Critics Say ABC USF Reform Plan In Need of Its Own Overhaul

Small and mid-sized wireless carriers, cable operators and competitive local exchange carriers all criticized parts of the America’s Broadband Connectivity (ABC) plan for making major changes to the Universal Service Fund and intercarrier compensation regimes. The plan, a compromise among major telecom carriers and rural local exchange carriers, is unlikely to be approved without some changes, said industry and FCC officials. The trick for the FCC will be keeping ILECs on board while accommodating other interests (CD Aug 25 p1). The FCC also asked for comment on a “complementary” filing by rural carriers as well as proposals by the Federal-State Joint Board on USF, also discussed in many of the comments.

AT&T and Verizon supported the ‘consensus’ ABC plan. But other wireless carriers charge the proposal doesn’t give fast-growing wireless service its due. Competitive eligible telecom carriers, mostly wireless, received about $1.2 billion in support in 2010. That support would be cut by 75 percent under the ABC proposal, wireless carriers note. “In general, this is a pretty not-wireless friendly plan in an environment in which increasingly consumers want to have wireless service,” said a telecom lawyer. Even CTIA, whose biggest members are plan supporters Verizon Wireless and AT&T, raised some concerns in comments filed Wednesday (CD Aug 25 p8). Wireless carriers will have to play defense this week in another set of filings, with comments due Friday on the FCC’s Lifeline/Link-Up rulemaking notice.

"The principles of maintaining technological neutrality and harnessing the benefits of competition are nowhere to be found in the ILECs’ latest USF reform proposals,” said the Rural Cellular Association, an outspoken critic of the ABC Plan (http://xrl.us/bmbhkn). The plan “represents nothing more than a self-serving ILEC scheme that would misallocate USF support, harm competition, and deprive rural consumers of access to high-quality wireless services.” RCA called the $300 million proposed for wireless a “pittance,” far below current funding levels. “Such a drastic reduction in funding -- even with the savings generated by the ABC Plan’s proposed ICC reforms -- would prevent many rural carriers from deploying 4G services (or at least force them to scale back deployment plans considerably), and likewise would jeopardize rural providers’ ability to continue operating many existing high-cost facilities,” RCA said.

The Rural Telecommunications Group said changes called for in the ABC Plan and other wireline friendly proposals “fail to reflect the concerns of rural wireless carriers or address the need for ongoing wireless support in high-cost areas” and don’t speak to “any overall wireless industry consensus.” RTG said any mobility fund “would have to be substantially larger than $300 million and should reflect specific, ongoing support in order to spur investment and ensure the availability of existing wireless services and the expansion of mobile broadband networks.” RTG said the consensus proposal contains no explanation of how supporters even arrived at the $300 million figure it advocates (http://xrl.us/bmbgoi).

The FCC should be “extremely careful to avoid TDM reform mechanisms that apply legacy access rate structures and legacy network architectures that are completely unsuitable in an efficient IP world,” said Sprint Nextel (http://xrl.us/bmbhjy). “To allow such legacy elements to spill over in any way to IP traffic will seriously impede and distort broadband investment, deployment and adoption.”

Rather than provide a mobility fund the FCC would be better advised to cut the amount that wireless pays into the USF, MetroPCS contended (http://xrl.us/bmbgiq). “Studies show that wireless broadband is proliferating, not just in major markets but also in small, rural and mid-tier markets,” the carrier said. “Reducing USF obligations would fuel this growth of networks in previously unserved and underserved regions. Returning this money to carriers also would allow them to return a portion back to their customers -- who are the very ones who filled the USF coffers in the first place."

Proceed with caution and don’t rush USF reform, said SouthernLINC Wireless. An FCC order based on the LEC proposals “will fail both before the courts and, more importantly, in the rural markets that the universal service system was intended to benefit, costing the country far more time and money than taking the additional time necessary to develop true reform,” the carrier said. “Before leaping into the unknown merely to meet a self-imposed and arbitrary deadline, the FCC should examine the statutory foundation for the universal service system and ground any reform to the statute’s mandatory principles.”

