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).

Reply Comments of the Rural Iowa Independent Telecommunications Association (RIITA):

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.

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Reply Comments of the Iowa Association of Municipal Utilities (IAMU):

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. 

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Reply Comments of the Blooston Rural Carriers

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. 

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Further reading on USF/ICC comments and reply comments:

Rural TeleCommentary: Alexicon Consulting, ITTA/Mid-Sized Carriers, Rural Broadband Alliance, Comcast, Cellular South, Gila River Telecommunications, Satellite Broadband Providers, Kansas Corporation Commission, FTTH Council, LARIAT, LightSquared

JSI Capital Advisors: Western State Telecom Associations, Rural Telecommunications Group, Nebraska Public Service Commission, American Cable Association, NECA and NTCA ex parte filings, ILECs defend Rights of First Refusal

Cassandra Heyne

ruraltelecommentary@gmail.com

The Final USF/ICC Reform Lightning Round: Reply Comments—FTTH Council, LARIAT, and LightSquared

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 will be covering the FTTH Council (who submitted my favorite comments in the previous round), Wyoming WISP LARIAT, and satellite broadband visionary LightSquared. 

Reply Comments of the FTTH Council

The FTTC Council’s members include small, rural and public sector providers who utilize FTTH for broadband. In the previous round of comments, they provided a most excellent discussion about broadband speeds and FTTH investment, which I wrote about here and here. I was a little disappointed that they didn’t add much to this discussion in their reply comments, but they still made some good points and supported the arguments presented by the Rural Broadband Alliance. The only topic the FTTH Council addressed from the Public Notice is the modified broadband speed target of 4Mbps/768kbps; which the Rural Broadband Alliance called a significant step backwards from the National Broadband Plan which was released nearly 2 years ago. The FTTH Council concurs.

On America’s Thirst for Broadband: The FTTH Council argues that 4 Mbps/768 kbps might be acceptable for unserved areas for a very short period of time, but they recommend that the initial speed be targeted at 12/2.5 Mbps—but really, it should be symmetrical and higher. They describe how the rural stakeholders who have commented in this proceeding, such as the Nebraska rural companies, the Rural Broadband Alliance, and NASUCA have all argued that 4/1 and 4/768 is completely inadequate for rural areas, and is “already obsolete and would deprive rural customers of reasonably comparable service” (pg. 3). The FTTH Council talks about some studies that show broadband speed demand will likely be 25/25 Mbps by 2015, including a Cisco study that concludes there will be more networked devices than people in the world by the end of this year, and “by 2015 there will be two networked devices for every person” (pg. 7). A FCC Household Speed Guide recently claimed, “if more than two users/devices were accessing ‘basic functions plus one high-demand application,’ the minimal downstream speed a household needs for adequate performance is ‘6 to 15 Mbps’” (pg. 8). The FTTH Council does not want to see rural Americans suffer with slow broadband, and “Consumers in rural America demand the same connected devices and applications, and require the same broadband speeds to support them, as those in urban areas. It should be the goal of the CAF to meet the broadband connectivity needs of rural consumers” (pg. 9).

My Thoughts: The FTTH Council is right. I’ve talked about how I think the fundamental flaw of the National Broadband Plan and one of the many fundamental flaws of the FCC’s USF/ICC NPRM is the 4/1—and now 4/768—broadband speed target. Why on earth does the FCC want rural Americans to settle for a broadband speed that was inadequate for most high-bandwidth applications 3 years ago? Many CAF recipients won’t start deploying broadband for a year or more, while the urban world continues to benefit from new and awesome broadband applications. 4/768 relegates rural Americans in unserved areas to like 4^th class citizens, and it will do nothing to improve America’s broadband rankings on a global scale. It has long been my believe that rural Americans are the ones who need the highest speed broadband the most, so they can benefit from applications like distance learning and telemedicine and real-time commodities markets. People in cities can walk down the street to meet their basic needs for health, education, entertainment, socialization and income; but people in rural America do not have that luxury—and with 4/768 broadband, they will not have any luxuries anytime soon, or ever. 

