Sunday, April 24, 2011

USF Reform Comments Showdown: In This Corner, Price Cap Carriers Want to Have it All

Comments on USF Reform and the Connect America Fund were due April 18, 2011, commencing the second round of comments in this proceeding (following April 1st's ICC comments). For your reference, the following comment summaries are in response to:

In the Matter of:
Connect America Fund (WC DN 10-90)
A National Broadband Plan For Our Future (GN DN 09-51)
Establishing Just and Reasonable Rates for Local Exchange Carriers (WC DN 07-135)
High-Cost Universal Service Support (WC DN 05-337)
Developing a Unified Intercarrier Compensation Regime (CC DN 01-92)
Federal-State Joint Board on Universal Service (CC DN 96-45)
Lifeline and Link-up (WC DN 03-109)
I realize that I said I wasn't going to resume my USF comment summaries until after May 2, but I miraculously finished my rural smart grid synergies paper way ahead of schedule--so I figured I should squeeze in some price cap comments while I have some unexpected free time. Since most of the large carriers submitted rather long comments (as usual), I'm focusing on specific arguments that are either attacks on rural telecom providers or particularly worrisome. Onward with comments from Windstream, AT&T and Verizon..

Comments of Windstream Communications, Inc: 
"Price Cap Areas First" and 4 Mbps/768Kbps
Windstream starts out by boasting that "over the next two years, Windstream will mount one of the industry's most aggressive campaigns to improve rural broadband access" (Windstream, 2011, pg. 2). However, the company is very concerned about making sure that price cap carriers are able to access funding for the most uneconomic areas--"the balance of Windstream's unserved areas, however, are expected to remain unserved until the Universal Service Fund is reformed" (pg. 2). Windstream argues that areas served by small rural telecom providers have access to state-of-the-art broadband, while areas served by price cap carriers go without--because USF is directed, presumably unfairly, at the small carriers. Is it bad that rural customers served by small rural providers have great broadband? Apparently so, at least if you are a Windstream customer. Windstream believes that the current USF system has created a rural-rural divide, and "CAF needs to fully replace this broken funding regime with a program that responds directly to the cost of deploying and sustaining networks in all high-cost areas, rather than the size or business model of the companies serving those areas" (pg. 8). Windstream discusses the challenge of providing broadband to households that are not quite high-cost but not quite low-cost either--they support one-time targeted funding for these semi-uneconomic areas coupled with a minimum private investment requirement. Windstream proposes a "Price Cap Carriers First" plan, which includes combining High Cost Loop funding with the High Cost Model method, then redistributing funds based on wire-center costs. They argue for a capped fund and distribution through competitive bidding. Although the semi-uneconomic areas should only receive one-time support, price cap carriers should receive ongoing support to one provider per area--Windstream is clearly hoping to become that one provider in many rural areas. The other point I found alarming was that Windstream supports the 4 Mbps downstream speed target, but believes the upstream target should be reduced to 768 Kbps. Windstream argues that 4Mbps/768Kbps is more than sufficient for basic Internet applications (since all most people do is check their e-mail anyway), and it will help increase fiber deployment in second- and middle-mile transport--which they believe is more important than deploying high-speed fiber in the last mile. Windstream adds that 768 Kbps upstream is much cheaper than 1 Mbps, and the additional 232 Kbps "is arguably not worth the incremental additional deployment costs and added strain on the universal service fund" (pg. 18). Furthermore, Windstream references a paper by former FCC chief technologist (and my former professor) Dale Hatfield, to support its argument that 4Mbps/768Kbps is sufficient: "fiber optic cable is often regarded as being 'future proof,' and policy makers should focus on the immediate need to bring fiber significantly closer to the customer" (pg. 17). I do not take that statement as meaning that high-speed fiber should stop at the second-mile, but Windstream apparently does not want to commit to bringing fiber to the home at this time, at least until the price cap carriers are securely the sole recipients of USF. The most alarming comment by Windstream was: "The Universal Service Fund cannot continue to bear the strain of expansion of Fiber to the Home that is being deployed in some high-cost areas served by small rate-of-return carriers" (pg. 34). Ouch! Lastly, Windstream is in favor of eliminating all legacy high-cost support for CETCs in order to free up funds and limit the overall size of the fund, because funding competitive providers "has imposed irrational burdens on the consumers who contribute to the Universal Service Fund" (pg. 27).

