Wednesday, May 18, 2011
FCC’s Third USF Workshop in Omaha, NE: Many Questions, Few Solutions for Ideal Rural Broadband Policy
The FCC concluded its trio of highly interesting and collaborative USF events today in Omaha, NE, with the Workshop on Defining the Federal/State Partnership in a Broadband World. I just want to say that I really value the learning experiences that these workshops have provided, because they have given me such an insightful look deep into the core of every major issue related to USF reform. As a result of these workshops, I have been able to learn so much about many facets of USF reform (such as ICC, COLR obligations, state USF funds, broadband technologies, etc.), including areas that I did not previously know much about or understand completely just by reading comments. I l truly enjoyed watching members of all different telecom industry sectors debate on USF topics in each of the three workshops. I hope the FCC utilizes this type of collaborative, open discussion platform in the future for other major proceedings as well. This workshop in particular covered some of the topics of the previous workshops, such as Intercarrier Compensation reform (ICC) and reverse auctions; but it also addressed new issues, such as the states' role in USF, business cases or the lack thereof to invest in rural broadband infrastructure, and unique consumer perspectives straight from the mouths of actual consumers. Overall, I thought there were a lot more questions than answers provided in this workshop, and once again there was very little consensus on any issue in any of the panels (but that's what makes it fun, right?). It was really nice to see people I know (like Tom Conry from Harlan, Iowa) participate in such an important event, and it was also an amazing opportunity for people all over the Midwest—Iowa, Nebraska, Kansas, Wyoming, South Dakota—to come together and represent the heart of the rural telecommunications industry so close to home. I took 14 pages of notes on this workshop, so I'll try my best to condense that down to the key points and arguments—readers, I appreciate your patience, time, and attention on these USF Reform topics which I have been writing about in great detail and hopefully not in vain.
Commissioners Clyburn and Copps opened the workshop by reiterating how important it is to modernize the Universal Service Fund for broadband. Clyburn provided a localized example, citing that Nebraska has 300,000 people (18% of the population) without broadband, and it is a significant barrier for these people to find jobs, receive a quality education, and conduct basic transactions. Copps added that the current USF system is plagued by market power, "at best outdated and at worst Byzantine and broken." He argues that now is not the time to listen to "Dear Santa wish lists," and everyone in the industry is going to have to make some kind of sacrifice for the greater good. Copps is hoping that the USF reforms will move forward sometimes this summer, which leaves very little time for ensuring everyone gets exactly what they want. Nebraska Public Service Commissioner Ann Boyle described what she considers a significant and unique problem in highly rural states like Nebraska: the larger cities, like Omaha, only account for about a county or so of the state's geography, whereas the extremely rural areas, like Western Nebraska, compromise vast territory and include significant challenges to serve with quality and affordable broadband. She even presented a map of Nebraska to illustrate how one Nebraska Public Service Commissioner is literally responsible for nearly the entire state in terms of geography, but only about 1/3 of the population. This example reminded me of when I used to go camping in Western Nebraska when I was really young. If you think Iowa is rural, you haven't seen what rural really looks like! Even Western Nebraska looks like a metropolis compared to other regions in that part of the country, where you can literally drive for hours without seeing another person. Yet, people do live in these areas, and they deserve quality and affordable broadband. I have long argued that these are the people who need broadband the most, because broadband has the potential to transform their lives in ways that it cannot in urban areas simply by opening up the entire world of education, health care, finance, business and culture to individuals who would normally have to drive 300 miles to reach the nearest "city" to conduct business or even purchase everyday goods and services. Ms. Boyle mentioned how beautiful Western Nebraska is—and I agree—but unfortunately most people will never understand the attraction to areas like this. Without broadband service, even fewer people will ever consider living or starting a business in these areas, and the children in extremely rural communities will not see any opportunities to remain in these areas once they become adults. I can personally serve as a prime example to illustrate this phenomenon, and I theoretically have a pretty decent job opportunity in rural Iowa if I really want it.
