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Western RLECs Support “Separate but Integrated” RLEC and ABC Plans

Western Associations Urge FCC to Adopt Consensus Framework and Strict Call Termination Rules

On August 24, 2011, the Western Associations (comprised of state telecom associations from California, Colorado, Idaho, Montana, Oregon, Washington and Wyoming) filed joint comments on the Further Inquiry in the Universal Service-Intercarrier Compensation Transformation Proceeding. In their comments, the Western Associations voiced support for the Rural Associations’ RLEC Plan for rate-of-return companies and presented some rather convincing arguments for strong call termination rules.

The Western Associations argued that the RLEC Plan is “a well thought out, integrated and comprehensive plan that represents significant compromise on the part of rural telecommunications companies across the nation,” and RLECs would experience less financial loss under the Consensus Framework of the RLEC Plan and ABC Plan than they would under the FCC’s initial USF/ICC NPRM framework. The Western Associations seem to understand that RLECs need to let go of some of the USF-enabled financial security of the past, for “the landscape is changing, and members of the Western Associations recognize the change must come” regarding USF and ICC. I found this notable, because the physical landscape of the states in the Western Associations is arguably the most expensive and challenging in the nation to build wired broadband, and I think this particular comment illustrates that these companies are being very realistic and reasonable about the future of USF.

The Western Associations emphasize that if the FCC adopts the Consensus Framework, two conditions must exist: the FCC should not pick and choose specific components of the RLEC Plan to adopt, and “it would not be appropriate to comingle aspects of the ABC Plan with the RLEC Plan and apply the comingled set of outcomes to the rural incumbent local exchange industry.” Although the ABC Plan was the result of broad industry negotiations including RLECs, it is really only applicable to large price cap carriers—the Western Associations note that “The ABC Plan and the RLEC Plan are carefully balanced to work together on separate, but parallel tracks taking into account very real differences between price cap and rate of return companies.”

The Western Associations provided some examples to illustrate how the RLEC Plan would result in revenue reductions, but not nearly as dramatic as the revenue reductions estimated under the FCC’s National Broadband Plan framework. Toledo Telephone Company calculated that it would see annual revenue reductions of $975,000 by 2015 under the FCC’s plan and annual revenue reductions of $275,000 under the RLEC Plan. I personally feel that $275,000 is still a substantial hit in revenue for a small company, but if it means the difference between defaulting on loans and laying off half the employees, then clearly the $275k hit might not the end of the world. The Western Associations agree, arguing, “while the RLEC Plan changes the support a rural company will receive, the change is manageable. The financial shocks of the NPRM proposals are not.”

I thought the Western Associations made an interesting point about the size of revenue reduction as a result of USF and ICC reform—they argued that companies should not lose more than 5% of their current USF support in a given year. They reason, “such a provision would also avoid losses in revenue that could negatively impact business plans, negatively affect the ability of a company to repay loans or have the negative consequence of preventing a company from obtaining new debt financing to pursue broadband deployment.” Although I agree with this reasoning in theory, I question how such a 5% annual reduction cap would work under the final rules. I also feel as though the FCC intends to make more significant USF reductions for companies that have been allegedly abusing the system, so a 5% reduction might not be sufficient to bring such companies in line. In other words, the bad actors might get a hall pass to continue receiving more USF support than needed.

The Western Associations took the opportunity to bring up an especially vexing ICC-related issue in their comments: least-cost routing abuse and call termination arbitrage. This is becoming a serious problem in rural areas, where calls are not being completed or experiencing quality problems to customers in rural areas, primarily RLEC customers. The Western Associations argue, “This abuse of telecommunications providers’ responsibility to complete calls is causing substantial economic and personal harm. Rural businesses are losing customers. Families, sometimes with sick loved ones, are unable to complete calls to one another.” They provided several convincing examples of this problem: a state patrol office in the Wahkiakum West Telephone Company service area repeatedly experiences calls not coming through; medical workers and pharmacies are not able to reach patients in rural areas; and a son of an elderly woman in the St. John Telephone Company service area could not reach his elderly mother, which resulted in emergency crews being sent to her home twice (for no reason). The Western Associations sternly state, “Someone in a rural community should not have to die to get this problem addressed.”

What is the solution to the call termination problem? The Western Associations urge the FCC to adopt the traffic signaling rules outlined by the Rural Associations, which “require complete population and end-to-end transport without alteration of call signaling records.” Furthermore, they encourage the FCC to equate call termination problems with call blocking, and issue severe penalties for companies who engage in this type of arbitrage. I personally feel that there is no technological excuse for any provider preventing calls from being completed in a rural area—it comes down to money and greed, and the problem has escalated to the point where regulatory intervention is now needed to correct a market failure.

Overall, I thought the Western Associations provided some convincing arguments and examples in favor of the RLEC Plan and Consensus Framework. The Western Associations appear to have a forward-looking and reasonable attitude towards USF/ICC reform, and they clearly are bracing for change and revenue reductions as a result of the reforms.

The Western Association’s comments are available here.

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