Panelists for the Wiley, Rein & Fielding LLC law and regulation series grappled over the issues surrounding the Universal Service Fund (USF) on Monday in a session Universal Service – Should the System Be Scrapped or Can it Be Fixed? that prompted debate and, ultimately, consensus that the matter is so complex the details will not easily be worked out.

Nancy J. Victory, a partner at Wiley, Rein & Fielding, moderated the proceedings.

The panelists were Michael Anderson, vice president of external affairs for Iowa Telecom; Kathleen Grillo, vice president of federal regulatory advocacy for Verizon Communications Inc.; Tom Sugrue, vice president of government affairs for T-Mobile USA; and Glenn Brown, partner with telecom consulting company McLean & Brown.

The group tackled subjects ranging from the sustainability of the USF to who should subsidize the fund to questions of administration and distribution, and whether states should be able to disperse the monies.

The growing size of the USF means customers pay for the increases, a situation that carriers should pay attention to, said Verizons Grillo. But, responded Iowa Telecoms Anderson, telecom services require investment.

Iowa Telecom is a CLEC with a largely rural subscriber base. Much of the [USF] exists because of investments made on the expectation and promise that those costs would be supplemented, he said, noting carriers built networks expecting the government to financially support those efforts.

Consumer affordability is important, he said, but only if there is a network.

True, said T-Mobiles Sugrue, but even though the USF was started for consumers, it has become a carrier subsidy program.

Another topic tossed about was how to administer the USF, especially since wireless carriers now pay more than they did when the fund was started, because there are more of them, and as new players enter the industry with VoIP and other IP services.

The wireless industry just filed comments regarding that very issue, said Sugrue. He said his company, T-Mobile, does not take any USF money it just pays into the kitty. Those contributions are getting larger. Whats worse is the wireless industry only has one representative, he added. Normally when youre the largest payer you have more representation, Sugrue said.

With the recent deregulation of DSL, panelists also talked about whether broadband should be a focus of any USF reform. For example, one of the biggest questions is who would get the money cable companies, Wi-Fi providers or utilities offering BPL, said Grillo. Another thing to address is how to provide broadband in rural areas, whether through an infrastructure fund or public-private partnerships, she said, noting she wants the FCC to be sure it balances broadband rollouts with managing a sustainable USF. An additional issue, she said, is whether we really need USF to support broadband.

Lets let the markets decide, rather than government officials, said Brown. Anderson agreed and said he thought a government broadband subsidy would interfere with entrepreneurial efforts. Look at the rural Oregon county that had an unlicensed network through which it provided broadband to its community, he said. Here are people addressing the problem, using something that was there, he said. How would you subsidize that?

Meanwhile, the subject of what role, if any, states should have in distributing the USF sparked dialogue on how that would play out. Verizons Grillo suggested a formula where the federal government would allocate funds to the states, which, in turn, would dispense money to carriers.

Another option would be to cap the amount of money that would be allowed, she said. But Brown wondered how the FCC would divide USF resources among the states in the first place. It would lead to a food fight, he said. There also is the quandary of many states wanting less government regulation; dispensing money to each state would create more regulation, said Brown.

Sugrue said block grants federal money given to state and local governments for social programs could be worth an experiment. This would give states greater accountability, and perhaps greater efficiency, in doling out the money, he said. As a policy matter, I think its worth trying, he said.

The session, which drew a full crowd, was part of Wiley, Rein & Fieldings series at TELECOM 05 analyzing the quickly changing regulatory environment. The law firm also presented sessions discussing intercarrier compensation and whether legacy regulation fits with IP-enabled and broadband services.