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Monday
Aug292011

ACA: ABC Plan Inconsistent with FCC’s Goals for USF/ICC Reform

Cable Association Argues ILEC Proposals are “Salvageable,” Provides Recommendations

Comments on the FCC’s Further Inquiry in the Universal Service-Intercarrier Compensation Transformation Proceeding were due on August 24. The American Cable Association (ACA) voiced its concerns with the price cap ILECs' ABC Plan and provided their recommendations about how the ABC Plan can be improved in order to meet the FCC’s goals of fiscally responsible and competitively neutral USF/ICC reform.  Although ACA was critical of the ABC Plan, it appeared to have a somewhat sympathetic position towards RLECs.  Cablecos were not involved in the industry negotiations that led to the ABC Plan and Consensus Framework with the RLEC Plan; therefore ACA warns the FCC that these proposals “are far from an industry consensus balancing diverse interests, a basic fact that the Commission should consider when determining whether these plans are in the public interest.”  

ACA believes that the ABC Plan is “deeply flawed: it would enable universal service funding to grow significantly and would tilt the competitive landscape in favor of the Price Cap incumbents.”  ACA argues that the ABC Plan is not competitively neutral, and it will not fix the myriad current problems with USF/ICC.  ACA states, “Rather than being ‘transformational,’ these proposals merely continue, if not exacerbate, current flaws in the universal service fund and intercarrier compensation regimes.  They also directly and materially harm ACA members, who provide telecommunications and broadband service in competition with these Price Cap carriers.”  Despite being peppered with problems, ACA is convinced that the ABC Plan’s proposals are “salvageable” with “targeted fixes.”

First of all, ACA believes that there needs to be a hard cap on the Connect America Fund (CAF) at the 2010 level.  Without a hard cap, ACA argues that the contributions burden on consumers will become unreasonable.  ACA further argues that the Consensus Framework proposal to limit the fund at $4.5b is actually “riddled with loopholes,” because it would allow rate-of-return carrier support to increase by $300m and the budget only remains in effect for 6 years.  As a result, “under the ABC and RLEC Plans, there is abundant opportunity for the fund to grow, which the Commission should not permit.”

ACA’s second recommendation is to distribute USF support in a “competitively neutral manner,” meaning reverse auctions.  ACA’s members believe that they could help extend broadband in rural areas with USF support, and they “are eager to see the Commission provide competitively neutral and efficient support for universal broadband so they can seek to serve these areas.”  ACA argues that the ABC Plan will effectively grant the price cap ILECs “a new government entitlement” to unserved areas, and the Rights of First Refusal proposal would especially give the ILECs an unfair competitive advantage.  ACA challenges the ILECs to accept reverse auctions, and “if they are in fact the most effective and efficient providers of broadband to unserved or underserved areas, the Price Cap incumbents would have nothing to fear from a competitively neutral distribution process.”

ACA’s next proposed fix for the ABC Plan’s flaws is a significantly limited access replacement mechanism (ARM), where carriers would only receive this support “where harm is demonstrable and severe.”  ACA ideally would like for there to be no ARM, but if the FCC decides to adopt a revenue recovery mechanism, then such funding should end after 3 years and the funding level should be less than 100% and reduced each year in the 3 year period.  ACA reasons that “transitional mechanisms like an ARM have a way of becoming permanent rights,” speculating that price cap carriers could ultimately end up collecting ARM support long past a reasonable timeframe.

When it comes to RLECs, ACA seemed understanding of the challenges that small rural companies will face if High Cost funding is reduced or eliminated: “These smaller providers are most reliant on current High-Cost funding to provide service to consumers and will suffer most if funding is reduced significantly and precipitously.  Further, these smaller telephone companies have generally demonstrated competence in providing service and have a deep commitment to their customers.”

ACA recommends that incumbent ETCs with less than 100,000 lines should have the option to continue receiving high cost support for 8 years, “so long as they agree to commit to provide broadband service in all their service areas,” at 4/1 Mbps initially and 16/4 Mbps within 6 years.  ACA’s recommendation to make funding for small companies somewhat contingent on broadband speeds provided is interesting, but the key here is that funding must be available, sufficient and predictable. Whether phasing out high-cost funding after 8 years will meet the sufficient and predictable principles, especially if large network investments must be made by year 6.

Overall, the ACA presented some interesting arguements, challenges to the proposed plans, and recommendations for USF reform.  There is growing opposition to the Consensus Framework by parties who were not directly involved with its development, but with $4.5b per year at stake, one can’t blame the dissenters for doing whatever they can to try to influence the FCC in this eleveth hour comment cycle.  Do you think the FCC will be accomodating to the parties who were not involved in the industry negotiations?

ACA’s full comments are available to read here.

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