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Sunday
Dec112011

Let the Challenges Begin! USF/ICC Order under Attack as Parties Turn to Courts

NTCA Files Petition for Judicial Review

As many of us are still trying to read and digest the 750-page USF/ICC Order, at least 3 parties have moved forward with court challenges—perhaps hoping that the judicial branch will alleviate some of the threats to various stakeholders as the December 29 start-date for the rules looms dangerously close. Earlier this week, small Virginia provider Core Communications and the Pennsylvania Public Utility Commission filed lawsuits in their respective states.  On Friday December 9, NTCA announced that it has filed a petition for judicial review of the USF/ICC Order with the U.S. Court of Appeals for the Fourth Circuit (in Richmond, VA, where Core filed its lawsuit).

NTCA’s press statement by senior vice president of policy Mike Romano explains, “To be clear, we appreciate the FCC’s attempt to loosen, if not untie altogether, the Gordian knots that have existed around the USF and ICC program for years. The order represents a historic step forward, and a significant achievement for the… stakeholders who worked to shape the reforms.” The court filing gets right down to business, however: “Portions of the FCC’s decision in the FCC Order are arbitrary, capricious, an abuse of discretion, contrary to statute and to the Fifth Amendment of the United States Constitution, in excess of or contrary to statutory authority, a departure from reasoned decision-making, and otherwise unlawful."

The press statement further explains that NTCA is specifically concerned with provisions in the order that “put at risk the ability of small, rural, community-based providers to access capital and invest in broadband-capable networks in their hometowns and surrounding countryside.” Specifically, NTCA points to the bill-and-keep access methodology that will ultimately price all switched access and reciprocal compensation at 0; the $250 cap on per line USF support; and provisions “blurring the lines between regulated and nonregulated operations.” According to NTCA, “These provisions will harm rural communities, and will not help to advance the availability and affordability of services for all rural consumers.”

Let’s talk about bill-and-keep for a moment.

Throughout the numerous comment cycles, rural stakeholders warned that bill-and-keep or access rates of 0 would be extremely harmful. The rural associations settled on an end-rate of $0.0007 in the Consensus Framework, but this rate was still considered by many to be too low. Despite the warnings and pleadings, the FCC still decided on bill-and-keep, which it claims in the Order “has significant policy advantages over other proposals in the record. A bill-and-keep methodology will ensure that consumers pay only for services that they choose and receive, eliminating the existing opaque implicit subsidy system under which consumers pay to support other carriers’ network costs…A bill-and-keep methodology also imposes fewer regulatory burdens and reduces arbitrage and competitive distortions inherent in the current system, eliminating carriers’ ability to shift network costs to competitors and customers.”  The FCC continues by arguing that bill-and-keep is less burdensome, and “reduces the significant regulatory costs and uncertainty associated with” a specific rate, like $0.0007.

Price cap carriers have a 6-year transition to bill-and-keep, and rate-of-return RLECs have a longer 9 year transition, illustrated below:

Rural carriers have shown concern that bill-and-keep is more favorable for carriers that exchange relatively equal traffic volume, and that this methodology will prevent small companies from recovering costs. The FCC rejects the argument that bill-and-keep is only appropriate for balanced traffic exchange. Furthermore, the FCC responds in the Order, “To the extent carriers in costly-to-serve areas are unable to recover their costs from their end users while maintaining service and rates that are reasonably comparable to those in urban areas, universal service support, rather than intercarrier compensation, should make up the difference.”

Except…. Per-line USF is capped per month at $250 (an amount which some fear could be arbitrarily lowered in the future, making even carriers who are “safe” today subject to drastic cuts), which appears to be NTCA’s other major concern in their petition to review filing. If you remember the pie chart from JSI Capital Advisor’s first article on USF reform which shows such a large slice of support going to RLECs ($2b of the $4.5b total), it begins to look like meager crumbs when you consider all of the elements in both USF and ICC support that are being reduced, capped, or otherwise manipulated by the new rules.

It will be very interesting to watch how NTCA’s petition for review, as well as the lawsuits filed by Core and the Pennsylvania PUC, progress in the coming months. Do you think the courts will make a reasonable decision? Are there any other major issues in the FCC’s Order that should be reviewed by the courts?

Read NTCA’s press statement here.

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