Sunday, September 11, 2011

The Final USF/ICC Reform Lightning Round: Reply Comments— Iowa RLECs, Iowa Municipals, Blooston Rural Carriers

Reply comments were due September 6, 201 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. This is it, people—the final chance for the industry to throw some hard punches at whomever they are so inclined to oppose, be it the FCC, the RLECs, the price cap ILECs, the Joint Board, or any number of commenters who may have said something irksome in any of the previous comments going back to April 1. Many of the reply comments are fairly short and only attack one or two issues, so I’m switching back to the multiple summaries per post format. Today I’m looking at different Iowa telecom perspectives from the Rural Iowa Independent Telecommunications Association (RIITA) and the Iowa Association of Municipal Utilities (IAMU); and the Blooston Rural Carriers (which include a few Iowa companies).

RIITA is a rural telecom organization with 130 members, nearly all of Iowa’s RLECs. Half of RIITA’s members have 1000 or fewer access lines, and all members serve high-cost rural areas—“In most areas, no other providers exist and many areas served have very few customers per square mile, driving up the marginal cost of service” (pg. 1). RIITA supports the NTCA/OPASTCO/NECA/WTA RLEC Plan, but emphasizes the following areas of reform are especially critical for Iowa RLECs:

  • Rate of Return: RIITA argues that RoR is critical, and “without [RoR], small rural carriers would have no basis for planning and investing in their communities that would be consistent and reliable enough to justify the investment” (pg.2). Furthermore, RIITA argues that RoR must be based on embedded costs, which “have formed the basis for compensating utilities for over a century” (pg. 2).
  • Carrier of Last Resort: RIITA insists that COLR requirements are critical for consumers, and “without a requirement of service, no carrier would be left to serve them” (pg. 2).
  • Recovery Mechanism: Small telecom companies need a reasonable transition period to move to a new ICC regulation system, and “capital investments in telecommunications are such that they require long-term planning and involve relatively long lived assets so it is critical that the recovery mechanism be designed to allow these companies to make this transition” (pg. 3).
  • Arbitrage: RIITA sternly warns that “any company using our networks to access rural consumers, including companies using the internet for voice service and pushing commercial services over the internet should participate in maintaining those networks” (pg. 3). RIITA explains, “What seems to a VoIP carrier of a commercial internet based provider like a free network is not, in fact, free. All users of these networks should participate in the costs of the networks” (pg. 4).

My Thoughts: Considering the sheer number of RLECs in Iowa (more than any other state), I can only hope that their collective voice is being heard at the FCC. I would have liked to see more detailed analysis in these comments with regards to some of the topics in the Public Notice, $0.0007 access rates in particular. I know the Iowa companies have a lot to say on this topic. I really liked RIITA’s closing comment: “The Commission needs to commit to [the goal of universal broadband] and work to make the funding available or abandon that goal. Under either circumstance, it should stop trying to dismantle the network that already provides broadband communications to rural America” (pg. 4). If you are interested in learning more about Iowa’s efforts to ensure reasonable USF reform such that Iowa RLECs are not “dismantled,” I recommend checking out The Great Disconnect, which is an advocacy project created by RIITA along with the Iowa Telecommunications Association (ITA) and Iowa Network Services (INS). It is a great website and I have really been impressed with this coalition’s advocacy efforts in Iowa over the last few months.


Iowa doesn’t just have a lot of RLECs; Iowa also has a large number of municipal broadband networks. IAMU has 545 Iowa communities as members, with 28 municipal broadband networks. 19 of these networks provide telephone service as CLECs, and most of them provide cable and broadband via fiber or fiber/coax. IAMU explains, “The systems were established because the residents of the communities in question believed that affordable access to advanced communications capabilities and services was vital to their economic vitality, educational opportunity, and quality of life and that the incumbent service providers were unwilling or unable to provide the necessary infrastructure and services at anything close to competitive rates” (pg. 2). IAMU comments that the FCC has recognized the progress made by Iowa municipal broadband providers, largely due to a 1997 state decision to allow municipals to deliver telecom services. This decision was challenged by the Iowa Telecom Association, but ultimately affirmed by the Iowa Supreme Court. Now, the IAMU members “would like a fair opportunity to bid for Connect America Funds to extend or upgrade their services to unserved or underserved areas” (pg. 3). IAMU does not support the RLEC Plan or the ABC Plan.