Panel 1: The Evolution of the State/Federal Partnership in a Broadband World
Panelists: Alex Minard (FCC, Moderator), Peter Bluhm (Rolka, Loube, Salzer Associates), Doug Garrett (Cox Communications), Tom Conry (Farmers Mutual Cooperative Telephone Company), Teri Ohta (T-Mobile), Edward Krachmer (Windstream)
This panel largely discussed the complex dual roles of the FCC and states in USF reform, and how these two roles can be balanced and appropriately coordinated to ensure the goal of modernizing USF for broadband is successfully achieved. While this panel lacked the fireworks that some of the other panels have had, it was still very interesting. The main debates centered around the extent that COLR and ETC requirements should be applied to broadband providers receiving USF support, and how involved states should be in enforcing these requirements and managing their own USF mechanisms. Peter Bluhm described the relationship between the FCC and states as a "marble cake," rather than a "layer cake" as it is often described, as the roles are mixed together with different and complimentary sets of requirements and responsibilities at both levels. Doug Garrett from Cox commented that states have a valuable role in overseeing agreements, developing fair terms for interconnection, and ensuring a smooth transition to redirect USF for broadband in the Connect America Fund (CAF), but the FCC has the ultimate responsibility to solve the greater USF challenges as well as provide incentives for states to achieve broadband goals—basically, close coordination between state and federal agencies is necessary. Tom Conry argued that states serve an important role in Carrier of Last Resort (COLR) obligations and in ensuring that USF recipients use funds effectively to bring broadband to rural areas, and there must be a close partnership between states and the FCC. Edward Krachmer of Windstream prefers broadband oversight at the federal level, and argued that there should be uniform standards for all states developed by the FCC, where states can provide input on these uniform standards. Commissioner Copps asked the panel to discuss how competition—or lack thereof—impacts COLR obligations, and if COLR obligations should be applied everywhere or only where there is very low or no competition. Bluhm responded that there should be some exemptions, but COLR obligations should be especially rigorous in areas with no competition, but Gerratt claimed that COLR has outlived its usefulness and has now become a burden. On the other side, Conry argued that COLR will be very important going forward to ensure that providers cannot pull out of providing service in high cost areas, a la the "Hotel California" concept (You can check out any time you want but you can never leave.. Digression: I believe this is a common term in the finance industry for an FTC or SEC regulation, because I just read an article a few weeks ago about how complicated and obscure finance industry acronyms and jargon has become, where my response was "obviously you don't know anything about the telecom industry," which has 500+ page dictionaries just for acronyms. Anyway I love the Eagles so I have no problem borrowing this term from the finance industry). The panel debated about the ease of COLR and ETC requirements and pitfalls of COLR, after a Commissioner from Indiana commented that in some states receiving ETC status is as easy as tossing an application out of a car at a drive-through window, which I thought was a pretty funny visualization. Bluhm argued that states do not have uniform approaches to COLR obligations, but a uniform baseline requirement would be a good idea albeit difficult to develop. Ann Boyle chipped in and added that many carriers will not want to be a COLR except for ones who are already providing service (specifically rural carriers in rural areas), and she added that many rural carriers have far surpassed baseline COLR service requirements. She commented that multi-state carriers should not be using one state's money for provide service in a different state, and some states may need to go above and beyond any standardized COLR benchmarks. Commissioner Copps asked about the role of states in addressing the broadband adoption challenge, to which Conry replied that in his service area (Harlan, Iowa and surrounding communities, 15 minutes from my hometown of Walnut and a neighboring exchange to Walnut Communications), the primary adoption problems lie in age and income demographics, not in availability, which is nearly universal in that area. Naturally, reverse auctions worked their way into the panel, and Gerratt argued that they are the best way to ensure public money is used for public goals. He erroneously claimed that reverse auctions have been very successful in other countries, and I promise to debunk this myth in an upcoming post, hopefully in the next week or so. Conry responded that reverse auctions will undoubtedly create networks that are of lower quality simply because the true costs will not be supported. Finally, there was a debate about whether or not states should provide their own USF support. An audience member from South Dakota voiced concern that the state of South Dakota simply does not have a large enough population to afford a stand-alone fund, but Ann Boyle responded that the population should not matter—if everyone in South Dakota who has a phone pays a small amount, the South Dakota can have its own fund for broadband too, and states should do whatever they can to limit the burden on the federal fund, which I agree. Bluhm referenced the Joint Board's proposal that states could impose a per line USF fee of up to $2, which would be subtracted from the federal subsidies. Overall, I thought this was a good panel but I would have liked if there was a broader group of panelists which may have incited a more heated debate—most of these panelists seemed rather like-minded with the exception of Conry representing the RLEC perspective. I was particularly impressed with the comments and questions by Ann Boyle, and I can see that she is a dedicated advocate of rural broadband and rural telecommunications companies.
