Is it Time to Kill ETC Requirements?

One of the requirements for receiving grants out of the FCC’s Universal Service Fund is that recipients offer telephone service and also obtain Eligible Telecommunications Carrier (ETC) status. That is a regulatory status that is most often awarded by state regulatory commissions. I’m wondering if this still makes sense.

It’s worth looking at the history of the ETC requirements to help answer that question. Eligible Telecommunications Carrier is defined in FCC code § 54.201. Here a few key provisions of this part of the FCC code:

• Only providers with ETC are eligible for ‘support’ funding from the Universal Service Fund. FCC grants come out of the same pile of money that in the past provided funding to rural telcos – so it is still being considered as support.
• Companies with ETC status must participate in the FCC’s Lifeline program.
• State regulatory commissions are to designate carriers as ETCs, although in recent years the FCC has granted a handful of ETC designations directly. State commissions are directed to make certain that carriers are technically and financially capable of providing carrier-of-last resort obligations.
• When a new carrier is granted ETC status in a given area this takes away the carrier-of-last resort obligations from the original telco and transfers this obligation to the new ETC.

There are two provisions of this rule that don’t make a lot of sense in today’s world. The first is carrier-of-last-resort obligations that say that a carrier must serve a new customer in a given footprint if it’s feasible. The big telcos stopped honoring this obligation years ago and AT&T finally put a dagger in this obligation when they announced that as of October 1 that the company won’t take any new orders for DSL. But the big carriers have been denying requests for service from new customers for years, mostly by telling customers there are no facilities available (even when this was not true).

It’s hard to justify requiring somebody that takes a federal grant to meet carrier-of-last-resort obligations when the FCC and states have not enforced this requirement for big telcos for more than a decade. If you take the FCC rules as gospel, then somebody that builds a rural fiber network would have to extend fiber to somebody that only wants to buy local telephone service. I suspect very few of the companies accepting the FCC grants understand that this is what the law says.

The other outdated requirement is that a carrier building rural broadband must offer telephone service. How low do telephone penetration rates have to drop until the FCC kills voice regulation and silly requirements like this one? Many broadband providers offer telephone service because even at small volumes it can have a positive margin – but the day of mandating this needs to go away. Our firm does broadband surveys and we have recently worked in markets where voice penetration rates have dropped below 10%.

What’s so odd about the voice requirement is that anybody with a good broadband connection has dozens of options to buy web-based telephone services like Vonage, Google Voice, and many others. Most such services now come with unlimited long-distance which eliminates any concern that people buying the service can’t afford to call outside of their immediate area.

The final issue with ETC status is that it draws any carrier getting the status into state regulation. Most states have reduced the amount of paperwork that comes with being regulated – but not all. This FCC has said it favors light-touch regulation, and yet they are still forcing companies to be regulated to receive federal grant funds.

It’s time for the FCC to take a hard look at the ETC rules and neuter them. The whole point of FCC broadband grants is that the winners are supposed to be bringing good broadband. If that is true then it’s time to decouple ETC status from getting grants to build broadband.