On the “Biased and Unreasonable” RLEC and ABC Plans:  IAMU argues: “These self-serving proposals by companies representing only a limited segment of the rural broadband ecosystem would not phase out USF subsidies, but would actually increase them; would require investments of billions of dollars in technologies that would produce broadband with too little capacity to support robust economic development or ever-increasing consumer bandwidth requirements; would do little, if anything, to cure the inefficiencies that have made the USF too costly; and would insulate the carriers from competition from potentially more qualified bidders of CAF funds” (pg. 4).

On ROFR: Rights of First refusal is turning out to be one of the biggest debates in this comment cycle, and IAMU falls on the “no way” side. IAMU urges the FCC to reject the ABC Plan’s ROFR proposal, arguing that IAMU members “became providers of communications services, not because they wanted to compete with the private sector, but because the incumbents were not offering the services that their communities required or were doing so in an inadequate or prohibitively expensive manner” (4). Furthermore, “Dissatisfaction with the incumbents’ services ran so deep in Iowa, that the communities that authorized their municipal utilities to provide communications services did so by overwhelming majorities” (pg. 4). Instead of ROFR, IAMU believes that the FCC needs to “establish an open and competitively-neutral process that gives all qualified providers an opportunity to bid and be judged on the merits of their individual proposals” (5). This is a nice way of saying “reverse auctions,” but IAMU warns that reverse auctions could be gamed by the large carriers, who could submit “lowball bids” in areas where they face competition and high bids in areas where there is no competition. IAMU recommends that the FCC “grant subsidies to those bidders that offer to make the greatest bandwidth available to the greatest number of residents and businesses in question with the funds available” (pg. 5). 

On Separate Mobile and Fixed Funds: IAMU supports establishing separate funds for fixed and mobile broadband because: “Wireline and mobile broadband are not close substitutes but differ in many important ways—including cost structure, performance, reliability, etc. As a result, treating them the same would result in significant foreseeable and unforeseeable distortions” (pg. 6).

My Thoughts: Iowans are nothing if not resourceful and dedicated when it comes to deploying telecommunications services in rural areas. Since most of Iowa is rural, state history has seen some impressive and unique solutions, which is evident in the awesome book Lines Between Two Rivers. Since the beginning of telecommunications, large incumbents (ahem, AT&T) have seen Iowa as a rural wasteland where no investments can be recovered; but both RLECs and municipals have seen the same rural wasteland as a population that needs and deserves quality and affordable telecommunications services. However, the Iowa RLECs and Iowa municipals are not exactly what I would call allies, which is pretty clear by reading the RIITA and IAMU comments—I actually picked these two comments to summarize here today in order to illustrate how much deviation still exists regarding the ideal solution for USF/ICC reform. Even an RLEC and a muni serving the same rural community may have drastically different perspectives on USF, and when you include WISPs, wireless, cable, satellite providers and the price cap ILECs, things start to get pretty convoluted. I still don’t think the industry at large is any closer to a consensus than it was 4 months ago, and in reality, I feel like the “Consensus Framework” has pushed some of the niche providers like municipals even further a consensus. I feel like some of the proposals in the ABC Plan, such as ROFR, are so far from an industry consensus that it is almost an insult to the portion of the industry who did not participate in drafting the proposals. I obviously want the final rules to be advantageous (or at least not destructive) for RLECs, but that doesn’t mean I wish to see other small rural providers be destroyed in the process, especially if this means that rural Americans will lose access to broadband.

I agree with IAMU’s argument that mobile and fixed broadband funds should be separate, specifically because of the different cost structures that exist for fixed and mobile broadband. I just do not think it would be practical or reasonable to lump them all in one fund, however I do think the size of the mobility fund should be larger with a more flexible budget. I don’t necessarily agree with IAMU that wireline and wireless “are not close substitutes;” I actually strongly believe that wireless is both a substitute and a complement to wireline broadband—it just depends on a consumer’s unique needs, and on what services are available given the consumer’s budget and needs. I believe there should be ample funding for both fixed and mobile broadband in rural areas, and consumers should not have to choose between one or the other as a result of regulatory incompetence. 