Panel 2: State and Federal Roles in ICC Reform
Panelists: Sharon Gillett (FCC), Hank Hultquist (AT&T), Ken Pfister (Great Plains Communications), Kathleen Abernathy (Frontier Communications), Rich Morris (Sprint)
The interesting thing about ICC reform, which is arguably my least favorite category—or "leg of the 3-legged USF stool," if you will—is that nobody really disagrees that we are moving towards an all-IP world, where per-minute and interstate/intrastate rates will be obsolete, and we therefore need reforms to this system. However, naturally nobody can agree on how to reach that endgame, and the FCC needs to realize that they cannot force a Great Leap Forward in technology to an all-IP network just by snapping their fingers or wishing it so. In this panel, I thought the most interesting debate focused on the $0.0007 intercarrier compensation rate proposed by the FCC. Ken Pfister from Great Plains Communications (a fairly small RLEC) basically argued that whether its 0.0007, 0.002 or 0.01 doesn't matter because none of those arbitrary values have any relation to costs and imposing these rates would devastate the industry. Kathleen Abernathy of Frontier argued that today's high-cost/low-density areas will most likely continue to be tomorrow's high-cost/low-density areas, which must be recognized in a comprehensive ICC reform and jurisdictional differences must be addressed effectively before we can expect to reach the envisioned "broadband nirvana" of the future. Commissioner Copps asked the panel a really good question: what is the actual consumer benefit of ICC reform? How would you even begin describing ICC to a consumer? ICC is one of the most complicated, archaic components of telecom policy and I have actually tried describing it to non-insiders before and found it was actually easier to use industry jargon than try to talk about it in basic English. Anyway, good question, Copps. The answers from the panelists weren't very helpful; in fact Abernathy's response that it is basically impossible to describe the benefits of ICC reform to consumers was pretty dead on point. The AT&T panelist said that since consumers are the ultimate beneficiaries of USF, any long term repurposing of USF support from POTS to broadband will create consumer benefits, however it may be awhile before every consumer sees lower rates (if that ever happens). Keeping with the day's theme on federal-state cooperation, Clyburn asked the panelists to describe which states are effectively addressing ICC and what tools these states are utilizing. Pfister responded that Nebraska has a very progressive system but there is still work to be done to reduce intrastate rates, and Abernathy responded that Georgia has a access recovery fund which allows for protection of current investments while still focusing on longer term goals. Moving right along, there were a lot of questions about technology neutrality and the appropriate model for ICC reform. One comment I found especially entertaining was from the Sprint panelist—he stated with confidence that satellite is completely appropriate to provide broadband to the 3-8% of households that aren't covered by wireless (yes, he is apparently buying in to the National Broadband Map's defective data that shows wireless coverage in places where no wireless coverage actually exists). However, he admitted that he has never actually used satellite broadband. The Commissioner from Indiana discussed the "business case/no business case" debate, and described a scenario where three providers who could have brought broadband service to Indiana took drastically different approaches—one finding a considerable business case based on projected returns, one investing elsewhere and now lacking a solid footprint in Indiana, and one finding that 40% of unserved areas are not necessarily uneconomic and building service to these areas, squeezing blood from a turnip in other words. Basically, an unserved area is not necessarily uneconomic, but there still might not be a business case. I thought this discussion was interesting because in most rural areas there simply is no business case, especially for larger price cap carriers, and there is nothing anyone can do to change that short of forcing people to move to these areas. If the FCC thinks repurposing RLEC USF support to carriers who admittedly have no business case or desire to serve extremely rural areas is a good idea, they are sorely mistaken. Ken Pfister confirmed this by stating that there is no business case to provide broadband to most of Nebraska, but rural carriers are doing it anyway. Furthermore, moving to a $0.0007 or near 0 access rate will perpetuate the existing business case problems in rural areas because then carriers really won't see any incentives to invest heavily in IP infrastructure. Once again, it seems like the FCC is just creating a bigger problem in its attempts to incorrectly solve a lesser but fundamental USF problem (the "problem" being the perception that RLECs avoid upgrading to IP networks just so they can collect high access rates). No words from this panel on the ICC Big Three- VoIP, traffic pumping and phantom traffic, but these topics were addressed at great length in the first USF workshop.
