Resolution Stirs up Thoughts on USF-Related Merger Conditions

Are recently-merged Internet service providers meeting their various public interest commitments to deploy broadband and increase adoption? We know that Comcast is certainly working hard, with great fanfare, to offer broadband to low-income households for $10 per month—this was indeed a merger commitment, not a “warm fuzzy” gift to the public. Comcast’s required move into affordable broadband for low-income households has been applauded by FCC Chairman Genachowski, who also recently unveiled the FCC’s low-income broadband initiative Connect to Compete. Now, many other large cable providers are jumping on the $10 per month broadband bandwagon—including companies who are not obliged to do so due to a merger condition.

Comcast’s slightly fulsome, PR-friendly efforts aside; are other recently merged telecom providers (large and small, cable and DSL, wireless and wired) meeting their merger conditions to deploy broadband to rural, low-income and other unserved populations? The National Association of Regulatory Utility Commissioners (NARUC) is concerned that “some commitments to deploy additional broadband infrastructure made to secure merger approvals are not being fully met.”

On November 16, 2011, NARUC approved a resolution to “Request that the [FCC] undertake a public inquiry to assess the extent to which public interest broadband deployment and adoption obligations imposed on previously approved merger applicants are being met.” NARUC’s Resolution on Accountability for FCC Imposed Merger Public Interest Commitments to Deploy Broadband Infrastructure and Adoption Programs recognizes that the FCC can (and often does) impose obligations that merged companies increase broadband adoption and deployment, sometimes with an aggressive deadline. The resolution also recognizes that the FCC can require merged companies to use private capital to meet these obligations, “without reliance on federal Universal Service Fund (USF) financial support.”

This resolution stirs up some interesting, and slightly touchy, ideas about whether the FCC should prevent merged companies from receiving USF post-merger to meet public interest requirements. According to the NARUC resolution, “Some carriers have made voluntary public interest commitments to deploy broadband infrastructure on the basis that USF financial support would enable them to satisfy the FCC approved merger obligation and the FCC has approved those commitments.”

NARUC resolved “That the FCC consider, on a case-by-case basis whether to approve the use of federal financial support from the Connect America Fund or the Mobility Fund for expenses related to supplementing an applicant’s public interest obligations in the FCC order approving such applicant’s merger to deploy broadband infrastructure and/or to implement broadband adoption and usage programs.”

On one hand, two companies’ demonstrated need for USF to deploy broadband in rural areas is not likely to change significantly just by a merger. Their service area’s geography and demographics certainly don’t change due to a merger, and the reasons that small companies decide to merge are diverse and not always just because one company has a stockpile of cash. The addition of a lofty build-out commitment may make the case for needing USF even stronger, especially for capital-strapped rural carriers. On the other hand, one can’t help but think that if companies have enough money to afford a merger, then perhaps they should use that money to pay for broadband deployment. This argument may apply more strongly to large companies, for example AT&T. It would be hard to argue that AT&T should be allowed to receive Mobility Fund support if the T-Mobile merger is approved—which will quite likely include major rural deployment conditions (if it is approved by the FCC, that is—a big if!).

Whether companies should receive CAF or Mobility Fund support to help finance merger commitments is probably best determined on a case-by-case basis, like NARUC recommends. A blanket restriction on support may serve as a significant deterrent for small companies who wish to merge—which might be the exact opposite of what the FCC wants. The FCC has repeatedly dropped hints throughout the USF Reform proceeding that it wishes to encourage RLEC consolidation, so tactically speaking the FCC probably would consider taking a cautious approach to restricting support. Furthermore, the FCC is strongly committed to improving rural and low-income broadband deployment and adoption, so a merger obligation to extend services in low ROI areas without any federal support seems contradictory.

Then there is Connect to Compete, which adds a layer of complexity to the USF-or-no-USF merger condition debate. National Cable and Telecommunications Association (NCTA) members will offer eligible, school-lunch program families two years of cable broadband service for $9.95 per month with no installation, activation or modem rental fees. This program apparently will enable 15-25 million Americans to have high-speed broadband, but keep in mind this is in large cable company territory. Whether Connect to Compete will extend into RLEC territory is unknown at this point, but it is definitely an issue to watch. RLECs competing with Connect to Compete cable participants might encounter some challenges with retaining their low-income consumers.  

Going forward, it will be interesting to see if the FCC takes up the NARUC-approved challenge to conduct on inquiry into how well companies are meeting merger commitments and if they should be using CAF/Mobility Fund support to meet said merger commitments. Are these various market and regulatory forces a deterrent for RLEC mergers? What do you think about merged companies using CAF or Mobility Fund support to help finance broadband deployment and adoption requirements?

The NARUC resolution is available here, on pages 7-8.