In these comments, the law firm of Blooston, Mordkofsky, Dickens, Duffy, & Prendergast, LLP represented the interests of 22 RLECs and the South Dakota Telecommunications Association. The Blooston Rural Carriers support the RLEC Plan/Consensus Framework because it “constitutes the best available alternative at this time to enable RLECs to continue to make progress toward the completion of the conversion of their networks to broadband” (pg. 3). The Consensus Framework will allow RLECs to repay loans, upgrade facilities, and “will help preserve the assurance of repayment necessary to induce lenders to continue to fund RLEC broadband investment projects” (pg. 3). The Blooston Rural Carriers oppose commenters “who argue in favor of more drastic changes in universal service and intercarrier compensation that would effectively gut the revenues of rural carriers and endanger the ability of rural customers to obtain high quality broadband services” (pg. 2).

On Ensuring Adequate USF/ICC Support for RLECs: The Blooston Rural Carriers argue against parties that have urged the FCC to eliminate corporate operations expenses (COE) and eliminate all intercarrier compensation revenue. The Blooston Rural Carriers argue that some commenters support eliminating COE “for no other reason than to drastically reduce the amount of support available to carriers,” and COE recovery is important to maintain because these costs are fundamental to providing telecommunications services and include many costs associated with FCC regulation compliance. The Blooston Rural Carriers argue that eliminating ICC and imposing bill and keep is “without merit,” and “this argument is nothing more than a red herring by entities that would like to improve their bottom lines by not paying to use the expensive last-mile networks of other carriers” (pg. 5). Furthermore, “While the elimination of all intercarrier compensation would help certain entities increase profits, it would do damage to the ability of carriers to ensure the continued availability and expansion of broadband networks and to ensure that rural consumers have access to services at reasonably comparable rates” (pg. 5).

On Satellite Service: The Blooston Rural Carriers do not wish to see satellite service providers receive USF support that could be better utilized by RLECs. They argue, “It is well documented that current satellite service is not of sufficient quality and reliability to satisfy a carrier’s requirement to provide reasonably comparable services to rural consumers;” and “a rural carrier’s support should not be reduced if the competitive carrier is a satellite service provider. To do so would endanger the ability of rural consumers to obtain reasonably comparable services, as required by the Act” (pg. 6). 

My Thoughts: I thought the Blooston Rural Carrier comments reflected a neutral and reasonable response to the ABC Plan/RLEC Plan. I have said before that I do not think the Consensus Framework is perfect, but it definitely is better than the alternatives, which seems to be the attitude of the Blooston Rural Carriers as well. I thought this specific comment was especially interesting and telling of the sacrifices that have been made on behalf of the RLECs for the purpose of reaching an agreement with the large price-cap ILECs: “The Blooston Rural Carriers would never have agreed to many of the features thereof (e.g. a decreased 10% RLEC interstate rate of return, expanded caps on RLEC corporate operations expenses, constraints on future RLEC capital expenditures, and virtual elimination of RLEC terminating switched access rates) if these features were not part of a broad industry compromise and offset by other provisions (e.g. the restructure mechanism)” (pg. 3). 

I agree with many of the opponents of the Consensus Framework that certain proposals are not especially fair for specific industry participants, like rural wireless and cable providers—however, one of the primary purposes of this entire proceeding is to reformulate the USF/ICC mechanisms for ILECs and RLECs in order make universal broadband a reality. Just as I don’t think it is fair that 6 price cap ILECs make the USF decisions for the entire wireless industry, I also don’t see it reasonable for the wireless industry (for example) to determine the fate of USF for LECs. I believe the Consensus Framework represents a reasonable solution for the parties that developed these proposals; and that just so happens to be the majority of the industry and the specific portion of the industry where the FCC has called for significant reforms to apply. Unfortunately, not everyone can be a winner, but under no circumstances should rural consumers be the losers. 


Further reading on USF/ICC comments and reply comments:

Cassandra Heyne

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