Here is a chart that I made last year for my project where I compared the NBP to broadband plans in Japan, South Korea and Sweden, and argued that the 4/1 Mbps target is the Achilles Heel of the NBP:

Click to Enlarge

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Reply Comments of LARIAT

LARIAT is a fixed wireless Internet service provider (WISP) in rural Wyoming. WISPs have been generally very critical of USF reform proposals submitted by RLECs and ILECs, as well as proposals developed by the FCC. LARIAT argues that the FCC needs to also act on special access reform, improving access to licensed and lightly licensed spectrum, reducing barriers for antenna siting, and making access to backhaul more readily available. LARIAT is opposed to proposals in the ABC Plan, and it argues that USF reform should instead “enable the consumer to choose between the widest range of possible providers, and ensure that all comers are able to compete on a level playing field,” instead of granting ILECs a monopoly in unserved areas (pg. 5).

On Rights of First Refusal: I’ve been really interested in the ROFR debate within the broader ABC Plan opposition, and LARIAT provided some interesting comments and one good example about why ROFR should not be adopted. LARIAT argues that the ABC Plan is “cynically crafted to provide incumbent local exchange carriers, who are rarely the most cost-effective option, with a right of first refusal in virtually every area where CAF funding will be the highest” (pg. 3). LARIAT serves the city of Laramie and the surrounding Albany County in Wyoming, and “the population is extremely concentrated in the relatively small area where CenturyLink provides DSL service…the 35% market share threshold of the ABC Plan is so low that it would nonetheless give the ILEC a right of first refusal throughout the very large area served by the Laramie central office. The result: taxpayer money would be wasted as subsidies flowed to the incumbent rather than to more cost-effective providers such as WISPs” (pg. 4). LARIAT shows that the city of Laramie has a population density of around 1,000 people per square mile, but the remainder of the county is around 1 person per square mile. 

On A Separate Fund for Wireless: LARIAT does not agree that there should be separate funds for wireless/satellite and wired broadband, because separate funds would favor technologies “rather than allowing carriers to compete and the market to decide” (pg. 4). LARIAT argues that fixed wireless and mobile wireless broadband are not equal, and “consumers should have the right to opt—preferably via a voucher system in which they select carriers in an active, vibrant market—for a provider whose performance is more suitable for the real time applications that they are, increasingly, using” (pg. 4).

My Thoughts: I appreciated that LARIAT provided an example to show how ROFR will likely be harmful in Albany County, WY. I’ve been on and off the fence about ROFR and I can see how it could both be a benefit and a horrible mess, depending largely on the service area in question. One of the FCC’s goals in USF reform was to increase broadband access specifically in price cap ILEC areas, because these companies have been so slow at deployment in rural areas—in fact, most of the unserved areas lie in price cap ILEC territory. So in this regard, ROFR might be a benefit. However, I don’t really know if it is necessary that a price cap ILEC serve rural unserved areas, since they have shown such little interest in doing so all along. Further, I don’t think it is up to CAF to fund this deployment, since price cap ILECs generate billions of dollars in revenue. I think the 35% threshold should be increased to something like 75%, and I don’t think that CAF support should only go to the ILEC in an unserved rural area. However, from my understanding of the ABC Plan, ILECs would not be eligible for CAF support in rural areas where there is at least one unsupported competitor—so by that logic, CenturyLink would be ineligible for ROFR in the areas of Albany County where LARIAT provides service even if they meet the 35% threshold by way of their service in the city of Laramie. 

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Reply Comments of LightSquared

Although I have often meant to write about the ongoing LightSquared drama of this summer, I’ve not really had an opportunity to study the situation closely. Anyway, LightSquared’ s reply comments primarily revolved around advocating that satellite providers can directly participate in reverse auctions and Tribal lands should be exempted from USF reductions and other proposals that could hinder broadband deploying in these areas. LightSquared discusses how they have 40 MHz of spectrum for broadband and aggressive deployment plans; they have already invested $1b and plan to invest an additional $14b to cover 100% of the US with 4G LTE by 2015. Additionally, LightSquared’ s efforts will “generate $120 Billion in consumer benefits to the U.S. by providing a broadband platform on which retailers, wireline and wireless providers, cable operators, device manufacturers and new entrants can offer new and better service” (pg. 3). LightSquared has also stepped up to help improve broadband in Tribal areas by, for example, donating 1,000 satellite phones with free service until 2020 to hospitals and health clinics in Tribal communities in the Southwest. Overall, “LightSquared’ s unique combination of resources spectrum assets, and its mission of serving areas that have been denied access to adequate broadband services directly addresses two of the Commission’s most important policy objectives: solving the spectrum scarcity issue, and providing broadband service to unserved and underserved areas of the country” (pg. 6-7). 

