With $2b Decrease to Revenue Base in 2 Years, “The USF is Being Starved”

When you glance at the National Broadband Plan action item website, you will see that it is reportedly at the 80% completion mark as the plan nears its 2 year anniversary. Then, look at the section called “Accelerate Universal Broadband Access and Adoption”—this is where all the “good stuff” on USF/ICC lives—and you will see that the FCC’s goals have largely been achieved. Except for one: the elusive USF Contributions NPRM. According to the action item agenda, “To stabilize support mechanisms for universal service programs, in Q4 2010 propose rules to reform the process for collecting contributions to the USF.” Well, here we are a year after this objective should have been achieved and still no progress on USF contributions reform…and NTCA is not letting the FCC forget about it, as evidenced by a January 9, 2012 Ex Parte meeting with FCC staff.

NTCA discussed with FCC staff “prompt and effective reform of the contributions mechanism that enables the federal universal service fund.” NTCA argued for a revenue-based contributions mechanisms that “is technology neutral and best captures the value that consumers place on competing services;” “reflects the balance that consumers strike between different service offerings and the evolution of consumer preference;” is the “most equitable means of sharing responsibility;” and “can be implemented quickly with little burden to providers or the industry.” NTCA further argues that a revenue-based mechanism would be stabilizing and not overly complex, unlike a mechanism based on numbers or connections.

NTCA believes that the FCC has ample authority to extend the contributions base. One of the most convincing arguments was that the FCC has obviously made it a key mission to reform USF for the broadband era, so it logically follows that contributions should also be broadband-centric. NTCA explains, “Given that the Commission has indicated that retooling the USF program to support broadband-capable networks is among the most significant policy priorities, it would be both self-defeating and ironically anomalous for the Commission to build a broadband-focused fund of tomorrow on a foundation comprised solely of legacy services that fewer and fewer customers are buying.”

“Fewer and fewer” is certainly no exaggeration—if the USF contribution base is kept as it is, there literally won’t be anyone to keep it afloat in the coming years. NTCA estimates that “Over the past 2 years, assessable Telecommunications Revenues declined by $2 billion.” Just looking ahead three years, JSI Capital Advisors has projected that total wired access lines will decline from 86.49 in 2012 to 56.55m in 2015; meanwhile broadband connections will increase from 102.30m in 2012 to 115.48m in 2015 (The ILEC Advisor: Communications Industry Forecast 2011-2020: ILEC and CLEC Access Lines; Communications Industry Forecast 2011-2020: Broadband Connections and Market Share). So… why hasn’t the FCC broadened the contribution base to include broadband connections yet?

Much of the fault likely lies in the challenge of deciding exactly who should contribute, and how much. NTCA recommends a revenue-based methodology, and suggests that the contributions base should be broadened to include non-interconnected VoIP revenue, fixed and mobile broadband revenues (a $49b base in 2012), and texting revenue (a $20b base in 2012). NTCA argues, “Non-interconnected VoIP and texting cannot function without supported networks, and should thus contribute.” Furthermore, “texting is increasingly a substitute for voice calls.” According to NTCA, including broadband and texting revenues in the contributions base could likely cut the steadily-increasing contributions factor in half. Fixing the supply side of USF is crucial, and NTCA stresses that “The shrinking Contributions Base must be fixed or all of Universal Service is at risk.”

So you include voice lines, broadband lines, all VoIP and texting in the contributions base—is that it? Probably not, according to NTCA, but the FCC should not hesitate to implement initial reforms before they decide who else should contribute. NTCA urges the FCC to study “how to address business models that rely heavily upon driving traffic from others to specific websites or web-based enterprises.”

