Incumbents. Competitors. The High-Cost Program’s Structure Has Contributed to Inconsistent Distribution of Support and Availability of Services across Rural America

The high-cost program provides support to eligible carriers in all states,  with higher levels of support going to more rural states. In general, rural carriers  receive more support than nonrural carriers. But the high-cost program also indirectly  supports broadband service in some rural areas, particularly those areas  served by rural carriers. Basic Telephone Service

Currently, the high-cost program provides support for the provision of  basic telephone service. While There Is a Clearly Established Purpose for the High- Cost Program, FCC Has Not Established Performance Goals and Measures

In the 1996 Act, the Congress established the principles underlying  universal service, which provide a clear purpose for the high-cost  program. Additionally, FCC has not developed outcome-based  performance measures for the program. While FCC has begun preliminary  efforts to address these shortcomings, its efforts do not align with  practices GAO and OMB have identified as useful in developing successful  performance goals and measures. In the absence of program goals and  data pertaining to the program’s performance, the Congress and FCC may  be limited in their ability to make informed decisions about the future of  the program. In particular, the Congress said that “quality services  should be available at just, reasonable, and affordable rates.” Additionally,  the Congress said that consumers in all regions of the country, including  “those in rural, insular, and high-cost areas” should have access to  telecommunications and information services that are “reasonably  comparable to those services provided in urban areas and that are  available at rates that are reasonably comparable to rates charged for  similar services in urban areas.” These guiding principles provide a clear  purpose for the high-cost program. We were unable  to identify any performance goals or measures for the high-cost program. Internal Control Mechanisms for the High-Cost Program Are Limited and Hinder FCC’s Ability to Assess the Risk of Noncompliance with Program Rules and Ensure Cost-Effective Use of Program Funds

Internal controls mechanisms for the high-cost program focus on three  areas. Yet, each area has weaknesses. The carrier certification process  exhibits inconsistency across states and carriers, the carrier audits have  been limited in number and types of reported findings, and carrier data  validation focuses primarily on completeness and not accuracy. Further, these  weaknesses could contribute to excessive program expenditures. Internal Control Mechanisms for the High- Cost Program Exhibit Weaknesses

Internal control mechanisms for the high-cost program focus on three  areas: (1) carrier certification, (2) carrier audits, and (3) carrier data  validation processes. To respond to this  task, FCC modified and expanded the high-cost program. Yet, FCC  has not established performance goals or measures for the program. In particular, the report provides information on  (1) the effect that the structure of the program has on the levels of support  and types of services available in high-cost areas; (2) the extent that the  program has performance goals and measures; and (3) the extent that the  program has mechanisms in place to prevent and detect fraud, waste, and  abuse. For the third objective, we conducted a survey of state regulatory  commissions.
Why GAO Did This Study

In the Telecommunications Act of 1996 (1996 Act), the Congress said that consumers in "rural, insular, and high-cost areas" should have access to services and rates that are "reasonably comparable" to those in urban areas. To implement the 1996 Act, the Federal Communications Commission (FCC) modified and expanded the high-cost program. The program provides funding to some telecommunications carriers, facilitating lower telephone rates in rural areas. GAO was asked to review (1) the effect that the program structure has on the level of support and types of services in rural areas, (2) the extent to which FCC has developed performance goals and measures for the program, and (3) the extent to which FCC has implemented internal control mechanisms. GAO reviewed relevant documents; interviewed federal and state officials, industry participants, and experts; conducted 11 state site visits; and conducted a survey of state regulators, available online at GAO-08-662SP .

What GAO Found

The high-cost program's structure has resulted in the inconsistent distribution of support and availability of services across rural America. The program provides support to carriers in all states. However, small carriers receive more support than large carriers. As a result, carriers serving similar rural areas can receive different levels of support. Currently, the high-cost program provides support for the provision of basic telephone service, which is widely available and subscribed to in the nation. But, the program also indirectly supports broadband service, including high-speed Internet, in some rural areas, particularly those areas served by small carriers. The program provides support to both incumbents and competitors; as a result, it creates an incentive for competition to exist where it might not otherwise occur. There is a clearly established purpose for the high-cost program, but FCC has not established performance goals or measures. GAO was unable to identify performance goals or measures for the program. While FCC has begun preliminary efforts to address these shortcomings, the efforts do not align with practices that GAO has identified as useful for developing successful performance goals and measures. For example, FCC has not created performance goals and measures for intermediate and multiyear periods. In the absence of performance goals and measures, the Congress and FCC are limited in their ability to make informed decisions about the future of the high-cost program. While some internal control mechanisms exist for the high-cost program, these mechanisms are limited and exhibit weaknesses that hinder FCC's ability to assess the risk of noncompliance with program rules and ensure cost-effective use of program funds. Internal control mechanisms for the program consist of (1) carrier certification that funds will be used consistent with program rules, (2) carrier audits, and (3) carrier data validation. Yet, each mechanism has weaknesses. The carrier certification process exhibits inconsistency across the states that certify carriers, carrier audits have been limited in number and reported findings, and carrier data validation focuses primarily on completeness and not accuracy. These weaknesses could contribute to excessive program expenditures.