On Leading Bidder Rights: LightSquared is irritated with proposals that place satellite in the unfavorable position of being a partner to an ILEC in order to receive CAF funding, and not as a frontrunner in reverse auctions. LightSquared supports a ViaSat/WildBlue proposal that insists, “Satellite providers should be able to participate in auctions directly, and there should be no restrictions on the service areas on which they bid;” furthermore, they should be the leading bidders in reverse actions (pg. 8). What happened to this reform effort being about “shared sacrifice?” Anyway, LightSquared thinks that demoting satellite service to “partner status” “in which a necessary precondition to their partnership in the CAF program is an invitation by a wireline or terrestrial wireless carrier” is not technologically neutral (pg. 9). LightSquared reasons, “Given the plight of unserved and underserved areas with respect to broadband services, the last thing the Commission should do is restrict these American’s options with respect to receiving such services. Any such unnecessary restrictions will just further ensure that these citizens are left behind far longer than they need to be” (pg. 10).

On Tribal Exemptions: LightSquared provides some interesting comments on the Tribal broadband challenge, and a slightly different perspective than the Tribal carriers who have commented in this proceeding, since LightSquared is not by definition a Tribal carrier. LightSquared is also one of the only non-Tribal and non-RLEC carriers I have seen who actually seems really excited about providing broadband in Tribal communities. LightSquared argues that Tribal communities should be exempt from caps on USF support, for “The Commission has recognized that service to Tribal lands entails unique challenges that justify exemption from the USF rules that apply to other rural areas” (pg. 15). LightSquared describes a White House Native American Business Leaders Roundtable session where it was said that “Native American communities are grossly underserved in terms of banking services, capital development and broadband services, and that these deficiencies contribute to severe levels of unemployment and underemployment” (pg. 16). LightSquared is prepared to address these problems, and “has the incentive and ability to provide services that can empower a wide variety of innovative providers of services and applications, from healthcare to law enforcement, to Tribally-owned telecommunications and data service providers” (pg. 17). LightSquared can provide wholesale service and backhaul to Tribal communities that want to provide their own broadband, which I think is something important to consider. 

My Thoughts: I don’t agree with LightSquared’s position on reverse auctions, but this is nothing new. However, I thought they provided an interesting perspective on Tribal broadband. Last week I expressed that Tribal carriers might not be the most efficient providers of broadband service if they are trying to implement FTTH to low density populations with 50% unemployment, charging rates twice as much as the national average, and only seeing a 20% adoption rate. I suggested that fixed and mobile wireless would be better solutions for Tribal lands. I think LightSquared fits into this equation as a wholesale or backhaul provider, where the Tribal communities can still have their own Tribally-run communications providers. LightSquared points out that out of over 300 recognized Tribes, there are only 8 true Tribal carriers. Perhaps if Tribal communities had more opportunities to access affordable wholesale and backhaul services then we would see more true Tribal carriers and a higher broadband adoption rate—something that is not very likely if Tribal carriers have no choice but to charge over $50/month for 1.5Mbps DSL. As far as Tribal carriers being exempted from USF rules, I still think there needs to be a greater focus on broadband adoption before large investments are made with or without USF.  

I suggest that Tribal communities look at some examples of mobile banking, healthcare, education and e-commerce in African and Latin American countries. There has been a considerable amount of innovation and development in these areas internationally, in countries where it is less likely that each home has a landline broadband connection. I’ve always been interested in how developing countries have essentially leapfrogged both landline telephony and broadband, and I think Tribal areas could follow this model here in the US, especially since landline telephone penetration rates are so low in these areas as well. I might write more about this later, since I’ve been hoping to address both international rural broadband topics and Tribal topics lately. 

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That’s it for today!

Cassandra Heyne

ruraltelecommentary@gmail.com

The Final USF/ICC Reform Lightning Round: Reply Comments by the Kansas Corporation Commission

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. To be honest, I’m not sure how much impact these final reply comments will have on the FCC—part of me suspects that the rules are already nearly completed and the FCC is just going to sit back and laugh while the stakeholders rip each other apart in comments. The Kansas Corporation Commission (KCC) definitely ripped into the ABC Plan, and given the state’s unique USF circumstances, it is easy to see why they are so heated about certain ABC Plan proposals.

