FCC Seen Needing To Perform Heavy Lifting on USF-ICC Overhaul

Blair Levin, Brookings Institution nonresident senior fellow and former NBP coordinator, said the 2011 USF-ICC transformation order “had some good elements” but left hard USF problems unsolved, including contribution changes. Levin is “more optimistic” that FCC Chairman Tom Wheeler will accomplish comprehensive USF overhaul, noting the E-rate changes he pushed through, but Levin said the politics and economics remain tough. "To improve deployment in high-cost areas, we have to learn to ignore sunk costs” so that capital flows where it’s needed, Levin said. “Today’s structure does not do that; the incentives often are about justifying past investments. We are eventually going to have to have a restructuring in which those focused on a return for past investment will have to yield to those who wish to invest to serve the future.”

Rate-of-return carriers say they need USF changes to improve incentives to invest. “We’re largely in the same place” on USF in 2015 as before, said Mike Romano, NTCA senior vice president-policy. Romano said the 2011 order didn't revamp rate-of-return high-cost support. It imposed new USF caps, but many were rolled back in subsequent actions, he said, noting telcos get about $2 billion in annual high-cost support. The difference is that the order is driving down incumbent ICC compensation, and yet rate-of-return carriers are expected to recover more ICC costs from the same $2 billion in USF, he said. “We’re having to do more with less in pretty sparsely populated areas.”

Romano said rural telcos are pursuing two “complementary” USF reform paths. Many want to shift to support based on a cost model, he said, but “that’s not going to work for everybody.” So rural groups have also proposed to revise the current mechanism to facilitate broadband support, he said. Without changes, rate-of-return customers can face broadband rates of more than $100/month if they don’t also take incumbent voice services, he said, saying industry talks continue (see 1505210042">1505210042). Wireline Bureau Telecom Access Policy Division Deputy Chief Alex Minard said the FCC plans to tackle rate-of-return USF in “the coming months.”

Malena Barzilai, Windstream senior government affairs counsel, said price-cap telcos have until Aug. 27 to decide whether to accept up to $1.675 billion a year (in aggregate) in broadband-oriented model-derived Connect America Fund (CAF) II support (see 1504290066). Barzilai said carriers needed to weigh the amount of USF support that is available compared to their capital costs for building out 10/1 Mbps broadband under the FCC deployment timeline and other requirements. “But things aren’t always so clear,” she said, noting industry questions about incremental revenue, the consequences of not accepting support, and the amount and duration of frozen support for carriers declining CAF II. Barzilai said there are even more regulatory unknowns about the competitive bidding (reverse auction) process the FCC anticipates using for determining CAF II support in areas where incumbents decline new funding. There are questions about the auction’s timing, bidding units, budget, eligible areas, build-out periods, speed requirements and winning bidder letters of credit, she said.

American Cable Association Senior Vice President-Government Affairs Ross Lieberman credited the FCC for making USF more efficient -- “otherwise it just sloshes around and goes where it shouldn’t.” But he lamented price-cap incumbents were given a CAF II right of first refusal. He said competitive bidding that brings in new players could yield greater broadband deployment, and he urged the FCC to go “bigger and bolder.” Romano said high-speed deployment is easier for new carriers that could target attractive areas than for price-cap incumbents making statewide decisions.

Klein Law Group telecom lawyer Phil Macres said the FCC phasedown of ICC rates to “bill-and-keep” (i.e., zero charge for roughly balanced traffic) was a done deal after the agency was upheld in court. But he said industry continued to engage in a bevy of disputes, including current ones over the intraMTA (major trading area) rule, the VoIP symmetry rule and the CLEC benchmark rule, with others on the horizon concerning originating access charges, points of interconnection, transit, toll-free 8YY originated minutes, and charges over dedicated transport, tandem switching and tandem support.

Danielle Frappier, a telecom lawyer at Davis Wright, which represents Lifeline providers, is hopeful the FCC in June will begin to focus Lifeline support on broadband, but she said the politics remain difficult. She disputed the notion Lifeline spending was full of waste or out of control and said support dropped from $2.1 billion in 2012 to $1.6 billion last year due to FCC controls, though she acknowledged a broadband mandate could increase spending.

Rex Miller, Education Networks of America senior vice president, said recent FCC E-rate changes had three main goals: to give schools and libraries affordable broadband access, maximize cost effectiveness, and make the program fast, simple and efficient. He suggested the agency made progress but said achieving the third goal “may take a little while.” The FCC is releasing up to $150 million in E-rate money, officials said earlier Wednesday (see 1505200061).

Levin tried to put the NBP in some context five years after it was released. "The Plan was not perfect. We saw it as a work in progress," he said. "The single most important sentence in its 400 pages is, 'This plan is in Beta and always will be.' It’s a tech talk take on the timeless Talmudic wisdom, 'Man plans. God laughs,' for which the most insightful modern formulation was provided by that great sage [boxer] Mike Tyson -- 'Everyone has a plan until they get punched in the face.'"