NPRM May Be Unveiled at April 27 Open Meeting

The FCC’s tentative agenda for its April 27, 2012 meeting includes a key item that could finally round out the National Broadband Plan goal of comprehensively reforming the Universal Service Fund: an NPRM to address the contributions side of the USF equation. Communications Daily reported on April 5 that “taking on the contributions factor is expected to be controversial.” However, most telecom industry stakeholders would also probably argue that contributions reform is both long overdue and necessary to balance the recent drastic changes to the distributions side. 

Some have started speculating on what could be included in the FNPRM. Multichannel news explained that “The goal of the reform…is to reduce the administrative burden on industry and the FCC, avoid arbitrage of the system—making similar services subject to similar contributions—and update the calculations of the payments to reflect a changing marketplace.” Administrative housecleaning proposals could be a direct result of pressure from USTelecom, which recently filed an ex parte letter that included an extensive list of recommendations for USF contributions reform. USTelecom did not, however, go as far as to recommend which entities should pay into an expanded contributions base—but this topic that will likely be addressed in the NPRM.

FCC Commissioner Robert McDowell has been championing contributions reform for quite some time, but the other two commissioners have seemed less enthusiastic about the challenge. McDowell told Communications Daily, “I would like to see an array of questions covering as many ideas as possible [in the NPRM]. At the same time, we should try to conclude an order quickly because the contribution factor has been sky high in the past two years in particular. At the end of the day that is a form of bill shock for American consumers.”

Using last year’s USF/ICC reform process as a template, we can likely expect a series of workshops, comment cycles, industry consensus efforts, and maybe even an FCC task force—all in tandem with ongoing efforts to construct a Connect America Fund for rate-of-return carriers and finalize other unresolved issues stemming from the USF/ICC Transformation Order.

How would you reform the USF contributions methodology to best reflect today’s (and tomorrow’s) telecommunications and broadband marketplace?

FCC Should Avoid Premature Decisions on Digital Literacy Program, $9.25 Monthly Support

On April 2, 2012, USTelecom filed both comments and a petition for reconsideration and clarification regarding the FCC’s February 6 Lifeline Reform Order and FNPRM. The comments focused on issues in the FNPRM like the proposed federally-funded digital literacy training program and the national eligibility database. In its petition for reconsideration and clarification, USTelecom identified 14 specific aspects of the Order “for which additional clarity at the initiation of the rules and procedures would serve the interests of participants and the Commission.” In both filings, USTelecom emphasized the importance of minimizing confusion and regulatory burdens, and ensuring that funds are used appropriately and efficiently.

USTelecom emphasized that the role of ETCs should not include determining eligibility; “That determination is properly the role of the government,” USTelecom said in its comments. “As service providers, ETCs should be able to query the national eligibility database and receive a yes or no answer as to whether a household is eligible for the Lifeline discount.” USTelecom also warns against premature decisions regarding digital literacy training programs and the monthly level of support—the FCC should undertake a data-driven analysis of the impacts of the Order before making a final decision about either of these proposals.

As for the digital literacy program, USTelecom is wary that the FCC has the authority to fund and administer such a program. USTelecom explains, “It is premature to address potential funding of digital literacy programs when the Commission has not yet even accepted applications for the broadband pilot programs which will provide needed information on the costs and effectiveness of various strategies to increase broadband adoption.” Likewise, the FCC should not jump to conclusions about changing the $9.25 monthly support level, and the FCC should not change the one-per-household rule at this time. USTelecom asserts that “The suggestions in the Lifeline Reform FNPRM that a household be able to split the Lifeline discount across two or more lines would be an administrative nightmare as well as be inconsistent with the purpose of Lifeline support, which is to ensure that the household has a connection to the outside world, not multiple connections.”

The areas of the Lifeline Order of which USTelecom believes the FCC should clarify or reconsider include:

1. The requirement for carriers to follow up with customers at a ‘temporary address;’
2. The obligation to provide Toll Limitation Service (TLS) despite a lack of funding for such service;
3. The requirement for retaining annual recertification forms and providing them to USAC and the state commissions if the state performs the annual recertification function;
4. Compliance by providers where the Order’s mandates apply to states or other parties not under the control of ETCs;
5. The requirement for ETCs to provide service initiation dates;
6. Unnecessary burdens in the audit requirements;
7. Appropriate documentation of program eligibility;
8. The time period to remove de-enrolled Lifeline customers from the database;
9. Disclosures required in Lifeline advertising;
10. The requirement to describe how partial payments will apply to bundled services;
11. Payments suspended for non-compliance;
12. Collection of the Tribal identification number by the ETC;
13. Tribal reporting requirements;
14. Unequal speed benchmarks for Low-Income Broadband Pilot Program applicants

Many of the areas USTelecom urges the FCC to reconsider or clarify deal with the administrative burdens and the fundamental responsibilities of ETCs in the Lifeline program. For example, USTelecom argues that the requirement for wireline ETCs to confirm a Lifeline recipient’s “temporary address” at 90-day intervals is “superfluous,” because wireline accounts would be disconnected if the recipient moved.  USTelecom also questions whether it is appropriate for carriers to “make judgment calls as to the acceptable documentation for eligibility purposes.” USTelecom recommends that the FCC clarify specifically which forms of documentation are acceptable by issuing a comprehensive list that will be available on the USAC website and include examples of the acceptable documents. A comprehensive list, USTelecom argues, “will support the integrity of the Lifeline program.”

