Monday, June 13, 2011

USF Reform Reply Comments Face-Off: The Rural Associations Question NPRM’s Legal Stability

Reply Comments on Universal Service Fund Reform were due Monday, May 23, concluding the comment-and-reply cycle for this proceeding. Today I am analyzing reply comments filed by the Rural Associations (NECA, NTCA, OPASTCO, WTA and concurring state/regional associations). This will be my final USF reply comment summary for Rural TeleCommentary, but I will continue to analyze USF Reform filings for the JSI Capital Advisors Blog over the upcoming weeks.

These reply comment summaries are in regards to the following FCC proceedings (the USF Reform and Connect America Fund NPRM): WC DN 10-90, GN DN 09-51, WC DN 07-135, WC DN 05-337, CC DN 01-92, CC DN 96-45, WC DN 03-109.

The Rural Associations (NECA, NTCA, OPASTCO, WTA, and State Associations)

In their initial comments, the Rural Associations primarily focused on outlining their alternative solution to the FCC's USF Reform NPRM, the "RLEC Plan;" but in their reply comments, the Rural Associations really honed in on a wide variety of questionable proposals in the NPRM and on comments submitted by opposing parties. The Rural Associations dug deep and questioned the FCC's legal authority on many aspects of the NPRM, and they argued "the Commission should not put at risk the delicate balance that makes quality voice and broadband services available and affordable to wide swaths of rural America on a 'bet' that novel, untested reforms might prompt the deployment of broadband in the outlying portions of larger carriers' serving areas" (pg. 3). Furthermore, the Rural Associations promote the RLEC Plan as a workable alternative solution that will achieve the FCC's underlying goals of fiscal responsibility, accountability and modernization of USF. The Rural Associations insist that "rather than betting America's broadband future on grand visions, untested schemes, and complicated, circuitous and legally questionable processes, there is a clear and straightforward roadmap for what has worked—and what has failed—in promoting affordable broadband in rural America" (pg. 5-6).

On the FCC's Shaky Legal Authority to Implement the NPRM's Recommendations: The Rural Associations argue that the FCC's USF proposals in the NPRM will result in ongoing litigation, uncertainty, complications and significant delay in achieving ubiquitous broadband. If the final reforms do not follow existing telecommunications statutes, the decisions will "enmesh the Commission and the industry in unending controversies and legal battles" (pg. 16). First, under Sections 254(b), 254(c), 254(e) and 214(e)(1), high-cost support can only support telecommunications services provided by common-carrier ETCs, and the FCC cannot make "legal 'short-cuts' or sidestep any limitations in the underlying statute, no matter how commendable the proposed policy or desirable the result" (pg. 17). The Rural Associations note that the FCC cannot force the "square peg" information service into the "round hole" of statutes that apply only to telecommunications services (pg. 18). Furthermore, the FCC does not have Section 706 ancillary authority to bypass parts of the Communications Act that apparently stand in the FCC's way on the path to achieving National Broadband Plan goals, nor can the FCC apply Section 10 forbearance authority to override Section 254(c). According to the Rural Associations "Section 10 does not empower the Commission to expand its own authority, or to decide that a statutory provision that applies only to telecommunications services should apply to other services" (pg. 22). In plain English, the FCC is not just pushing legal authority boundaries in the USF NPRM; it is trying to tear them down altogether. The Rural Associations comment that they are not opposed to the goals of the NPRM, rather the processes for which the FCC intends to implement to achieve broadband goals: "overwhelming support for a policy objective does not translate into legal authority to reach that end by any means possible" (pg. 23).

On Including Non-Regulated Revenue in High-Cost Support Calculations: Basically, the Rural Associations do not support the inclusion of non-regulated revenue in high-cost support calculations because doing so "would create a legal and practical quagmire" (pg. 27). The Rural Associations question how the FCC would go about determining which non-regulated revenues could be included in the support calculations: "what if the would-be USF recipient operates a retail store, a carwash, a construction business, or a data center—should the net revenues from those operations be included in support calculations?" (pg. 29). Including a wide range of non-regulated revenue would not only be a tremendous burden to USAC, but it would undermine the FCC's primary USF Reform goal of increased accountability. I would imagine that including non-regulated revenue in high-cost support calculations would actually deter RLECs from pursuing non-regulated revenue streams at a time when RLECs need to be pursing non-regulated revenue streams more than ever.

