Entries in FCC Filings (20)

Thursday
Aug252011

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.

Monday
Aug012011

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.

Sunday
Jul102011

Tribal Carriers Propose Native Nations Broadband Fund

GRTI Objects to FCC’s USF NPRM, Warns of “Dire Consequences” for Native American Communities

Weighing in on the Universal Service Fund reform debate are a variety of Native American telecommunications providers and associations, who are generally opposed to the FCC’s NPRM and support the creation of a Native Nations Broadband Fund in order to protect and promote broadband infrastructure in these especially challenged areas.  Gila River Telecommunications, Inc. (GRTI; serving the Pima and Maricopa Tribes of the Gila River Indian Community in rural southern Arizona) has filed comments in the proceeding, as have several other Tribal Carriers and the Native Telecom Coalition for Broadband (NTCB). On June 28, 2011, individuals from Arctic Slope Telephone Association Cooperative, Copper Valley Telephone Cooperative, Inc., Interior Telephone Company, Inc., Mukluk Telephone Company, Inc., and Waimana Enterprises, represented by GVNW Consulting, met with members of the FCC to present draft rules for a Tribal/Native Broadband Fund. The cornerstone of a Tribal/Native Broadband Fund is ensuring that Tribal Carriers pass the Times Interest Earned Ratio (TIER) test, which, according to the NTCB “would ensure that government loan covenants, mainly financial performance metrics are met,” so Tribal Carriers could expand and improve broadband infrastructure in Native lands.

GRTI provided a great deal of interesting information about the economic, geographic and demographic challenges that Tribal Carriers face as they attempt to deploy broadband in Native American communities. GRTI acquired its local exchange network from US West in 1988 and it is now owned and operated by the Gila River Indian Community, with 60% of employees and the entire board comprised of Native American individuals. GRTI provides voice and broadband to an area of around 582 square miles with a population of 12,000 Native Americans. GRTI notes that, “this low population density leaves little, if any, margin for profit for GRTI after recovery of high costs of build-out operations.”

I was very impressed that GRTI has managed to increase telephone penetration from 10% in 1988 to 80% today, but I was discouraged to learn that GRTI’s broadband penetration rate is only 22%, for 1.5 Mbps/256 kbps DSL—apparently, this is a high take rate for a Tribal community. Furthermore, GRTI notes that 50% of the Gila River community is below the poverty line, and over 50% are unemployed. Adding to these challenges is the cost of broadband for consumers, which GRTI can provide at no lower than $52.90 per month due to the extraordinary costs for interstate access and middle mile transport. Add extremely low digital literacy to this list of challenges, and “the resulting low usage rate creates an economic hurdle for capital investment in enhancements to and expansion of broadband services on Tribal lands.”

The NTCB also provided some interesting commentary about the unique challenges that Tribal Carriers face. The NTCB showed concern about the FCC’s USF NPRM because of the possibility of the reforms increasing the rural-rural divide, where Tribal Lands would be the real losers especially if USF support is primarily distributed to large carriers. The NTCB explained, “Communications giants are going to serve rural America—this is the vision presented by the National Broadband Plan. However, these giants lack local presence, lack local leadership, lack local participation, and lack local accountability; all reasons why ‘scope and scale’ have failed in much of rural America today.” The NTCB goes on to explain how large ILECs have historically showed little interest in serving Tribal Lands, and “entities that might be deemed to have ‘sufficient’ resources to get the job done are not interested in building-out to these remote areas, nor do they have an appreciation for the local needs and level of commitment that is needed to fully serve Native communities (the tribe’s cultural, spiritual, economic, personal and public safety, and other unique factors to these remote areas are an integral aspect not only of network planning, but also the continuing provision of appropriate/necessary communications services and customer interface).”

I found this argument to be very thought-provoking, and reminiscent of my opinions about large investor-owned telecom carriers serving rural areas in general. However, the special characteristics of Tribal Lands are something that, in my opinion, large non-local companies are not equipped for or willing to deal with for such low return on investment. I believe this emphasizes the importance of providing support for Tribal-owned and operated broadband providers, who will likely make decisions with the best intentions for their communities.

