Genachowski Says USF/ICC Reform a Critical Next Move by FCC

FCC Chairman Julius Genachowski offered reassurance Thursday, in a speech at FCC headquarters as he prepared to circulate the FCC’s version of Universal Service Fund and intercarrier comp overhaul, most likely late Thursday evening. Genachowski’s speech was short on details on how his proposal differs from plans already before the commission, particularly the ABC plan. Instead, he reassured consumers they have nothing to fear and that the proposed reforms will, in the long run, drive down the size of their monthly phone bills.

FCC Commissioner Robert McDowell predicted a vote is likely as expected at the commission’s Oct. 27 meeting. “Based on the chairman’s remarks and our month of working on this issue, I am quite optimistic that we can forge an agreement on large portions of major USF and intercarrier compensation reform,” McDowell told us. “Nothing is settled yet and some of the most challenging days are yet to come, but I am hopeful that we can deliver a sound product."

Genachowski didn’t mention directly an expected increase in the subscriber line charge (SLC), which other FCC officials say is likely to generate the most negative attention from consumer groups and in the national media.

"This plan was developed by FCC staff and puts the interests of consumers first,” Genachowski said. “Consumers overall will be treated more fairly, thanks to the elimination of deep inequalities ingrained in the current system, cuts in wasteful spending, and constraints on the growth of a fund that is paid for by consumers. We estimate that wireless consumers will see more than $1 billion in annual benefits from ICC reform alone."

Consumers Union raised pricing issues Thursday, reacting to the speech. “When broadband companies are generating huge revenues while many consumers are struggling to make ends meet, the FCC shouldn’t allow the industry to pay for expansion on the backs of consumers,” said Policy Counsel Parul Desai. “We urge the FCC to not allow companies to raise landline phone rates, which hit seniors and underserved communities especially hard. We will be paying close attention to the details as they become known.”

Desai raised the issue of the SLC in a meeting this week with Zac Katz, an aide to Genachowski, and others at the commission. “I stated that consumers, especially the most vulnerable, should not bear the burden of increased costs and urged them to consider alternative proposals that would not result in increased costs to consumers,” she said in a filing at the commission (http://xrl.us/bmfhx5).

Free Press Policy Director Matt Wood told us earlier the group has growing concerns about the FCC plan. “The industry-authored framework seeks a regulatory rubber stamp for a tremendous rip-off, based on unproven and unverifiable promises about eventual customer benefits,” he said Thursday. “If enacted in anything resembling its current form, it would substantially raise phone bills for tens of millions of consumers while transferring billions of dollars to the largest telecom providers. It would not do nearly enough to promote broadband deployment and adoption, and would improperly balance this ‘reform’ on the backs of the poor and elderly.”

Genachowski opened the speech discussing a recent trip he made to Liberty, Neb., where he met with people who didn’t have broadband. “The infrastructure for high-speed Internet simply isn’t there,” he said. “I don’t know whether, a few years ago, they were concerned about the absence of broadband Internet where they live. But during our discussion, the group I met ... was very clear that the absence of broadband in their community was having real costs and consequences.

Genachowski also stressed the plan’s focus on wireless. Small wireless carriers have been among the ABC plan’s strongest critics. “The plan will, ... for the first time, provide dedicated support for mobile broadband to bring the extraordinary benefits of advanced mobile services to large new geographies,” he said.

During an Information Technology & Innovation Forum panel earlier Thursday, industry officials agreed chances are good the FCC will act on USF and intercarrier comp at the Oct. 27 meeting.

"USF needed to have some changes made to it,” conceded Shirley Bloomfield, CEO of the National Telecommunications Cooperative Association. “There’s no way they could have put the plant in the ground where they've got it right now [without USF],” she said. “There’s certainly no way they could have put broadband out there.” The FCC “really challenged us to come to the table and we took that challenge very seriously,” she said. Bloomfield said from the standpoint of NTCA’s broader membership “this isn’t a perfect plan” nor would any plan satisfy all of the group’s 600 members. “What we wanted to do was carve a path forward for them, a way that they could have some certainty,” she said.

Rural LECs need certainty just so they can continue to go to banks and get credit as they build out their systems, Bloomfield said. “Those who traditionally have lent to my sector of the industry ... have really backed off in the short run because they're not really sure what recovery and revenue streams are going to be looking like for these carriers in the future,” she said. Bloomfield is hopeful the FCC will act Oct. 27 on the plan now before commissioners. “I do, honestly, think the stars are aligned,” she said. “The fact that we're working with AT&T and with Verizon and CenturyLink. ... This would have been really difficult to have predicted five years ago."