On Ambiguous and Unworkable Reverse Auctions: The Rural Associations call revere auctions "murky, at best;" and they cite the wide range of opposition to reverse auctions with what I felt was one of the most telling arguments so far:

"If a single lesson can be drawn from the thousands of pages of comments submitted in numerous proceedings over the past several years involving potential use of reverse auctions, it is that no party has been able to offer an example of a fail-safe reverse auction mechanism, nor has anyone offered an example of a reverse auction mechanism that has successfully been put into use anywhere in the world in a situation similar to the one currently under consideration" (pg. 39). 

According to the Rural Associations, there is no workable solution proposed for reverse auctions, the FCC's authority to implement reverse auctions is shaky, and reverse auctions would be completely ineffective anyway. Implementing something so risky and unproven is absolutely not the right way to go about distributing high-cost support to advance broadband in rural areas. Instead, the Rural Associations argue that "the best way to deploy broadband in unserved area is to take what has worked and recalibrate it as needed to support new objectives, rather than 'throwing all the cards up in the air' and hoping they land in an organized manner" (pg. 43).

On Capping the High-Cost Fund: The Rural Associations do not support capping the high-cost fund at 2010 levels, arguing that this proposal also has no solid legal foundation. The Rural Associations believe the FCC is misguided in thinking that the Fund should be capped, and "there is a fundamental inconsistency between the requirements of the Act and the Commission's insistence that the size of the High-Cost program cannot increase" (pg. 62). Most importantly, "the law does not make any reference to the imposition of a cap on the size of the USF or on any of its individual programs (pg. 62, emphasis my own). The Rural Associations differentiate between managing the size of the fund and restricting the size of the fund, and they argue that capping the fund is contrary to the FCC's mandate to ensure sufficient and predictable support. The Rural Associations support expanding contributions, which is really the only reasonable solution at this point despite the fact that the FCC is not currently considering this option.

My Thoughts: I hope I am not becoming too repetitive in these comment summaries, but I cannot stress how important this proceeding is for the rural telecom industry. The Rural Associations provided excellent analysis on the FCC's questionable legal authority to implement the NPRM, and it really scares me to think about the potential devastating impact that some of the FCC's proposals may have on RLECs. Furthermore, not having legal authority has not stopped the FCC from implementing other significant recent decisions such as Net Neutrality. Reverse auctions literally seem more and more ridiculous to me every day. How can a regulatory agency think of implementing such a radical deviation from the norm without any solid evidence that the solution will work? I realize that the FCC has a duty to consider innovative regulatory changes from time to time, but reverse auctions are so far from a practical methodology that the potential negative aftermath is literally unfathomable to me. There is no reason why the FCC should need to discriminate against an entire sector of the industry—consisting of thousands of companies with tens of thousands of employees and millions of customers—in order to hastily push forward rules that may or may not actually contribute to reducing the country's broadband gap. The Rural Associations consistently point out how great of a job RLECs have done at deploying rural broadband with extremely limited resources, versus price cap carriers who have historically ignored high-cost rural areas despite having considerable resources at their disposal. I agree with the Rural Associations that the ultimate goal of increasing broadband deployment is admirable and necessary, and there are aspects of the current USF system that do need to be modernized for a broadband world. However, the FCC needs to be really careful that the final rules do not do more harm than good.


This concludes my series of comment and reply comment summaries for the USF Reform proceeding, but I will naturally continue to analyze and comment on USF Reform news and developments on as the decision unfolds. I am hoping to hear soon about the rumored collaboration between AT&T and RLECs on a consensus proposal, but I do not have any specific information about this yet. Please continue to check the new section on this site, "USF Reform Headquarters," which will be updated weekly with links to news reports on USF reform and to the articles I write for JSI Capital Advisors on this topic.

Now… What should I write about next?

Cassandra Heyne

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