GRTI argues that a Native Nations Broadband Fund “would encourage a meaningful incentive for the deployment of [broadband] infrastructure,” and “targeted support not only advances the Commission’s relationship with, and responsibility to, Tribes but also furthers the Commission’s policy of promoting Tribal self-sufficiency and economic development.” Absent a special Tribal USF mechanism, GRTI is deeply concerned about its ability to continue to provide voice and broadband to the Gila River Community. GRTI estimates that the FCC’s NPRM proposals would decrease the company’s revenue by $2-3m over the next four years, and result in “dire consequences for the community.”

Furthermore, GRTI provided some interesting commentary about the trouble with using the National Broadband Map to target support to unserved areas. They argue that the map does not accurately depict Tribal Carrier’s service areas, as many Tribal Carriers did not provide information for the map. Apparently, a community center in the Gila River area is listed on the map as having 3-6 Mbps service, when it actually has a 1 Gbps fiber connection—the agency who provided the input never even confirmed it with GRTI: “in fact, GRTI had no idea how [the AZ Government Information Technology Agency] obtained this incorrect data.” GRTI was offered no resources or assistance to provide input for the National Broadband Map, and the result was glaringly inaccurate data.

In their June 28 ex parte meeting, the Tribal Carriers represented by GVNW Consulting prepared draft rules for a Tribal Broadband Fund (TBF). To receive support, eligible telecommunications carriers (ETCs) would have to undergo a certification process and submit quarterly financial data in order to receive Tribal USF support. According to the draft proposal, “The TBF support amount will provide participating eligible ETCs with ‘net gap’ support sufficient to recover any revenue shortfall to the provision of regulated communications services to American Indians, Alaska Natives and Native Hawaiians.” The support would then enable Tribal Carriers to pass the TIER test which would qualify these companies for RUS loans.

I find this proposal to be reasonable and necessary—it is clear that Tribal Carriers face extremely extenuating circumstances in broadband deployment and adoption. I would be interested in seeing proposals for increasing broadband adoption in Tribal Areas too, as the situation depicted by GRTI indicates that broadband deployment is only part of the challenge. I believe GRTI’s challenge is that their Tribal community simply cannot afford over $50 per month for DSL, therefore I hope that a Tribal Broadband Fund would help alleviate some of the costs associated with deploying broadband infrastructure in Tribal Lands—as a result, the Tribal Carriers could lower their prices significantly and hopefully increase the adoption rates, digital literacy, and overall economic well being of their communities. Will the FCC recognize the importance of establishing a separate Tribal Broadband Fund, or will Tribal communities fall victim to the growing rural-rural divide if Tribal Carriers do not receive any special attention?

GRTI’s comments are available here, and the NTBC’s comments are available here. The draft rules for the Tribal Broadband Fund are available here, and the ex parte filing by GVNW Consulting is available here.

Tuesday
Jul052011

Comments Show Little Consensus on USF Reform Issues

A Comparative Matrix Illustrating Diverse Viewpoints on Key USF Reform Decisions

The Universal Service for America Coalition (“USA Coalition”) summed up the dominant attitude towards the FCC’s proposed Universal Service Fund reform with the statement, “the voluminous record in this proceeding reflects widespread agreement that comprehensive universal service reform is necessary, but no consensus about the appropriate replacement mechanism.” Essentially, every major stakeholder agrees that some type of USF reform is necessary in order to bring America’s telecommunications network into the twenty first century broadband era. However, alternative solutions for reform span the spectrum of possibilities from moderate, gradual changes to rapidly eliminating high-cost support and basically everything in between the extremes. In order to keep track of the vast array of perspectives on USF reform, I have created a comparative matrix to illustrate viewpoints on key issues such as reverse auctions, fund caps, supported broadband speeds, transition periods and preferred alternative plans. The chart below only addresses one half of the overarching USF reforms—Intercarrier Compensation rightfully deserves a comparative matrix of its own.

The challenge in this project was picking the issues to compare across the different stakeholders represented—as a result, this is by no means a complete snapshot of the entire USF reform ecosystem. Issues like eliminating rate-of-return, size of geographic areas for targeted support, how many and what types of broadband providers to include in CAF, and nuanced perspectives regarding the different components of the high-cost fund are all equally important aspects of USF reform.  I believe that the topics represented in this matrix represent the “hot topics,” and are therefore the issues that most stakeholders provided commentary about in the proceeding. I also believe that reverse auctions and fund caps represent the most critical threats to RLECs, so it is especially important to illustrate the diverse opinions from stakeholders on these topics in order to possibly predict how the FCC may respond in final rules.