Cable operators also raised a red flag. NCTA said the proposals in the ABC Plan aren’t fiscally responsible or competitively neutral and don’t offer regulatory certainty. The group proposed a number of changes to the ABC Plan (http://xrl.us/bmbhx3). The plan advantages one group -- LECs -- at the expense of everyone else, NCTA said. “The incumbent LEC proposals essentially divide up support between price cap incumbent LECs and rate-of-return incumbent LECs, while significantly increasing the amount of high-cost support these entities would receive,” NCTA said. High-cost support for LECs would increase from $3.1 billion last year to $4.3 billion under the plan, the group said. While the ABC Plan promotes a Connect America Fund (CAF) to pay for broadband rather than traditional phone service, it stops short of this goal, NCTA said. Under the plan, “CAF would be available only in areas served by price cap incumbent LECs, and not in areas served by rate-of-return regulated incumbent LECs,” NCTA said. “To fully modernize high-cost support, the Commission should adopt a CAF that can apply to all areas of the country."

The American Cable Association said the plan is “deeply flawed” and looks worse the more closely it’s examined (http://xrl.us/bmbhnr). “It would enable universal service funding to grow significantly and would tilt the competitive landscape in favor of the Price Cap incumbents,” the group said. “The lack of competitive neutrality is even more troubling because the advantages the Price Cap incumbents give themselves extend for at least five years and potentially for as long 15 years, at a time during which competitive alternatives are poised to grow even more rapidly.” ACA offered some proposals of its own, including adoption of a permanent cap on support in high-cost areas, the use of auctions to distribute funds fairly and adoption of a limited Access Replacement Mechanism ("ARM") for price-cap companies, or possibly no ARM at all.

CompTel, representing CLECs, said the ABC Plan is a good starting point, though “its central purpose is the perpetuation of ILEC revenues, not creating a balanced transition to an IP future.” The single most helpful step the FCC could take is to confirm that IP-to-IP interconnection is subject to Sections 251 and 252 of the Communications Act,” CompTel said (http://xrl.us/bmbhm6): “The ABC Plan does nothing to promote the deployment of next generation IP networks because it further entrenches the greatest obstacle to such deployment: The refusal by most ILECs to negotiate interconnection agreements that comply with the critical competitive protections of Sections 251 and 252 of the Act."

XO Communications said in its comments the proposals “are a far cry from the ‘industry consensus’ touted by the proponents of the ABC Plan,” (http://xrl.us/bmbhra). But XO expressed disappointment that the FCC “has not yet heeded calls from the competitive industry to establish a baseline for ILEC-provided IP interconnection in this proceeding. XO urges the Commission to include IP interconnection policies in conjunction with a transition to lower rates for TDM-based interconnection and termination services in order to provide a balanced industry approach to reform, rather than wholly focusing on proposals that cater to the incumbent LEC community."

Free Press was sharply critical of the industry proposal. “What started as a push to toss aside the wasteful and outdated policy regime of the past 15 years in favor of a more modern and responsible universal service program has predictably turned into a forum for incumbents to protect and expand their own ability to feed from the subsidy trough,” Free Press said (http://xrl.us/bmbhx5). “If the Commission’s primary goal is to get as many people using broadband as possible, then the best thing it can do is put more money back into ratepayer’s pockets and stop distorting markets with unnecessary subsidies distributed through a program built for a completely different era. And make no mistake, that’s exactly what the Joint Industry Framework proposes.”

But supporters of the consensus plan made their case. They won’t have to wait long to respond to critics; replies are due Wednesday under the FCC’s accelerated schedule.

The six companies that proposed the ABC Plan -- AT&T, Verizon, Windstream, CenturyLink, Frontier and FairPoint -- said the FCC should not delay (http://xrl.us/bmbhp5). “It is essential that the Commission quickly harness the unprecedented momentum from agreement on the ABC Plan and the consensus on critical elements of reform reflected in the companion agreement with the trade associations representing rural rate-of-return carriers,” they said. “The Commission has been close before (though never this close and with this much support), but it ultimately failed to adopt comprehensive universal service and intercarrier compensation reforms -- and the opportunity could again slip away unless the Commission acts very soon."

"The Consensus Framework reflects extensive discussions and development efforts among representatives of the nation’s largest and smallest telecommunications service providers,” said the National Exchange Carrier Association, NTCA, OPASTCO and the Western Telecommunications Alliance. The proposal “correctly recognizes key differences in the marketplace roles played by fixed and mobile broadband services, as well as differences in regulatory status between price cap and [rate of return] ILECs.” The plan also puts in place “a reasonable transition path for reforming RLEC terminating [intercarrier compensation] rates and should be adopted as proposed,” they said (http://xrl.us/bmbgt6).