Determining contributions for web-based businesses that “place substantial burdens on networks” and probably wouldn’t exist if not for the networks they utilize is definitely a murky area, but as NTCA suggests, this could be a longer-term goal. How would the FCC begin to determine which web-based businesses should pay into USF? Would it be based on traffic, revenue, bandwidth utilization, or something else? With the lines between service provider and content provider becoming increasingly blurry (Google being the prime example), how will the FCC apply a new methodology for companies that fall into different categories? One can expect content providers to cry foul that the FCC is attempting to stifle innovation by imposing fees in this realm, but if it weren’t for the networks, these businesses would not exist. They certainly wouldn’t be generating billions in revenue, or contributing massive strain on broadband networks, thus requiring service providers to continually invest in upgrading their facilities…

The debate over contributions reform is likely to heat up in the coming months, and it will be very interesting to see what the FCC—and the industry—comes up with for new methodologies and solutions to address the rapidly shrinking contributions base. What do you think should happen…and what do you think will happen?

NTCA’s Ex Parte filing is available here.

Petition for Reconsideration of USF/ICC Order Focused on Pitfalls of Reverse Auctions  

Eighteen rural wireless stakeholders, collectively the Blooston Rural Carriers, submitted a Petition for Reconsideration of the USF/ICC Transformation Order on December 29, 2011. The law firm of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP wrote arguments against reverse auctions and several aspects of the Mobility Fund Phase I on behalf of these companies. The Blooston Rural Carriers argued that reverse auctions will create a “race to the bottom” and may provide opportunities for deceptively low and anti-competitive bidding. Additionally, the process favors large carriers and does not include sufficient provisions to ensure small rural providers will participate or be successful in winning Mobility Fund support. The Blooston Rural Carriers also argue that the FCC has essentially ignored several of their previous comments (and warnings) about reverse auctions in the Mobility Fund NPRM and CAF proceedings.

The FCC alleges that reverse auctions are the best possible methodology to distribute Mobility Fund Phase I support (and most likely CAF and Mobility Fund Phase II support too), but the Blooston Rural Carriers ask, are reverse auctions really the best way? The petition explains that reverse auctions are “susceptible to a number of shortcomings that ultimately undermine the Commission’s intention of expanding existing coverage to unserved areas in the most economic way possible.”

The Blooston Rural Carriers have made several attempts over the past year to convince the FCC that reverse auctions would be detrimental not only to small carriers, but the goals of USF overall. However, it appears as though many of Blooston’s pleas have gone unacknowledged by the FCC despite the fact that “Courts have long held that an agency must respond to ‘relevant’ and ‘significant’ comments.” The Blooston Rural Carriers snipe, “The opportunity to comment is meaningless unless the agency responds to significant points raised by the public.”

The Blooston Rural Carriers did indeed raise one significant point in their petition that should produce an interesting response from the FCC: Tier One wireless carriers be limited or prohibited from receiving Mobility Fund support. The Blooston Rural Carriers explain, “USF funds are limited, and the Mobility Fund rules must recognize that no Tier One carrier requires financial assistance to complete its buildout.” The USF/ICC Transformation Order makes $300m available in Phase I via reverse auction, where any carrier can participate in the auction and no areas will be prioritized (The ILEC Advisor: Introducing the Mobility Fund: “A National Priority”).  This means that Verizon and Sprint, who voluntarily surrendered USF support in exchange for merger approval, will actually be able to participate in (and possibly win) reverse auctions for support they have allegedly given up.

The Blooston Rural Carriers refer to Verizon, explaining, “Were it not for the Commission’s conditioning the Alltel merger upon a phase-down of USF receipts, it stands to reason that the merged entity would have remained the largest recipient of high-cost funding.” Verizon and AT&T saw profits in 2010 of well over $10b, which certainly begs the question of exactly why the big companies need money to deploy a few extra towers in unserved areas. According to the Blooston Rural Carriers, “Notwithstanding the fact that the recent annual profits of either AT&T or Verizon could fund the entire proposed $4.5b annual high-cost program budget with room to spare…the Commission is looking to give them substantial new CAF and Mobility Fund support…without any reference to their earnings;” which is tantamount to corporate welfare.

Even though the FCC contends that Phase I Mobility Fund support is not intended to go to particular classes of carriers, the Blooston Rural Carriers argue that “The only way to effectively encourage high-quality expansion into unserved areas is to ensure that funding is directed to carriers that have a legitimate interest in building and maintaining high-quality services in those areas;” and rural carriers have a “vested interest” in doing just so. The Blooston Rural Carriers explain that small rural carriers have only been able to achieve mild success in regular spectrum auctions because of special provisions like bidding credits—“without such measures, small carriers would have had no realistic chance.”

