Wednesday, August 24, 2011

The Final USF/ICC Reform Lightning Round: Comments by Alexicon Consulting

Starting with last summer’s Connect America Fund proceeding, I have been reading USF Reform comments in 10-90 for over a year now. Is there anything left under the sun for the industry to say that hasn’t been said yet? Well, this is the next-to-last chance for stakeholders to make their final plea before the FCC changes things forever. 

Comments were due August 24, 2011 for the Further Inquiry in the Universal Service-Intercarrier Compensation Transformation Proceeding (AKA USF Reform), where the industry was asked to respond to a variety of questions about several proposed alternative frameworks for USF and ICC: namely The Rural Associations’ RLEC Plan and the price cap carriers’ ABC Plan (which together forge the Consensus Framework), and the Federal-State Joint Board’s plan. Reply comments are due next week which means two things for me: I’ll be working all weekend, and I won’t have time to cover as many comments in detail as I have in the past. In this blazing-fast comment cycle, I’m expecting a great deal of tension between wired telecommunications providers and their wireless and cable competitors because the Consensus Framework is really only a consensus between the RLECs and 6 price cap ILECs—and not even all of the RLECs are on board. While I felt it was a valiant effort and I personally support the Consensus Framework because it is much better than the FCC’s plan, it is, as they say, “a few crayons short of a box,” with fixed and mobile wireless and cable being largely left behind. 

Let’s see what the industry says. First up: RLEC consultant Alexicon Consulting. RLEC consultants have been working tirelessly this year to produce financial impact studies to illustrate the harms that would befall RLECs under the FCC’s NPRM framework, and I have enjoyed their comments in the previous rounds of this proceeding.  Note that this NOI asked a lot of questions- I’m not going to go over every single response to each question. I’m primarily going to highlight new information that hasn’t been discussed previously or comments that I found particularly compelling or revolting. For a more detailed analysis of specific comments, be sure and check The ILEC Advisor regularly over the next few weeks. 

Alexicon is a management, financial and regulatory consulting firm that represents small RoR telecom providers including Tribal carriers. They submitted their own model, the Alexicon Plan, which they continue to support while voicing concern over a variety of proposals in the Consensus Framework/ABC Plan. I have not reviewed the Alexicon Plan in great detail, and in the spirit of this lightening round comment cycle, I probably will not have time to really analyze it thoroughly. However, I thought they made some good arguments in their comments. The main deviations from the Consensus Framework included providing $500m for wireless through the Mobility Fund rather than $300m, and $750m for price cap carriers through CAF rather than $2.2b. 

On Rate-of-Return Reforms: Alexicon argues that their plan is the most comprehensive alternative to modernize USF and ICC to include incentives for small carriers to invest in broadband and ensure sufficient and predictable support. They do not agree with completely eliminating support in areas where there is an unsubsidized competitor, and they appear rather staunchly in favor of maintaining COLR and ETC obligations. I found this argument the most convincing: “While competitors in rural areas may operate without USF support, they may also operate without obligations or regulatory oversight, making it impossible to ensure that the competitor will continue to operate in the same fashion in the absence of a regulated carrier” (pg. 8). Alexicon does not support the total company earnings proposal because, “using a total company earnings review to limit the earnings potential of a given carrier could provide perverse incentives for that carrier to discontinue business segments that are not profitable in the spirit of obtaining additional CAF funding thus lending to a ‘gaming of the system’ mentality, which is contrary to what the Commission is hoping to accomplish” (9). 

On Increasing the SLC (ABC Plan Component): The reason why Alexicon favors only $750m per year for price cap carriers under CAF comes down to the price cap carriers’ proposal to increase the SLC in order to ensure revenue recovery during the transition. Many have argued that the ABC Plan essentially represents a windfall for price cap carriers, but I think Alexicon’s proposal to dedicate just $750m for these companies instead of over $2 definitely could be one way to keep this windfall in check. Alexicon provided some “quick and dirty” calculations: the 6 ILECs in the ABC Plan currently have 93m access lines, expected to decrease to 61m in 5 years. With an SLC increase of 50 cents per line per month, these companies would see an additional $6.3b in the next 5 years, or an additional $9.5b with an SLC increase of 75 cents per line per month. On the other hand, RLECs have around 21m access lines and would only receive an additional $1.4b-2.2b over the next five years, but “the smallest rural carriers clearly do not have the economies of scale to reap SLC revenue increases that will sustain their ability to build and maintain broadband networks” (pg. 14). Alexicon believes that “SLC revenues by themselves will provide sufficient funding to cover [the price cap carriers’] needs” (pg. 14). 

My Thoughts: I liked Alexicon’s SLC arguments, and after thinking about these numbers I can see why so many people accused the ABC Plan of being a windfall for ILECs. 50 cents per month per line might not seem like very much for a company with 1500 access lines, but it is definitely a nice chunk of change for a company with 500,000 access lines. I think this just plays into the argument that there must be separate recovery mechanisms and support distribution frameworks for RLECs and price cap carriers. I also agree with Alexicon that the Mobility Fund should be greater than $300m, and the FCC must consider specific, unique wireless financing issues and business models which “include consideration for mobility itself, roaming, spectrum allocation and reuse, among others” (pg. 5). 

Finally, I agree with Alexicon’s position regarding ETC and COLR. If you want USF, you need to meet certain service obligations, and there really shouldn’t be any debate about this. I don’t necessarily think there should be subsidized competition everywhere to the extent that there are wasteful and duplicative infrastructures where one carrier is subsidized and one is not, but most extremely rural areas do not have that problem—it’s hard enough getting one dedicated and modern infrastructure in place. I feel like the FCC is fairly intent on doing away with support in areas with unsubsidized competition though, I just hope it doesn’t result in stranded investments in rural areas.

Alexicon represents the subset of RLEC stakeholders who are not completely on board with the Consensus Framework, and I suspect there will be more. However, I’m not sure if the FCC is really considering alternative plans anymore. It seems like if they were, they would have included questions in the NOI about other plans, like Alexicon’s or Hargray’s or any of the others—but, this comment cycle could still sway the FCC to at least include components of other plans in the Consensus Framework or the final rules, if the rules are ultimately a significant departure from what is now expected. The one drawback here is that other commenters in favor of the Conesus Framework have warned that the RLEC Plan cannot be broken apart and the FCC cannot pick and choose certain components and modify others, or there will be dire consequences (which remains to be seen). 


For my next installment, I will look at some state telecom associations. With only one week until reply comments are due, I am unsure how many reviews will be posted but definitely check back frequently over the next couple of weeks, both here and The ILEC Advisor! 

Cassandra Heyne

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