Ofcom’s proposed funding regulations for Universal Service Providers

Earlier this year, BT and KCOM were designated as Universal Service Providers (USP) to deliver broadband universal service connections and services. Ofcom set the conditions that will apply to them. From 20 March 2020 consumers will be able to request these services. The USPs are entitled to claim any costs that would not be appropriate for them to cover. Ofcom is proposing rules and procedures for these providers in order to make a claim for any unfair cost burden involved. The procedures would apply to the broadband USO, but also to any other universal service obligations.

Proposed process includes the following:

• A USP can request that Ofcom reviews their claim for compensation for the cost of delivering the USO, minus any benefits associated with being the USP (net cost).
• Ofcom expects to review no more than one net cost claim per year, and it is for Ofcom to decide on the scope of a review and when the review will begin.
• A USP must submit enough information to support their claim for compensation. For the purposes of the broadband USO, Ofcom proposes to separately require the provider to submit specific financial information.
• When carrying out a review, Ofcom will need to determine the existence and level of any net cost. Ofcom will review the information submitted by the provider and assess whether the costs incurred in delivering the USO were efficient.
• Ofcom’s calculation will also be audited.

Once the net cost is determined, Ofcom will decide whether it would be unfair for the provider to bear some, or all, of the cost. Ofcom proposes their approach which includes considering:

• the cost to Ofcom and industry of establishing and administering an industry fund;
• the impact on the provider of bearing these costs alone;
• the method of designating the Universal Service Providers; and
• the outcome of any previous determinations.

If Ofcom decides that delivering the USO is an unfair burden, it may establish an industry fund to compensate the USPs. Ofcom will also determine who will contribute to the fund and how much they will contribute. This will include any threshold below which contributions will not be required.

Once Ofcom has established an industry fund, it will collect monies from industry and compensate the Universal Service Provider. Ofcom will gather and check relevant information to calculate individual contributions and will invoice each provider required to contribute to pay by a specified deadline. When Ofcom begins to receive the contributions, it will pay the USP on a monthly basis.

The consultation runs until 7 January 2020. Following this, Ofcom plans to publish a statement in spring 2020. The USPs are currently preparing to deliver the broadband USO and consumers will be able to start requesting a broadband USO connection from 20 March 2020.