Year in review 2011: FCC's USF and ICC reform

The news: Besides net neutrality, the other hot issue that the FCC handled throughout 2011 was the FCC's proposal to realign the Universal Service Fund (USF) and the Intercarrier Compensation (ICC) structure.

Under the $4.5 billion "Connect America Fund," an effort that is designed to subsidize broadband service in rural hard to reach areas, the FCC is planning on redirecting funds previously set for traditional voice services.

Given the challenges of building out wireline broadband in rural areas, the Connect America initiative also allocates money to help drive more mobile broadband services via the new Mobility Fund.

At the same time, the FCC is trying to simplify the intercarrier compensation (ICC) process, which is the regulated charges service providers pay one another to terminate their respective voice traffic on their networks, to what it calls a "bill-and-keep" framework. The agency claims that the bill and keep framework will improve service and lower costs by removing hidden subsidies on consumers' bills and rids impediments to deploying next-generation networks.   

Of course, ILECs and other interested parties have had their own ideas about USF and ICC reform. Earlier this year, six of the largest ILECs, including AT&T (NYSE: T), CenturyLink (NYSE: CTL), FairPoint (Nasdaq: FRP), Frontier (NYSE: FTR), Verizon (NYSE: VZ) and Windstream (Nasdaq: WIN), put forward America's Broadband Connectivity (ABC) plan.

Much like the net neutrality ruling, incumbent service providers, including AT&T and a number of industry groups, are now in the process of challenging the FCC's USF order. Joining AT&T are 12 other PUCs in the consolidated lawsuit--a number of industry groups (National Telecommunications Cooperative Association), state PUCs and smaller telcos (Choctaw Telephone Company), and State PUCs (Pennsylvania, Vermont and Ohio).

In their lawsuits, the 13 plaintiffs argue that the agency's order was "arbitrary and capricious" and a "departure from reasoned decision-making."

Why it's significant: The change in USF and UCC rules has some serious implications especially for rural service providers who have depended on USF funds as a source of revenue to fund ongoing network maintenance and even new broadband network build outs. Given these concerns, the FCC's dream of completing USF and ICC reform will find itself mired in a number of legal challenges that aren't likely to be quickly resolved in 2012.  

Year in review 2011: FCC's USF and ICC reform