In the Midst of USF Reform News Drought, Copps Speaks out at NARUC Annual Meeting

First we thought the rules would be available last week, but no such luck.  Now the rural telecom industry is bracing for a pre-Thanksgiving release of this epic document.  As the Connect America Fund R&O and FNPRM waiting game continues, it was actually exciting today to read FCC Commissioner Michael Copps’ Nov. 15 commentary from the National Association of Regulatory Utility Commissioners (NARUC) Annual Meeting in St. Louis, MO. He didn’t give a release date for the order, but he did make interesting remarks about some aspects of the order including the controversial role of states under the new regime. He also expressed mild contempt for parties who may be tempted to file lawsuits…and waivers.

Here are some notable quotes from Copps’ speech:

• “The old saying is, ‘If it ain’t broke, don’t fix it.’ Well, you can’t make that argument here. The system was broken—and we were left with no real option short of a major overhaul.”
• “Now I know that not everyone here is satisfied with everything the Commission did three weeks ago. Neither am I. But I think we both made a difference. Your input did greatly inform the Commission’s deliberations and its ultimate decisions—even though we had to make difficult choices that will change some legacy state responsibilities.”
• “We incorporated numerous ideas from the state Joint Board members’ comments, such as imposing significant reporting requirements on USF recipients and requiring all reporting data to be jointly provided to the FCC and state Commissions.”
• “States can perform many functions better than the federal government—and by ‘many functions’ I mean a whole lot of them. And I am looking for ways to expand the state role under the reformed system.”

In his remarks at the Oct. 27 FCC Open Meeting, Copps did emphasize that he wanted to expand the states’ role, in contrast to the ILECs’ ABC Plan recommendations. Going by the next comment from Copps, he appears to be taking a solid stance against the large ILECs’ pleas for reduced state involvement in the Connect America Fund:

• “Nothing undermines this kind of substantive state role more than the few carriers who run to state legislatures lobbying for laws that effectively put state public service commissions out of the business of public interest oversight and consumer protection. That mocks the law. It mocks good telecommunications policy. And it mocks consumers.”

Copps continued stressing a “needs of many…” attitude, and warning that he will not take kindly to lawsuits and waivers filed after the release of the Order. It will be very interesting to see what kinds of hoops-on-fire the FCC will impose on the RLECs who are hoping to file a waiver. Copps asserted:

• “I have no illusions about what perils await the new Order, but I do want to suggest how much better off we will be if our efforts going forward focus on working together to implement these new frameworks, and working constructively to make changes where they may be called for, rather than spending precious time that the country does not have on litigation or legislative end-runs that seek to advantage factional interests at the expense of the greater good.”
• “I contest no one’s right to take us to court, of course, but America just doesn’t have time to waste watching warring parties duke it out in courts that themselves often disagree while millions of citizens go unserved.”
• “I think another example of time wasted would be for carriers to file frivolous waiver requests to lock in legacy support that is not really needed to ensure that consumers have a landline voice provider. All that accomplishes is the diversion of precious resources away from carriers who really do need a safety net.”

With Copps movin’ on out of the FCC at the end of the year, it is hard to tell if the hard core opponents of the Order, such as the cable industry, will be deterred from going to court by Copps’ amusing comment, “I’m thinking about conferring my own special award on the first party who takes these decisions to court – I’m calling it the ‘Great Courthouse Cop-Out’ – and it might be accompanied by a stocking full of coal if it happens around the holidays.”

Although Copps’ speech lacked any shocking revelations about the Order, it was rather revealing about his attitude toward the states’ role, large ILECs, and his expectations for the aftermath of the release. He seems to be expecting lawsuits and waivers, but would likely prefer to see the industry just accept the changes and move forward. He emphasizes this by saying, “Let’s just get at it! America works best when people pull together toward an important goal.”

Copps didn’t indicate what constitutes a “frivolous” waiver; but it is nevertheless worrisome that the FCC may be crafting a waiver process that is unreasonably difficult for small rural companies with limited resources.  An unreasonably difficult and costly waiver process could be yet another way that the FCC signals its general disregard for small rural carriers. However, this is clearly speculation at this point since the details of the Order, including the waiver process, are still locked safely inside the FCC away from the critical eyes of the entire industry and public.

What did you think of Copps’ remarks about the Connect America Fund Order? Does a soon-to-be ex-Commissioner have enough sway to deter lawsuits and waivers?

The full text of his speech is available here.

Genachowski’s Speech Prompts Industry-wide Reactions—to What, Exactly?