Reply Comments of the Kansas Corporation Commission (KCC)

One of the main reasons why I decided to start summarizing USF/ICC reform comments earlier this year was so that I could personally learn more about USF from the perspectives of different stakeholders. USF was not covered heavily in any of my telecom policy classes, yet it is the area that I am trying to become an expert in, so much of my analysis is based on what I have taught myself, specifically from this proceeding. The intricacies of State USF programs are something that I am still learning about, and the KCC reply comments proved extremely helpful for me to gain an understanding of the challenges that certain states are facing. Kansas RLECs have also been very outspoken on USF issues, so in general I really appreciate the efforts that Kansas stakeholders have made throughout this proceeding because I have learned a lot from them. Seriously- Thank you, Kansas. 

On to the comments… Wow. The KCC is seriously not happy with the ABC Plan—“If the FCC proceeds with the ABC Plan without a longer transition period for early adopter states and/or further analysis of the impacts of the plan on existing state reform, it risks irreparable harm to these complementary state reform vehicles” (pg. ii). Kansas is an “early adopter” of state USF reform, and thus faces this presumed irreparable harm, which as you will see, is definitely a menacing possibility for this state, its consumers, its businesses, and its telecommunications providers.

On the Kansas Universal Service Fund (KUSF): Some of my readers may know these facts, but I thought the background information on the KUSF was helpful. KUSF was started in 1996 to provide support for Lifeline, dual part relay, telecom equipment for persons with special needs, and universal service/intercarrier compensation funding. When KUSF started, the assessment rate was 9%, one of the highest in the nation, but it has decreased over time to 6.18% currently. The total current funding obligation for the KUSF is $65.7m, and over its 14 years the KUSF has contributed $870m. The KUSF is now “at risk for becoming unsustainable under the ABC Plan,” because the size of the state fund may have to double as a result of specific Kansas state laws that require complete “make whole” access recovery for RLECs (and an opportunity for price cap carriers to seek full recovery as well). The KCC anticipates that the ABC Plan could result in total user contribution rates of 20-25% “not outside the realm of possibility” (pg. 10). Basically, with any significant loss in federal universal service funding and access revenue recovery, Kansas will burden an equal-sized increase in state contributions as per state laws. Kansas has 37 RLECs which are required to be made-whole through KUSF support (K.S.A. 66-2005(c)), and 2 price cap ILECs who legally could, and probably will, request to be made-whole especially if access revenues are significantly reduced (K.S.A. 66-2008(d)). KCC describes that the only recourse is to chance the state laws, and “such a dramatic change in state law requires legislation, and this is uncertain, will take time to accomplish, and cannot realistically be done until the contours of federal reform are known” (pg. 11).

On the “Train Wreck” ABC Plan: Yeah, they went there—KCC called the ABC Plan a “train wreck” for states like Kansas who have already adopted USF reforms. According to KCC, the ABC Plan would be a train wreck if hastily implemented, if VoIP is declared 100% interstate, if states are preempted, and if the highest-cost consumers are relegated to satellite service only. KCC argues that Kansas and other “early adopter” states should be treated differently than states who have not already implemented reforms (which are most states). KCC is very worried  that, “even if the FCC provides some FUSF support to recover some parts of the lost access charge revenue, the KUSF will likely be the easiest and most attractive ‘target’ for LECs seeking to make up losses in access revenue that result from reform”(pg. 8). Basically, the state fund will be overwhelmed, and KCC does not think the ABC Plan’s proposed ARM will be sufficient to cover the losses for price cap carriers, nor will the strict RLEC funding budget which “must cover not only access restricting losses, but also broadband build out and a reasonable opportunity to recover costs associated with existing investments in broadband capable plant” (pg. 8). To make matters worse, KCC acknowledges that all these negative consequences will have a direct economic impact on the state, for example, “a high-tech communications-centric company would find Kansas to be uncompetitive with other states that did not levy such a perceived ‘tax’ on their communications services,” if the total USF assessment rate does actually become 20-25%. Train wreck, indeed. 