There are no bidding credits or special provisions for small companies in the Mobility Fund—at least not in Phase I. The Blooston Rural Carriers warn that “participation in the Mobility Fund will significantly favor large, nationwide carriers whose capital and operating costs are significantly lower than small and rural service providers.” Furthermore, large carries may have opportunities to game the system though unreasonably low and anticompetitive bids, and determining winners based on costs alone might produce undesirable results. The Blooston Rural Carriers insist, “It is important to take into account more factors than simply which entity can claim to do the job for the least amount of money.”

As an alternative, the Blooston Rural Carriers recommend that the FCC “choose a method of distributing funds that takes into account an equitable comparison and evaluation of the differing costs and service characteristics of different technologies, rights of creditors and repayments of outstanding loans, and the treatment of carrier of last resort obligations, costs, as well as past performance and experience providing service in the kinds of areas that generally remain unserved.” In addition to bidding credits for small carriers, the Blooston Rural Carriers’ list of recommendations for improving the Mobility Fund for small rural carriers includes:

• Ensuring affordable roaming agreements for rural carriers who receive mobility support
• Facilitating greenfield projects and “economic ‘jump starts’” for RLEC spectrum holders interested in deploying new wireless systems in their service areas,
• Prohibiting competitively harmful exclusive equipment and handset arrangements
• Require 3G systems deployed with Mobility Fund support be easily upgradable to 4G

Finally, the Blooston Rural Carriers are concerned about the future direction of the Mobility Fund, since many of the finer details are still unclear and will be left to the Bureaus to determine: “The Commission’s reliance on undetermined further procedures provides little comfort for rural carriers who are routinely at a disadvantage to larger carriers.” The Blooston Rural Carriers hope that the FCC will finally notice and respond to some of the arguments mentioned in this petition—arguments that the Blooston Rural Carriers and other rural stakeholders have been delivering for over a year with little acknowledgement by an FCC determined to make reverse auctions work. However, there is a real threat that the efforts to make reverse auctions work will undermine the goals of the USF and misallocate the precious little funding that is available in the tight $4.5b budget.

The Blooston Rural Carriers recommend that the FCC, “on reconsideration, take real, concrete, active steps to ensure equal opportunity and competitive participation among all carriers.” What do you think the FCC should do to ensure small rural wireless carriers can actively participate in Phase I Mobility Fund reverse auctions?

The full Petition for Reconsideration is available here.

2011 Ends with RLECs, Small Cablecos and AT&T Searching for a Bright Light

Part 4 of “2011: The Regulatory Year in Review.” When you look at everything that has happened in telecom in the last two months alone, the entire rest of the year seems almost inconsequential in comparison. The whirlwind of activity in the past six weeks was one part culmination of several longstanding regulatory-industry entanglements and one part FCC commissioners wanting to get things done before two new commissioners take their seats at the table in 2012. No matter how you mix it up, the FCC served up a smorgasbord of prime cuts and rotten left-overs for both Thanksgiving and Christmas.

November 2011: We endured most of the year with only four FCC commissioners, and the knowledge that Commissioner Michael Copps would be departing at the end of the year. I had some personal objections to a four-member commission approving something as monumental as the USF/ICC Order, but it is unlikely the outcome would have been different even with the full five. Still, one can wonder…

On November 1 President Obama nominated Jessica Rosenworcel and Ajit Pai to fill the empty seats starting in 2012. Rosenworcel will replace Copps; she hails from the Senate Commerce Committee and has served the FCC as senior legal advisor to Copps and Wireline Competition Bureau chief. Pai will fill Baker’s seat and was formerly a partner at Jenner & Block. Pai’s resume also includes the Senate Judiciary Committee’s Subcommittee on Civil rights, the Office of Legal Policy at the Justice Department and the FCC.

