- SpaceX says the FCC should scrap its High-Cost Program designed to subsidize rural connectivity
- It argues that its satellite service has effectively solved the broadband access problem
- Removing the program could redirect funds to other USF programs, but would be bad news for rural operators, NSR's Blair Levin wrote
SpaceX is a bit like an angsty teen. The company lately has been pushing regulatory boundaries, seeking to sidestep BEAD rules and pushing for access to spectrum it isn’t authorized to use. Now, the company is insisting that its existence renders the FCC’s High-Cost Program irrelevant.
The High-Cost Program accounts for roughly half of the $8.5 billion Universal Service Fund (USF), and it is designed to subsidize the delivery of fixed and mobile service in high-cost areas. It’s meant to be a win-win. Rural residents get access to modern tech, while operators get to recover some of the costs associated with providing those services.
But in a recent letter to the FCC, SpaceX argued the High-Cost Program – which supports rural telcos that compete with SpaceX’s Starlink service – is “unnecessary” in light of ubiquitous coverage provided by low-earth orbit satellite players like itself.
SpaceX’s letter came in response to an April 29thnotice of proposed rulemaking from the FCC seeking comment on proposed USF reforms. The commission specifically asked how it should consider the presence of satellite service in areas receiving support in the event that it were to modernize its high-cost funding mechanisms.
“Satellite broadband already delivers comparable performance to terrestrial broadband at competitive rates in line with the objectives of the High-Cost Program, and it will only become more capable over time,” SpaceX wrote. “The commission’s universal service programs must adapt to a reality where the long-standing problem of high-speed broadband network access has effectively been solved, rendering most legacy High-Cost support mechanisms redundant.”
SpaceX specifically argued that the FCC sunset the High-Cost Program. It added that doing so would allow the FCC to either slash the contributions made to the USF or redirect that funding to other programs.
What it all means
USF reform has long been on the table at the FCC – and long desired by the operators paying into it – but the notice issued in April notably leaves out the Lifeline and E-Rate programs.
New Street Research’s Blair Levin noted that at least initially, scrapping the High-Cost Program could remove some of the economic pressure around paying for those other two. It could also remove the immediate need to reform the USF’s broader funding mechanism.
But “the potential downside is that if High-Cost programs go away, there will be increased political pressure to eliminate all USF on similar grounds that it is no longer needed,” he noted.
Levin said cutting the High-Cost Program would indeed reduce contributions and in theory allow operators to modestly reduce consumer bills. That would likely give them a short-term margin boost. But at the same time, ending the program “would be negative for all the rural phone companies.”
“The SpaceX proposals, if adopted, would reduce deployment of new fiber networks to rural areas and would weaken the economic viability of rural telcos who depend on USF for operating costs,” he wrote.
Levin said he expects rural telcos to put up a fight, arguing that cutting the program will strand existing network investments and reduce their ability to build and maintain emergency 911 services and institutional connectivity (think hospitals and schools) that cannot be replaced by satellite.
Ultimately, Levin concluded he doesn’t expect FCC Chairman Brendan Carr to sign off on the idea until he has “explicit or implicit clearance from Republican congressional leadership.”