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. Today I am going to review the mid-size price cap carrier perspective, as delivered by ITTA and several concurring companies—I thought they had a lot of interesting things to say.
When I want to understand the rural mid-sized price cap company perspective, I usually need to look no further than the Independent Telephone and Telecommunications Alliance (ITTA). I always appreciate and learn a lot from their comments, which usually fall somewhere in the middle of the RLEC and large ILEC bookends of the spectrum. ITTA filed joint comments with Cincinnati Bell, Hargray and Hickory Tech, and as expected, their position is appropriately balanced in between the large and small carriers. Basically, they approve the ABC Plan for price cap carriers, but with some modifications. The mid-sized commenters argue, “In general, the ABC Plan and the ROR [RLEC] Plan offer useful constructive starting points for how such reform can be achieved. The plans provide reasonable paths towards the longstanding goal of rational and predictable USF and ICC programs that meet the broadband needs of all Americans” (pg. 3). However, the Consensus Framework needs some modification and it appears as though these mid-sized companies are feeling a little burned about not participating in the ABC Plan development (as are most stakeholders who are not the 6 ILECs or Rural Association members).
On the CQBAT Model: ITTA approves of the ABC Plan approach of using a forward-looking cost model to determine support in unserved areas, but “strongly urge the Commission to refrain from drawing any conclusions regarding the sufficiency, accuracy and reliability or usefulness of the CQBAT model until all interested parties have been afforded access to the model and a reasonable opportunity to review and analyze it, run reports, and present their input to the Commission” (pg. 9). Apparently, no mid-sized carriers had any involvement with the development of CQBAT, and these commenters are highly suspicious of a model that is to be applied to the entire price cap industry without their input. I can see why they would be upset about this. They argue, “It would be arbitrary and capricious for the Commission to utilize a model to calculate USF support that was developed by a sub-set of the industry behind closed doors without input from the majority of carriers who would be affected by its use” (pg. 9). ITTA and the mid-sized carriers are asking the FCC to open a proceeding on the CQBAT model.
On Rights of First Refusal: These commenters agree with the ABC Plan’s 35% threshold for ROFR and they are against the modifications suggested in the Public Notice. ITTA supports the ROFR proposal because of the ILEC’s COLR obligations: “To meet COLR obligations, ILECs were required to build networks near to where customers reside so that prompt service could be provided to those who request it…The ROFR option would permit ILECs with COLR obligations to preserve the public benefits of their network deployment. At the same time, it would protect ILECs that have made a substantial network investment in order to comply with their COLR obligations from being left with no reasonable means to recover that investment” (pg. 13). I think they are opening themselves up for criticism in the reply comments by using the phrase “it would protect ILECs,” because there are a lot of stakeholders who are rather sour about the fact that the ABC Plan appears to be a method of entrenching ILEC monopolies—the ROFR proposal in particular.
On State Regulators’ Role: This group does not think state regulators have a role in CAF administration beyond providing input—“the Commission should be responsible…for developing, implementing and enforcing the obligations associated with the federal CAF” (pg. 16). ITTA argues that state level compliance filings would be a costly burden with little or no benefit; and differing state requirements could cause uncertainty and confusion.
On Total Company Earnings Review: The commenters are against a total company earnings review, with an argument that I found to be very convincing: “The new federal USF program should provide greater incentives for broadband providers to serve customers living in all areas of our country. Requiring support recipients to undergo a total company earnings review would discourage participation in the program by broadband providers who reasonably object to having the cost of deploying broadband service to consumers in rural Montana offset by the revenues generated by their provision of video services to consumers in downtown Denver. The proposal would also discourage support recipients from pushing the technological envelope by providing new and innovative services to customers throughout their service territory. Moreover, it would require the Commission to devote considerable resources to developing a methodology for such a review, as one does not exist today” (pg. 19). I agree.
On $0.0007: ITTA does not support a default $0.0007 rate and argues that the transition plan proposed in the Consensus Framework should be modified. They argue that “a default compensation rate of $0.0007 is financially similar to a mandatory bill-and-keep regime and, as such, could have serious negative consequences for mid-sized carriers and their retail customers” (pg. 21). They feel that the FCC cannot “eliminate or dramatically decrease” access rates without proving that such funds are unnecessary, and “it is impossible for the Commission or any industry stakeholder to know at this time what the precise impacts or fallout from these changes will be” (pg. 24). As an alternative, the FCC should conduct a two-year review proceeding after the price cap carriers have reduced rates by 1/3 of the difference between their current rates and $0.0007, and when RLECs have reduced their rates to $0.005. Again, I generally agree-this transition needs to be carefully conducted.
My Thoughts: I thought these comments were very well conceived. The mid-size carrier perspective is not always all that different from the RLECs, like with $0.0007; but sometimes they are very different, like with COLR obligations. I definitely agree that the CQBAT model should be open for analysis from the industry—it is very bad policy for a regulatory agency to impose such a significant model on an industry without even knowing precisely how most of the industry players will be impacted. The whole “behind closed doors” component makes it seem like there is a seedy element in CQBAT where there may be unpleasant surprises for the carriers who did not have input. I’m not sure how an additional proceeding on CQBAT could be implemented before or following in the final rules—which I don’t think the FCC is willing to delay any longer. This is the problem we are facing as the FCC is intent on making a decision this fall, possibly without fully considering certain aspects. There are just so many components of these reforms, and it seems like the industry could continue on in comment cycles on various proposals for the next 20 years—meanwhile everyone suffers from a bad case of regulatory uncertainty.
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I have a list of about 30 comments I want to get through over the weekend, and with the hurricane a’ coming that just might be possible!
Cassandra Heyne
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