Pai might be a much-needed advocate for rural telecommunications as he was raised in Kansas. According to Senator Jerry Moran (R-KS), “Ajit is a humble and hard worker – just what you would expect from a Kansan. He is the type of person you would like to have as your neighbor.“ Moran’s statement continues, “The FCC also needs commissioners who are committed to the needs of all Americans, including those who live in rural America, so its innovators can compete in the marketplace along those in urban areas. A native of Parsons, Kansas, Ajit will bring an understanding of the challenges facing our part of the country at this vital time for the future of telecommunications.” One major criticism of the FCC this year has been that they simply do not understand rural America (even though Genachowski visited Diller, NE), so Pai may bring a welcome and necessary perspective to the urban-centric Commission.

On November 9, Genachowski announced “Connect to Compete,” a broadband adoption initiative focused on low-income families. Connect to Compete and its cousin Comcast Internet Essentials promise to provide broadband to qualifying low-income families for $9.95 per month as well as access to digital literacy training and low cost computers. Dozens of big-name tech companies have signed on to participate in Connect 2 Compete. As these low-income programs pick up steam in 2012, there may be some market pressure for RLECs to respond in kind. However, reports are already coming in that very few low-income families are even qualifying for Comcast’s Internet Essentials program—one requirement is that participants cannot have outstanding bills with the company. (The ILEC Advisor: The FCC’s Egalitarian Cable Broadband Initiative: What does it Mean for RLECs?).

As Thanksgiving drew closer, the entire telecom industry was watching FCC.gov like a hawk waiting for the USF/ICC Order. Rumors swirled regarding the release date, length of the document, and changes that may have been made after the October 27 Open Meeting vote. On November 19 around 6:30 PM EST, I was planning my weekend and looking forward to a relaxing evening when I received the news that the order was released, and it was a doozy at 759 pages long. The Order more closely resembled the February NPRM than the industry’s Consensus Framework, which has caused more than a few to wonder if the FCC’s insistence that the industry draft an alternative was just a smoke-and-mirrors diversion. The Order has received criticism from the Hill for being released late, extremely long, and likely modified after the vote contrary to the open and transparent principles that the Commission is supposed to abide. Criticism aside, the USF/ICC Reform Order is certainly one of the most significant events for RLECs since the 1996 Act. (The ILEC Advisor: Introducing the Connect America Fund – USF Reform Overview).

Many of us were pleased that the USF/ICC Order was released a week before Thanksgiving, thus saving the holiday (although I spent most of the holiday reading it). However, AT&T/T-Mobile merger groupies got their fill of Thanksgiving goodness when the FCC announced on November 23 that it was opposed to the merger and an administrative hearing would be held to further consider the facts—the kiss of death, according to some experts. Following this decision, things got really ugly between AT&T and the FCC for a few weeks. (The Deal Advisor: FCC Calls for Hearing on AT&T/T-Mobile Combo).

December 2011: December has seen RLECs struggling to comprehend the USF/ICC rules, AT&T battling with the FCC and DOJ, small cablecos fighting with local broadcasters over outrageous retransmission fees, and the FCC grappling with when and how to abandon the PSTN.

The best drama unfolded before my very eyes on December 1, 2011. Not 15 hours earlier, the FCC had released its staff report detailing why it was opposed to the AT&T//T-Mobile deal—including AT&T’s egregious jobs claims and questionable economic analysis and engineering models. Needless to say, the staff report was the talk of the town in DC the following morning, when AT&T’s senior executive vice president for external and legislative affairs Jim Cicconi released a sharply-worded blog post damning the staff report as “obviously one-sided” and “an advocacy piece.”

Immediately after Cicconi’s blog post was released, he was a panelist at the Phoenix Center’s 2011 Annual U.S. Telecoms Symposium, which I attended—I was surprised that he even showed up. At the Symposium, Cicconi made some strange remarks comparing consumer behavior with cell carriers to religion; and at one point he commented that he was glad there weren’t any hard questions about the merger or the FCC staff report. He also made a comment about how telecom regulation is designed to protect companies, not consumers, which sent shock-waves through the city. This initiated a day of he-said-FCC-said PR battles on Twitter and the AT&T Public Policy blog. But at the end of the day, the AT&T/T-Mobile merger was still essentially doomed…and just over two weeks later AT&T announced that the deal was, in fact, dead. (The Deal Advisor: The Deal is Dead! Now What?)