On Not Declaring VoIP 100% Interstate: If you like reading comments that use the terms “interstate” and “intrastate” so much that you constantly keep typing the wrong term in your notes and articles, then you should read this section. Legalese aside, this section was really interesting and not a topic that has been covered considerably so far in what I have read. Basically, KCC is against the FCC declaring VoIP 100% interstate traffic, as it would reverse previous decisions and cause considerable havoc for states. KCC explains declaring VoIP 100% interstate “would be construed by providers as preempting State USF assessments of VoIP traffic, because State USFs very likely may only assess intrastate traffic under current law. As VoIP replaces circuit-switched technology, that reversal would reduce the State USF assessment base, thereby reducing the assistance that State USFs now provide to the FUSF in maintaining universal service. Thus, declaring VoIP traffic to be 100% interstate contravenes the Act’s admonition that ‘there should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service’” (pg. 15). 

Furthermore:  “For the FCC to ‘wave a magic wand’ and declare 100% of VoIP revenues to be from interstate calls, when consumers in fact clearly make considerable numbers of intrastate calls using VoIP telephones, and providers earn intrastate revenues from those calls, would be arbitrary and capricious. It would be inexplicable in light of the FCC’s treatment of wireless revenue, which the FCC for more than a decade has divided into an interstate portion assessable by the FUSF and an intrastate portion assessable by State USFs, using a ‘safe harbor’ approach very similar to that now used by the FCC for VoIP calls” (pg. 17). KCC anticipates that the KUSF could assess $500m in VoIP revenues in the next 5 years, which would clearly be an important contribution especially if the threats discussed above to the state fund come to fruition. KCC argues, “if that revenue is eliminated, the surcharge on remaining circuit-switched revenue will be increased, putting ever more pressure on the KUSF, and unfairly disadvantaging circuit-switched customers and providers as compared to VoIP customers and providers” (pg. 18). 

The final argument that I found really interesting regarding VoIP classification, (and I apologizing for taking such long blocks of text straight from the comments, but I really like KCC’s voice in some of their examples and arguments) described how the combination of changing technology standards and regulatory loopholes could spell disaster for the KUSF via new methods of arbitrage: “A trend in rural areas is to provide communications services via fixed wireless or WISP networks in lieu of landline networks. Placing an antenna on a grain silo or mountain top and providing wireless broadband service via technologies such as Motorola Canopy is done today in rural areas. In such a configuration, voice communications is provided via VoIP in lieu of a traditional landline. If VoIP providers are exempted from State USF contributions, then an enterprising ILEC with an aging landline network could deploy an inexpensive wireless network and avoid making USF payments because it was a VoIP provider. Yet, it could collect State USF support from make-whole state funds, such as KUSF, for its embedded costs of its unused landline network” (pg. 18). It should be noted that KCC is not against WISPs per se, just ILECs who pretend to still be landline providers but whose traffic is really traveling on a fixed wireless VoIP network while the landline infrastructure collects dust. KCC even suggests that fixed wireless service would be far superior to satellite in high-cost areas because fixed wireless service can facilitate a high quality of voice communication through VoIP, which satellite cannot. Just do not be a WISP by technical definition but a landline ILEC by regulatory definition—KCC is clearly anticipating such schemes already (perhaps something like this has already happened?). 

My Thoughts: KCC really hit on some tough issues, and unfortunately the ABC Plan authors will probably not have an opportunity to respond directly to some of these Kansas-specific arguments (maybe they did, I guess I will find out soon enough), which means it is now solely up to the FCC to figure out the appropriate balance between state and federal authority and responsibilities. Hopefully the FCC will take heed to some of KCC’s warnings about the dire consequences that will be inflicted upon the state if certain ABC Plan proposals are implemented. Clearly, Kansas is an exception and not the norm, so I wonder just how much attention the FCC will pay to the minority of states who have taken tremendous efforts in USF Reform (Nebraska is also in this category). KCC is really worried that the ABC Plan proposals could literally wash out all the progress the state has made in USF/ICC reform, and they are confused about how state-level responsibilities like audits, eligibility, etc. will be handled by the FCC if states are preempted. 

I really appreciated the depth of research that KCC invested in these comments, and the clear voice that they expressed. I hope all their work wasn’t in vain. I would have liked more direct commentary on the RLEC Plan, since; after all, Kansas has such a large number of RLECs and rural areas in comparison to other states. I didn’t really get much impression on their feelings about the RLEC Plan, other than they seem to think that the access revenue recovery is insufficient. 

