Entries in USF Reform (49)

Sunday
Nov202011

Introducing the Connect America Fund – USF Reform Overview 

FCC Releases 759 Page Document Late Friday Nov. 18 (Saving Thanksgiving, but not the Weekend)

Since October 27 the telecom industry has been on pins and needles awaiting the release of the document detailing the landmark decision reforming the Universal Service Fund and Intercarrier Compensation system. Rumors have swirled about the release date, and many feared that the FCC would post the document, expected to run anywhere from 500 to 2,000 pages, the day before Thanksgiving. Well, the FCC decided to release the 759 page Report and Order and FNPRM just as many were heading home for the weekend… At least Thanksgiving was spared!

Over the coming weeks, JSI Capital Advisors will analyze and report on many facets of the Order and FNPRM from CAF to mobility to phantom traffic and everything in between; as well as the reactions from different sectors of the industry. An initial look at the document indicates that there will be no shortage of reporting on this topic for the next year, as there will be many follow-up comment cycles, proceedings, public notices and Wireline Competition Bureau decisions.  

So, let’s get down to business! Today we will look at the introduction and overview of the Connect America Fund, including the budget and some broad high-cost support reforms for price cap and rate-of-return companies. ICC will be addressed in future articles.

Introduction and Executive Summary - Why is the FCC Doing This?

The FCC contends that the current USF/ICC programs “are based on decades-old assumptions that fail to reflect today’s networks, the evolving nature of communications services, or the current competitive landscape, [and] are ill equipped to address the universal service challenges raised by broadband, mobility, and the transition to Internet Protocol (IP) networks.” Furthermore, the FCC has a statutory obligation to “update our mechanisms to reflect changes in the telecommunications market.” The FCC has determined that USF and ICC need to be more modern, accountable, fiscally responsible, and market-based—we have been hearing this since the National Broadband Plan in early 2010.

The FCC sets up the USF reform framework with five general goals:

  1. Preserve and advance universal availability of voice service
  2. Ensure universal availability of modern networks capable of providing voice and broadband service to homes, businesses and community anchor institutions
  3. Ensure universal availability of modern networks capable of providing advanced mobile voice and broadband service
  4. Ensure that rates for broadband service and rates for voice services are reasonably comparable in all regions of the nation
  5. Minimize the universal service contribution burden on consumers and businesses

It was interesting that “ensuring reasonably comparable service” was not on the list of primary goals, although the FCC does address reasonable comparability in some interesting ways later in the document. For example, CAF recipients must ensure reasonably comparable data capacity and the FCC suggests that 250 GB per month is an adequate target.

The FCC draws its legal authority for the reforms from Section 254, Section 706, the 2008 Farm Bill, the Broadband Data Improvement Act, and of course, the American Recovery and Reinvestment Act from which the National Broadband Plan was born.

Public interest obligations play a very large role in the USF reforms, as do various benchmarks, ceilings, and floors. One of the most significant requirements is that CAF recipients must provide at least 4/1 Mbps actual speed: “This conclusion was based on the Commission’s examination of overall Internet traffic patterns, which revealed that consumers increasingly are using their broadband connections to view high-quality video, and want to do so while still using basic functions such as email and web browsing.” (Note that temporary waivers can be granted for extreme situations where the CAF recipient cannot provide 4/1 Mbps, but this will be discussed in greater detail in a future article). In addition to the 4/1 Mbps requirement, CAF recipients will be required to offer “sufficiently low latency to enable use of real-time applications, such as VoIP,” preferably less than 100 milliseconds. Finally, capacity must be reasonably comparable, as mentioned above, where “250 GB appears to be reasonably comparable to major urban broadband offerings,” although the FCC is not adopting a specific requirement at this time.

