Aug. 16, 2006

A group of federal and state regulators plan to re-examine the use of reverse auctions to better determine which companies score universal-service funds in an effort to support telecommunications in high-cost rural areas.

The Federal-State Join Board on Universal Service is seeking comment on “the use of reverse auctions (competitive bidding) to determine high-cost universal-service funding to eligible telecommunications carriers,” reads a public notice.

In a reverse auction, the bidder specifies the amount of money it must receive to provide telecommunications in a rural area. The services must be comparable to what telecom users receive in urban low-cost areas.

Comments on the use of reverse auctions will be due 45 days after the public notice is published in the Federal Register.

The idea of reverse auctions is not new. The Joint Board examined the issue in August 2004 without reaching a final conclusion.

If the Joint Board ultimately recommends the use of reverse auctions, the Federal Communications Commission would have one year to act on that recommendation.

The wireless industry, through trade association CTIA, has supported reverse auctions. “CTIA has expressed interest in reverse auctions because they are a market-orientated mechanism to drive down the cost of universal-service over time,” said to Paul Garnett, CTIA assistant vice president of regulatory affairs.

Rural incumbent local exchange carriers are generally opposed to reverse auctions.

“The reverse-auction process ignores the real-world characteristics of building and maintaining a high cost, capital-intensive network.

In theory, an auction process for high-cost support may reduce pressure on the fund, but it will not create a favorable environment for network investment that will be needed to usher in Internet-protocol video and next-generation advanced services and applications.

Any system that does not acknowledge or meet the long-term nature of network investment will discourage investment and network upgrades,” the Keep America Connected Coalition said in March.

The coalition is a group of RLEC trade associations that lobbies for universal-service reform.

The issue of reverse auctions was first explored during the initial implementation of the Telecommunications Act of 1996.

At that time, the FCC said there was not enough support for the concept and that it would likely to be ineffective since many high-cost areas were unlikely to experience competition.

However, proponents argue that a reverse-auction system would limit the number of carriers receiving universal-service support to serve the same area.

Source: RCR News