Court challenges to the USF/ICC Order predictably rolled in throughout the month, with 13 lawsuits to date from small telephone companies, NTCA, state public utility commissions, a couple wireless companies, and AT&T. A judicial panel selected the Tenth Circuit Court of Appeals in Denver, CO as the venue—apparently a good court for this particular subject matter. The issues in the lawsuits range from states’ loss of power to bill and keep. I got the impression that the FCC protected itself from legal challenges quite thoroughly in the Order, so it will definitely be interesting to see how this case unfolds next year. (The ILEC Advisor: Let the Challenges Begin! USF/ICC Order under Attack as Parties Turn to Courts).

Finally in December the FCC held two informative public workshops on transitioning the PSTN to all-IP; but the workshops left plenty of uncertainty regarding the path forward. Despite gathering over 50 experts from all corners of the industry, there was still not a clear definition on what the PSTN actually is or why it should be forcibly transitioned since it is already clearly in transition. Questions aside, the PSTN workshops were extremely informative and likely signaled the beginning of what is surely to be a high-priority initiative at the FCC in the next year. (The ILEC Advisor: The PSTN is Already in Transition… What is the PSTN, Anyway?, The PSTN: Sunset, Transition, Rebirth, or Just Leave it Alone?).  

Well, that about does it for 2011… It has been an exciting year! Coming up next, JSI Capital Advisors will speculate on several big regulatory topics for 2012.

Exactly How Many New Jobs will Broadband Create?

Part 3 of “2011: The Regulatory Year in Review.” Autumn was intense—no doubt about that. From the early August release of the Public Notice on the ABC Plan to the October 27 FCC vote on the USF Order, these 3 months were chock-full of excitement. One trend I noticed during this time was the overwhelming number of job creation claims associated with government and private sector broadband initiatives. Sure, broadband helps create jobs and certainly provides new possibilities for individuals to further their educations, start businesses at home, and conduct commerce on an international scale. But will a few government decisions and one colossal merger create literally millions of new jobs? Or is “broadband = tons of jobs” just the catch phase of the year?

August 2011: August began with the Public Notice on the ABC Plan and ended with a rapid-fire comment cycle. In between these events, we saw several natural disasters and an unprecedented FCC blog post on USF/ICC reform signed by all 4 Commissioners proclaiming that the Public Notice “marks the final stage of our reform process.”

On August 4 in Jefferson, Indiana, FCC Chairman Julius Genachowski announced “jobs4america,” “a new coalition of forward-looking businesses committed to bringing thousands of new jobs in America.”  If you are keeping a tally of broadband-related job creation claims, add 100,000 to the list—primarily broadband-enabled call center jobs, including home-based call centers. Genachowski applauded a new call center in Indiana, adding “So broadband really is enabling new economic opportunities, creating jobs and revitalizing communities—including some communities that thought their best days might be behind them.” Of course, he made sure to mention his recent trip to rural Diller, Nebraska. A fact sheet about jobs4america lists 575 broadband-enabled call center jobs that have actually recently been created, and another 17,500 or so “job creation goals over the next two years.” So… 100,000? Seems like a stretch.

The job claims didn’t stop with the FCC—President Obama also pledged to bring new jobs to rural America at an August 16 Town Hall meeting in Peosta, Iowa. Obama’s visit complemented a White House Rural Economic Forum and the release of a White House Rural Council report, “Jobs and Economic Security for Rural America.” One of the primary goals of the Council is to deploy broadband to 7 million rural Americans currently unserved, which will help enable distance learning, health care, and of course—new jobs! (The ILEC Advisor: Obama Pledges Rural Jobs and Economic Growth).

Finally, who will ever forget AT&T’s preposterous claim that the merger with T-Mobile will create 96,000 jobs? Certainly not anyone who lived in DC these past few months, as AT&T blanketed the media with commercials and print ads touting this alleged benefit of the merger.  On the same day that AT&T ceo Randall Stephenson told CNBC that the company would bring 5,000 international call center jobs back to the U.S, the Department of Justice slapped AT&T with the allegedly-shocking news (to AT&T anyway) that it had filed a suit to block the deal. (The Deal Advisor: Surprise, Surprise…DOJ Says “No Way” to AT&T – T-Mobile Merger).

