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Tuesday
Jun282011

USF Reform - Their Two Cents: Home Telephone Company

Home Telephone Company Supports Rural Broadband Alliance’s Proposal for USF Reform

On June 21, 2011, Keith Oliver of Home Telephone Company and the Rural Broadband Alliance met with Angela Kronenberg, Legal Advisor to FCC Commissioner Mignon Clyburn, to discuss Universal Service Fund reform. Home Telephone Company, an RLEC located in Moncks Corner, South Carolina, favors the Transitional Stability Plan (“TSP”) submitted by the Rural Broadband Alliance (“RBA”) in the initial round of USF Reform comments.  In the ex parte meeting, Oliver shared Home Telephone Company’s concerns about the current state of rate-of-return regulation and the FCC’s USF Reform proposals, ominously noting that “if rural rate-of-return companies cannot rely on the Commission to consistently uphold prior policy related to existing investment recovery, future investment will dry up.”

Home Telephone Company’s ex parte filing emphasizes the importance of ensuring recovery for existing network investments, and “reforms should not be implemented in a manner that neglects the realistic need for each rural rate-of-return carrier to recover the lawful investments and expenses incurred to provide universal service.” One sentence that especially stood out to me in the ex parte filing was, “proposals that jeopardize the lawful recovery of rate-of-return carriers do not constitute reforms.” I believe Home Telephone Company—and many RLECs—are rightfully concerned that the FCC’s so called USF “reforms” are also an effort to push small rural telecommunications providers out of the market by restricting cost recovery and preventing new opportunities for private investment.

Home Telephone Company addressed common sentiments shared by RLECs regarding the FCC’s proposals, and they are particularly concerned about alleged FCC staff comments pushing for RLEC consolidation and accusations that fiber-to-the-home projects that use USF support are unnecessary. Home Telephone Company comments that some negative FCC perceptions of RLECs may be exaggerated, but “the chilling nature of an agency’s staff suggestion that small businesses should go out of business or that rural companies should not have developed advanced networks consistent with established rules and regulations and government finance programs is self-evident.” The company also explains: “there are no specific facts or data that support the assumption that a large carrier can serve rural customers better or more effectively than a smaller independent carrier.” I believe that comments made by the FCC staff that either misunderstand the RLEC industry or purposely insult or intimidate RLECs may be exaggerated in some cases, but there are grains of truth as well—which have undoubtedly been causing great anxiety and uncertainty for RLECs. What company wants to hear that its governing federal agency is against its very existence? I agree with Home Telephone Company that there may be no direct evidence to support the assertion that RLECs should consolidate; but I fear that if the FCC’s final decision on USF reform is overwhelmingly negative for RLECs, then consolidation may be a better option than going out of business.

Home Telephone Company addressed Hargray Telephone Company’s Broadband Incentive Plan (“BIP”), but seemed concerned that the BIP might not be an attractive alternative plan for all rate-of-return companies that operate in extremely high cost areas and serve as carriers of last resort, because the BIP only facilitates support for customers who chose to subscribe to broadband services. Home Telephone Company argues that “in high cost to serve areas, a rural carrier meeting its network carrier of last resort responsibilities may lose a customer line for many reasons, but when it loses a customer line, it does not lose costs necessary to support a network.” Hargray’s BIP provides for increasing support levels based on a weighting factor for different broadband speeds—the more high-speed broadband customers, the higher the support; but if an RLEC loses a telephone access line, support for that line is lost as well. Although I firmly believe that the BIP is an attractive alternative plan that could potentially incentivize many RLECs to invest in state-of-the-art broadband networks, I think Home Telephone Company makes a strong argument that the BIP could potentially create a “mismatch between the funding received and the funding needed to support the deployment and maintenance of a network capable of serving the entire high cost area.” However, my interpretation of the FCC’s USF reform initiative is that the FCC intends to do away with support for legacy telephone service entirely at some point in the future. With this in mind, I believe that the BIP provides for a very effective transition from legacy telephone to all-broadband because it does not eliminate high-cost support for telephone customers as long as they happen to exist for a particular company—even if there are only a few.

Home Telephone Company supports the Transitional Stability Plan proposed by the Rural Broadband Alliance, a coalition of over 200 RLECs dedicated to promoting broadband policies that benefit rural communities. The TSP is explained in the RBA’s April 18 comments on USF reform. The authors of the TSP argue that this plan “will achieve the Commission’s underlying objectives without causing disruption to existing investment recovery, and without perpetuating (or exacerbating) the problem that occurs as investment is made under a capped fund,” where “there is a growing gap of unrecovered costs which will threaten the economic viability of rural providers.” The basic methodology of the TSP includes freezing interstate revenue requirements for rate-of-return carriers, then decreasing this level annually based on accumulated depreciation and increasing this level annually, “to reflect additional expenses needed to maintain universal service or to provide an evolving expansive definition of universal service.” If a carrier demonstrates a need for additional funding, it would come from the CAF; and the TSP facilitates rate-of-return carriers to transition to access charge price caps. The TSP claims the ability to reduce financial uncertainty for RLECs; and it promises to “maintain stability to the rural communications investment arena by ensuring recovery of established operational costs and capital investments of rate-of-return carriers.”

I encourage RLEC readers to have a look at the TSP and see if it fits your definition of a reasonable alternative to the FCC’s proposed USF reforms. I personally appreciate the TSP’s focus on recovery for existing investments, which I believe could definitely infuse a much-needed sense of financial stability for RLECs who have poured millions of dollars into multi-use networks, but who are worried that these investments will be for naught if the FCC’s USF proposals are adopted.  As the RBA points out, “few other private industries bear as much public responsibility as the rural telephone industry.” I can only hope that the FCC does not negate decades of rural telecommunications infrastructure investment by failing to include sufficient investment recovery mechanisms in the modernized Universal Service Fund.

Home Telephone Company’s ex parte filing is available here, and the Rural Broadband Alliance’s Transitional Stability Plan is available here.

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