Panel 3: Targeting Support and Transitioning to the Long Term CAF
Panelists: Carol Mattey (FCC), Jeff Lanning (CenturyLink), Kevin Hess (TDS Telecommunications Corp.), Cheryl Perira (replacing Wendy Fast, Consolidated Telephone Company), Jim Kohler (State of Alaska), Lisa Scalpone (ViaSat/WildBlue), Johnie Johnson (Nex-Tech Wireless)
This panel was very interesting and included some excellent perspectives from both the rural Midwest and the really rural state of Alaska, where issues in the Lower 48 pale in comparison to the challenges faced in Alaska to deploy broadband to rural areas. The most heated debate in the panel centered around reverse auctions, where panelists were split in favor and against, yet there were still no valid arguments in favor of reverse auctions in my opinion. The panelist from rural Consolidated Telephone Company argued that the FCC is simply not hearing the arguments against reverse auctions, the panelist from WildBlue argued that reverse auctions will be very effective at bringing high quality, low cost broadband to rural areas, and the panelist from Nex-Tech Wireless argued that small rural carriers will not be able to compete economically in reverse auctions which will ultimately cement the auction winners' monopolies. Were there any answers on why reverse auctions are appropriate or how they will actually work successfully? No, of course not; such answers simply do not exist for an auction mechanism that has never been used in the U.S. for broadband infrastructure. The panelists were asked how support should be targeted to high cost areas, and the panelist from Consolidated Telephone Company responded that a density-based approach makes the most sense. Jeff Lanning from CenturyLink agreed, adding that competitive areas should be excluded. He argued that it is important to think like an investor, and identify areas where you would not want to invest—these are the areas where funding should be targeted. The panelists were asked if mobility should be a supported service, which brought up the debate over wireline vs. wireless. Ultimately, I believe it is really important to understand that customers want both wireline and wireless for different reasons, and they are not substitutes for each other—the market should provide clear evidence of this. I thought about my own telecommunications service use during this discussion—I have a 3G mobile smartphone, fixed DSL and cable TV (long story somewhat short, Comcast sucks and refused to fix my cable Internet a few years ago without putting me through significant headaches and costs, so I dropped them as my ISP. But, Verizon doesn't offer FiOS in poor neglected Northwest DC, so I'm stuck with unbundled and more expensive services from separate providers. I use my Verizon mobile Internet for very specific applications and I use my DSL for very specific applications, and it is unlikely I will substitute one for the other anytime soon. I haven't used a landline since 2005). Commissioner Copps, who was really on-point with the hard-hitting questions today, asked about the fate of underserved areas, noting that Congress will be concerned with both unserved and underserved areas, such as inner-city low income communities. Jim Kohler from Alaska responded with yet another question: where do we draw the line between unserved and underserved? This is especially challenging when we include speed targets and consumer demands for unlimited bandwidth, because an area that was served perfectly well recently may swiftly become underserved especially if USF is redirected without considering operational expenses, as noted by the panelist from CenturyLink, who also added that it is going to take longer to serve these areas if the fund is capped and the budget is reduced. This increases the risk of stranded infrastructure and reduced incentives to invest in unserved and underserved areas. Finally, the panelists were asked how soon the long term permanent system should be implemented, but once again there weren't any real answers here. There was some consensus that there needs to be pilot programs for some of the riskier proposals like reverse auctions before anything permanent can be implemented, and the panelist from Alaska emphasized that a rapid transition could result in some communities "going dark" if they cannot adjust to the changes fast enough. Very scary possibility…
Panel 4: Consumer and Public Forum
FCC Chairman Genachowski, Sharon Gillett (moderator, FCC) and panelists Linda Rice (Nebraska resident), Lazaro Spindola (Mexican-American Commission), and Mike Arnold (Communications Workers of America Local 7470).
