The Few Waivers Filed Show the Importance of Having a "Hook"

Out of all of the frustrating aspects of the USF/ICC Transformation Order and FNPRM, the waiver process ranks high on the list, yet it gets less attention than issues like regression analysis and bill-and-keep. Why is it so frustrating? Well, a waiver essentially costs small companies tens of thousands of dollars to prepare and file, and there is no guarantee that the FCC will grant the requested relief. It is a very expensive and cumbersome undertaking to tell the FCC that your company is facing financial insolvency because of the FCC’s actions.

Nevertheless, waiver momentum has picked up a bit over the last few weeks with new filings, letters of intent, and even support from friends in high places—Congress—for one waiver. FCC representatives have often said if a company doesn’t like the rules, it can file a waiver; but this is easier said than done. John Staurulakis, Inc. vice president John Kuykendall described the waiver process “as though the Wireline Bureau is taking an ‘I dare you’ approach to filing waivers. On one hand, the Bureau is saying that the USF/ICC Order must not be that bad since only a few carriers have sought waivers to be exempted from the reforms. On the other hand, the Bureau knows that once a company files a waiver, the petition will then be subjected to a ‘rigorous, thorough and searching review comparable to a total earnings review’ and that the bar which must be attained for the waiver to be granted is so high that few, if any, carriers can meet it.”

Understanding this complicated dynamic is important if you want to play the waiver game with the FCC, but is there a way to know with certainty if your costly and burdensome waiver will be granted? Not unless you have a crystal ball, but for now it appears as though waiver filers are predominantly companies with a specific “hook” that will at the very least get the FCC’s attention. I came across an article last week about the college admissions process which explained that there are countless highly qualified students applying to top colleges, but they are denied because they do not have some unusual or unique “hook.” These “unhooked” kids look great on paper—they got good grades, played sports, led student government and extracurricular groups—but they might not be internationally ranked gymnasts or National Merit scholars, which a school with high-bar admission standards is looking for (like the FCC in its waiver acceptance process). Back to the point—I couldn’t help but think about how the “unhooked” RLECs will fare if they go forward with filing waivers, especially in comparison to “hooked” companies like Big Bend Telephone Company (BBTC) and Windy City Cellular (WCC).

In February, West Texas-based BBTC filed a petition for a waiver of three USF rules including the $250 monthly cap and regression analysis. Since filing, BBTC’s waiver has attracted considerable attention due to the company’s hook: border security is at risk if BBTC loses its USF support. BBTC is the only service provider in a massive and geographically unrelenting area of West Texas, and the company provides service to dozens of local, state, and federal institutions including the Texas Rangers, the Department of Homeland Security, the Department of Defense, the Federal Aviation Administration, and the Texas Department of Transportation. BBTC’s hook turned heads in Congress at the state and federal level.

Texas State Representative Pete Gallego, who represents BBTC’s district, wrote to the FCC in support of BBTC’s waiver. Gallego explained, “BBTC has overcome and continues to manage high cost challenges through an innovative and cost-effective combination of wireline, wireless and satellite solutions that make BBTC a truly High Cost Provider in comparison to other rural communications companies both in the state and the nation.” Gallego added, “BBTC is the epitome of why universal service was created and is still needed today.” He is especially concerned about the impact on 911 emergency services, and he expresses that he “cannot imagine a scenario in which basic communications will be lost in such a wide, diverse, and vital segment of the country. We may reside in rural America, but we deserve the same voice and broadband service found in cities at reasonable rates. Indeed, universal service was designed and intended for the benefit of people in rural America—people like the consumers of BBTC.”

The Texas Border Sheriff’s Coalition also wrote to the FCC in support of BBTC’s waiver, arguing that “Unless the Commission waives its rules as applied to Big Bend, we are concerned that the primary communications network capable of serving a number of our members needs and the needs of other federal and state institutions tasked with protecting a majority of the Texas border will be shut off and, as a result, border security would be fundamentally undermined by this disruption in communications.” Senators John Cornyn (R-TX) and Kay Bailey Hutchison (R-TX) also chimed in, commenting “We understand that the Commission must be judicious in its granting of waivers from the USF/ICC Transformation Order lest excessive waivers undermine the larger reforms set forth in the Order…In our estimation, Big Bend’s situation is unique, and we urge the Commission to carefully and seriously consider Big Bend’s waiver petition.”