September 2011: DC was still shaking and drying out from the August hurri-quake in early September, and the FCC responded by holding a public safety workshop on network reliability and outage reporting. Genachowski stated, “The hurricane and earthquake also shed light on ways we can continue to enhance our work to ensure the reliability of communications during and following disasters… Our experience with these events will inform our pending rulemaking on outage reporting… [and] our separate but related inquiry on network reliability.” Meanwhile, another threat to public safety has emerged over the last couple years in the form of rural call termination problems, but the FCC has moved much slower to address this issue than they did to address two East Coast natural disasters that caused very little disruption to communications networks. A large portion of the FCC’s September agenda was dominated by public safety, disaster preparation and network reliability topics.

A significant step in developing the White Space spectrum occurred on September 14 with Genachowski’s announcement of a 45-day public trial of the Spectrum Bridge Inc. White Space database. Genachowski explained, “Unleashing white space spectrum will enable a new wave of wireless innovation. It has the potential to exceed the billions of dollars in economic benefit from Wi-Fi, the last significant release of unlicensed spectrum, and drive private investment and job creation.” No word on how many hundreds of thousands of jobs the White Spaces may create, but definitely look for more progress on White Space spectrum development in 2012.

Job fever continued with the September 12 release of the Obama Administration’s American Jobs Act legislative proposal which included a “National Wireless Initiative” to repurpose underutilized spectrum through incentive auctions, reduce the federal deficit, and of course, create jobs (The ILEC Advisor: American Jobs Act Includes Wireless Initiative, Public Safety Network). Despite all of the heavy-duty job creation claims by the FCC, White House and telecom providers; some rural stakeholders warned that the FCC’s proposal for USF/ICC reform will actually eliminate jobs. Impact studies conducted by universities in New Mexico, Kansas, Colorado and Missouri made dire predictions about RLEC jobs, state and local taxes, RLEC wages, and total economic impact in their respective states. Although I was skeptical about some of the calculations, these impact studies definitely carried an important message about the value of RLECs to local and regional economies (The ILEC Advisor: New Mexico Study Depicts Life without USF, State USF Reform Impact Studies Predict RLEC “Death Spiral”).

October 2011: As the death of Steve Jobs rocked the galaxy, Genachowski’s October 6 announcement that the USF/ICC rules would indeed be on the October open meeting agenda launched the telecom industry into one final frenzy.  Unfortunately, Genachowski’s big reveal did little to ease our anticipation as it gave very few solid clues as to what “devils” were lurking in the details of the Order. Genachowski predictably mentioned his visit to Diller, Nebraska and claimed the reforms will “spur billions of dollars in private investment and very significant job creation”— 500,000 jobs to be exact.

We expected the Order would be about 400-500 pages long, and would be released shortly after the October 27 Open Meeting, where it was approved unanimously. We were wrong… Although we had to wait a few more weeks for the rules, the Commissioners revealed enough at the Open Meeting for it to become clear that the ABC Plan/Consensus Framework/RLEC Plan were not adopted in entirety, or really at all. Thus began 3 weeks of general panic. (The ILEC Advisor: Finally – Genachowski’s Big Announcement on USF/ICC Reform).

The FCC threw the RLECs a bone on October 18 with a workshop to address rural call termination problems. The workshop was a good first step to publically bring attention to the pervasive issue, but it almost seemed “too little too late.” After all, these problems have been increasingly occurring for more than a year. Thousands upon thousands of calls have not reached their rural destinations, harming small businesses, threatening public safety and straining family relationships with great aunt Gertrude. Rural panelists urged the FCC to issue forfeitures and fines to companies found intentionally blocking or degrading calls to high-cost rural areas, but so far no actions have been taken. Expect this issue to rear its ugly head in 2012. (The ILEC Advisor: FCC Finally Gets the Message about Rural Call Termination Problems, Rural Panelists Discuss Call Termination Problems – Causes, Effects, Solutions).  

