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Thursday
Oct272011

FCC Approves Still-Unseen USF/ICC Reform Order

Executive Summary Released Minus the 493 Pages that Matter

If you were expecting the unveiling of all the juicy details of the USF/ICC-Connect America Fund Order at the FCC’s Open Meeting today, then you, like me, were probably disappointed after the 3 hour meeting that consisted primarily of the Commissioners thanking each other and their staff for all the hard work in drafting this monumental order. That’s not to say that there wasn’t any good information, but many questions will definitely remain until the allegedly 500+ page R&O and FNPRM is released.

A packed house anxiously sat through the first item on the agenda, “Modernizing Television Broadcaster Requirements to Make Information Available to the Public,” which was approved unanimously. After what seemed like an eternal wait, Wireline Competition Bureau Chief Sharon Gillett opened the discussion on USF/ICC Reform. She delivered what I felt was some of the most important information revealed in the entire meeting: the amount of funding that the various industry sectors will receive.

According to Gillett, Rate of Return carriers will receive $2b, price cap ILECs will receive $1.8b, there will be a one-time $300m Mobility Fund plus an additional annual $500m for mobile broadband, $100m for Tribal Lands mobility, and $100m per year for the super-remote households. The funding methodology for this $100m Dedicated Remote Areas Fund will be determined via future proceedings.

According to the Executive Summary that was released during the time it took me to take a cab from the FCC to my house after the meeting concluded; the FCC will establish “a firm and comprehensive budget for the high-cost programs within USF. The annual funding target is set at no more than $4.5 billion over the next six years, the same level as the high-cost program for Fiscal Year 2011, with an automatic review trigger if the budget is threatened to be exceeded.” After 6 years, the budget may be revisited. This appears to be a fairly reasonable compromise between the eternal hard cap supported by some (like the cable industry), and no cap at all supported by others.

The new Connect America Fund (CAF) will “replace all existing high-cost support mechanisms,” and “will rely on incentive-based, market-driven policies, including competitive bidding, to distribute universal service funds as efficiently and effectively as possible.” CAF support for price cap companies will be introduced in two phases. The first phase will include freezing existing support but also infusing an additional $300m to “expediently” deploy broadband to unserved price cap areas. According to the Executive Summary, “Any carrier electing to receive the additional support will be required to deploy broadband and offer service that satisfies our new public interest obligations to an unserved location for every $775 in incremental support. Specifically, carriers that elect to receive this additional support must provide broadband with actual speeds of at least 4 Mbps downstream and 1 Mbps upstream, with latency suitable for real-time applications…” This doesn’t sound much like the “Rights of First Refusal” proposal in the ABC Plan, and it does sound like the FCC is going to put a heavy emphasis on public interest obligations. The second phase of price cap CAF support “will use a combination of a forward-looking broadband cost model and competitive bidding.”

Moving on, it sounds like mobile broadband providers will get a much better deal than originally anticipated—at one point they were looking at a single $300m influx only, and now it looks like they are getting the $300m plus $500m per year. I anticipate that some wireless carriers will still say that this isn’t enough (some associations have asked for $1b per year, and even parity with wireline carriers). One interesting aspect of the Mobility Fund is that “the winners will be required to deploy 4G service within three years, or 3G service within two years, accelerating the migration to 4G.” $100m of the annual $500m will go specifically for Tribal areas, which Commissioner Copps emphasized is especially important. He said that some tribal areas have single-digit broadband adoption levels, which is a “national disgrace.” Overall, this Mobility Fund barely resembles the Mobility Fund NPRM that was released a year ago which satisfied very few stakeholders, especially rural wireless carriers.

What about the RLECs? I didn’t hear anything in the meeting that specifically signaled the immediate death of the RLEC industry which was a relief, but as almost everyone has been saying lately, “The devil is in the details.” Supposedly, the Order will “recognize the unique nature” of small rural carriers and attempt to maintain some of the stability of the current system while reasonably transitioning to CAF. According to the Executive Summary, “Rate-of-return carriers receiving legacy universal service support, or CAF support to offset lost ICC revenues, must offer broadband service meeting initial CAF requirements, with actual speeds of at least 4 Mbps downstream and 1 Mbps upstream, upon their customers’ reasonable request.” Again, the FCC is pushing hard for public interest obligations.

RLECs can likely expect limitations on capital and operating expenses starting July 1, 2012; less support for “carriers that maintain artificially low end-user voice rates;” phase-out of the Safety Net Additive and of support in areas that overlap with an unsubsidized competitor; and a cap on per-line support of $250 per month “with a gradual phase-down to that cap over a three-year period commencing July 1, 2012.” Most of these changes have been anticipated, but it sounds like the FCC will seek comment on some specific aspects of RLEC funding reductions, including the 11.25% rate-of-return, in an FNPRM.

Finally, Intercarrier Compensation: details seemed especially slim on this topic at the Open Meeting, but were explained somewhat better in the Executive Summary. The FCC will “take immediate action to curtail wasteful arbitrage practices,” specifically access stimulation and phantom traffic.  This might be good news, but the bad news comes next: “We adopt a uniform national bill-and-keep framework as the ultimate end state for all telecommunications traffic exchanged with an LEC.” In the give-and-take spirit of this Order, the FCC does “adopt a transitional recovery mechanism to mitigate the effect of reduced intercarrier compensation on carriers and facilitate continued investment in broadband infrastructure, while providing greater certainty and predictability going forward than the status quo.” I will be interested to see the gap between how much revenue RLECs stand to lose with bill-and-keep and how much the FCC is willing to give back via the recovery mechanism. LECs can also charge an Access Recovery Charge (ARC) limited at $0.50 per month for residential/small business and $1.00 per month for multi-line businesses.

At the Open Meeting, the Commissioners all relentlessly praised one another and their staff on all the hard work, and they all seemed very proud of themselves for finally releasing—and approving—this order (despite the fact that nobody has seen it yet). Copps said that today the Commission is “making telecommunications history,” and Genachowski called this a “once in a generation” achievement that will facilitate “new vistas of digital opportunity.” I will continue to hold my applause until I read the order and learn more about how the RLEC industry will be specifically impacted by the sweeping changes. What do you think—is there enough information to determine if this is a good deal for the RLEC industry? What was the biggest surprise, and the biggest disappointment, in today’s Open Meeting and USF/ICC Reform Executive Summary?

The full 7-page text of the Executive Summary is available here.

Reader Comments (3)

The biggest surprise in my opinion were the various references to public service obligations, especially the 4/1 requirement. I'm glad to see that because I think that's where RLEC's and municipals have really shown their value. To me the biggest disappointment is that, for all the talk about "openness", here we sit several hours after the meeting STILL waiting for the details. I'm not sure what purpose it serves to withhold the details of the order, unless they want to delay the inevitable attacks as long as they can.

October 27, 2011 | Unregistered CommenterCurtis Dean

Note that there was NO mention of ANY funding for WISPs, even though we are busily building broadband out to the very unserved areas that the CAF purports to cover. Will we be able to obtain even a penny of the $100m "super-remote" fund -- which in its entirety is less than 1/4000th of the total funding? To the most cost-effective pure play broadband providers out of a plan to deploy broadband is criminal and corrupt.

October 27, 2011 | Unregistered CommenterBrett Glass

P.S. -- Also note that there are zero funds available to cable companies. Let's hope they sue -- justifiably -- to overturn the Order. Both they and WISPs are bona fide broadband providers and should not be arbitrarily cut out.

October 27, 2011 | Unregistered CommenterBrett Glass

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