EATEL “Shocked” to Find Support Reduced 2,360% More than in First QRA Model

Now that rural telecommunications providers have had a little more than a week to grapple with the impacts of the FCC’s “new and improved” quantile regression analysis model (QRA 2.0), it’s time for someone to take the plunge and file an ex parte letter questioning the results of the new model. Southern Louisiana’s East Ascension Telephone Company (EATEL) is that company: EATEL found something shocking when it analyzed the impact of QRA 2.0 on its high-cost support levels. According to EATEL’s letter, “In the previous version of QRA, EATEL recognized that its annualized federal USF appeared to be reduced by $540,968…In the new version of QRA, EATEL’s management was shocked to discover that the company would be impacted inexplicably and disproportionately through an annualized federal USF reduction of $12,766,889.”

EATEL continues, “The magnitude of the change, especially in light of EATEL’s efficient operations, is difficult to understand. Based on the new QRA, EATEL’s annualized federal USF receipts will be reduced by a figure that is 2,360% higher than was computed under the previous QRA.”  EATEL cannot figure out why its support is plummeting by 2,360%, and the company asks the FCC to explain. As the amount of clipped support for all companies equals about $65m, EATEL is naturally perplexed about why it is seemingly responsible for 19.6% of the total fund-wide support reduction. EATEL believes the reduction “is so dramatic that there must be some mistake in either the underlying data or the functionality of the new QRA, especially in light of EATEL’s diligence in providing efficient services.” EATEL therefore requests the FCC share detailed information about the study area boundary maps, the number of road miles and crossings, census blocks, soil data, and other data used in the QRA 2.0 independent variables.

EATEL, a 27,000-line family-owned company, recently completed its purchase of BV Investment Partners’ Vision Communications in one of the very few RLEC deals of late. In its letter, EATEL explains that it “has worked conscientiously for many years to provide efficient and effective advanced telecommunications solutions to a region still recovering from the effects of Hurricane Katrina, Hurricane Gustav and the problems resulting from the British Petroleum oil still in the Gulf of Mexico.” EATEL is actively expanding broadband service in its own service territory and its newly-acquired Vision territory.

Perhaps the FCC made a mistake in QRA 2.0 with regards to EATEL; it will be interesting to find out for sure. In the Benchmarks Order released last week (which contains the new QRA model), the FCC said it would be accommodating for RLECs who believe study area boundaries used in the model are incorrect, and that RLECs can file special waivers to get the information corrected. It appears as though EATEL could be on its way to filing a waiver, but first needs some basic guidance and explanations from the FCC. EATEL notes that it “respects the FCC’s efforts to be responsive to certain problems in the previous version of the QRA model and methodology,” but the shocking results of QRA 2.0 warrant a logical explanation as soon as possible.

In the coming weeks, we should see more companies coming forward with their concerns about QRA 2.0.

Competitive Wireless Carriers Suggest the FCC Lower the RLEC Rate of Return

While the FCC is likely hard at work on Mobility Fund Phase I auction rules, mid-sized competitive wireless carriers are already looking ahead to Phase II.  Representatives from the Rural Cellular Association (RCA), U.S. Cellular, and Cellular One held ex parte meetings with members of the FCC on April 17, 2012 to discuss various concerns about the Mobility Fund, namely that they believe “the existing support allocated for Phase II of the Mobility Fund will be inadequate to achieve vital universal service goals and that the Commission should use the further rulemaking to make additional funding available to competitive wireless providers.”

RCA argued that because Mobility Fund Phase I support is nonrecurring, some carriers might be discouraged from participating in the reverse auction without assurance that their ongoing operating expenses will be recoverable. In the jont meeting, RCA alone proposed one solution to help ensure that future funding in the Mobility Fund is sufficient—or at least more sufficient than $500m per year: “Support foregone by price cap carriers that decline to exercise their statewide right of first refusal with respect to Connect America Fund support should be reallocated to the Mobility Fund.” Additionally RCA advocated that the FCC “should free up additional funds to support mobile wireless services by eliminating excessive support flowing to rural incumbent LECs, including by lowering the prescribed rate of return and limiting permissible recovery levels for capital and operating expenses.”

These recommendations may stir up a negative reaction from wireline RLECs, and it really shows how the interests of rural independent providers diverge across different technologies. With some RLECs being closely tied to either rural wireless or cable companies, balancing the different interests can be quite challenging even within the industry. Small and mid-sized cable, wireless, and wireline carriers will be vying for limited funds without guarantee of future recovery for ongoing operating expenses once we finally reach the Phase II stages of the Mobility Fund and CAF—and we don’t even know what opportunities might exist in the Remote Areas Fund. Many RLECs are likely anxiously awaiting information about CAF Phase II, which some see as a real opportunity for RLECs to pick up new service areas rejected by price cap ILECs. After all, some price cap ILECs are very publicly trying to back out of obligations to provide telephone service in rural areas. It would be inconsistent for a price cap ILEC to push state legislation for ending COLR and simultaneously accepting state-wide broadband support with landline telephone “strings attached.”

RCA did bring up an issue that small carriers of any technology can likely relate to: the FCC should ensure that large carriers don’t engage in “foreclosure strategies and other anticompetitive conduct” to prevent smaller competitors from winning reverse auctions. Other rural wireless representatives, like the Blooston Rural Carriers, have gone as far as recommending that Tier 1 wireless carriers be excluded from Mobility Fund reverse auctions. With the Tier 1 carriers willing to throw around billions of dollars for acquisitions and spectrum, and Verizon boasting double-digit earnings in Q1 2012…you can’t help but wonder whether  giving Mobility Fund support to Tier 1 carriers is just a little bit like giving food stamps to a millionaire.