Also notable in October, the Net Neutrality rules finally stopped collecting dust in the Office of the Federal Register storage room. Political polarization over the rules became almost too much to handle. Lawsuits from the left and right popped up faster than you can say “anti-discrimination,” and we can all look forward to a 2012 court showdown between Verizon, Free Press, the FCC and others at the U.S. Appeals Court in Washington. (The ILEC Advisor: Net Neutrality Fight Intensifies – In Washington Anyway).

While not without hurricane-force excitement, the early fall months were certainly the calm before the real storm—look for the final installment of “2011: The Regulatory Year in Review” covering November and December next week!

Genachowski’s Potemkin Rural Visit; RLECs and ILECs Suck it up and Play Nice

Part 2 of “2011: The Regulatory Year in Review.” The summer months had a fairly slow start, with some tepid FCC activities and a short lull in the USF/ICC Reform chronicle.  Drama with AT&T/T-Mobile was ongoing, with controversies coming to light regarding AT&T’s paid-for support of the merger. Organizations completely unaffiliated with the telecommunications industry nevertheless waved the AT&T/T-Mobile flag with pride; which rose more than a few eyebrows and even led to a few shakeups and firings in said organizations.  Given the news yesterday that AT&T and T-Mobile will drop the merger completely, it is actually a little funny to look back at the year and all of the bickering and moaning that occurred over this doomed betrothal (more to come on that topic the next installment). The stand-out event of the summer was without a doubt the ILEC-RLEC “Consensus Framework” for USF/ICC Reform, which like AT&T/T-Mobile, seemed like a sure-bet to the parties involved at first but slowly dissolved largely due to the FCC’s stern agendas.

May 2011: May was a big month for USF/ICC Reform reply comments and ex parte filings, but little else. Republican FCC Commissioner Meredith Attwell Baker announced early in the month her intent to leave the Commission for a lucrative lobbying position at Comcast, just months after she voted in favor of the Comcast-NBCU merger. Naturally, watchdogs cried foul and even demanded a Congressional investigation. The “revolving door” is nothing new as prominent FCC staff circle back and forth around the DC telecom lobby scene, but Baker’s announcement definitely had a bitter taste given the large public opposition to the Comcast-NBCU deal.  In her official farewell statement, Baker explained that she had not been contacted by Comcast until mid-April, long after the deal was done, and “I have not only complied with the legal and ethical laws, but I have also gone further. I have not participated or voted any item, not just those related to Comcast or NBCUniversal, since entering discussions about an offer of potential employment.” Meanwhile, the revolving door keeps spinning…

Chairman Genachowski’s May 18 trip to Diller, Nebraska topped my Hot List for the year, but largely because I was endlessly entertained by the big kerfuffle made out of this beltway-insider visiting fly-over country for all of a couple hours. “It’s Nebraska, not the moon,” I said. In late 1700s Russia, the story goes that “Potemkin villages”—fake settlements with all the bells and whistles—were constructed for the sole purpose of impressing Empress Catherine II when she visited the rural countryside. Genachwoski’s visit was the opposite of a Potemkin village—it was a Potemkin visit. The whole ordeal seemed like the FCC’s way of satiating the rural telecom industry (and rural Americans) by saying, “Hey, we understand what you are going through every day, and your unique needs, because we visited one of your communities!” Personally, I saw right through the façade, but nonetheless it was a nice effort. Genachowski visited locally-owned businesses and an RLEC, where he even posed for photo-ops in the CO. His overall messages was that rural businesses require broadband in order to succeed, which is absolutely no surprise for the RLECs who have been providing broadband to local businesses for years.