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KCC was an early filer with their reply comments, but the others should be rolling in soon. I have yet to decide which comments I will feature here (although I think I did promise to cover the WISP perspective), but on the ILEC Advisor I am planning to look specifically at how the ABC Plan parties and the Rural Associations address some of the common critiques of their plans, so be sure and check there for new articles! 

Missed anything? Here’s what I have covered so far on Rural TeleCommentary: Alexicon Consulting, ITTA/Mid-Sized Carriers, Rural Broadband Alliance, Comcast, Cellular South, Gila River Telecommunications, Satellite Broadband Providers; and on JSI Capital Advisors:  American Cable Association, Nebraska Public Service Commission, Rural Telecommunications Group and Western State Telecommunications Associations.

Don’t hesitate to contact me with requests!

Cassandra Heyne

ruraltelecommentary@gmail.com

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.

Comments of the Satellite Broadband Providers (Dish Network, EchoStar, WildBlue, Hughes Network Systems, ViaSat and Spacenet):

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. 

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Catch up on all my comment analysis from this round on Rural TeleCommentary: Alexicon Consulting, ITTA/Mid-Sized Carriers, Rural Broadband Alliance, Comcast, Cellular South, and Gila River Telecommunications; and on JSI Capital Advisors:  American Cable Association, Nebraska Public Service Commission, Rural Telecommunications Group and Western State Telecommunications Associations. 

Have a great long weekend!

Cassandra Heyne

ruraltelecommentary@gmail.com

The Final USF/ICC Reform Lightning Round: Comments by Gila River Telecommunications, Inc.

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. In an effort to cover a broad range of stakeholders in a really short period of time, today I want to bring your attention to a rather depressing selection of comments by Gila River Telecommunications Inc. (GRTI). Tribal carriers face some absolutely daunting challenges in deploying broadband on tribal lands, and the proposed USF/ICC reforms have the potential to further devastate broadband progress in these economically, geographically and demographically challenged areas. 

Comments of Gila River Telecommunications (GRTI)

GRTI does not support the Joint Board plan, ABC Plan or RLEC Plan (referred to as “The Three Reform Plans”), but they do not offer much by way of evidence or arguments against these plans aside from claiming that tribal carriers would likely lose millions of dollars if any of these plans are adopted. According to GRTI, “The loss of revenues would cripple GRTI financially and would likely have a detrimental effect on telecommunications services and on broadband service in the Gila River Indian Community” (pg. iii). Furthermore, “any decrease in revenue would likely halt any progress” in increasing Tribal community broadband adoption rates or decreasing end-user prices. 

On the Unique Tribal Challenges: GRTI explains that only about 70% of households on tribal lands have basic telephone service, and the broadband adoption rate is absolutely dismal (like 10% dismal). GRTI actually has a fairly high adoption rate of around 20%. In addition to the adoption challenge, GRTI faces very high costs to deploy infrastructure, and the GRTI community has a high rate of unemployment and poverty. According to GRTI, “Costs of deploying fiber-to-the-home have been as high as $12,000 for a single residence. These costs leave little, if any, margin for profit. As a result, GRTI has been forced to deploy fiber-to-the-home in small increments” (pg. 5) Furthermore, GRTI cannot charge less than $52.90 per month for 1.5 Mbps DSL, over $20 more than the national average, and “few residents are able to afford this service” (pg. 5).

On Recognizing and Promoting Tribal Sovereignty: GRTI encourages the FCC to adopt USF/ICC reforms that uphold tribal sovereignty. GRTI’s recommendations include rules that reflect the following: “(1) any carrier seeking to provide communications services on tribal lands must receive approval from the appropriate tribal entity; (2) tribal governments should have the option to establish, monitor and enforce public interest obligations and deployment requirements; and (3) actions by states to reform state universal service systems and Intercarrier compensation mechanisms should have no bearing on the disbursement of federal funds to provide service on tribal lands” (pg. 11). Upholding such principles of tribal sovereignty in USF reform will allow Tribes to choose which carrier best serves their communities and allow them to have more control over service quality, costs and deployment schedules. 

