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Price Cap Carriers Release “ABC Plan” for USF with Rural Support

… But Not Everyone had a Seat at the Negotiations Table

On Friday, July 29, the long-awaited industry consensus plan, America’s Broadband Connectivity Plan (ABC Plan) for Universal Service Fund reform was filed by a group of large- and mid-sized ILECs including AT&T, CenturyLink, FairPoint Communications, Frontier, Verizon and Windstream. The proposal is supported by USTelecom and approved by rural associations NTCA, OPASTCO and WTA. However, the point must be emphasized that the rural associations have not “signed on” to the plan; rather they were involved in the negotiations and believe that the ABC Plan will be an appropriate framework for price-cap companies if it is used in tandem with the Rural Associations’ RLEC Plan for rate-of-return carriers filed back in April.

The ILECs explain the ABC Plan as “three inextricably-linked components that work together to ensure that all Americans have access to broadband service.” The three components include a new USF specifically for broadband in high-cost areas comprised of a Connect America Fund (CAF) and an Advanced Mobility/Satellite Fund (AMF); intercarrier compensation reform with an eventual transition to a uniform $.0007 access rate; and the elimination of “obsolete regulations that are no longer necessary as carriers transition from POTS to IP-based broadband networks.” The CAF would provide $2.2b per year for ILECs, and the entire high-cost program is designed to operate within a budget of $4.5b. The AMF would be relatively small, in line with the $300m proposed for the Mobility Fund in last year’s Mobility Fund NPRM. RLECs would receive around $2b of the high-cost funds, presumably to be distributed via the Rural Associations’ RLEC Plan methodology.  

The ILECs propose that CAF support distributions begin on July 1, 2012, and “because the start dates for CAF disbursements will be staggered, and because the plan reduces legacy high-cost support each year, the overall level of universal service support will remain within the $4.5b per year constraint.” As for the terms of support, “broadband providers that elect to receive support from the CAF will receive a fixed level of support for a term of ten years from the date on which the support is awarded.” The recipients will be subject to service obligations “only to the extent they agree to perform them in explicit agreements with the Commission.”

One of the ongoing debates throughout the CAF and USF Reform proceeding has been which broadband speed should be supported—in the ABC Plan, the ILECs propose a minimum speed of 4 Mbps downstream and 768 kbps upstream. Additionally, “the supported broadband service must provide access to voice service, but voice service is not supported by the CAF and CAF recipients are not required to offer voice service.” I believe this may open the door for allowing lower-cost broadband providers to partner with voice carriers, in line with AT&T’s proposal to partner with satellite companies for very high-cost areas.

The ABC Plan proposes that CAF support will only be available in “those high-cost areas in which there is no private sector business case to offer broadband,” and “CAF support is not available in any census block in which at least one unsupported [facilities-based] competitor is already offering broadband service.” The ABC Plan calls for the FCC to utilize a forward-looking cost model to determine levels of support per census block. After support levels and areas are determined, ILECs can apply for CAF support. If the ILEC has made a substantial investment in the area (defined as serving more than 35% of the service area), “the [ILEC] is given an opportunity to accept or decline the baseline support and the associated broadband service obligations.” The ILECs believe that this will “accelerate the deployment of broadband and avoid inefficient duplication of facilities.”

 If the ILEC declines the offer or has not made a substantial investment in the area, wireless and satellite providers can apply. If multiple providers want to serve the area, the FCC will utilize a competitive bidding—or reverse auction—process to select a provider. This represents a significant departure from the FCC’s initial goal of utilizing reverse auctions as the primary means of distributing CAF support, and I imagine that many RLECs are pleased about this proposal. With reverse auctions as a last resort, it may even be possible for some RLECs to participate if the support levels and service areas are appropriate.

As for ICC, “the ABC Plan creates a glide path to phase down per-minute charges to a low uniform rate while providing carriers with a meaningful opportunity for revenue recovery, and includes interim solutions to address arbitrage.” All price-cap carriers would be required to phase down to a $0.0007 per-minute rate by July 1, 2017; RLECs would presumably have a longer transition period of eight years.

In a joint letter filed by the ABC Plan ILECs, USTelecom and the three Rural Associations, it is noted that there was a tremendous amount of compromise on some of the more contentious issues of USF, and “outside of this framework…the rate-of-return associations would be unlikely to support in other contexts any reductions to their authorized interstate rate-of-return or the Intercarrier compensation reforms included in this framework.” The letter follows with, “the parties to this consensus made substantial concessions in the interest of obtaining an industry consensus that would enable regulatory certainty and the unimpeded business of building broadband.”

The industry overcame tremendous challenges to come to a consensus on some of these issues.  If the FCC decides to adopt the ABC Plan for ILECs in conjunction with the RLEC Plan, I think RLECs will have a fairly solid foundation to continue investing in broadband in rural areas, and they will have sufficient time to plan for the more detrimental changes like the $0.0007 access rate. Regulatory certainty of any breed will definitely help ease some of the suffering in the rural industry at the current time.  The USF reform proceedings have now been ongoing for years and the lack of action has generated a considerable amount of fear and anxiety in a time when RLECs should be focused on broadband deployment strategies.  The Rural Associations do note, however, “This is just another step—but a very important step—in a process with much work still ahead.”

Included in the work ahead may be broadening the industry consensus to include other important stakeholders who did not participate in the ILEC-RLEC negotiations, such as rural wireless carriers, cable providers and consumer groups. Consumers may not be very happy to hear that the ABC Plan framework allows for carriers to increase the Subscriber Line Charge (SLC), and several other rural groups have already expressed concern with the ABC Plan. For example, the Rural Telecommunications Group (RTG), which represents the interests of small rural wireless carriers with less than 100,000 subscribers, argues that the $300m AMF is “an inadequate long term solution to the high-cost needs of America’s rural carriers and their customers.” RTG also noted that “the [ABC Plan] framework should not be interpreted as reflecting any overall wireless industry consensus.” Another group of 16 RLECs and the Rural Broadband Alliance have expressed concern in a position paper, arguing “The now-proposed ‘Industry deal’ will be a windfall to AT&T and Verizon, and will be a disaster for rural America. The risk to small telephone companies, our communities, and our customers is unacceptable.”

What are your thoughts on the ABC Plan, and how the ABC Plan and RLEC Plan (or other options) can be implemented together in order to ensure a reasonable transition for large and small carriers to a broadband-centric USF? The FCC will release a Public Notice, likely soon, to solicit comments on the ABC Plan. It is likely we will see a mixed bag of support and opposition from a diverse array of stakeholders, and I hope that the parties who did not participate in the ABC Plan negotiations take this opportunity to present their arguments—just be sure and submit new data. At the OPASTCO summer convention in Minneapolis last week, FCC Wireline Competition Bureau Deputy Chief Carol Mattey said that the FCC did not want to see a “general rehashing” of the arguments already filed in the comment-and-reply cycle. I take that as a firm warning that stakeholders need to speak up now or risk dealing with an unfavorable outcome once the final rules are released.

The ABC Plan framework is available here, and the joint letter explaining the industry consensus efforts is available here.

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