Industry Divided as USF/ICC Deadline Draws Near

The National Exchange Carrier Association, the National Telecommunications Cooperative Association, OPASTCO and the Western Telecommunications Alliance jointly backed an “evolved” rate of return regime and condemned proposals for reverse auctions. Proposals in the commission’s rulemaking notice that would change high-cost loop reimbursement rates and eliminate operating expenses would also “disrupt current operations” and “undermine customer service and adversely affect consumer and carrier rates,” the rural groups said.

But the “existing universal service and intercarrier compensation regime is teetering on the brink of collapse,” AT&T said in its comments. The current regime “is utterly incapable of advancing universal service on the all-IP communications network of the future” and the commission should “eradicate” it, AT&T said. AT&T said current FCC policies “are actively hindering broadband investment and adoption in high-cost areas, denying millions of Americans the benefits of next-generation technology.” AT&T has argued for the better part of a decade that the old switched network is collapsing, bringing down the intercarrier compensation regime with it, and that the best way forward is to create an access recovery fund that will allow smaller telcos to recover some of the lost funds over a relatively quick transition to an all-Internet protocol network with low and nearly uniform -- or even bill-and-keep -- rates.

USTelecom wants “a reasonable opportunity for providers to replace the revenues lost” but did not specify years, in its comments. Multiple industry officials have said AT&T is urging a three-year transition, while some mid-sized carriers are hoping for up to 15 years to help recover older investments in copper-wire networks. On Monday, Frontier Executive Vice President (and former commissioner) Kathleen Abernathy met with Wireline Bureau Deputy Chief Carol Mattey to reiterate Frontier’s wishes for “appropriate transitions” for USF and intercarrier comp reform, according to an ex parte notice released Tuesday. The transitions should be long enough to “ensure stability during the reform and ensure that Frontier can continue investing hundreds of millions of dollars to achieve the Commission’s goal of deploying broadband to rural America,” Abernathy said, according to the ex parte notice. An AT&T spokesman told us in an email Tuesday that the company was confident a deal could be reached. “The FCC has stated that it wants to adopt an Order by the end of the summer, and we believe responsible parties will find a reasonable, middle ground consensus,” the spokesman said.

CBeyond, Integra Telecom and tw telecom, in joint comments, sought a “gradual, multi-year transition in uniform, cost-based rates for termination.” But the CLECs also said the commission shouldn’t provide USF subsidies to replace foregone intercarrier comp dollars. The FCC should reduce intercarrier comp rates in two stages, the CLECs said. In stage one, the commission should “gradually (i.e., over a period of five years)” reduce “through a series of lock-step annual reductions, intrastate terminating access rates to interstate levels,” the CLECs said. In stage two, the commission should unify “(over a period of one to two years) all terminating rates (including intrastate access, interstate access, reciprocal compensation and the ISP-bound terminating rate) to a single TELRIC-based level,” the CLECs said, referring to “total element long-run incremental costs."

In reply comments to an earlier phase of the proceeding, also posted Tuesday, FreeConferencing.com said “the better reasoned” comments “agree that the preferred solution, if one is needed, is to require that rates … decrease gradually with increasing volume, eventually reaching and staying at RBOC rates.” “In addition,” FreeConferencing added, “they recognize the importance of stimulating rural economies, and allowing construction of broadband, rather than forcing all high volume services into urban areas.” Late last week, Reps. Cliff Stearns, R-Fla., and Ed Markey, D-Mass., each wrote to Chairman Julius Genachowski asking him to recognize “the continued need for consumer-driven services, such as the range of legitimate toll conferencing options.” Stearns said he was “confident there are pricing solutions that would provide a level playing field for telecommunications carriers and service providers in urban and rural areas, while eliminating the incentives for abuse.” He added that while the commission’s rulemaking notice “properly outlines the issues surrounding access stimulation, I urge the FCC to closely examine solutions that will allow legitimate telecommunication carriers and service providers the opportunity to offer such valuable consumers services and continue to encourage investment in underserved areas."

The FCC must also proceed carefully so it doesn’t lose sight of the original goals of universal service, Public Knowledge and the Benton Foundation said in their joint comments. “The Commission’s proposed means to shift the Universal Service Fund (USF) high-cost fund to the proposed Connect America Fund (CAF) threatens to sacrifice universality on the altar of fiscal control,” the groups said. “The Commission’s proposal to rely on reverse auctions will likely leave some regions unserved, while simultaneously abandoning the requirement that a USF recipient serve all households in its service territory. This amounts to an implicit abandonment of the principle of true universal service.” The groups said they hope the definition of “universal service” doesn’t become “close enough."

The FCC assumption that capacity limitations prevent satellite broadband providers from direct participation in the CAF is severely flawed, said Dish Network, EchoStar, Hughes Network Systems, ViaSat and WildBlue in a joint filing. The filing marks somewhat of a shift for Hughes, which is being bought by EchoStar and previously filed in the proceeding focused on reasons satellite broadband should be left out of the CAF. Under one proposed rule, satellite broadband providers would be required to pay into the fund but prohibited from bidding directly to serve the areas, although the satellite companies may be able to partner with terrestrial broadband providers. Satellite shouldn’t have a higher eligibility threshold than terrestrial technologies, said the providers. Unlike satellite broadband, as proposed by the FCC, other technologies aren’t required to serve a certain number of homes to be involved, they said. That exclusion wouldn’t “withstand legal scrutiny,” they said. Satellite broadband should be able to participate in all phases, including the auctions, which would help bring down the costs of the fund, they said. “If satellite broadband providers are excluded from full participation, they also should be excluded from contribution obligations,” they said.

Hughes’ involvement in the filing isn’t really a change in the company’s take on the proceeding, said Dean Manson, Hughes’ general counsel, in an interview. The company has always been willing to participate in the CAF as long as the technology was on “equal footing,” he said. The consensus filing is largely a result of what the providers see as being in the collective interest of the industry and the combined opinions “would be that much stronger” and “would clearly present the perspective of satellite broadband industry,” he said.

Wireless carriers, led by CTIA, said wireless must be a key focus of USF dollars after an overhaul is complete. “Consumers place enormous and ever-increasing value on the flexibility of using data and voice services wherever they are, and are embracing mobile broadband faster than any other broadband platform,” CTIA said. But CTIA said changes are necessary. “With ever higher contribution burdens placed on consumers, with legacy universal service programs designed to support technologies of the past century, and with an intercarrier compensation system that bears no relation to either the current technologies or marketplace, the time for reform has come,” CTIA said.

Sprint Nextel, which has made USF/ICC overhaul a key focus of its lobbying, put forward some specific proposals in its comments, including requiring the three largest ILECs to move to a bill-and-keep system over a three-year period, with reductions in intrastate access rates starting next year. The FCC should also make clear that packetized voice traffic should be exchanged on a bill-and-keep basis, Sprint said.

Cellular South questioned whether the FCC has authority under the Communications Act to approve rules extending USF support to broadband services as recommended in the National Broadband Plan. “One would expect that the Commission would have satisfied itself as to its authority before directing its staff to prepare an ambitious plan to ‘fundamentally modernize'” the USF, the carrier said. “That apparently was not the case."

An FCC public notice on the Connect America Fund “falls short in an important respect: The Notice does not propose an effective and suitable framework for ensuring that consumers in rural America will be provided with sufficient access to mobile broadband networks,” said small cellular providers MTPCS and N.E. Colorado Cellular.