Thursday, September 1, 2011

The Final USF/ICC Reform Lightning Round: Comments by the Satellite Broadband Providers

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. The FCC has graciously extended the reply comment deadline from August 31 to September 6, citing Hurricane Irene, the large number of initial comments, and the requests for an extension, as reasons for gifting us with an additional week. Thanks, FCC! I’ve managed to at least skim through the majority of the comments now, and one that really stood out to me was by the Satellite Broadband Providers.

Until now, I was under the impression that the Satellite Broadband Providers (“SBPs”) were fairly chummy with AT&T and the large price cap ILECs—I assumed that the SBPs would be fairly supportive of the ABC Plan because of AT&T’s previously expressed desire to “partner” with satellite providers in order to “efficiently” serve extremely high-cost areas. I’ve been very critical of this proposal, because I think the large ILECs are trying to weasel out of actually having to invest any time, effort or money into delivering broadband to very rural areas. They would rather dump the responsibility on satellite providers under some kind of agreement that would naturally benefit the ILEC financially in some way. I suspected that the ILECs would hope to keep a percentage of the USF funds as some kind of “finders’ fee” or to cover “administrative costs” or whatever, while the SBP would do all the work. So, when I read the SBP’s comments, I ended up being very surprised at how hostile they were towards the ABC Plan (and the RLEC Plan and Joint Board plan, which they call the Incumbent Wireline Proposals). 

Let’s get one thing straight: I do not enthusiastically support satellite broadband providers receiving CAF funds. I don’t think anyone actually wants satellite broadband unless they have absolutely no other options. Satellite broadband service is not reasonably comparable in terms of quality, speeds, capacity or cost. Therefore, I found it rather perplexing that the majority of the SBPs’ comments in opposition to the Incumbent Wireline Proposals revolved around ensuring reasonably comparable service and facilitating consumer choice, two areas where satellite providers fall very, very short: “Instead of adopting [the ILEC] proposals, the Commission should ensure reasonably comparable rates and services by implementing a suitable market-based mechanism, consistent with the Satellite Broadband Providers’ prior filings” (pg. i). They mean reverse auctions, naturally. Despite my low opinion of SBPs, I did find that many of their arguments against the ILEC plans were thought-provoking and hit hard on some of the controversial issues of the ABC Plan in particular. I can respect that. 

On the ILECs Putting Carriers before Consumers: The SBPs do not think that the 3 proposed plans are in the best interest of consumers, because “none of these proposals attempts to make any real public interest case, or to demonstrate that incumbent wireline carriers (as opposed to their competitors) are in the best position to extend high-quality broadband service to the unserved consumers quickly and at minimal cost” (pg. i). The SBPs believe that the ILEC proposals “would prop up incumbents using inefficient technologies and networks at the expense of consumers, and also at the expense of the priorities set forth in the NPRM” (pg. 4). Furthermore, they argue that DSL is not the most efficient technology, nor is it forward-looking, which they support by citing that one comment made by the CEO of AT&T that DSL is dead. They also seem to think that preventing satellite providers from receiving CAF funds will “increase the CAF funding burden by more than $20 billion,” and excluding all non-wireline competitors would be even more costly (pg. 6). Their main problem seems to be that if the Consensus Framework is adopted, 93% of the CAF support would go to incumbents—while I may not agree that satellite broadband should receive a large chunk of support, I can’t argue that this is an excessive amount of support reserved for companies that do not actually represent 93% of the broadband market currently. 

On the ILEC Plans’ Impact on Competition: The SBPs believe that the ILEC proposals are contrary to the fundamental USF principle of competitive neutrality, and the FCC should not exclude an entire class of carriers from CAF. They think the ILEC plans are anticompetitive, and “run contrary to the principles of competitive and technological neutrality, the requirements of the Act, and sound public policy. Instead, the Incumbent Wireline Proposals would create de facto regulatory monopolies by awarding funding preferences to incumbents, regardless of merit, and/or relegating competitive providers to separate, underfunded support mechanisms” (pg. 9-10). They insist, “High-Cost support should be earned through merit…and not viewed as a perpetual form of corporate welfare to which incumbents are entitled” (pg. 12).

On Reverse Auctions: The SBPs are still carrying a torch for reverse auctions, which makes me want to have a Mean Girls moment and scream “Stop trying to make reverse auctions happen!” Anyway, the SBPs  argue that reverse auctions protect the interests of consumers. Interestingly, they suggest that “the Commission’s goal should be to facilitate the deployment of fiber (instead of copper), and that fiber should be subsidized only where it is the most cost-effective technology” (pg. 16). The SBPs want a reverse auction methodology where any provider is eligible to participate, “including fiber, cable, wireless, satellite, broadband over power line (BPL), free-space optical links, and any new delivery mechanisms that may emerge in the future;” and “the absence of a funding guarantee to any service provider, the use of competitive bidding, and the use of market forces to encourage cost efficiency and quality are all hallmarks of this proposal” (pg. 17). Furthermore, the SBPs argue that there should not be separate funds established for wireline and wireless/other carriers.

