FCC Gets First Wave of Comments From Questions Asked in USF Order

Almost three months after the FCC approved a Universal Service Fund/intercarrier compensation reform plan, major industry players continue to seek significant changes. Comments were due last week on a further rulemaking notice approved as part of the order. How USF dollars ultimately will be divided as the fund is reconfigured to primarily pay for broadband is the key question addressed in most filings. They show that the FCC still has a huge job ahead as it continues to tackle changes to the USF. Numerous petitions for reconsideration have been filed in response to the Oct. 27 order. A second round of comments focusing on intercarrier compensation issues is due Feb. 24. Next week, the commission will begin to tackle Lifeline reform. Also looming are likely changes to the contribution side of USF.

The FCC’s obligations are clear, USTelecom said: Americans living in rural areas “deserve and expect services that are reasonably comparable to those in urban areas, and the Commission is obligated by law to provide sufficient funding to ensure reasonably comparable services and rates are available to inhabitants of rural areas.” The joint framework proposal submitted by the major wireline carriers and the associations representing rural carriers offered a solution, the USTelecom said (http://xrl.us/bmpb58). But the order devised a different funding plan.

"Now that the budgets have been established in the Order with funding different than that proposed in the Joint Framework, to ensure sufficiency the Commission must be careful to align the obligations of both price cap and rate-of-return [eligible telecommunications carriers] with the funding made available,” USTelecom said. The FCC decision to “bootstrap a broadband deployment and maintenance obligation onto carriers ... turns a blind eye to the sufficiency of the support necessary to satisfy this obligation,” the group warned. The FCC still needs to provide additional funds to pay for middle mile and broadband backbone costs, USTelecom said. It said the National Broadband Plan recognizes that “a significant barrier to providing high-speed broadband Internet access services in rural areas, in addition to the cost of last mile and second mile network facilities, is the cost of middle-mile facilities and services between rural areas and the Internet backbone."

The FCC must now focus on making certain that the USF provides adequate funding for wireless broadband, CTIA said (http://xrl.us/bmpb7q). The group encouraged the agency to start the proposed Mobility Fund and conduct the Phase I auction, a one-time reverse auction to provide initial support, “as soon as practicable this year to provide support for unserved consumers in areas unreached by 3G networks.” CTIA said Phase II of the Mobility Fund -- providing ongoing support through a still to-be-determined mechanism beginning next year -- is even more important. The FCC needs to proceed with care as it develops Phase II rules, the group said. “Once the Phase I auction is complete, both the Commission and affected stakeholders will have the opportunity to assess the Phase I reverse auction funding mechanism,” CTIA said. “The lessons learned from Phase I will be critical to determining the appropriate structure and operation of Phase II."

CTIA also urged the FCC to craft reporting and performance obligations carefully with an eye on ensuring accountability without discouraging carrier participation. The group said the competitive bidding process for the Connect America Fund in price cap areas should be designed in a manner that’s competitively neutral to guarantee participation by wireless carriers.

The FCC is largely “on the right path” to reform, Verizon said. The telco said the agency should take steps to make sure that “outdated regulatory obligations” don’t prove to be a “drag on the transition to new, more efficient technologies and to participation in the CAF programs.” In any area where a particular carrier doesn’t receive legacy high cost funding or CAF support, the commission should “consistent with its Section 254 obligations,” get rid of remaining ETC voice service obligations, Verizon said (http://xrl.us/bmpcy8). The FCC also should “look first to existing data and publicly available information” as it puts in a process to monitor broadband and wireless retail pricing in connection with the CAF and the new Mobility Fund, the filing said. “In designing the new USF competitive bidding mechanisms, the Commission should not attempt to micro-manage broadband network coverage and deployment in funded areas,” Verizon said. “The Commission should also have realistic expectations about how many unserved (or underserved) locations can be reached and how quickly networks can be deployed."

