proceedings where all industry and consumer groups have an equal opportunity to weigh in.
"The merger between AT&T and T-Mobile is historic in scope and potential impacts and needs to be carefully, fairly and expeditiously considered by the DOJ and the FCC. I look forward to participating in that discussion."