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Monday
Aug222011

The End is Near on USF Reform Rulemaking

This Week: One Last Supersonic Comment Cycle before Final Rules

The FCC has made it very clear that it hopes to release the final rules for USF and ICC reform sometimes this fall—tentatively in October—but not before one final, and very aggressively-paced, comment-and-reply cycle on certain aspects of alternative proposals submitted by industry stakeholders. In preparation for the mountain of comments which will roll in Wednesday, August 24, I thought I would go back and review the August 3 Public Notice and see what some of the industry players have been saying in ex parte filings this month. Although the July 29 price cap carriers’ “ABC Plan” has been touted as an industry consensus with RLECs, there are definitely other industry groups who have questioned the actual level of consensus in this alternative plan. Therefore, I am excepting some hard-hitting comments from the groups excluded from the ABC Plan negotiations. I am also concerned about the August 31 deadline for reply comments, as the industry will only have one week to “speak now or forever hold its peace.”

The overall purpose of this final round of comments is basically to seek input on how three alternative plans (the Rural Association’s RLEC Plan, the Federal-State Joint Board’s proposal, and the 6 price cap carrier’s ABC Plan) “comport with the Commission’s articulated objectives and statutory requirements.” Beyond this, the FCC asks plenty of high-level questions about specific aspects of the different alternative plans, and they are looking for hard data to support arguments against or in favor of certain proposals. There is basically something for everyone in the telecom sector to respond to in the Public Notice, but I anticipate that RLEC comments will be primarily focused on the following questions and issues:

  • Should the FCC eliminate the distinction between rural and non-rural carriers, if so, what are the policy implications?
  • What role (if any) do states have in the revamped USF/ICC methodology?
  • What is the appropriate reduced rate-of-return for RLECs? The Rural Associations and price cap carriers negotiated it down to 10% but the Joint Board recommended 8.5%.
  • What impact will the Corporate Operations Expense Limitation Formula have on HCLS, ICLS and LSS recovery?
  • Should support be reduced or eliminated in areas where an unsubsidized facilities-based competitor provides service to at least 95% of the households?
  • Should USF support be calculated based on a total company earnings review to limit support levels, as suggested by the Joint Board for a Provider of Last Resort Fund?
  • Should the highest-cost areas be served by satellite providers, supported by ViaSat’s proposed Competitive Technologies Fund utilizing reverse auctions and consumer vouchers?
  • How will access rate recovery be ensured? The ABC Plan recommends a “rate benchmark” of $25-$30 as a ceiling on SLC and consumer rate increases, and the Joint Board suggests that states contribute $2 per line to help offset reduced access revenues.
  • What is the “appropriate recovery mechanisms for ICC reform,” for RLECs, “that would maintain the predictable revenue stream associated with rate of return principles while also providing carriers with better incentives for efficient investment and operations?”
  • What consumer benefits can be derived from reducing ICC rates to $0.0007?

In terms of responses to these questions, I predict that there will be some controversy in the diverging opinions among RLECs. With over 1,000 small companies spread across the country, I would never expect that each one would rubberstamp frameworks proposed by the associations. Therefore, I will be interested to see if differences are put aside in the comments, or if some RLEC groups will continue to hold their ground for other alternative proposals not identified specifically in the Public Notice.

We will have to wait until later this week for the “good stuff,” but a number of stakeholders have been expressing both concern and support for the ABC Plan and other frameworks this month in a flurry of ex parte filings and letters. So, I have grabbed a selection of quotes from various rural stakeholders’ recent filings to serve as a preview of what’s to come in the comments and replies.

  • Consolidated Communications, which operates as both a price cap and rate-of-return carrier and was not involved in the ABC Plan negotiations, “has a number of unanswered questions regarding the proposal, as well as concerns about how it will impact smaller companies, especially those that have recently and voluntarily converted to price cap regulation.” Consolidated is concerned about the forward-looking cost model proposed in the ABC Plan and the $0.0007 target access rate, among other issues.
  • The Iowa Association of Municipal Utilities described the success that Iowa municipal broadband providers have experienced in the state, and they urge the FCC “to establish a priority or preference for funding for municipal utilities in states such as Iowa that have taken a more active role in supporting broadband or have established a high-cost program.” IAMU supports the adoption of a “transition revenue recovery mechanism…that mirrors the recovery mechanism proposed for rate-of-return carriers and to adopt long-term reform proposals that ensure adequate recovery and also minimize the prospect of the municipal business model failure as a result of lost Intercarrier compensation reform.”  
  • LARIAT, a rural WISP, argued that none of the three plans identified in the Public Notice “were fair to, much less favorable to, terrestrial fixed wireless Internet service providers (WISPs)—despite the fact that WISPs have proven to be the most cost-effective way of reaching unserved residents.” LARIAT is also concerned that the ABC Plan’s rights of first refusal proposal “grants a monopoly on USF/CAF funding to any incumbent which serves a mere 35% of the population covered by a wire center.”
  • The Rural Broadband Alliance and Rural Independent Competitive Alliance are concerned that the ABC Plan is “insufficient,” and if used in conjunction with the RLEC Plan, the FCC will “[effectively prevent] rural rate-of-return carriers from having an opportunity to recover even their established lawful expenses without raising basic consumer rates to inordinate levels.” They conclude, “In contrast to the fact-based and actual cost-supported proposals of both the RBA and RICA, the proposed ABC Plan: dramatically reduces rate-of-return carrier cost recovery without any basis, places rural companies in financial jeopardy, stifling rural infrastructure investment and resulting in job loss in the areas of rural America served by the rural rate-of-return carriers; and rewards access users with millions of dollars of expense savings realized from diminished access rates, but provides for no commensurate benefits for rural consumers.”
  • The Rural Cellular Association expressed “deep concerns” with the ABC Plan, claiming that “The ABC Plan purports to advance such principles [of competitive and technological neutrality] and to reflect an ‘industry consensus,’ but in fact it represents a self-serving ILEC proposal that would misallocate USF support, undermine competition, and deprive rural consumers of access to high-quality wireless services.” RCA calls the ABC Plan “deeply biased in favor of wireline carriers,” and claims that it “would put wireless providers at a decided disadvantage even in those relatively rare instances where the ILEC is ineligible to receive CAF support or refuses it.”

As illustrated by these examples, it appears as though “industry consensus” is indeed a stretch to describe the current climate in this final stage of the USF and ICC reform odyssey. Although I believe that RLECs and price cap carriers have come a long way in the last few months towards a consensus, it is clear that the favored plans at the FCC are not all-inclusive for every rural telecom stakeholder outside of wireline incumbents. Will everyone be able to resolve their differences in just a few short weeks, and will the FCC be able to accommodate every reasonable request in the final rules? I’m doubtful; but I am trying to remain optimistic that there will ultimately be more winners than losers in the end.

The FCC’s Public Notice is available to read here.

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