The data in the comparative matrix was collected from comments and reply comments from 57 USF stakeholders including small RLECs, Tribal telecommunications providers, state utility commissions, large price-cap carriers, consumer associations, capital lenders, state and national rural telecommunications associations, wireless providers and associations, satellite companies, cable companies, and legal and consulting firms. In some cases, the answer was clear as to whether or not a stakeholder supported or opposed a specific area of USF reform, and in some cases it was necessary to draw my own conclusion based on the comments about a specific topic—like whether or not a stakeholder specifically supports the FCC’s NPRM (surprisingly, this was not always clear).

Overall, I believe that there is overwhelming concern about the potential impact of the FCC’s proposals. In their comments, the Telecommunications Association of Maine insists that the FCC must “First, Do No Harm” with FCC reform. Unfortunately, the definition of “harm” varies greatly depending on which stakeholder is complaining about how unfair the current USF system is or how unfair the FCC’s proposals are. I believe it is clear from the comments that reverse auctions are not popular. Furthermore, there is widespread concern that the FCC’s support of reverse auctions is based on shaky theory with no solid foundation for a workable auction mechanism. Another common trend in the comments was large carriers (and basically any non-RLEC stakeholder) accusing RLECs of being wasteful, yet there were no solid, quantitative examples of RLECs abusing or wasting high-cost funds.  However, there were more than a few examples of RLECs utilizing the current USF system effectively and efficiently to deploy broadband in uneconomic rural areas, and there were ample quantitative examples of financial harms that will befall RLECs if the FCC’s proposals are adopted. Opinions on capping the high-cost funds ranged across the board, as did opinions on the appropriate transition period from the current system to the new USF methodology. Preferred transition periods ranged from immediately to over 10 years, and commenters disagreed mightily over capping, reducing, eliminating or increasing specific parts or the whole high-cost fund. Not surprisingly, there was also little consensus about the broadband speeds that should be supported with USF subsidies—as you can see in the chart below, the range is from 200 kbps to 100 Mbps.  

How will the FCC interpret all of these differing viewpoints? The FCC must properly address the concerns demonstrated by stakeholders, and hopefully the FCC will thoroughly consider some of the alternative plans presented in the proceeding. When the NPRM was first released back in February, Chairman Genachowski specifically said that he wanted to see alternative plans from the industry, and I believe the RLEC industry stepped up to this challenge.  A variety of rural stakeholders submitted interesting and attractive alternative plans that would each bring significantly less harm upon the RLEC industry than the FCC’s proposal. One thing is for sure based on the comments in this proceeding—there is basically no way that the entire industry is going to be satisfied with the final rules. The question is; which stakeholders will be harmed the most? I can only hope that it will not be RLECs.

Tuesday
Jun282011

USF Reform - Their Two Cents: Home Telephone Company

Home Telephone Company Supports Rural Broadband Alliance’s Proposal for USF Reform

On June 21, 2011, Keith Oliver of Home Telephone Company and the Rural Broadband Alliance met with Angela Kronenberg, Legal Advisor to FCC Commissioner Mignon Clyburn, to discuss Universal Service Fund reform. Home Telephone Company, an RLEC located in Moncks Corner, South Carolina, favors the Transitional Stability Plan (“TSP”) submitted by the Rural Broadband Alliance (“RBA”) in the initial round of USF Reform comments.  In the ex parte meeting, Oliver shared Home Telephone Company’s concerns about the current state of rate-of-return regulation and the FCC’s USF Reform proposals, ominously noting that “if rural rate-of-return companies cannot rely on the Commission to consistently uphold prior policy related to existing investment recovery, future investment will dry up.”

Home Telephone Company’s ex parte filing emphasizes the importance of ensuring recovery for existing network investments, and “reforms should not be implemented in a manner that neglects the realistic need for each rural rate-of-return carrier to recover the lawful investments and expenses incurred to provide universal service.” One sentence that especially stood out to me in the ex parte filing was, “proposals that jeopardize the lawful recovery of rate-of-return carriers do not constitute reforms.” I believe Home Telephone Company—and many RLECs—are rightfully concerned that the FCC’s so called USF “reforms” are also an effort to push small rural telecommunications providers out of the market by restricting cost recovery and preventing new opportunities for private investment.

