Saturday, August 27, 2011

The Final USF/ICC Reform Lightning Round (Hurricane Edition): Comments by Cellular South

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 highly doubt I’ll get through all 130 by Wednesday, but Hurricane Irene definitely provided me with a nice excuse to do as much work as possible this weekend!

Since the ABC Plan was released, I have been very curious about the response by rural wireless carriers to the proposal that the Mobility Fund should be a mere $300m, in comparison to the $4.5b for wireline carriers. When wireless broadband appears to be “the wave of the future,” according to Cellular South and the broadband marketplace, it is hard to imagine that these companies would be satisfied with such a small piece of the pie. Well, they are not satisfied. You can read more about the rural wireless perspective from the Rural Telecommunications Group here, but I also thought Cellular South’s comments deserved some attention. I thought they had some great arguments, and then… They call for rate-of-return to be eliminated! With all due respect to Cellular South, I do not think one rural wireless provider is exactly in a position to decide the best course of policy for all the RLECs. 

Overall, Cellular South agrees with the Consensus Framework and Joint Board proposals to establish separate funds for fixed and mobile broadband, but the agreement stops there. Cellular South feels as though these alternative frameworks are the “wrong answer” because “allocating a substantial share of CAF support to wireline carriers would inevitably and significantly impair the extent and pace of mobile broadband deployment in rural America, and would also ignore the fact that carriers serving subscribers of wireless services are by far the largest category of contributors to the universal service fund” (pg. iii). Cellular South is understandably outraged by the fact that mobile broadband is placed at such low priority in the alternative proposals, when mobile broadband in such high demand—“in the face of these facts on the ground, it is stunning that the wireline broadband proponents have chosen to put forward plans for CAF funding mechanisms that are marked by a transparent imbalance in proposed funding levels” (pg. 4). 

On a Separate Fund for Wireless: Cellular South provides 3 sound arguments in favor of establishing separate funds for wireless broadband:

1.       Separate funds “would enable the Commission to give a focus and priority to mobile broadband commensurate with the role that mobile broadband has come to play in the communications marketplace” (pg. 8);
2.       Separate funds “would facilitate the use of a forward-looking economic cost model tailored to the costs associated with deploying and maintaining mobile broadband networks in rural and high-cost areas” (pg. 9); and
3.       Separate funds would help meet the aggressive mobile broadband goals set forth by the Obama Administration and the FCC.

On the $300m Mobility Fund Budget: Cellular South points out that $300m is only 6.7% of the overall ABC Plan budget and only 12% of the Joint Board plan’s budget (and just for build-out costs, not operational costs, which can make up a substantial portion of a wireless network’s expenses). With this in mind, “Cellular South encourages the Commission to compare these proposals to the widespread and accelerating demand for mobile broadband devices and services, to the fading demand for wireline services, to the costs associated with brining mobile broadband networks and services to rural areas, and to the level of contributions into the existing USF program received from carriers providing wireless services” (pg. 13). Rather than such an incredibly one-sided budget, Cellular South supports a balanced distribution of funding with support portability reflective of the actual broadband marketplace. Of many of the comments I’ve read, I found this to be reasonably consumer-oriented. I think some of the commenters have forgotten that consumers are the actual beneficiaries of USF support. Cellular South seems to keep this in mind, at least until their next recommendation…

On Kicking RoR to the Curb: I don’t know why, but Cellular South is very bitter about RoR. They find it anti-competitive and they do not think it is even worth the FCC’s time and effort to improve it, because “the embedded cost mechanism used to disburse support to rural incumbents is bankrupt and should have been discarded long ago” (pg. 16). They caution that if RoR is maintained (which it should not be), the rate should be reduced significantly: “If the Commission decides to retain a rate-of-return mechanism—based on what Cellular South considers to be the misguided view that this mechanism can somehow be overhauled to improve the incentives of rural incumbents to make rational investments and to avoid the temptation of pumping up costs as a means of inflating the amount of support they receive—then a prerequisite for the continued use of the rate-of-return mechanism should be a represcription of the stratospheric 11.25 percent rate of return that has remained in place since 1990” (pg. 17-18).

On NOT Capping CAF: Taking the polar opposite position as Comcast, Cellular South is opposed to capping CAF. Interestingly, Comcast argued that caps are the definition of fiscal responsibility; but Cellular South argued that there is nothing about the definition of fiscal responsibility that necessitates a cap on high-cost funding (I agree with Cellular South). They insist, “The Commission has at its disposal many tools for improving the efficient use of funds (e.g. through reliance on forward-looking cost mechanisms and portability of support) and for curbing waste, fraud and abuse perpetuated by CAF funding recipients (e.g. through meaningful penalties and audit requirements)” (pg. 18). I think they hit on a good point—that curbing waste, fraud and abuse should be through enforcement. Cellular South further argues that a cap on USF is “a repudiation of the Commission’s statutory duty to base its universal service policies on a principle that its support mechanisms should be sufficient to preserve and advance universal service” (pg. 18). 

My Thoughts: I don’t know where Cellular South’s hostility towards RoR came from, but I would like to know. One of my biggest sources of aggravation throughout the multiple comment cycles in this proceeding, starting with last summer’s CAF inquiry (when it still seemed like a threat that RoR would actually be eliminated), are the complaints that RoR companies are wasteful and inefficient without providing examples. Verizon and AT&T were the worst perpetrators, and it surprised me that another rural telecom provider like Cellular South would also blindly follow this train. I want someone to cite specific examples of RoR companies who meet a numerical definition of wasteful and inefficient utilization of USF because of RoR regulation specifically. Tell me the name of the company, and show me exactly how a forward-looking cost model would correct the so-called abuses and inefficiencies allegedly caused by RoR. RLECs have been more than willing to show quantitative examples of 1) how most of them never see 11.25% in the first place; and 2) how eliminating RoR would be financially catastrophic. So, RoR critics, step up your game and stop saying that RoR is the source of waste, abuse and inefficiency without backing up your claims. This just leads to the FCC and others in the government (like state regulators and Congress) perpetuating the “systemic prejudice” against RoR and RLECs that the Rural Broadband Alliance is so gallantly trying to fight.
Aside from this one issue, I basically agreed with everything else Cellular South said, and I thought their reasons for establishing separate wireless and fixed funds were well conceived. I’m not sure if I think CAF should be split evenly 3 ways between ILECs, RLECs and wireless, but I actually think an even distribution is more rational than wireless only getting 6.5% of the funding. I also thought they made an interesting recommendation that funding should be portable between the separate funds, but they didn’t go into much detail about this—hopefully they will in the reply comments.


I’m going to enjoy the hurricane now, but tomorrow I’m going to take a hard look at the comments submitted by a variety of state regulators. Like the wireless carriers, I suspect many of them feel burned by the ABC Plan’s proposal to drastically reduce their role in the future of USF.

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: the Rural Broadband Alliance, Alexicon Consulting, ITTA, Comcast, Western State Telecom Associations, and the Rural Telecommunications Group (the last two are for The ILEC Advisor). 

Cassandra Heyne

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