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. Whilst stuck indoors for the next 2 days while Hurricane Irene does its thing, I’m going to try to get through as many comments as I can. I wonder if the FCC will delay the reply comments if their office loses power for several days? Probably not—they wouldn’t yield to NASUCA’s continual requests for an extension, so I don’t know why they would yield to a hurricane.
I don’t know much about the Rural Broadband Alliance, but I’ve been following them throughout this proceeding because they have a very specific viewpoint about rate-of-return companies. On the spectrum of perspectives ranging from most resistant to the proposed changes to most excited about the proposed changes, the RBA seems to sit pretty far on the most resistant side. They submitted a proposal (the Transitional Stability Plan) in the earlier round which focused primarily on maintaining adequate investment recovery for both existing investments and future investments, which I thought was pretty good. You can read about it here. I appreciate that this group is sticking to its convictions about USF Reform and doing their own thing and representing RLECs who might not be on board with the Rural Associations’ proposal, but I’m not sure how effective their efforts will be in the end. Their plan was not included in the Public Notice, which to me indicates that the FCC is not considering it for adoption.
RBA is skeptical about the ABC Plan/RLEC Plan/Consensus Framework because they do not think it ensures sufficient and predictable recovery for small companies. RBA argues, “Any sustainable order must include rural rate-of-return carrier recovery of costs of existing expenses incurred to provide universal service, and clear, quantifiable, predictable, specific support mechanisms to ensure rural carriers of support sufficient to enable them to advance and preserve the provision of universal service available to rural consumers at ‘reasonably comparable’ rates” (pg. ii). RBA thoroughly answered all the questions from the Public Notice, but I thought their best comments were their free-flowing criticisms of how the FCC perceives RoR companies.
On 4/1 Mbps 4 Mbps/768 kbps: RBA pointed out something that perhaps many of us (myself included) have been thinking: 4/768, which was proposed in the ABC Plan, is a step backwards from the National Broadband Plan, which was released 18 months ago. What’s that old saying—computing power doubles every 18 months-2 years? I realize that Moore’s Law doesn’t apply directly to broadband speeds, but it is definitely one of the most fundamental guiding principles in innovation for the broader technology industry, which includes broadband. Anyway, RBA states that “speed matters, and it matters every bit as much in rural America as in our urban centers” (pg. 4). They argue that there was no fact-finding to reach the 4/768 conclusion, and that most rural telecom providers assumed that the 4/1 Mbps speed would be revised fairly soon after the rulemaking—not pushed backwards before the rulemaking even happened. And, it’s not like the ABC Plan authors are also recommending that the speed target for urban America gets pushed back to like 75 Mbps—that would be the real travesty, and then rural America would only have broadband speeds 18 x’s slower—which is definitely reasonably comparable!! The RBA argues, “the level of universal service available in a rural community will not only drive potential economic development in the area, but will also determine the availability of educational and health care services enabled by high speed broadband” (pg. 4). Basically, they really want the FCC to wake up and realize that the ABC Plan proposal for supported broadband speeds in rural areas is an insult to rural Americans, which it most certainly is.
On Sufficient and Predictable Recovery: The heart and soul of RBA’s arguments throughout this proceeding have been about ensuring sufficient and predictable recovery for RoR companies for both existing and future investments. While they are not specifically against the Consensus Framework entirely, they are worried that “the math may not work” (pg. 12). Regarding the Rural Association’s decision that $2b with moderate growth and a 10% RoR is sufficient, the RBA “[hopes] they are correct. Rural carriers, however, cannot operate companies and provide universal service on the basis of hope” (pg. 12). RBA is also skeptical about the overall $4.5b size of the fund, arguing that it should be based on fact and law, and it is not. They really don’t like that 730,000 rural consumers are going to be stuck with satellite service, because “this result is the very opposite of the intent of the Universal Service provisions of the Act which seeks to ensure reasonably comparable services and rates to consumers” (pg. 15-16).
On Systemic Prejudice against RoR and RoR Companies: The RBA is really sore about how the FCC has been treating small rural companies in this proceeding, and I fully support them speaking out about this and making it known in a public document. What they say is true from my experience as well: “Both the official record and meetings with the Commission evidence the creation of a superficial caricature of rural companies and rate-of-return regulation at the Commission. This caricature is forged on a baseless assumption that rural rate-of-return carriers make unwanted investments in networks and incur operational expenses without limitations because rate-of-return provides them with an automatic recovery without regard to the prudency of their investment and expenses” (pg. 20). They go on like this for several pages…”The Commission, as indicated in the NPRM, perpetuates a baseless and prejudicial caricature which, in turn, drives the Commission away from the consideration of utilizing actual cost-based methodologies to determine what constitutes ‘sufficient’ funding” (pg. 24).
My Thoughts: RBA hits on two issues that I have been vocal about in this proceeding as well—ensuring reasonably comparable service in rural areas and changing the FCC’s negative perception of RoR companies. I think that there is more than enough evidence in the mountain of comments that RoR companies are not wasteful and inefficient, and there are a lot of RoR companies who do not even see the 11.25%--not even close! Yes, there are undoubtedly a few companies that have abused the system for financial gain rather than consumer benefits. Yes, the current system needs to be updated for a broadband world. But NO, not all RoR companies are woefully inefficient or make business decisions only with the intention of reaping USF support and an inflated rate of return. That is not a sustainable investment strategy, and companies that have been around for 100 years will surely agree. RoR companies are subject to regular audits and they aren’t just handed a check no-questions-asked whenever they decide to undertake a large infrastructure upgrade. I’ve heard from a number of RLEC representatives who have met with the FCC that they encountered criticism and even insults from FCC staff. It’s not cool, OK, FCC? After seeing all the financial impact statements presented by RLECs, I would hope that they “get it” by now—RLECs walk a fine line between profit and loss, and reasonable and sufficient investment recovery is that fine line.
Anyway, I also agree with RBA’s arguments about reasonable comparable service and that 4/768 is an unfounded step backwards. 18 months after the NBP was released—when 4/1 was widely criticized as insufficient and absolutely NOT reasonably comparable (I wrote a term paper all about this a year ago, detailing how 4/1 is the fatal flaw of the NBP because it will push the US far behind OECD countries who are ensuring equal broadband speeds for all citizens), the FCC should not even entertain the idea of stepping backwards on speed definitions. Have consumers suddenly stopped wanting to download movies? Are less people working from home and enrolling in distance learning programs? Are gamers suddenly deciding that they no longer want HD 3D capabilities for World of Warcraft or whatever the cool game is right now? Obviously no, on all these questions—so why adopt a USF framework that even further constrains innovation and consumer utility? Answer: so satellite broadband can serve those poor, unfortunate 730,000 rural Americans and the large ILECs won’t have to lift a finger to deploy service in deeply rural areas. It is not a good deal for anyone, especially not consumers.
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Next up: cable.
Have a request? Let me know! I’m definitely not going anywhere all weekend (contact me via e-mail or on Twitter @RuralTelComment).
If you are also stuck indoors all weekend, you can catch up on all the comment summaries I have done so far: Alexicon Consulting, ITTA, Western State Telecom Associations, and the Rural Telecommunications Group (the last two are for The ILEC Advisor).
Cassandra Heyne
ruraltelecommentary@gmail.com
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