Letter to FCC Requests Immediate Acknowledgement and Response

Nineteen Senators backed declarations by the RLEC industry about the unintended consequences of the FCC’s USF/ICC Transformation Order, scoring rural carriers some much-needed encouragement. The Senators sent a letter to FCC Chairman Julius Genachowski on April 3, 2012 stating, “Unintended consequences on all carriers serving in rural areas can and should be alleviated by a formal FCC clarification that the Order will not be implemented in a manner that perpetuates unintended consequences.” The Senators ask the FCC to “be continually mindful of the need to encourage rural communications network investment,”—investments which have been made “in accordance with standards established by the Rural Utilities Service and in line with national policy objectives established by Congress in the Communications Act.”

The Senators note the importance of balancing the costs of the fund with the need to support rural carriers, and they list five areas of particular concern. They request the FCC to clarify:

1. It will not implement additional reductions in USF and ICC support pursuant to the Further Notice until the implications of the reforms and reductions adopted in the recent Order can be properly evaluated and understood;
2. It will ensure that lawfully incurred investments and operating expenses are not jeopardized by retroactive rule changes;
3. It will not deem any investments or expenses unlawful, imprudent or not ‘used and useful’ when such investments have been made in accordance with federal agency standards and mandates;
4. It will adopt a clear-cut and non-burdensome waiver mechanism that will allow cost recovery for carrier investments made in line with federal standards and mandates;
5. It will adopt a sustainable and predictable broadband oriented Connect America Fund for rural areas served by smaller rural carriers as it did for those served by larger carriers.

At the conclusion of the letter, the Senators “ask that the FCC immediately acknowledge and appropriately respond to the outline above to ensure all rural consumers are able to fully participate in the universal communications network Congress has envisioned through a long history of statutory actions in this regard.”

The letter hits at the core of the RLEC industry’s concerns with the Order and especially the FNPRM. Of utmost importance is that the FCC takes the necessary time to evaluate the impacts of the Order before adopting additional cuts and caps to high-cost support—the Senators clearly get this. The added emphasis on wanting an immediate response from the FCC is certainly promising—I know many of us will be anxiously awaiting the FCC’s response, and hoping it will be more comprehensive than some FCC responses to Congressional members have been on USF reform and other issues (as an example, Genachowski recently responded to Congressional concerns about rural call termination issues by simply telling them to read the February 6 Declaratory Ruling).

NTCA members played a vital role in this letter, as these concerns were communicated to members of Congress at the Legislative and Policy Conference last month. NTCA ceo Shirley Bloomfield released a statement about the letter, stating: “We welcome the interest of these Congressional leaders in ensuring that the substantial changes to essential Universal Service Fund (USF) and intercarrier compensation (ICC) support mechanisms announced last fall by the FCC will be implemented correctly and well-understood, prior to adopting additional changes that may reduce such support even further for small rural carriers. We’re encouraged that these leaders understand the vital role that USF and ICC support mechanisms, together with Rural Utilities Service and other financing, play in making sure that consumers have access to affordable advanced communications services in hard-to-serve areas, and that rural networks can be upgraded over time, as federal law mandates.”

Bloomfield continued, “These letters to Chairman Genachowski demonstrate the clear support in Congress for ensuring that small, community-based telecommunications providers can continue to attract capital, make sound investments in sustainable broadband networks, and offer advanced services that create jobs and bring needed economic development to our nation’s rural communities.”

Senator John Tester (D-MT) signed the letter, and commented on his website, "Montana needs a broadband plan that offers our rural and frontier communities the same economic opportunities as urban areas. Access to broadband service means access to new and bigger markets for Main Street businesses and job opportunities. That's why I'm fighting to make sure any national plan doesn't discriminate against Montana and rural America." In addition to Sen. Tester, the bipartisan letter was signed by Senators Harkin (D-IA), Grassley (R-IA), Begich (D-AK), Thune (R-SD), Hatch (R-UT), Barasso (R-WY), Chambliss (R-GA), Hoeven (R-ND), Conrad (D-ND), Johnson (D-SD), Risch (R-ID), Crapo (R-ID), Baucus (D-MT), Merkley (D-OR), Levin (D-MI), Enzi (R-WY), Lee (R-UT), and Inhofe (R-OK).

And now we wait for the FCC to respond…

Bad News: Cost and Regulatory Uncertainty Could Threaten Fiber Projects

“RLECs have shown tremendous progress in broadband availability in the past year.” It feels good to hear that, right? NTCA’s annual Broadband/Internet Availability Survey Report for 2011 was released on March 29, 2011, and the findings affirm that despite the tumultuous year RLECs forged ahead with broadband projects. The most significant result of the survey is undoubtedly that respondents increased their broadband take-rate to 66%, up from 55% the previous year.

114 NTCA members responded to the survey, and a whopping 100% of them provide broadband in some form—up from 58% in 2000. The survey respondents averaged 4,745 residential and 1,736 business access lines. The breakdown of broadband technologies provided by the respondents illustrates that RLECs will do what it takes to provide broadband in rural areas. Of the technologies provided, 80% used DSL/copper, 64% used FTTH, 29% used FTTN, 14% used unlicensed wireless, 14% used licensed wireless, 11% used cable, and 5% used satellite. These numbers show that some companies likely deploy a variety of broadband technologies that best fit their unique geographic and demographic conditions.

The report’s findings on competition were also interesting. 97% of the respondents faced some kind of competition, up from 66% in 2003. RLECs have responded to market forces by “taking numerous steps to increase broadband take rates, including free customer premise equipment installation, bundling of services, price promotions, free modems, free introductory service and free education and training.” Competition comes from WISPs, large ISPs, and cable companies; but not surprisingly the survey found that most of the competition is in areas with higher population. “Seventy-three percent of those respondents facing competition indicated that their fixed service competitors were serving only the cities and towns in their service areas, while 27% said that competitors were serving customers in other portions of their service areas as well.” The respondents found that it was difficult to compete on price, with their prices ranging from $29 to $54 per month depending on the service. NTCA concluded that competition is significant, but “in many instances, the rural LEC is the only broadband option available to the residents and businesses in most of the rural areas of the country.”

The survey focused heavily on fiber deployment plans and challenges. 58% of the respondents plan to offer FTTN to more than 75% of customers by the end of 2014, but “deployment cost remains the most significant barrier to widespread deployment of fiber, followed by regulatory uncertainty, long loops, current regulatory rules, obtaining financing, obtaining cost-effective equipment, and low customer demand.” The estimated cost to bring all customers served by the respondents up to 25 Mbps ranged from less than $1m to over $50m, with 35% of respondents reporting the cost would be between $1m and $10m.

In addition to cost, regulatory uncertainty is of course a significant barrier to fiber deployment. NTCA concluded that regulatory uncertainty is preventing companies from taking risks, but “once RLECs have a better idea of what the future regulatory landscape will look like, they will be able to resume their long-term planning efforts.” The problem, of course, is that no one knows how long it will take for the FCC to resolve the impending regulatory issues, or if the issues will be resolved in such a way that RLECs will be able to access capital and resume fiber deployment plans. Comments by respondents reflected these fears—one member said, “We need regulatory certainty. There appears to be no way to recover our cost to expand our FTTH network to the outer edges of our study area.” Another commented, ”Current and uncertain regulatory rules all have to be clear such that a normal person understands and knows what to expect going forward.”

All told, the survey results should give RLECs something to be proud of—increasing broadband availability, speed, and adoption is no easy task for a small company during an economic downturn with overhanging regulatory storm clouds constantly threatening to wash away any progress that has been made in the last few years.