The Budget - $4.5b/year for at Least Six Years

The Order establishes “for the first time a firm and comprehensive budget for the high-cost program,” of $4.5b to “best ensure that we will have in place ‘specific, predictable and sufficient’ funding mechanisms to achieve our universal service objectives.” The budget will remain in place for at least six years and will require a Commission vote to change. The $4.5b breaks down in the following:

Price Cap CAF Overview – Phases I and II

The Order frequently repeats that “More than 83 percent of the approximately 18 million Americans who lack access to fixed broadband live in price cap study areas.” However, the FCC is not outright punishing the price cap carriers for their broadband build-out straggling; instead the FCC is freezing their existing high-cost support and allocating an additional $300m in “incremental support” in the first phase of CAF. The FCC argues that the $300m will “provide an immediate boost to broadband deployment in areas that are unserved by any broadband provider.” The Wireline Competition Bureau will calculate how much of the $300m each price cap carrier is eligible to receive, and the carriers “may elect all, none, or a portion of the incremental support.” Carriers who accept the support will be required to “deploy broadband to a number of locations equal to the amount it accepts divided by $775.” Carriers will have 90 days to decide if they want the incremental support, and how much they will accept. Incremental support has strings attached, too, including aggressive build-out requirements. Carriers cannot use incremental support for existing deployment plans or merger commitments, and “carriers failing to meet a deployment milestone will be required to return the incremental support…and will potentially be subject to other penalties.”

CAF Phase II will tentatively begin January 1, 2013. At least one-third of a carrier’s frozen high-cost support will be required to go towards building broadband networks in unserved areas with no unsubsidized competitor. The intricacies of the price cap CAF methodology are worth a read, but a few points jumped out. First, the FCC is not adopting the ABC Plan Rights of First Refusal proposal as recommended by six price cap ILECs (see The ILEC Advisor: Six ILECs Defend Rights of First Refusal Proposal)—at least not entirely. The incumbent price cap carriers will have the option to accept CAF support for five years “in exchange for a commitment to offer voice across its service territory within a state and broadband service to supported locations within that service territory, subject to robust public interest obligations and accountability standards.” If the ILEC declines the support, a competitive bidding mechanism will be implemented. The FCC decided to adopt a state-level commitment in order to prevent the ILECs from cherry picking “the most attractive areas within its service territory, leaving the least desirable areas for a competitive process.” Additionally, the FCC is not adopting the ABC Plan’s CQBAT forward-looking cost model because the industry did not have adequate time to analyze the model. The Wireline Competition Bureau will soon release a public notice to begin the process of developing an appropriate cost model.

Rate-of-Return Reform – Laying the Foundation

The USF reforms for rate-of-return carriers focus on eliminating “waste and inefficiency and [improving] incentives for rational investment and operation by rate-of-return LECs.” In this spirit, the FCC will eliminate Safety Net Additive support, Local Switching Support (although some LSS support will move to the ICC recovery mechanism), and “support for rate-of-return companies in any study area that is completely overlapped by an unsubsidized competitor.” RoR support will also be capped at $250 per line per month with possible future reductions, and there will be funding consequences for RoR companies with artificially low local rates.

The FCC is taking a “more flexible approach” with RoR carriers than with price cap carriers by refraining from adopting “a mandatory requirement to deploy broadband-capable facilities to all locations.” Instead, RoR carriers must provide 4/1 Mbps broadband to consumers upon reasonable request—for now anyway. The FNPRM will deal with future requirements for rate-of-return CAF recipients as well as capital and operating expense benchmark methodologies. The FCC recommends that the methodology to be developed by the Wireline Competition Bureau “require companies’ costs to be compared to those of similarly situated companies,” which “will provide better incentives for carriers to invest prudently and operate efficiently than the current system.” This methodology will be analyzed in greater detail in future ILEC Advisor articles.

The FCC comes down hard on RLECs who have artificially low local telephone rates, which they call “inappropriate.” Although the national urban average is $15.47 per month, “there are local rates paid by customers of universal service recipients as low as $5 in some areas of the country.” The FCC establishes a 3-phase rate floor starting at $10 in July, 2012 and increasing to $14 in 2013 and then to be set by the Wireline Competition Bureau in 2014 and after. The FCC notes that they could actually set the rate floor above the national average, but “In the present case, we are expecting to set the end point rate floor at the national average rate.” Carrier’s whose local rates are below the benchmark will have their support reduced by the difference between the rate and the benchmark.

Overall, the FCC is confident that “rate-of-return carriers on a whole will have a stronger and more certain foundation from which to operate, and, therefore, continue to serve rural parts of America.” Furthermore, the FCC is “equally confident that these reforms, while ensuring significant overall cost savings and improving incentives for rational investment and operation by rate-of-return companies, will in general not materially impact the ability of these carriers to service their existing debt.”

