Dealing for Universal Service Dollars: Competition in The Rural World.

Ever since Adam Smith dealt his "invisible hand" to economist card sharks the world over, the idea of "competition" has settled into business plans in every sector of the economy Years ago, wireless proponents virtually invented their own form of competition with landline telecommunications by arguing that digital cellular and personal communications service (PCS) one day would replace the trusty old copper wire. Later, AT&T went so far as to pen a marketing slogan suggesting that your wireless phone would be your only phone.

The idea of "landline replacement" caught government's fancy early on because Congress and the FCC were contemplating ways to break open the local loop to competition. As far as the government was concerned, wireless clearly appeared to be a viable competitor in this regard. Thus, in the mid-1990s, the FCC adopted commercial mobile radio service (CMRS) rules that essentially pre-empted the state regulatory commissions and left wireless companies lightly regulated, compared with local exchange carriers.

One thing the FCC didn't do, however, was distinguish between "mobile" and "fixed" wireless--even though fixed had long been touted as "wireless local loop," a substitute for landline service. This left the door open for companies such as Western Wireless to construct fixed analog cellular systems in rural areas and pursue eligible telecommunications carrier (ETC) status so they could receive universal service funds. At the same time, such companies could plead for lighter regulation under the CMRS rules by claiming that the fixed wireless offering was simply "incidental" and "ancillary" to their mobile service.

In other words, Western Wireless could have its cake and eat it, too. In a recent decision regarding ETC status in Wyoming, moreover, the FCC said it didn't matter whether a service was mobile or fixed for ETC purposes. And some have argued that regulation of the fixed service would result in regulation of the mobile component because both use the same facilities.

On the other hand, Western Wireless now calls its fixed wireless offering "basic universal service" (BUS). Given the low population densities and small economic bases in rural areas, it seems clear that the only real Western Wireless competition is for universal service money rather than subscribers.

In a nutshell, the Western Wireless argument appears to be: "Give us universal service money because we are going to compete with and replace landline local exchange service. But don't regulate us like a local exchange carrier because our service really is only incidental and ancillary to our mobile service." This way Western Wireless can draw from universal service funds without meeting universal service obligations--all in the name of competition.

As Professor Dale Lehman notes in a recent NTCA white paper, "The Cost of Competition" (see related article, page 20), "universal service support should not be used to induce competition." Clearly, market entry will occur when market conditions permit.

Artificially induced competition only undermines rural telcos. This is especially true for the overwhelming majority of rural telcos that are spending millions of dollars to deploy broadband services, despite low demand for such services in rural areas.

Government can assist the development of natural competition and promote the efficient use of universal service support by requiring all companies to play by the same rules at the state and federal level. There really is no need to deal Adam Smith's invisible hand from a stacked deck.

PAUL SHULTZ is communications director for the Washington, D.C., law firm of Blooston, Mordkofsky Dickens, Duffy Prendergast. He previously was NTCA's director of communications and membership. The views expressed in this article do not necessarily reflect the views of Blooston, Mordkofsky or NTCA.