Nearly 4000 miles across the continent from BBTC, Adak Alaska-based Windy City Cellular also appears to have a clear hook: it is the only service provider to completely cover a remote island prone to inhospitable weather conditions and home to very few permanent residents. On April 3, WCC filed a petition for a waiver of the $3,000 annual per-line cap on CETC support, which WCC claims slashed the company’s funding by 84% in the flicker of time since the Order was passed last fall. WCC’s opening statement in its waiver petition sets the stage for what follows: “Adak Island is located in an earthquake zone and in the vicinity of an active volcano. The area is mountainous, and is characterized by extreme weather conditions including cyclonic storms, wind gusts in excess of 100 knots, fog storms in the summer, and an average accumulation of more than eight feet of snow.”

WCC is the only telecommunications service provider that covers the entire Adak Island area, including a large wildlife refuge and the surrounding sea. Entities like the Marine Exchange, the Aleut Corporation, and the U.S. Geological Survey Volcano Observatory rely on WCC’s service, as well as the Island’s 326 permanent residents and the many seasonal fishers, hunters, and tourists. Adak Island is a former Naval Complex and once was home to over 6k residents, but the population has dwindled over the decades. However, WCC explains that there are “a large number of contractors in Adak who provide various critical governmental services relating to maritime safety, ordinance disposal, environmental remediation, asset evaluation, wildlife preservation, and environmental monitoring.” Adak is only accessible by twice-weekly flights (weather permitting) and once-yearly barges, and “Adak is undoubtedly one of the most remote, isolated and climactically inhospitable communities in the United States.”

WCC’s wireline parent Adak Eagle Enterprises (AEE) is also in trouble as a result of the USF/ICC Order, and it is expected that AEE will file its own waiver soon. WCC explains that AEE rebuilt an outdated and decayed military telecommunications network on the island after several other providers declined. As a result of WCC and AEE’s efforts and funding from RUS and USF, the island now has modern telecommunications services. However, absent a waiver, it will not. WCC is therefore requesting a limited waiver only until the Mobility Fund Phase II mechanism is implemented, and only for half of its previous amount of support ($880.09, the “bare minimum” to keep the lights on). WCC pleas to the FCC, “If a waiver of the annual cap is not expeditiously granted, the results will be catastrophic for the Adak area: (1) WCC will be forced to cease operations, causing customers to lose service with no terrestrial alternative, and roaming ability throughout the Adak area will be lost; (2) critical services, government functions, and public safety will be jeopardized; and (3) WCC will become insolvent, causing the loss of a critical number of jobs for the Adak area.” Like BBTC, WCC’s waiver is supported by a number of local institutions, such as the City of Adak and the Aleut Corporation.

An April 9 ex parte meeting following up with the FCC after the waiver filing emphasizes how important it is for the FCC to expeditiously grant WCC's requested relief. WCC argues that it now has only 12 weeks until it must shut down operations, and the crunch has already been felt during a recent wind and snow storm that knocked out the only remaining satellite in use causing customers to lose service for a full day.

BBTC and WCC indeed may represent some of the most severe outliers in the entire rural telecommunications industry—a point that both parties bring up in their waivers—but what about the companies who do not have such an obvious hook yet still risk becoming financially insolvent as a result of the FCC’s rules? Will the FCC only grant waivers in cases that are literally a life or death situation for rural consumers? Some companies are likely still studying whether or not they have a hook that they can exploit in a waiver filing, and others are waiting for the FCC to release the final details on regression analysis. PBT Telecom and Valley Telephone Cooperativeboth filed letters of intent notifying the FCC that they will file waivers if the regression analysis methodology proposed in the FNPRM is adopted without change.

The bottom line is that if you take on the FCC’s dare to file a waiver, you might want to think of it like you are applying to Harvard. You have all of the standard qualifications to be accepted, but you need to play up your unique hook as much as possible in order to stand out from the crowd. If at least 40% of RLECs can indeed show that regression analysis and other USF/ICC cuts will push their companies into financial ruin and customers will lose service, it will be a challenge to earn an illustrious spot on the FCC’s highly-coveted waiver acceptance list.

Feel free to discuss your thoughts on the waiver process on JSICA’s LinkedIn USF Forum.

NRIC: “Maintaining Reasonable ICC Revenues is a Matter of Survival”

The USF/ICC Transformation Further Notice of Proposed Rulemaking covered a wide range of topics in sections L-R pertaining primarily to intercarrier compensation and IP-to-IP interconnection. In the initial comment round, the Rural Associations and the Nebraska Rural Independent Companies (NRIC) asserted that the FCC should refrain from imposing further drastic changes, such as reducing originating access to bill-and-keep and phasing-out the Recovery Mechanism, until the impact of the Order can be fully analyzed. Reply comments were due on March 30, 2012. The Rural Associations and NRIC held their ground on these issues and struck down comments from opposing parties—primarily cable, wireless, and large ILECs.

