Saturday, August 27, 2011

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

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. So far I’ve mostly looked at comments by parties that I generally support, so now it is time to look at the perspectives of stakeholders who are much less friendly to RLECs. Who better than Comcast, one of America’s most hated companies? As it turns out, I found most of their arguments rather hard to digest. 

Cable companies were excluded from the “industry” negotiations, so I’ve expected them to be negative about the Consensus Framework and the ABC Plan. Cable companies are not very active in the rural broadband industry, as cable is typically associated with urban and suburban broadband only—where it is very popular, making the cable industry a front-running voice on broadband and Internet policy. So, I’m not sure how influential the cable industry will be in terms of the final rules for USF reform, but their comments on ICC reform and VoIP classification are likely to hold weight at the FCC. I definitely did not take their USF comments very seriously—they have what, 3 rural customers, tops? The day that I see Comcast trying to build broadband in rural Montana is the day I will respect their opinions about the high-cost fund.

Comcast basically colors inside the FCC’s lines in terms of the “4 Principles” for USF/ICC reform, and they cite a number of National Broadband Plan recommendations throughout their comments. They also rely on the Broadband Availability Gap Model for a lot of their “evidence.” Comcast naturally feels as though the Consensus Framework is “fundamentally inconsistent with the Commission’s guiding principles,” it doesn’t promote effective change for ICC, it could result in higher interconnection rates for CLECs, its biased towards ILECS/RLECs, and “the incumbent LEC’s principle concern with respect to USF reform appears to be maintaining their current revenue streams, rather than brining long-needed fiscal responsibility and accountability to high-cost support.”

On A Low Uniform Rate for ICC: Comcast wants the same rates paid by all originating voice carriers regardless of the terminating network’s technology, and they want it now. Comcast wants everyone on the $0.0007 rate in three years, with a very rapid glide path “for all rate elements including tandem switching and transport” (pg. 13). They argue that the current ICC regime discourages upgrades to IP technology and causes all of the arbitrage problems that plague the industry. According to Comcast; “In view of the well-documented disruptions, anomalies, and economic inefficiencies caused by the current ‘patchwork’ system of Intercarrier Compensation, the most desirable policy is to supplant the existing arrangements decisively and expeditiously. Comcast thus supports a brief transition to a uniform rate for all providers—price cap and rate-of-return incumbents as well as CMRS carriers and competitive LECs—that nonetheless is designed to avoid significant disruptions” (pg. 12). They believe that a 3 year transition to uniform 0007 is not a flash cut, and it will “[hasten] the demise of regulatory arbitrage,” and reduce “perverse incentives to invest in TDM technology” (pg. 13). 

On an Access Replacement Mechanism and Total Company Earnings Review: Comcast urges the FCC to reject the ABC Plan’s proposed transitional access replacement mechanism because, “there is simply no need to allow carriers, particularly price cap carriers, to recover lost revenues previously obtained from Intercarrier Compensation on a dollar-for-dollar basis” (pg. 14). Although I found humor in the “particularly price cap carriers” jab, I don’t think anyone has proposed a dollar-for-dollar recovery mechanism. Comcast argues that the proposed recovery mechanism undermines the FCC’s market-driven and fiscal responsibility policy goals, and “any such bailout would fundamentally distort the marketplace” (pg. 14). If a recovery mechanism is adopted, Comcast thinks the FCC should include non-regulated revenues “as well as technological advances and the efficiencies that companies realize when they provide multiple services over a single network” to determine the level of recovery support (pg. 15). They think arguments against a total company earnings review are “inappropriate,” and they provided several examples of why, which I did not find particularly convincing. They also argue, “Although Congress has prohibited carriers from using revenues from regulated services to subsidize services that are competitive, there is no Congressional or FCC prohibition against the Commission’s consideration of unregulated revenues when determining the appropriate level of subsidies for regulated services. To the contrary, taking revenues from unregulated services into account when calculating the need for and amount of subsidies would advance the Commission’s stated goal of fiscal responsibility by ensuring that support is targeted to the carriers and areas that actually need a subsidy” (pg. 17). 

On Capping the High-Cost Fund: Comcast supports a hard cap on the high-cost fund at 2010 levels and provides absolutely no evidence to support this claim, other than it was recommended in the National Broadband Plan. Comcast thinks that 2010 HC support levels are somehow the definition of fiscal responsibility, and “funding decisions should focus on maximizing consumer benefits, not on ensuring incumbent LEC revenue streams.” Basically, they just don’t want LECs to receive any more USF support than they did last year. Like I said, when Comcast announces plans to deploy broadband in extremely rural areas, I will respect their opinions about the size of the high-cost fund. 

On Reverse Auctions, “The Essence of Fiscal Responsibility:” In addition to claiming that a 2010 level cap is the meaning of fiscal responsibility, Comcast also thinks that reverse auctions are the “essence of fiscal responsibility,” but they provide no evidence to support this claim. They offer a vague, and slightly hilarious, roadmap for implementing reverse auctions:

·         Step 1: Determine unserved areas where market incentives are insufficient to encourage broadband deployment;
·         Step 2: Determine the size of the area for bidding purposes, which should be census blocks, which bidders should be able to combine. Furthermore, “the bid prices for the combination of census blocks would likely be lower than the sum of the bids for the individual census blocks” (pg. 26). Yay! A sale on unserved census blocks! Buy one, get one 50% off!
·         Step 3: Design the “protocols and practices to be used in the auction” (pg. 26) Oh really, that’s it? So basically they have no solution for the actual reverse auction methodology. That’s ok, nobody else does either. 

My Thoughts: I tried to read Comcast’s ICC-related comments through the eyes of someone who supports the proposal to eliminate the PSTN by 2018 and not someone who wants to prolong the current ineffective ICC regime. I do not agree that access rates should be reduced to 0007 in three years for everyone; I think that would cause anarchy in the access revenue world. Transitioning to IP networks does not eliminate the underlying purposes of access revenue—carriers still need to compensate one another for use of each other’s networks, and those compensation rates should at least somewhat reflect actual costs, which are significantly higher for small rural companies. There is a good reason why the Consensus Framework proposes different glide paths for price cap and RoR companies.

I agree with Comcast that there must be swift action to eliminate arbitrage, but I personally do not blame the broken system entirely for arbitrage schemes—I blame the companies who engage in this behavior. If I break a law that I personally find unnecessary, I’m the one who gets in trouble if caught, not the lawmakers, and there is no legal justification for “I should get away with it because the laws aren’t proper for today’s society.” Access rate arbitrage signifies a market failure whereby regulatory intervention is now necessary. Closing the loopholes that companies exploit is one part of the equation, and adequate enforcement to discourage arbitrage in the first place is another part of the equation. I do not see how imposing a uniform low rate for ICC in 3 years will specifically address these market failures, instead it will seriously disrupt revenue streams for RLECs in particular, which will even further delay upgrades to IP networks. So, I find considerable fault in Comcast’s reasoning that a rapid transition to 0007 will both eliminate arbitrage and push all carriers to transition to IP networks—many of the small carriers will not be able to afford it. 

Regarding Comcast’s USF arguments—they just aren’t very good. Comcast clearly just wants to see their ILEC/RLEC competitors receive less support, and this agenda is not well concealed in their comments. 

Still up for review this weekend: wireless carriers and state PUCs. 

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, Western State Telecom Associations, and the Rural Telecommunications Group (the last two are for The ILEC Advisor). 

Cassandra Heyne

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