Wednesday, July 27, 2011

USF Reform's Status Update: "It's Time to Come to an End."

If USF Reform was on Facebook, its status would definitely be “It’s time to come to an end,” as FCC Wireline Competition Bureau Deputy Chief Carol Mattey said today. My status says something to the effect of “I guess I won’t be sleeping in August.”

The OPASTCO summer conference was in Minneapolis this week, and as much as I wanted to make the trip out to my former homeland, it was just not in the cards for me this year. However, I was able to listen in via conference call to one of the general sessions today (July 27)—I was especially curious about Carol Mattey’s “Update on NPRM and Broadband Deployment” (meaning the USF NPRM, of course). We are currently at the point in time that I am obscurely calling the end of the beginning of the end. An industry consensus plan by large carriers will be submitted by the end of the week, ensuring that I will have a wonderful weekend. According to Mattey, the FCC is already working on the final draft Order for USF Reform. There will be a short window of time in August for companies to file comments on a Public Notice outlining alternative plans from the industry, and then the FCC will quickly move on the final rules. Mattey said “we will move forward this fall, I’m confident.” So RLECs, get your lawyers ready! 

Much of what Mattey said has been covered to death on Rural TeleCommentary, so I’ll try to focus on new developments and interesting perspectives from the Wireline Competition Bureau’s Deputy Chief. She compared the efforts to resolve USF reform to the current situation in Congress with the debt crisis—both resolutions require shared sacrifice, a realistic attitude about the economy, recognition that we are running out of time, and knowing that “a decision is better than no decision.” She mentioned that the fact that Congress is considering raiding $1b from USF for the debt signals the critical need for fiscally responsible USF reform. On that point, I agree with her. If the entire USF fund was utilized efficiently and fiscally responsible, Congress might not even look at it as a stack of cash hidden under the mattress. However, I still don’t think that the members of Congress who made this recommendation actually understand anything about how USF works, so in my opinion the entire idea is still bogus and far-fetched. She definitely made a good point about the need for shared sacrifice and realizing that any decision is better than no decision though. I feel like I have had a pretty realistic attitude about USF reform since the beginning, despite being highly biased in favor of RLECs. I know that not every RLEC is a model of fiscal responsibility and efficiency, and I know that not every RLEC is evolving with the times and technologies. But these types of characterizations can be found in any industry, sector, city or community; and it is not ideal public policy to punish an entire subset of an industry just because a few players aren’t living up to their potential. Anyway, “shared sacrifice” does not need to be sacrifice shared only by the RLECs. VoIP providers, large carriers, content providers and even consumers need to suck it up and do their part to make sure that every American has broadband. 

Mattey talked about the inherent problems with the current system, and I breathed a sigh of relief when she did not mention that rural telecom provides are rife with waste, fraud and abuse. I guess she knew her audience! She actually focused more on the abuse and arbitrage in ICC, which I am glad someone is talking about. She said that there are new forms of arbitrage popping up all the time, and “the status quo of uncertainty [over ICC] will only get worse.” Without going into detail, I have been very troubled by some recent new arbitrage schemes and I feel like there are malicious companies out there who are basically seeing the FCC’s delay on reform as an open window for arbitrage. The refusal to terminate calls in rural areas is one issue that has drawn attention lately, and there are others as well. Mattey said, “doing nothing is not an option,” and she insisted that ICC will be reformed in one fail swoop along with USF. For me, ICC is one of the most mind-boggling aspects of telecom policy in general, and it has taken me quite a while to really even become comfortable writing about it. I completely agree with Mattey that things are going to get worse if the status quo is maintained, and I definitely agree that any decision on ICC is better than no decision—however I do not want the ICC decision to include .0007 or bill-and-keep. I guess this is where the “shared sacrifice” comes in—RLECs may have to move to a .0007 rate in the future, but we may also get the security of not having to deal with those brutal arbitrage schemes. I personally don’t know if not worrying about arbitrage is a big enough positive force to overcome the millions in lost access revenue, but this is where USF/ICC compromise gets dicey and why every single sector of the telecom industry is involved and why there are so many vastly differing opinions on what the outcome should be.