On Adopting a Tribal Carve-Out: GRTI encourages the FCC to adopt a “Tribal Carve-Out” similar to General Communications Inc.’s proposal. The Tribal Carve-Out “should include the following characteristics: (1) a floor on the minimum amount of USF support; (2) cost recovery for middle mile costs; and (3) an exclusion for tribal lands from any cap on high-cost support” (pg. 14). GRTI thinks that a carve-out will “ensure that ILECs serving tribal lands would have a reliable flow of revenue to further broadband deployment and sustain local service…prevent net losses in revenue due to decreased ICC revenues…[and] ensure that GRTI realizes fair and expected returns on its investments” (pg. 15-16). In addition to the carve-out, GRTI thinks tribal carriers should be excluded from any caps on CAF support, “for the same reason a cap would not be appropriate in the context of high-cost USF support to tribal lands” (pg. 18).

My Thoughts: While I am deeply sympathetic to the trials and tribulations of Tribal carriers, I feel a need to be harshly critical on some of their proposals. First, I think there needs to be a demonstrated increase in adoption rates before the FCC “carves out” special treatment for these carriers. I don’t think a 20% adoption rate necessitates investments of $12,000 per household. I would rather see special funding programs going towards increasing adoption rates and digital literacy than going towards infrastructure investments that will never be recovered. I calculated that it would cost $1.2m to deploy FTTH to 100 households, based on GRTI’s $12k figure. If only 20 of these household subscribe, GRTI is only recovering about $12,500 per year at the $53 monthly rate, barely enough to cover the cost of deployment to one household. When you include regular operating expenses, there is literally no business case for deploying FTTH to these households—and I do not say that very often, as I am an avid FTTH supporter. Last week I wrote about the fundamental rural broadband conundrum: do you provide the service first and then reap the rewards from increased economic activity in the community, or do you wait for new businesses and education opportunities and improved health care to come to the community and then increase broadband capability? In the case of these tribal communities, I’m not sure if deploying FTTH first is the right answer, when 50% of the population is unemployed and 50% are below the poverty line.

However… broadband has the opportunity to facilitate jobs, education and health care for tribal communities, so it probably isn’t a good idea to hold off on deployment either. So, I would propose that Tribal communities take a hard look at wireless broadband, either fixed or mobile, preferably utilizing unlicensed spectrum. It would cost considerably less, and the benefits would be just as powerful as if the community had FTTH. It probably would not take 20 customers an entire year to cover the costs of deploying wireless to one customer. Wireless broadband would be a much more affordable solution for the members of the community, especially compared to the astronomical $53/month for 1.5 Mbps DSL. If the cost of broadband decreased to $20-30, more people could subscribe, and more people might be willing to try it out for a couple of months and boost their digital literacy skills in the process. Once the tribal carrier increased adoption and helped the community realize the benefits of broadband, it might be able to make a better business case for investing in FTTH. 

I hate that there are areas in this country where broadband only reaches 10-20% of the homes, but in these areas, I’m not sure if it is specifically the responsibility of the Universal Service Fund to fix what appears to largely be a demographic problem. I do however think that tribal carriers could benefit from a short-term separate fund, but a significant portion of the funding should go towards programs that increase adoption and digital literacy. Aside from this, I don’t especially think that tribal carriers should follow different USF rules than regular RLECs—there are also RLECs who provide service in tribal communities but are not specifically “tribal carriers,” so their interests need to be recognized as well, and there should be incentives for more companies—RLECs, ILECs, wireless, etc. to invest in tribal areas, which could be prevented by restricting special treatment only to tribal carriers. 

What other funding opportunities are available to tribal carriers through small business loans, special tribal business financing programs, and schools, libraries and health care broadband funding opportunities? I hope that there are ample funding opportunities outside of USF for these carriers, because there is clearly a need for extra, extra support in these communities. I definitely don’t think the tribal carriers should receive less USF support than they do currently, but I’m not sure if USF is the solution to the vast challenges these carriers face. 

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If anyone has any good information on Tribal broadband adoption, deployment and investment challenges, please feel free to share it with me, as I would like to learn more about this issue. 

Only 2 more days until reply comments are due! Where did the time go? 

Cassandra Heyne

ruraltelecommentary@gmail.com

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!

Comments of Cellular South

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.

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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

ruraltelecommentary@gmail.com