The Rural Associations (NTCA, OPASTCO, NECA, and WTA) insist that “substantial confusion and disputes already surround [the] interpretation and implementation” of the new USF and ICC reforms, and “It is essential that the FCC gather data and evaluate the impacts of the reforms just adopted prior to taking further steps.” The Rural Associations believe that “Consumers, lenders, investors, service providers, and the Commission itself would all be better served by a ‘data-driven’ reform process.” Furthermore, they argue that rural consumers could be left with “unaffordable and/or substandard services or, in some cases, with no services at all” if any additional ICC reductions are not matched with “a meaningful alternative for revenue replacement.”

The Rural Associations take a no-nonsense tone with their replies to commenters who argue that originating access and other rate elements should be transitioned to bill-and-keep along with terminating access. The Rural Associations name Time Warner, XO Communications, Leap and Cricket, T-Mobile, Bandwidth.com, CTIA, Google, VON, and MetroPCS as the “few parties supporting the hasty reduction of ICC rates beyond measures adopted in the Order.” The Rural Associations argue that these parties disregard the FCC’s commitment to a data-driven process; ignore the mandate of reasonably comparable services and rates; and prioritize their own policy needs over the needs of consumers in high-cost areas.

The Rural Associations likewise reject arguments from CTIA, NCTA, and T-Mobile that the Access Recovery Charge (ARC) and CAF ICC recovery mechanism should be phased out rapidly. The Rural Associations explain, “The few commenters that support a phase-out or accelerated reduction of the ARC and/or CAF ICC mechanism for RoR carriers advance a number of oft-repeated arguments regarding the alleged inefficiencies in the current ICC system or RoR carriers’ supposed above-cost rates. What none of these commenters consider, however, is the critical role that these revenues—which are derived from providing other carriers and their customers with access to ubiquitous and highly reliable COLR networks—have had on the deployment and affordability of basic and advanced service to rural consumers. Here again, such parties rely upon overly broad and self-serving policy pronouncements without pausing for even a moment to even consider the potential quantitative impacts of their proposals (other than the quantitative impact to their own budgets and profit margins).”

NRIC took a no-holds-barred approach with their foes in their reply comments as well. NRIC argued that the largest carriers will benefit the most from the transition to bill-and-keep, and “These same large carriers now seek to expand that windfall by urging the Commission to expand bill-and-keep to originating access, 8YY traffic, and transport.” NRIC explains that the supporters of bill-and-keep for originating access are “wireless carriers and other large carriers that may not have the same commitment as RoR ETCs to serve sparsely populated, rural areas.” NRIC adds, “Maintaining reasonable ICC revenues is a matter of survival” for small companies.

NRIC sees the debate over bill-and-keep for originating access and other rate elements falling on two “crystal clear” lines: on one side, there are companies who are committed to serving rural areas. These companies—which include both RoR and price cap carriers—call for the FCC to continue ICC compensation and evaluate the impacts of the Order before making further changes. On the other side are the companies who do not “have a business priority of serving rural areas.” These companies, NRIC argues, “line up behind elimination of…ICC fees.” NRIC categorizes the two sides as “rural network builders” versus “rural network users.”  

One of the more memorable quotes from the initial round of comments was Verizon’s claim that “there are no incumbent IP network providers.” NRIC disagrees, responding that “Verizon is simply wrong.” According to NRIC, “While the technology has changed, that change does not render their ILEC classification and attendant regulatory obligations obsolete, and Verizon cannot be exempted from such obligations.” Although the explicit topic of transitioning the PSTN to all-IP networks was not directly addressed in the FNPRM, it is directly intertwined with the ICC and IP-to-IP interconnection debates. NRIC weighed in on the PSTN-IP transition, arguing that it should be an evolutionary transition and “Efforts to eliminate existing TDM networks of RoR ETCs at a date certain and thereby eliminate cost recovery would create industry chaos and should be rejected.”

The overall theme of the comments by the Rural Associations and NRIC is that ICC is a critical revenue component that helps build and maintain telephone and broadband networks in rural America. RLECs use this revenue to be “rural network builders,” using NRIC’s terminology. RLEC infrastructure in rural areas is Congressionally-mandated and complies with the goals of the FCC and the National Broadband Plan. If the ICC base continues to shrink with no corresponding and equitable recovery mechanism, rural consumers will suffer and large telecom carriers will profit—but will they invest in rural areas, or will the fundamental principles of Universal Service be forsaken?