Mattey talked about the possible framework for the final USFUSF support. She referenced the Joint Board’s proposed separate Mobility Fund, but I wasn’t clear on whether or not she thought it was going to be part of the proposed final rules. She thinks the FCC will eliminate the Identical Support Rule, and she indicated that reverse auctions are still “on the table” for mobile broadband. Is this good news? Again, I was unclear on that. She specifically said reverse auctions for mobile broadband, which is an idea that I have reluctantly gotten used to ever since last year’s Mobility Fund NPRM. I really wished that the concept of reverse auctions had never been invented, but in an effort to keep with the spirit of “shared sacrifice,” I have surrendered to the fact that they are most likely going to be used in some capacity under this new USF regime. 

Moving on, Mattey said that there will be ongoing support for areas that need it, and that Rate of Return should be improved and enhanced rather than eliminated. I heard a few weeks ago at the Save Rural Broadband press conference that RoR has been saved, at least for now, and that definitely makes me happy. How will the FCC “improve” RoR? That is still unknown, but Mattey said the FCC is looking at all of the various alternative plans that were submitted by the Rural Associations, Joint Board and industry.

So, what’s the deal with the highly anticipated industry consensus plan? I’ve been on pins and needles all week waiting to hear more about it, but so far I haven’t been very optimistic about the few tidbits I have received. Connected Planet ran this helpful story yesterday: Financial Analysts: Large Carriers will Recommend Cost Model for Broadband Universal Service Program. The proposal is apparently the baby of AT&T, CenturyLink, Frontier, Windstream, FairPoint and USTelecom and it includes the dreaded .0007 access charge reduction over the next 5 years (bad), making VoIP pay access charges (good), “creating an access charge replacement mechanism for rural telcos” (good), keeping the High Cost Fund at the current level (bad), phasing out high-cost support for wireless carriers (bad for them), and “shifting much of that funding toward high-cost areas where the incumbent is one of the larger telcos (really bad). The Connected Planet article noted that “if the large carriers’ USF reform proposal materializes in the form anticipated, it will be at odds with a previous proposal filed by several rural carrier organizations.” The Rural Associations want a longer transition for phasing out access charges,  they want a “restructure mechanism” to partially replace lost revenue, and “the rural telco groups do not want broadband Universal Service funds allocated on a cost model or a reverse auction basis, but instead want it to be calculated in a manner similar to how high-cost areas are funded today.”

I’ll stop short of commenting further on the industry plan until I actually read it, but it definitely sounds like it is better than the FCC’s proposal but not as good (for RLECs anyway) as the Rural Association or Joint Board proposal. The good news is that RLECs will have the opportunity to comment on the industry plan (quickly anyway) and then hopefully we can move towards the actual end of this whole ordeal and finally get some regulatory certainty established. Take note RLECs: Mattey said that the FCC does not want to see a “general rehashing” of the arguments that have already been submitted in comments and ex parte filings, so start thinking creatively and coming up with new ideas.

There is a lot of debate about whether or not regulatory uncertainty is worse than a really bad outcome on USF reform rules. I personally think that regulatory uncertainty is worse, because at least rural telecom providers can try to adapt to changes once the rules are released. Hanging out in USF Limbo is becoming more and more expensive, challenging and dangerous with each passing day. If the final rules are indeed the “worst case scenario” for RLECs, it will be necessary for these companies to start thinking with a “survival of the fittest” mentality.

I am really excited about an event I will be attending tomorrow: the Telecom 2018 Workshop, about the proposed end date for the PSTN. I’m really looking forward to some great technical, policy and economic debates about this highly controversial recommendation! There was also a really great event yesterday in Rudd, Iowa: RUS Administrator Jonathan Adelstein visited this rural farming community in North Central Iowa to talk about the importance of rural broadband for agriculture, health care, education and the future of rural communities. He commended the progress of OmniTel Communications, an Iowa RLEC which is currently undergoing a $35m FTTH expansion project funding in part by RUS loans. I listened to Adelstein's speech and found it very empowering for rural broadband providers--he is definitely a wonderful advocate and I am really proud of the Iowa Telecom Association, The Great Disconnect (the Iowa version of Save Rural Broadband), and OmniTel Communications for bringing such a great leader to rural Iowa for this event.

Cassandra Heyne

P.S. I’m still looking for someone to submit an interesting story about the history of their rural telecom company! It is a great opportunity to inform people about the rich and diverse background of the rural telecom industry, the challenges we have faced over the last 130 years, and why small local telecom providers are important for rural communities.

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