Coming up Next…

There is definitely much more ground to cover regarding rate-of-return carriers, ICC, Mobility and Tribal funding, the extremely high-cost fund, the waiver process, competitive bidding, access rate arbitrage, and the FNPRM. Stay tuned for analysis of these exciting topics and more!

What are your initial reactions to the Order?

The full text of the Connect America Fund Report and Order and FNPRM is available here.

Thursday
Nov172011

NARUC Committed to Broadband-Boosting Merger Commitments 

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.

Tuesday
Nov152011

Copps on USF/ICC Reform – Lawsuits, Waiver Requests “Frivolous”

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.

Tuesday
Nov082011

The National Broadband Map: "Far from Perfect"

Study Depicts Data Limitations of Map, Implications on Policy… Like USF Reform, Perhaps?

Mentioning the National Broadband Map (NBM) is likely to bring up negative reactions in certain telecom circles, but few have gone beyond complaining to actually identifying the map’s specific data limitations and making recommendations for improving the map in future updates. Tony H. Grubesic from Drexel University’s College of Information Science and Technology gave a fascinating presentation at the September 23-25, 2011 Telecom Policy Research Conference in Arlington VA about the inaccuracies of the map; and his paper, “The U.S. National Broadband Map: Data Limitations and Implications,” was released last week.

Since attending the conference, I have been looking forward to reading Grubesic’s paper…and thinking about how some of the inaccuracies he identified will impact rural providers in the USF Order.  Grubesic’s paper does not argue that the NBM is a complete failure; rather he believes that it is a good start and a definite improvement over previous methods of disseminating broadband data (like the Form 477 database). However, “there are a number of issues associated with data integrity, spatial uncertainty and accuracy within the NBM that need to be addressed.”

It is concerning that the FCC plans to use NBM data for Connect America Fund-related decisions, and that the FCC has not really acknowledged that the map depicts an incomplete and overestimated visualization of broadband deployment—it is not out of line to anticipate that this could create problems down the road. Grubesic explains, “Although Steven Rosenberg, the chief data officer with the FCC’s Wireline Competition Bureau touts the NBM as the ‘largest and most detailed map of broadband ever created,’ it is far from perfect.”

Grubesic’s paper covers several interesting—and alarming—aspects of the NBM. His analysis primarily looks at wireline broadband service for Columbus, Ohio and nearby suburb Dublin. First, he discusses the strengths and weaknesses of using Census blocks. He evaluates the differences in the map’s data between large (greater than 2 square miles) and small (less than 2 square miles) Census blocks. Data was collected differently for large and small blocks, although the map makes no specific differentiation between them. As a result, “One outstanding problem…is whether or not the reported presence of a broadband provider in a block is truly indicative of service availability.”

For large Census blocks, “providers collected and submitted address data or road segment data where broadband service was available.” With this methodology, “providers can be overly generous in reporting their broadband coverage, resulting in a drastic overestimation of broadband availability and provider choice for many regions.” Grubesic provides an example of xDSL service, which is distance-limited to about 18,000 feet or less and is rarely deployed to 100 percent of a wirecenter. The following map illustrates a Census block, highlighted in red, which lies outside of any “best case” xDSL service range. However, “the NBM reports 18 address points or street segments within this block receive asymmetric digital subscriber line (ADSL) service from AT&T of Ohio.” Is it magic, or a case of overestimated service? Grubesic concludes that in the Columbus metro area, “empirical analysis suggests that 8,829 people reported to have xDSL service in large blocks likely do not—representing a 46% overestimate.”

For comparison, here is what the NMB shows for xDSL coverage in the Columbus, OH metro area, and wired broadband coverage for Dublin, OH. Unfortunately the blue xDSL blob overshadows the geographic indicators. The map itself is not particularly easy to navigate or even look at, but as Grubesic has pointed out, it is far from perfect!

The next issue discussed in this paper may be more relatable to RLECs- empty census blocks being reported as served, even if there is no logical reason to have a wired broadband connection to the middle of a lake or an interstate on/off ramp. I have definitely picked up on overestimated wireless coverage in remote areas where I know that barely any wireless service exists (or people, for that matter), but apparently this is not just a wireless problem. Just for fun, here is what the map says about a location in rural Iowa, 8 miles from a major highway and 6 miles from the nearest town: Verizon Wireless, 3-6 Mbps. I’ve been at this location, and I can barely make a call without wandering around the yard searching for a signal.  