The FCC pulled “its $4.5 billion/year high-cost universal service program out of the last century” in the USF reform order (http://xrl.us/bmpcy8), AT&T said. The company argued strongly that the agency must make clear that ETCs have no service obligations in areas where they receive no federal high-cost support. “It should do so by granting USTelecom’s request that the Commission clarify now -- not after completion of this further rulemaking -- that ETCs are relieved of their legacy ETC service obligations in those areas where they receive no federal high-cost support,” the carrier said. AT&T also said the FCC should jettison its two standard deviations measurement used to determine reasonable comparability for voice services. It said the “measurement is simply no longer an appropriate tool (if it ever was) to measure whether the rates for voice service in rural areas are reasonably comparable to rates for voice service in urban areas."

Small rural carriers complained of too many reductions in support in reform efforts so far (CD Jan 19 p12). In 345 pages of joint comments (http://xrl.us/bmpdao), OPASTCO, NTCA and two other rural LEC associations sought more support for standalone broadband, middle mile and moving to IP networks. The CAF in its current form “threatens to leave wide swaths of rural America behind, with broadband that will increasingly become substandard when compared to the speed and affordability of similar services available to other consumers,” the four groups said.

The FCC should not impose “burdensome ‘accountability’ mandates upon RLECs, particularly in the absence of funding mechanisms designed to sustain broadband services,” the rural carriers said. “RLECs have been fully accountable for decades with respect to their use of federal high-cost fund support (HCFS).” The RLECs also opposed new broadband network interconnection obligations because they said they're not needed. OPASTCO and the other RLECs asked the FCC to hold off on resetting interstate rate-of-return rates “until it establishes clear and contemporary procedures governing the represcription process.” They said a reasonable rate for RLECs is at least 11.25 percent. The carriers urged the FCC to reconsider its decision to use quantile regression methods to limit reimbursements of capital and operating expenses. “In addition to concerns previously raised regarding unfair and unlawful retroactive application of such models to prior investments, the Rural Associations show ... that errors in the proposed regression models will lead to serious distortions in universal support payments."

The FCC “should proceed with substantial caution in phasing out support in areas with unsubsidized competition or otherwise seeking to ‘carve up’ study areas,” the small RLECs said. “If the Commission pursues this path, it should rely on state expertise and data-driven judgment, rather than inaccurate national maps, to make factual determinations regarding the extent of competition in a particular area. It should also establish clear and fair procedural rules governing such determinations.”

The FCC should lower the interstate rate of return, which is currently “far too high,” said the Ad Hoc Telecommunications Users Committee (http://xrl.us/bmpdaf), which represents corporate buyers of telecommunications services. To set the rate, the agency “should rely on documented, publicly available data to determine the Weighted Average Cost of Capital for providers who will receive CAF funds,” the committee said. The FCC should not inflate the cost of capital because CAF recipients will rarely face competition in broadband and they will have a chance to assess the business case for broadband before accepting CAF support, the committee said. The committee also urged the FCC to closely monitor prices for Internet service: “Since about 96 [percent] of the American people live in markets served by only one or two providers of Broadband service, the Commission should be concerned that providers may set prices to maximize their profits and in doing so may repress demand for Internet service."

The proposed remote area fund should be open to community and locally owned broadband providers, New America Foundation, Public Knowledge and the Benton Foundation said jointly (http://xrl.us/bmpc99). The current proposal allows only satellite broadband providers to receive support. The public interest groups also supported an interconnection obligation for fund recipients, so that local broadband providers have access to backhaul. “While the Commission appears to view satellite as the primary gap-filler for remote areas, it should not overlook other types of service providers who may be able to offer distinct benefits to residents of these areas,” they said. Smaller community networks and local wireless ISPs “may be better equipped to address broadband needs of remote areas, offering more localized solutions that can connect residences as well as businesses, schools, hospitals, libraries, and other anchor institutions in a community.” While satellite Internet speeds and capacity are “gradually increasing,” the three groups said they are “inadequate for many day-to-day needs of even the most basic resident consumer."

Cable Operators Seek Parity, States Weigh In

Cable operators also weighed in. NCTA said the FCC was right to put the high-cost program on a strict budget. “Unfortunately, the Commission generally chose not to make use of market-based mechanisms to distribute funding and instead it is providing incumbent local exchange carriers (LECs) with exclusive or preferred access to virtually all high-cost support,” the group said (http://xrl.us/bmpc4m). NCTA called for parity. “In areas served by rate of return carriers, the Commission must ensure that support is appropriately targeted to areas not served by competitors, rather than subsidizing areas where the marketplace already is working to deliver broadband to consumers,” the group said. In price cap areas “the Commission must develop a bidding process that facilitates bidding by all interested parties and provides no artificial advantages to incumbent LECs beyond the advantages already provided by the CAF Order.”