Home Telephone Company addressed common sentiments shared by RLECs regarding the FCC’s proposals, and they are particularly concerned about alleged FCC staff comments pushing for RLEC consolidation and accusations that fiber-to-the-home projects that use USF support are unnecessary. Home Telephone Company comments that some negative FCC perceptions of RLECs may be exaggerated, but “the chilling nature of an agency’s staff suggestion that small businesses should go out of business or that rural companies should not have developed advanced networks consistent with established rules and regulations and government finance programs is self-evident.” The company also explains: “there are no specific facts or data that support the assumption that a large carrier can serve rural customers better or more effectively than a smaller independent carrier.” I believe that comments made by the FCC staff that either misunderstand the RLEC industry or purposely insult or intimidate RLECs may be exaggerated in some cases, but there are grains of truth as well—which have undoubtedly been causing great anxiety and uncertainty for RLECs. What company wants to hear that its governing federal agency is against its very existence? I agree with Home Telephone Company that there may be no direct evidence to support the assertion that RLECs should consolidate; but I fear that if the FCC’s final decision on USF reform is overwhelmingly negative for RLECs, then consolidation may be a better option than going out of business.

Home Telephone Company addressed Hargray Telephone Company’s Broadband Incentive Plan (“BIP”), but seemed concerned that the BIP might not be an attractive alternative plan for all rate-of-return companies that operate in extremely high cost areas and serve as carriers of last resort, because the BIP only facilitates support for customers who chose to subscribe to broadband services. Home Telephone Company argues that “in high cost to serve areas, a rural carrier meeting its network carrier of last resort responsibilities may lose a customer line for many reasons, but when it loses a customer line, it does not lose costs necessary to support a network.” Hargray’s BIP provides for increasing support levels based on a weighting factor for different broadband speeds—the more high-speed broadband customers, the higher the support; but if an RLEC loses a telephone access line, support for that line is lost as well. Although I firmly believe that the BIP is an attractive alternative plan that could potentially incentivize many RLECs to invest in state-of-the-art broadband networks, I think Home Telephone Company makes a strong argument that the BIP could potentially create a “mismatch between the funding received and the funding needed to support the deployment and maintenance of a network capable of serving the entire high cost area.” However, my interpretation of the FCC’s USF reform initiative is that the FCC intends to do away with support for legacy telephone service entirely at some point in the future. With this in mind, I believe that the BIP provides for a very effective transition from legacy telephone to all-broadband because it does not eliminate high-cost support for telephone customers as long as they happen to exist for a particular company—even if there are only a few.

Home Telephone Company supports the Transitional Stability Plan proposed by the Rural Broadband Alliance, a coalition of over 200 RLECs dedicated to promoting broadband policies that benefit rural communities. The TSP is explained in the RBA’s April 18 comments on USF reform. The authors of the TSP argue that this plan “will achieve the Commission’s underlying objectives without causing disruption to existing investment recovery, and without perpetuating (or exacerbating) the problem that occurs as investment is made under a capped fund,” where “there is a growing gap of unrecovered costs which will threaten the economic viability of rural providers.” The basic methodology of the TSP includes freezing interstate revenue requirements for rate-of-return carriers, then decreasing this level annually based on accumulated depreciation and increasing this level annually, “to reflect additional expenses needed to maintain universal service or to provide an evolving expansive definition of universal service.” If a carrier demonstrates a need for additional funding, it would come from the CAF; and the TSP facilitates rate-of-return carriers to transition to access charge price caps. The TSP claims the ability to reduce financial uncertainty for RLECs; and it promises to “maintain stability to the rural communications investment arena by ensuring recovery of established operational costs and capital investments of rate-of-return carriers.”

I encourage RLEC readers to have a look at the TSP and see if it fits your definition of a reasonable alternative to the FCC’s proposed USF reforms. I personally appreciate the TSP’s focus on recovery for existing investments, which I believe could definitely infuse a much-needed sense of financial stability for RLECs who have poured millions of dollars into multi-use networks, but who are worried that these investments will be for naught if the FCC’s USF proposals are adopted.  As the RBA points out, “few other private industries bear as much public responsibility as the rural telephone industry.” I can only hope that the FCC does not negate decades of rural telecommunications infrastructure investment by failing to include sufficient investment recovery mechanisms in the modernized Universal Service Fund.

Home Telephone Company’s ex parte filing is available here, and the Rural Broadband Alliance’s Transitional Stability Plan is available here.