Grubesic explains why completely empty blocks—with no residential population or businesses—are occasionally listed as served: “a provider may claim to serve a Census block with 0 population because they can provide service within 7 to 10 days.” Even though the reporting methodology allegedly has ways to prevent this problem, the map itself makes no differentiation between empty and populated Census blocks, or between actually served and "could be served in 7 to 10 days" Census blocks. Grubesic again refers to Dublin, OH, where “nearly 46% of the completely empty blocks are reported as having broadband availability…In other words, the NBM is reporting that 45 Census blocks which are completely devoid of residential population, businesses or shopping have broadband services available.” If you apply this logic to the entire US, the map may be reporting thousands of empty blocks with broadband—those are some lucky lakes, cows and highway intersections!

What is really interesting is that despite a clear overestimation of broadband service reported on the NBM, provider participation in the mapping process varied greatly from state to state—in Virginia, only 27% of providers participated and 14 states had participation rates under 60%. It makes me wonder how overestimated the map would be if a 100% participation rate was achieved! Furthermore, the map uses 2000 Census information, and in 2000 there were 8,262,363 Census blocks. Well, in 2010 there were 11,155,486 Census blocks—a 35% increase. Grubesic recommends that the map should be updated to reflect 2010 Census information, and “if the NTIA and FCC are truly committed to maintaining a current and realistic snapshot of broadband availability in the United States, the use of data from 2000 hinders these efforts.”

What do these data inaccuracies mean for rural broadband policy, specifically the Connect America Fund? If the FCC plans to rely on data from the map to help determine who does (and who does not) receive funding, there are sure to be problems. If the map is not updated and corrected, the FCC will essentially be using a faulty premise to make significant funding decisions. It is indeed a scary thought.

What flaws have you discovered in the NBM? How do you think the map can be improved so that the FCC can utilize the data to make informed decisions?

Grubesic’s paper is available to read here.

Thursday
Oct272011

FCC Approves Still-Unseen USF/ICC Reform Order

Executive Summary Released Minus the 493 Pages that Matter

If you were expecting the unveiling of all the juicy details of the USF/ICC-Connect America Fund Order at the FCC’s Open Meeting today, then you, like me, were probably disappointed after the 3 hour meeting that consisted primarily of the Commissioners thanking each other and their staff for all the hard work in drafting this monumental order. That’s not to say that there wasn’t any good information, but many questions will definitely remain until the allegedly 500+ page R&O and FNPRM is released.

A packed house anxiously sat through the first item on the agenda, “Modernizing Television Broadcaster Requirements to Make Information Available to the Public,” which was approved unanimously. After what seemed like an eternal wait, Wireline Competition Bureau Chief Sharon Gillett opened the discussion on USF/ICC Reform. She delivered what I felt was some of the most important information revealed in the entire meeting: the amount of funding that the various industry sectors will receive.

According to Gillett, Rate of Return carriers will receive $2b, price cap ILECs will receive $1.8b, there will be a one-time $300m Mobility Fund plus an additional annual $500m for mobile broadband, $100m for Tribal Lands mobility, and $100m per year for the super-remote households. The funding methodology for this $100m Dedicated Remote Areas Fund will be determined via future proceedings.

According to the Executive Summary that was released during the time it took me to take a cab from the FCC to my house after the meeting concluded; the FCC will establish “a firm and comprehensive budget for the high-cost programs within USF. The annual funding target is set at no more than $4.5 billion over the next six years, the same level as the high-cost program for Fiscal Year 2011, with an automatic review trigger if the budget is threatened to be exceeded.” After 6 years, the budget may be revisited. This appears to be a fairly reasonable compromise between the eternal hard cap supported by some (like the cable industry), and no cap at all supported by others.

