Arizona RLEC Pans FCC for Obstructing Precise Predictions of USF Reform Impact

Only a week ago, FCC Wireline Competition Bureau deputy chief Carol Mattey told a group of telecom lawyers and lobbyists attending the Catholic University Communications Symposium, “A Telecommunications Agenda for 2012 and Beyond,” that only four waiver requests of the USF rules had been filed. Only four—so the FCC must have done something right…right? 8 days later, the number of “letters of intent” to file waivers has grown from 2 to 10, and another RLEC has filed a full-blown waiver request.

Arizona-based Accipiter Communications, Inc. filed its waiver on April 18, 2012. Accipiter is seeking a temporary waiver of the $250 per line per month cap and the quantile regression analysis (QRA) caps for at least 6 months after the FCC releases its final decision on QRA methodology.  Last week, JSICA discussed how the few brave and bold early waiver filers appeared to have a particular “hook,” or an extremely extenuating circumstance driving the need to file a waiver. Big Bend has its networks used by national security agencies, and Windy City Cellular operates in what may be the most inhospitable weather and terrain in the country.

Accipiter’s geography and customer base don’t appear to stand out quite so severely, but the company (which is relatively new, incorporated in 1995) is in the midst of expanding, and by Accipiter’s admission, “is growing rapidly.” As such, it has made significant investments in recent years and expects its expenses to stabilize in the near future as it continues to add broadband and telephone subscribers.  However, if the FCC denies its waiver request, Accipiter fears that “The Commission’s new regime could cause Accipiter to fail, default on its loans and cease serving its subscribers, some of whom have no service alternative.”

The meat of Accipiter’s waiver request lies in its critique of QRA and the FCC’s inability to release a final decision on the precise QRA methodology. Accipiter argues that not only are parts of the Order “based upon methodologies and assumptions which are in some cases plainly erroneous and in other cases fail to address the real cost drivers for a carrier such as Accipiter;” but “The Commission has compounded this problem by failing to provide sufficient information regarding its methodology…meaning that Accipiter cannot predict with certainty the scope of the financial impact that the Report and Order will cause.” Despite not being able to accurately predict the impacts of the Order, Accipiter has concluded that it “must seek a waiver now out of an abundance of caution.”

While most of Accipiter’s subscriber and study area data is redacted, the company depicts its service area as sparsely populated, covering 1,010 square miles with a population of about 4,600. The company provides voice, DSL and some FTTH reaching speeds of 60/5 Mbps. The terrain is a mix of desert, canyons, mountains, and rocks; and the service area includes a large lake “which draws thousands of residential visitors per year.” Accipiter explained how the company originally incorporated largely to serve rural customers that former US West would not serve unless the customer paid tens of thousands of dollars.

Currently, Accipiter’s main competitor is Cox, which focuses its attention on the populated subdivisions in Accipiter’s service area. Cox covers 6.5 square miles, and “does not undertake to serve the remaining 1003.5 square miles of Accipiter service territory.” Accipiter nonetheless has struggled in its competitive battles with Cox, as developers have entered into “preferred provider” arrangements with Cox. Accipiter explains, “Plainly, one intent of these preferred provider agreements was to create a market environment which strangles competition for telecommunications services.” Meanwhile, wireless options exist but Accipiter claims that wireless service is spotty or non-existent in the rural areas. Furthermore, Accipiter provides transport service to the cell towers in the area, and “without Accipiter’s network, these cell sites would lose connectivity to the PSTN.”

Accipiter argues that a failure to grant the requested temporary waiver would be arbitrary and capricious; against the public interest; and in violation of the Administrative Procedure Act and due process. Accipiter explains that the FCC doesn’t seem to recognize that growing companies will eventually require less support as they add more customers, as the caps will abruptly clip support that is needed to recover investments that have already been made. Accipiter made its investments consistent with previous FCC rules and standards for receiving RUS loans, and “Delaying the implementation of the cap by just a few years would substantially reduce or eliminate the effect of the cap on Accipiter.”

Accipiter brings up one very important argument about QRA—that it was created “in pursuit of a flawed objective.” The QRA methodology was intended to weed out extremely high-cost carriers that are likely engaged in waste, fraud and abuse…but in reality, the methodology makes no differentiation between waste, fraud, and abuse and circumstances like geography that would make a carrier a high-cost outlier even if its costs are reasonable given its situation. Digging further into the many flaws of QRA, Accipiter explains that the FCC’s model “appears to be incapable of predicting the correct study area data for Accipiter.” The model puts Accipiter’s study area at 30.5 square miles, but it is actually 1010 square miles. Adding insult to FCC-created injury, the FCC apparently refused to provide Accipiter with a list of census blocks used in the model. Accipiter then took it upon itself to “replicate the FCC’s data through a time-intensive and costly trial and error process but Accipiter has no way of confirming that the result reached is the same as that relied upon by the Commission.” Accipiter believes this ordeal to be a violation of due process.

Accipiter is essentially saying that the FCC used the wrong data for QRA, then refused to share this incorrect data with the company upon request, and left it up to the company to bear the cost of figuring out its own regression analysis impact without any certainty. Accipiter’s waivers highlight everything that is wrong with QRA, especially the fact that companies are now in a regulatory limbo awaiting the final decision on the methodology. At which point, companies will likely have to undertake the process of analyzing the impacts for the second time in less than a year. How will this all impact network investment in 2012?