FCC Chairman Julius Genachowski presented a sneak-peek at the FCC’s highly anticipated USF/ICC reform rules on October 6, but many industry stakeholders are still scratching their heads trying to figure out specific details of the yet-unreleased draft rules. Genachowski made a point to say that the draft rules are not a carbon copy of the ABC Plan/RLEC Plan/Consensus Framework, but he did not specify exactly what parts of the industry plans would be included or rejected (see The ILEC Advisor: Finally – Genachowski’s Big Announcement on USF/ICC Reform for a summary of his full speech). I guess we will all just have to keep waiting…

Key USF/ICC stakeholders wasted no time in releasing statements about Genachowski’s speech. Although the reactions ranged from approval to frustration, one thing was clear: everyone wants more information as soon as possible.  Some statements were quite vague, and others seemed to make assumptions about the unseen rules inferred from Genachowski’s remarks. The ILEC Advisor has been covering different industry perspectives on USF reform over the last few months, and most of the reactions to today’s announcement were consistent with the mountain of comments and ex parte filings that have accumulated since February’s NPRM.

Here’s a rundown of reactions—good, bad and indifferent (in no particular order):

• Shirley Bloomfield, NTCA ceo: “As this long-running process draws to a likely close in the coming weeks, we will continue to press for common-sense reforms that recognize the unique challenges faced by small carriers and the consumers they serve in rural areas across the country.”
• Kelly Worthington, WTA executive director: “We look forward to seeing the details of the Chairman’s proposals. Only then will we be able to determine whether rural networks will be strengthened by the reforms.”
• Matthew M. Polka, America Cable Association president and ceo: “The Chairman’s plan locks in a sole-source contract worth billions over 10 years to a handful of incumbent large telecom companies to deploy broadband at maximum speeds that are below average. It favors one small group of providers over others to the disadvantage of consumers. By excluding thousands of broadband providers willing, able, and eager to compete to provide service to consumers living in rural areas where government support is provided, it will deprive these communities of receiving the best possible service at the lowest possible price.”
• Steven Berry, Rural Cellular Association president and ceo: “Chairman Genachowski delivered a fine policy speech highlighting the many reasons USF reform is imperative. I am glad to see he is focused on consumers and bringing broadband solutions to all Americans, but details remain elusive, and we must carefully review the proposal… I can only hope that wireless solutions have an opportunity to flourish in this new plan.”
• Matt Wood, Free Press policy director: “We hope that Chairman Genachowski is sincere in his pledge to give the American people something better than the industry’s profit-padding wish list. But knowing how doggedly these companies pursue what they want, no matter how much it harms the public, we’re going to be vigilant and make sure that the Commission abides by that promise.”
• Tony Clark, NARUC president, and John Burke, NARUC Telecommunications Committee chair: “We are very anxious to get additional details on the mechanisms for Intercarrier Compensation reform, including how Voice over Internet Protocol traffic will be integrated into the system to avoid arbitrage opportunities. Indeed, some elements of the speech raise a host of unanswered questions but also the specter of long term and serious unintended consequences for consumers.”
• Bob Quinn, AT&T vp-federal regulatory & chief privacy officer: “FCC Chairman Genachowski deserves credit for bringing this important issue to this point. We and many others are committed to working with him and the entire Commission as it works to bring this opportunity for a fair, reasonable plan across the finish line.”

A common point of tension seems to be whether or not the FCC’s plan will be good for consumers. However, what is best for consumers—lower telephone rates, or expanded broadband availability?  More importantly, can both of these lofty goals be achieved in one fail swoop? If, for example, access rates were reduced significantly, would the big telcos pass the savings along to consumers directly, pocket the extra cash, or reinvest it in the network? I imagine these questions will not be answered until after the rules are implemented.

It is not just industry groups reacting to the FCC’s proposed rules (whatever they may be). Congress is weighing in as well. A bipartisan October 4 letter to Genachowski signed by Representatives Lee Terry (R-NE), Mike Ross (D-AR) and 33 mostly rural representatives states, “It’s our judgment that the FCC must act swiftly yet carefully to enact reforms that allow all Americans – particularly those in hard-to-serve rural communities – access to the burgeoning services and opportunities that are being created via innovation in broadband technology.” The Representatives “urge the FCC to maintain the key elements of the America’s Broadband Connectivity and Joint Rural Association proposals,” which “clearly [create] a path forward for comprehensive USF and intercarrier compensation reform.”

While it is admirable that so many Democratic and Republican Representatives came together in support of the Consensus Framework, the FCC’s final rules might not have a VIP pass in the Senate. On October 5, the Senate Commerce Committee announced an October 12 hearing on the FCC’s USF/ICC reform efforts. Apparently, “Congressional Democrats have expressed concerns that the plan won’t sufficiently protect consumers.” I wonder if the Senate Commerce Committee will actually see the plan before the hearing next week, or if they have already seen it? It seems premature to set a hearing about rules that have not even been approved or reviewed by the public, but there doesn’t seem to be much love between Congress and the FCC these days.  

The draft rules were supposedly circulated to FCC Commissioners, as the rest of us anxiously await more details. Let the speculation continue!