Also notable, USTelecom argues that applying different speed benchmarks for Broadband Pilot Program participants violates the goal of technological neutrality and could give wireless carriers an unfair advantage. USTelecom suggest that “The Commission should replace its technology-specific speed benchmarks with a single benchmark of 3 Mbps downstream.” Although lower than the generally-accepted 4 Mbps broadband definition, USTelecom believes an across-the-board 3 Mbps benchmark will ensure that Broadband Pilot Program participants will be able to access standard definition video for health and education applications.

USTelecom’s Lifeline filings reflect concerns held by wireline ETCs that some of the reforms could place unnecessary administrative burdens on carriers—however; USTelecom and other telecom industry commenters generally applaud the FCC’s efforts to modernize and streamline the Lifeline program. As with the high-cost fund and intercarrier compensation reforms, the FCC should avoid making further premature decisions without undertaking a comprehensive analysis of the initial round of reforms.

Comprehensive Reform Encouraged, Some Solutions Offered in Letter to FCC

USTelecom’s vice president of policy David Cohen filed a letter to the FCC on March 28, 2012 outlining extensive problems with the current USF contributions methodology and recommending several near-term administrative reforms to clean up the system. USTelecom argues that the current system is “rife with outdated methods and procedures that create waste, inefficiency and destabilizing competitive discrepancies.” USTelecom does not believe that the problems will be fixed simply by broadening the contributions base—rather; the FCC should immediately consider some housekeeping and clarification measures for the underlying contributions rules and procedures.

USTelecom identifies three categories of pervasive problems with the current system. First, the service classifications are not reflective of the actual marketplace: “With the rapid introduction of…new broadband IP-based services into the market, the dividing line between telecommunications services on one hand, and information services on the other, is becoming increasingly blurred.” The FCC has failed to keep the USF contributions methodology on track with market momentum, which USTelecom believes has slowed down the deployment of IP services. Second, USTelecom believes that jurisdictional distinctions like state boundaries “are simply irrelevant to how consumers select and buy communications services.” Lastly, the resale/wholesale distinction is “burdensome and ineffective;” and “turns wholesale providers into enforcement agents of the Commission, requiring them to collect certifications from reseller customers attesting to USF contributions.

Taken together, the result of these foundational cracks in the contributions system creates “significant competitive inequities” and regulatory uncertainty. For example, USTelecom explains that “the current system only captures contributions from a few among many providers that offer competing voice services, which unfairly penalizes traditional voice providers (and ultimately their customers) and artificially skews the market.” Google Voice, Skype, and Magic Jack are called out for not contributing to USF directly, despite the fact that they compete directly with contributors and use contributors’ networks.

As for solutions to bring USF contributions in line with the market, USTelecom focuses primarily on administrative fixes and acknowledges that comprehensive reform is likely to take a long time. USTelecom encourages the FCC to move forward with a contributions reform proceeding, and suggests that the FCC abide by several guiding principles including stability and predictability; competitive neutrality; equitable and minimal consumer burden; and administrative efficiency—these principles are not unlike the FCC’s laudable and often-mentioned principles for USF and ICC reform.

USTelecom’s recommended immediate administrative reforms include:

• A notice and comment on Form 499 instructional changes
• Amnesty for good faith interpretations of Form 499 instructions
• Symmetric contribution liability and refund periods, like a repeal of the one-year deadline to re-file Form 499A amendments
• Reduced volatility in the contributions factor—specifically, adopt an annual factor instead of a quarterly factor
• A rulemaking to address changes in the reseller exemption process
• Reassessment of reporting safe harbors
• Realistic prepaid calling reporting requirements

USTelecom asserts that “the current problems with USF contributions will continue to fester, plaguing competition, facilitating waste, and driving inefficiency” if the FCC does not act expeditiously to reform the system. Indeed, the contributions side of the USF cosmos is clearly flawed and will have negative impacts on the distributions side despite all of the FCC’s hard work to establish the Connect America Fund and fundamentally alter how telephony and broadband services are supported. As FCC Commissioner Robert McDowell said at the NTCA Legislative and Policy Conference last week, fixing USF “is like fixing a watch, each part touches all the others, so you have to fix them it all at the same time.”