On Feb. 9, 2011, the FCC released a nearly 300-page Notice of Proposed Rulemaking (NPRM) proposing a thorough overhaul of the federal High-Cost Universal Service program and the current system of “intercarrier compensation” (ICC). The NPRM was adopted at the FCC’s Feb. 8 meeting. (See our prior summary of the FCC’s discussion of the NPRM at its meeting here.) The existing federal Universal Service Fund (USF) funds the High-Cost program which subsidizes telephone companies whose costs are significantly above national averages. ICC refers to the hodge-podge of different rates that carriers charge each other when they exchange traffic, which depend on the particular regulatory category of the traffic at issue.

High-Cost and ICC are similar in that both ICC rates and payments from the High-Cost fund often end up higher than is necessary to accomplish the purported goal, which is to help defray the actual cost of network operations and to ensure lower retail rates. In its NPRM, the FCC seeks simultaneously to control the costs of these programs to industry and consumers, rationalize and make more explicit the subsidies involved, and shift the type of services being supported from traditional, “narrowband” telephone services to advanced broadband communications. We summarize the key features of this complex proposal below with links at the end to our more detailed analysis on the proposed USF and ICC reforms.

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