June 2011: The month with the longest days can basically be summed up in one word: reports. In the span of a few weeks, the FCC released three “big” reports of varying significance and quality. The first, “Information Needs of Communities: The Changing Media Landscape in a Broadband Age” (by Steve Waldman), I admit I did not pay much attention to. The gist was that broadband is important for a vibrant media experience and “a free democracy comprised of important and empowered citizens.” In response to this report, resident media champion Commissioner Copps proclaimed that “it is imperative that the FCC play a vital role in helping to ensure that all Americans have access to diverse and competing news and information that provide the grist for democracy’s churning mill.” Copps zoomed in on an alleged “crisis” identified in the report that “more than one-third of our commercial broadcasters offer little to no news whatsoever to their communities of license.” Basically, we need more local news and more ways to protect local media from Big media—Copps explained, “Localism means less program homogenization, more local and less canned music, and community news actually originated in the market where it is broadcast.”

The June 22 report, “Bringing Broadband to Rural America: Update to Report on a Rural Broadband Strategy” was more relevant to RLECs but generally lacked substance.  This 29-page document from the FCC and USDA was a Congressionally-mandated update to a much more comprehensive 2009 report “describing a ‘comprehensive rural broadband strategy.’” Again, the gist of this report was fairly straightforward—all Americans should have access to broadband, and we just aren’t doing a good enough job in rural America despite making “significant progress” in the last two years. The key take-away of this report was that it provided some extra ammunition for the FCC’s USF/ICC Reform decision, as it self-served the FCC’s reform principles of accountability, fiscal responsibility, and market-driven incentives.  Genachowski proclaimed that it was “not acceptable” that 28% of rural Americans lack broadband, as found in the report.

Ending the month was the ironically-titled “Fifteenth Annual Mobile Wireless Competition Report,” where the FCC made no definitive conclusion (in 308 pages) about the state of competition in a report where the FCC was explicitly directed to make a definitive conclusion about the state of competition in the wireless market…. So much for that goal… Nevertheless, the Big 4 (and others) used the report to prop up their own agendas—be it proof that the industry is totally competitive or totally not competitive. AT&T cherry-picked certain data from the report to depict a vibrantly competitive wireless industry to boost their assertion that the merger with T-Mobile would not be anticompetitive. Lack of conclusion aside, this report did contain some interesting factoids about the wireless market in general. (The ILEC Advisor: How do You Measure Wireless Competition?).

July 2011: July was all about reaching an industry consensus for USF/ICC reform. The FCC asked for it, and RLECs/ILECs delivered, albeit too late for the FCC’s impossibly high standards of time. At the beginning of July, it still appeared as though a consensus was a million light-years away—reply comments, ex parte filings, and a series of high-profile events on the topic in DC did little to ease my mind even though a comprehensive “Consensus Framework” kept being promised. Mid-month, the Rural Associations came out swinging with a far-reaching advocacy campaign called “Save Rural Broadband,” aimed at getting consumers to contact their Congressional offices  with their concerns about being left behind in the Great Broadband Race of the 2010s. (The ILEC Advisor: Comments Show Little Consensus on USF Reform Issues, Rural Associations Launch “Save Rural Broadband”).

On July 29, the long-awaited Consensus Framework was finally released for public inspection. Called America’s Broadband Connectivity Plan (ABC Plan), this proposal was the baby of the 6 largest price cap ILECs, but “supported” by the Rural Associations.  It presented what the involved parties believed was a reasonable and appropriate framework for price cap ILECs, if used in conjunction with the RLEC Plan for rate-of-return companies. Both sides made compromises—including the Rural Associations’ reluctant acceptance of a $0.0007 access rate. The ABC Plan was widely criticized by basically any party who wasn’t directly involved in its creation. (The ILEC Advisor: Price Cap Carriers Release “ABC Plan” for USF with Rural Support).

Finally, the FCC attended one of those pesky consumer issues in July- “mystery fees,” and “cramming”—“the illegal placement of an unauthorized fee onto consumer’s monthly phone bill.” The FCC proposed rules that would require telecommunications providers to clearly notify consumers how to block third-party charges on their bills, among other measures. Between the mystery fee crackdown, July proposals to improve VoIP E911 availability and reliability, and the December rules barring uber-loud TV commercials, the FCC certainly stepped up in response to various consumer pressures throughout the year.

Coming up next in “2011: The Regulatory Year in Review,” we will reminisce about all the fun we had in that tumultuous time between when the Consensus Framework was released and the USF/ICC Order was approved—you don’t want to miss this!