Comments of AT&T: 
Sweeping Reforms for a "Relic of a Bygone Era"
AT&T opens with some real fighting words directed at the FCC, indirectly at RLECs. With a harsh tone and a hint of irony, AT&T insists: "The existing universal service and intercarrier compensation regime is teetering on the brink of collapse. Adopted in an era of local exchange monopolies, that regime is no longer adequate to the task of rationally promoting universal service even on the legacy [PSTN]. And it is utterly incapable of advancing universal service on the all-IP communications network of the future...The Commission's existing policies are actively hindering broadband investment and adoption in high-cost areas, denying millions of Americans the benefits of next generation technology" (AT&T, 2011, pg. 1). I actually laughed out loud while I was reading the introduction, because AT&T talks about how outdated and inefficient the current USF system is because it was designed for a monopoly-dominated industry, which is not what the industry is today. Really? Because last I checked, AT&T seems to be trying really hard to return the industry to its former AT&T-dominated glory. Regardless, AT&T wants sweeping reforms to abolish "monopoly-era perspective regulations" (pg. 3). New reforms should include market-based approaches and a procurement model, whereby providers are only subject to explicitly agreed upon service obligations, are not compelled to provide broadband but can on their own accord in exchange for universal service support, and this model would create certainty and encourage participation. The new-era USF should eliminate legacy COLR obligations because they are legal obstacles to the transition to an IP-based industry, and they inefficiently maintain both circuit and packet switched networks. New-era USF funding should be targeted specifically to uneconomic areas, and the FCC should adopt a hard deadline of January 1, 2017 for "all legacy high-cost funding and all state and federal legacy service obligations should be terminated, and only the broadband support mechanism should remain" (pg. 6). AT&T wants the FCC to adopt final rules for CAF now, in order to reduce regulatory uncertainty. Ironically, AT&T refers to a comment by CoBank (a primary lender for RLECs), possibly taken out of context: "Lenders don't lend against hypothetical costs and they don't get repaid in hypothetical dollars" (pg. 85, footnote 177). I do agree with AT&T's definition of broadband--they argue that the definition should be based on what consumers actually use now and in the near future, "rather than focusing on the definition of 'broadband' in a vacuum" (pg. 88). I think this is a really good idea, because imposing a static speed limit on the definition of broadband is going to cause the FCC more problems down the road than they are capable of dealing with, and it will pose significant harms to consumers. Unfortunately, AT&T adds that if the FCC does not take a "holistic" approach to the definition of broadband, 3Mbps/768Kbps is probably the best speed-based definition because it is cheaper than 4/1 Mbps and will "ensure faster and more efficient deployment to households in high-cost areas" (pg 94). The bulk of AT&T's comments were in response to the ICC component of the NPRM--which should have been submitted separately on April 1. However, nobody tells AT&T what to do, right? It is really scary to think about how AT&T basically wants the FCC to "eradicate" the entire current USF system, good parts and all (although AT&T doesn't think there are any good parts, clearly), and start over based on their recommendations--will AT&T's lobbying prowess and be enough to overshadow the united RLECs proposals, like the Rural Association Plan? I'm well aware that there will have to be some compromises in this rulemaking and the RLECs will need to make some sacrifices, but I'm really hoping that for once AT&T is not the sole winner of the USF battle.

Comments of Verizon and Verizon Wireless:  
Cap & Reduce USF, Eliminate Rate-of-Return
Verizon's comments are not quite as garish as AT&T's, but they are not without a plethora of dramatic accusations and insults to rate of return RLECs. Verizon argues that the current USF system "discourages carriers from updating their business models for the broadband era in order to hold on to legacy universal service and access subsidies" (Verizon and Verizon Wireless, 2011, pg. 2). This is a direct attack on rate-of-return carriers, which Verizon argues should be forcibly transitioned to price cap regulation. Verizon argues that no carrier deserves the privilege of a guaranteed 11.25% rate of return, and rate of return "rewards inefficiency, insulates carriers from competition, and gives these providers a disincentive to innovate," and "no carrier should be forever insulated from the effects of competition or relieved of the need to pursue innovation" (pg. 53-54). First, we saw in the Iowa Telecom Association comments that 85% of Iowa's nearly 150 rate of return carriers recovered below the 11.25% threshold, and 41% actually earned a negative rate of return. Second, I would like to see proof of one rate of return RLEC who is not concerned about, and is insulated from, competition--this is a ridiculous argument. Competition in the broadband era comes from many sources--including wireless, satellite and VoIP, and I don't think there is a single small rural carrier who isn't sufficiently freaked out about competition for their small number of customers. When you only have 2,000 customers, the impact of losing just one to a competitor is catastrophic. Finally, I would also like to see proof of the rate of return RLEC who does not feel pressure to innovate. In the broadband era, it is innovate or die. Time and again I have heard these accusations against rate of return carriers, yet I rarely see any solid evidence of the claims that rate of return carriers are inefficient and avoid modernizing their networks. As a result of competition, resisting innovation is business suicide. I'm sure there may be a few rate of return carriers who are guilty of inefficiently using universal service support, but it is certainly not the majority, nor should the majority suffer from the bad actions of the few. Anyway, back to Verizon: they argue that the high cost fund should be capped at the 2010 level of $4.3 billion, AND the FCC should "establish an expectation that funding decreases over time as broadband is deployed into unserved areas and technology drives greater efficiencies" (pg. 55). Verizon believes the fund will be reduced over time if the FCC adopts competitive bidding (which will reward carriers who can build broadband for the lowest cost--resulting in an unfair advantage to the largest companies with the greatest economies of scale, and resulting in very low quality broadband networks), targeted support to unserved areas, and only supporting one provider per area. Together, these actions will help the FCC "impose the kind of market discipline on the system that will shrink the fund over time" (pg. 58).

Well, there you have it--the perspective from the large carriers. It is about as diametrically opposite from the RLECs and rural carriers as it can be, further evidence that the USF reform NPRM has initiated an extremely bitter fight where it is almost guaranteed that nobody is going to rise from the rubble completely unharmed. Exactly who will be harmed remains to be seen, and I sincerely hope that the lobbying power and deep pockets of AT&T and Verizon is not a persuasive factor in decisions that will impact the entire country and telecommunications industry for years to come.

For my next installments, I will take a close look at the Rural Association Plan and the FCC's April 27 USF Reform Workshop (which I will unfortunately miss as I will be on a plane while it is happening). If you are just tuning in, you can read my summaries of the rural carriers here, and my summaries if the ICC reform comments here.

Hope everyone had a nice weekend, and don't forget to FOLLOW RURAL TELECOMMENTARY ON TWITTER!

Cassandra Heyne

No comments:

Post a Comment