On Restricting the ILECs’ Power: In addition to limiting the power of ILECs under the CAF, the SBPs want to see more than 7% of the funding available to competitive providers, and that the size of the fund for alternative technologies should not be capped because “it is not possible to predict which or how many households will be more efficiently served by competitive technologies in the coming years” (pg. 19). I actually agree with them here. The SBPs propose a number of restrictions for the ILEC’s Right of First Refusal desire, including not allowing ROFR in areas served by a competitive provider; only allowing ROFR if the incumbent already has 4/1 Mbps service to a majority of households (35% = not a majority); tying explicit COLR obligations to ROFR; and setting “well-defined milestones.” 

My (Many) Thoughts: I really have to commend the SBPs for the fact that their comments made me think deeply about a lot of the flaws in the ABC Plan. I enjoy reading, analyzing and writing about opposing views as much as I enjoy reading the perspectives of companies that I support, and the SBP comments definitely gave my brain a workout. I’ve been thinking critically about the ABC and RLEC Plans a lot lately. To clarify my opinions, I generally support the RLEC Plan for RLECs, but I think the ABC Plan for everyone else is far from the “industry consensus” that it pretends to be. These two plans have to be analyzed separately, but I’ve noticed that they are lumped together in many comments by opposing parties, and I find myself lumping them together sometimes too. I believe that there should be a separate fund for wireless, and I think the proposed $300m is insufficient. I think it is unreasonable that the 6 price cap ILECs have made themselves the gatekeepers for USF for the entire industry, minus the RLECs, who will presumably operate under the RLEC Plan. I acknowledge that the RLEC Plan is not perfect and the RLECs who are not in favor of this plan have presented valid and thoughtful arguments and alternative proposals throughout this comment cycle. However, the reality is that the clock is ticking and I don’t think the FCC has any patience for factions and industry infighting at this time, especially from the RLECs since they represent such a small portion of the overall industry. I’m just trying to be realistic.  

Back to the SBPs’ comments… I’ve never been of the impression that the price cap ILECs are willing to, or enthusiastic about, providing broadband in extremely rural areas. The problem is that sticking the rural consumers in the unserved price cap territories with satellite service is not really helping to reduce the urban/rural or rural/rural digital divides, despite what the SBPs may think. I don't think satellite broadband service is a viable permanent solution for rural broadband, so why invest USF money in this service, when it could better go to FTTH or 4G wireless broadband? I'm not saying that there is no place for satellite broadband, because there are definitely extremely rural areas where nothing else can be deployed. Satellite broadband should just not be used as the default service for a lot of rural areas where something better could be deployed with the help of USF subsidies.

I’m still unsure why the SBPs are trying to “bite the hand that feeds them” by complaining about the ABC Plan recommendation to have satellite providers serve the extremely rural areas, which may amount to hundreds of thousands of new consumers for satellite providers. The ABC Plan has even recommended a lower broadband definition (4 Mbps/768 kbps) which in my opinion would help the satellite providers. The SBPs preach about the importance of reasonably comparable service and consumer choice, but satellite broadband is not reasonably comparable to wireline broadband and consumers do not actively choose this service. The ABC Plan recommendations might be completely insufficient for wireless broadband, which is a service that hundreds of millions of people demand and use, but I think the ABC Plan is actually a pretty good deal for satellite providers. Sorry, SBPs. 

Of all the comments I have analyzed so far, this one was my biggest challenge to write about, and I have a lot of questions. Are SBPs trying to bust out of their “niche provider” role and become a real contender in rural broadband? How will they actually get consumers to see them as a serious contender? What’s the difference, from a satellite perspective, between partnering with an ILEC for CAF support versus winning CAF support through a reverse auction, if they get the money anyway? Do they think receiving CAF support on their own will help them compete with RLECs? Why do they need CAF support anyway, when they have been providing their niche service without it perfectly well all along?  Like I said above, I respect the SBPs for submitting thought-provoking comment despite what my personal opinions may be. 


Have a great long weekend!

Cassandra Heyne

1 comment:

  1. SBP plans are generally more expensive than their wireline counterparts, especially when analyzed from a cost per Mbps basis.

    I believe the SBPs just want subsidies so their product is more affordable to the (extremely) rural areas which already have a higher percentage of folk that can't afford it.