The American Cable Association made a number of proposals to make reverse auctions as fair as possible (http://xrl.us/bmpc5v). “To attract as many competitive bidders as possible, it is essential that the Commission revise the current ETC designation process, which is onerous and acts as a barrier to participation by longstanding, leading providers of broadband service,” ACA said. “If a winning bidder certifies it will comply with the Commission’s public interest requirements, there is no policy rationale for not designating the bidder as an ETC, nor is there any legal impediment."

State regulators are in the best position to determine areas of overlap between carriers and need to be involved in decisions regarding elimination of support for areas with an unsubsidized competitor, several state commissions said. They should have input on decisions regarding support adjustments, they said. While the FCC claims it’s not directly preempting state COLR obligations, indirect preemption may occur as the distribution of fund support progresses, said the Alaska Regulatory Commission. State commissions must maintain their current role in designating ETCs so they can be proactive in coordinating ETC and COLR obligation, it said.

Several state commissions have state-specific concerns. The Vermont Public Service Board, which has appealed the USF order, said fixed and mobile voice services should have separate benchmarks for purposes of reasonable comparability. Any examination of comparability must be based upon actual measurement and encompass both rural and urban areas, it said. The use of a competitive bid process worried the Nebraska Public Service Commission (http://goo.gl/adsFL). The process would result in a “race to the bottom” regarding service quality and wouldn’t advance universal service, the Nebraska commission said. It urged the FCC to permit competitive carriers to seek an ETC designation for the territory at issue instead.

The Alaska Regulatory Commission (http://goo.gl/zy4ok) called the reform impacts on Alaska “detrimental.” Satellite facilities aren’t sufficient as the technology of last resort to bring broadband services to Alaska, said Chairman T.W. Patch. He said high prices, limited throughputs, weather-related complications and coverage limitations are obstacles to deploying broadband via satellite in the state.

The California Public Utilities Commission (http://goo.gl/QFFUk) urged the FCC to adopt a uniform reporting format to facilitate the tracking and review of the broadband measurement reports. A uniform reporting requirement would facilitate USAC and state commission audit of these reports, it said. California recommended the FCC conduct the initial evaluation of whether there is 100 percent study area overlap and then give the relevant state commission time to review and comment.

The Indiana Utility Regulatory Commission (http://goo.gl/bPUYS) claimed in adjusting ETC service obligations, standards for voice telephony shouldn’t be relaxed beyond the more flexible standards contained in the order. A state commission review must occur prior to elimination of support for geographic areas with an unsubsidized competitor, it said.

Competition Necessary, Satellite Says

Competition should be at the center of the CAF, said satellite interests. The FCC should structure the Remote Areas Fund (RAF) as a portable consumer subsidy, as suggested in the proposal, said Hughes Network Systems, ViaSat and Dish Network in a joint filing (http://xrl.us/bmpdc8). The subsidy should be enough to offset the cost of voice and broadband in remote areas and shouldn’t be limited to supporting a single provider, the satellite companies said. “The resulting competition among providers would ensure that RAF customers continue to receive the benefits of competition,” they said. There’s no need to restrict RAF participants from requiring subscribers to enter extended contracts, the companies said. Such price structures are often designed to make broadband more affordable by reducing the risk involved with reaching remote areas and allowing providers to spread the costs of subscriber acquisition and equipment over an extended period, the satellite companies said.

The FCC should also use competitive mechanisms to distribute CAF supports in regions served by rate-of-return incumbents, they said. The current proposal would give the “lion’s share of CAF support” to incumbents in those areas “contrary to the principles of efficiency and competitive neutrality that underlie decades of Commission policy in this area, the companies said. The proposal “abandons the rationale” of market-based mechanisms for CAF distribution without “any real attempt either to distinguish the Commission’s prior analysis, or to address the amble record evidence demonstrating” the efficacy of market based solutions, they said.