Ah, the consumers. The ones who will actually benefit or hurt from the FCC's rural broadband policy decisions, but whose voices are not always heard because they lack the capacity for high level industry jargon and legalese—which according to AT&T makes them irrelevant (reference to the AT&T-Mobile merger drama). Chairman Genachowski, fresh from his visit to extremely rural Diller and Liberty Nebraska, opened this panel by describing his experience visiting these two rural Nebraska communities—one with broadband and one without. He described how broadband has provided amazing opportunities for the Blue Valley Meats company, which started as a small grocery store and become a bustling e-commerce business with triple the number of employees as when it started. On the other hand, small businesses in the unserved community cannot reach new customers, farmers cannot participate in online auctions, and children cannot receive a quality education without broadband. Supposedly, Genachowski visited an RLEC in Diller, Nebraska, but not so much as a peep was made about this visit so I'm wondering if it even happened. Not to rant too much, but I was really upset about this oversight. I was expecting Genachowski to at least pretend to give some reassurance to the RLECs after visiting one such company in person, but no luck with that today. What happened? Anyway, the most riveting consumer testimony was given by Linda Rice from the Omaha area—yes, the Omaha area, not a ghost town in the western sand hills of Nebraska. She does not have broadband and has gone through horrendous ordeals trying to get broadband, even though a local broadband provider has infrastructure just 4200 feet from her house *cough—sounds like Qwest—cough.* This broadband provider refuses to extend service even though it could gain a dozen or so new customers in her neighborhood, and residents have continually petitioned the company for years to provide service. This is why price cap carriers cannot be trusted with redirected USF support!! Nothing is going to change the fact that these unserved areas have low business case for investing, even if the investment would be very small (4,200 feet small), so why should we expect that a price cap carrier would utilize USF to extend service, or that they would do it relatively quickly? The FCC and State commissioners took questions and comments from the audience, which included a wide range commentary on fixed wireless opportunities in rural areas, broadband for education, remote medical monitoring and health care, access for persons with disabilities, technology neutrality, and broadband adoption initiatives. I have a feeling that consumer questions and comments could have gone on a lot longer than 30 minutes, and the FCC could have successfully dedicated an entire day just to taking questions from consumers, who we must not forget they are doing all these reforms for in the first place, allegedly.
Well, there you have it—I've covered everything that has happened with the USF Reform rulemaking up to the reply comments, which are due on Monday, giving me literally no time to rest or write about anything other than USF this month.
Have a lot of free time? Read my entire USF Reform Series up to the reply comments:
First Workshop on ICC Reform
Second Workshop on USF Reform
RLEC, rural association and rural wireless carrier comments
Price cap comments
Joint Board comments
Rural Association comments
ICC reform comments
OPASTCO Legislative and Regulatory meeting
NTCA Legislative and Policy meeting