The new Connect America Fund (CAF) will “replace all existing high-cost support mechanisms,” and “will rely on incentive-based, market-driven policies, including competitive bidding, to distribute universal service funds as efficiently and effectively as possible.” CAF support for price cap companies will be introduced in two phases. The first phase will include freezing existing support but also infusing an additional $300m to “expediently” deploy broadband to unserved price cap areas. According to the Executive Summary, “Any carrier electing to receive the additional support will be required to deploy broadband and offer service that satisfies our new public interest obligations to an unserved location for every $775 in incremental support. Specifically, carriers that elect to receive this additional support must provide broadband with actual speeds of at least 4 Mbps downstream and 1 Mbps upstream, with latency suitable for real-time applications…” This doesn’t sound much like the “Rights of First Refusal” proposal in the ABC Plan, and it does sound like the FCC is going to put a heavy emphasis on public interest obligations. The second phase of price cap CAF support “will use a combination of a forward-looking broadband cost model and competitive bidding.”

Moving on, it sounds like mobile broadband providers will get a much better deal than originally anticipated—at one point they were looking at a single $300m influx only, and now it looks like they are getting the $300m plus $500m per year. I anticipate that some wireless carriers will still say that this isn’t enough (some associations have asked for $1b per year, and even parity with wireline carriers). One interesting aspect of the Mobility Fund is that “the winners will be required to deploy 4G service within three years, or 3G service within two years, accelerating the migration to 4G.” $100m of the annual $500m will go specifically for Tribal areas, which Commissioner Copps emphasized is especially important. He said that some tribal areas have single-digit broadband adoption levels, which is a “national disgrace.” Overall, this Mobility Fund barely resembles the Mobility Fund NPRM that was released a year ago which satisfied very few stakeholders, especially rural wireless carriers.

What about the RLECs? I didn’t hear anything in the meeting that specifically signaled the immediate death of the RLEC industry which was a relief, but as almost everyone has been saying lately, “The devil is in the details.” Supposedly, the Order will “recognize the unique nature” of small rural carriers and attempt to maintain some of the stability of the current system while reasonably transitioning to CAF. According to the Executive Summary, “Rate-of-return carriers receiving legacy universal service support, or CAF support to offset lost ICC revenues, must offer broadband service meeting initial CAF requirements, with actual speeds of at least 4 Mbps downstream and 1 Mbps upstream, upon their customers’ reasonable request.” Again, the FCC is pushing hard for public interest obligations.

RLECs can likely expect limitations on capital and operating expenses starting July 1, 2012; less support for “carriers that maintain artificially low end-user voice rates;” phase-out of the Safety Net Additive and of support in areas that overlap with an unsubsidized competitor; and a cap on per-line support of $250 per month “with a gradual phase-down to that cap over a three-year period commencing July 1, 2012.” Most of these changes have been anticipated, but it sounds like the FCC will seek comment on some specific aspects of RLEC funding reductions, including the 11.25% rate-of-return, in an FNPRM.

Finally, Intercarrier Compensation: details seemed especially slim on this topic at the Open Meeting, but were explained somewhat better in the Executive Summary. The FCC will “take immediate action to curtail wasteful arbitrage practices,” specifically access stimulation and phantom traffic.  This might be good news, but the bad news comes next: “We adopt a uniform national bill-and-keep framework as the ultimate end state for all telecommunications traffic exchanged with an LEC.” In the give-and-take spirit of this Order, the FCC does “adopt a transitional recovery mechanism to mitigate the effect of reduced intercarrier compensation on carriers and facilitate continued investment in broadband infrastructure, while providing greater certainty and predictability going forward than the status quo.” I will be interested to see the gap between how much revenue RLECs stand to lose with bill-and-keep and how much the FCC is willing to give back via the recovery mechanism. LECs can also charge an Access Recovery Charge (ARC) limited at $0.50 per month for residential/small business and $1.00 per month for multi-line businesses.

At the Open Meeting, the Commissioners all relentlessly praised one another and their staff on all the hard work, and they all seemed very proud of themselves for finally releasing—and approving—this order (despite the fact that nobody has seen it yet). Copps said that today the Commission is “making telecommunications history,” and Genachowski called this a “once in a generation” achievement that will facilitate “new vistas of digital opportunity.” I will continue to hold my applause until I read the order and learn more about how the RLEC industry will be specifically impacted by the sweeping changes. What do you think—is there enough information to determine if this is a good deal for the RLEC industry? What was the biggest surprise, and the biggest disappointment, in today’s Open Meeting and USF/ICC Reform Executive Summary?

The full 7-page text of the Executive Summary is available here.