"I hope you're right that the stars are aligned,” said AT&T Vice President Hank Hultquist, in response to Bloomquist. “I think they're as aligned as they're going to get. ... If it doesn’t happen this time, given the political calendar it will be another three or four years before there is another serious run at this.” Access charges as structured today come from an age when there was a distinct difference between long distance and local service. “We have a system where the intercarrier relationships are sort of built on a retail market that doesn’t really exist anymore,” he said. The need for change has long been clear, he said. “The challenge has always been how do you it in a way that does not cause unneeded disruptions for consumers.”

The ABC plan “very granularly” identifies high-cost areas where there is no “reasonable business case” for providing service without a subsidy, Hultquist said. “It’s set for a defined period of time” and then seeks to “procure” service at the lowest price, he said. “Everybody knows what their obligations are. We don’t have this complicated system of internal cross-subsidies and a monopoly business model."

Anna-Maria Kovacs, visiting scholar at the Georgetown University Center for Business & Public Policy, said intercarrier comp certainty is critical for carriers. “The discussion on how to get access charges down to reasonable levels has gone for the 30 years I have been covering the industry,” Kovacs said. “It has become more and more urgent because the disparities have become greater and greater.’

USTelecom President Walter McCormick said after that the speech the group is watching closely as the details of the FCC’s version of the plan emerge. “While we have some concerns with what he outlined today, we appreciate that he and his fellow commissioners are looking to find the right balance that will benefit consumers, advance the public interest, accelerate broadband investment, and create jobs."

Voice on the Net Coalition Executive Director Glenn Richards said his group “supports reforms that achieve both goals of the National Broadband Plan -- deployment and adoption. ... We are hopeful that any reform eventually adopted by the Commission will not require VoIP consumers to subsidize the PSTN through above cost access charges, even for a short period of time, which would harm consumer welfare and chill investment and innovation in IP communications."

VoIP providers are in a tough bind because the apparent plan takes five years to reach the $0.0007 per minute charge for intercarrier compensation, a VoIP lobbyist said. VoIP providers would be assessed from day one of the plan, so the question for them is whether it is cheaper to spend time and money litigating against the tiered approach as contemplated by the FCC’s reforms, or whether merely to accept the tiered approach because it eventually leads to the uniform, “triple zero” rate, the lobbyist said.

"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,” said Rural Cellular Association President Steve Berry. “Every RCA member wants a better, more efficient USF program that ensures wireless remains a choice for consumers in rural America. The speech only begs the question of how much and to what extent his plan supports wireless.”

At an Illinois Institute of Technology conference in Wheaton, Ill., the debates over universal service and intercarrier compensation reform seemed remote to many in the audience of technologists. “I didn’t realize how complicated this all was,” one LTE consultant said after a panel.

NARUC is pleased that the proposal recognizes the state role regarding carrier-of-last-resort obligations and eligible telecom carrier designations, the group said. The impact on other existing congressionally sanctioned state roles is less clear, NARUC said. NARUC awaits more details on the mechanisms for ICC reform, including how VoIP traffic will be integrated into the system to avoid arbitrage opportunities, it said. Some elements of the speech raise “a host of unanswered questions” but also “the specter of long term and serious unintended consequences for consumers."

James Cawley, chair of the state members of the Federal/State USF Joint Board, said he’s pleased the currently proposed order would maintain a state role regarding carrier of last resort obligations (COLR), eligible telecom carrier (ETC) designations, and accountability over broadband deployment. But states are waiting to see the details in the decision, he said in an interview. He also praised the FCC initiatives regarding phantom traffic, traffic pumping and “outright avoidance of intercarrier compensation payments,” areas where states have been adjudicating and resolving disputes for years and “hopefully the vital state role in these matters will be preserved.” States are waiting to hear further details in areas like VoIP traffic, and the state role that’s contemplated by the FCC, he said. States maintain “a lawful role” in this area and the FCC decision would impact local telephone rates and state-specific USFs, he said. States also await further details on how the competitive bidding process and the associated transition mechanism would work for the distribution of the contemplated Connected America Fund support funding. The state members of the Joint Board had questioned the use of an auction process for the distribution of federal USF support.

States also want to see further details on the use of market-based mechanisms and the use of satellite technologies for delivery services to rural high-cost areas, proposals that the State Plan oppose, Cawley said. Although it appears Genachowski wants to keep things within the $4.5 federal USF high-cost budget, the goals of universal broadband access availability will necessitate the expansion of the federal USF contribution base, Cawley said. “For example, we will not be able to finance the inclusion of broadband access services for Lifeline end-user consumers without the expansion of the federal USF contribution base.”