Friday, July 29, 2011

My Initial Statement on America's Broadband Connectivity Plan

The highly-anticipated industry consensus plan for USF Reform, the America's Broadband Connectivity Plan (ABC Plan) was filed today by a group of the nation's large- and mid-sized ILECs with the support of USTelecom. RLEC Associations NTCA, OPASTCO and WTA approve the plan (although they have not "signed on" specifically), which is a USF reform solution for price-cap carriers, but some rural carrier groups such as the Rural Broadband Alliance and the Rural Telecommunications Group are much less enthusiastic about it. The Rural Associations are hoping that the ABC Plan will work in conjunction with the RLEC Plan submitted back in April, and they were involved in the negotiations for the ABC Plan--the ideal outcome would be for the ABC Plan to apply to the large- and mid-sized carriers, while the RLEC Plan would apply to RLECs. While I expected that the industry plan would not satisfy all members of the rural telecom industry, I hope that the dissenting groups are able to work with the FCC and industry in the coming months in order to reach a more inclusive consensus. My take is that the groups who were not directly included in drafting the ABC Plan feel underrepresented despite the fact that they indeed represent very important members of the rural broadband industry.

I am not going to rehash the details of the ABC Plan today, but rather I just wanted to take a minute to express my first impressions and overall perspective on this plan. I encourage you to read the plan yourself and generate your own opinions as well. In an industry of over 1,000 rural telecom providers, I do not expect that everyone is going to feel the same way, and some companies may see it as a huge loss while others see it as a victory, especially compared to some of the alternative proposals (like the FCC's original NPRM). I personally fall in the latter category--I believe that the ABC Plan is a win in the sense that it could be much worse. 

By avoiding a "hard cap" on the high cost fund and by retaining Rate of Return (albeit at a slightly lower rate) and the current levels of high-cost funding for RLECs, I believe that RLECs will be able to transition smoothly into the future without some of the drastic, "end of the world" outcomes that have been described during this rulemaking process. Under the assumption of using the ABC Plan in tandem with the RLEC Plan, I would not expect widespread stranded investment, rural communities "going dark," or private lenders fleeing from the industry. I think the two plans together allow for at least some certainty going forward, while also controlling the size of the fund and encouraging rural companies to focus on broadband deployment. I am very pleased that reverse auctions are not recommended as the primary means of support distribution--I consider this a significant victory.

The biggest loss in my opinion is the eventual transition to an industry-wide, uniform $.0007 access charge rate. Allegedly, the large carriers would not budge on this recommendation, but the rural carriers may have a longer transition time frame. I do not think that this rate accurately compensates rural telecom providers for use of their networks, but this is probably just going to be one of the things that RLECs will have to adjust to in order to survive. I do not feel as though RLECs who receive over 50% of their revenues from ICC and USF are especially sustainable long-term, and I hope that if these companies know that they will eventually be losing a significant chunk of ICC revenue and they will look into other innovative sources of non-regulated revenue in emerging technologies (kind of a "wake-up call" of sorts). After attending the Telecom 2018 Workshop yesterday, I am well-convinced of the trend towards all-IP networks and I believe that RLECs need to embrace, rather than reject, the ultimate demise of the circuit-switched PSTN. However, those IP-networks still must be payed for with initial and ongoing capital, and RLECs must have investment recovery certainty in order to upgrade to all-IP infrastructure. I am not sure that the $.0007 access rate will provide much investment recovery certainty.

This is by no means a complete perspective on the ABC Plan, but these are my initial reactions. I am still contemplating the proposal for a second, smaller Advanced Mobility/Satellite Fund (AMF)--on first glance, this component of the plan seems insufficient and detrimental to small rural wireless carriers. I really don't have much to say about the large ILEC's desire to use the forward-looking cost model. It appears as though at least approximately $1.9b of the high-cost fund will be dedicated to RLECs with the remainder for price-cap carriers. Overall, I am pleased with the apparent recognition in the ABC Plan that RLECs and price-cap carriers have drastically different investment strategies, competitive objectives, funding sources and customer needs; and there needs to be separate USF mechanisms for large and small carriers.

The ABC Plan framework is available to read here, and there are several supplemental attachments about the forward-looking cost model, the .0007 access rate, and the FCC's legal authority as well.

Have a great weekend!

Cassandra Heyne

1 comment:

  1. Way cool! Some very valid points! I appreciate you penning this article and the rest of the site is really good.