Rural Carriers Urge FCC Caution in Altering Rate-of-Return Cost Rules
Rural telco groups said the FCC should be careful in changing rate-of-return rules for carrier cost recovery and related practices. Regulatory changes should apply prospectively only and should be targeted to provide increased clarity about allowable expenditures where helpful, said various RLEC groups in comments Thursday in docket 10-90, responding to a recent Further NPRM included in an item that overhauled rate-of-return USF mechanisms (see 1603300065 and 1603310039). Some voiced concern the FCC could make sweeping changes to throw out rules -- which they said had worked reasonably well -- based on "anecdotal" accounts of isolated problems.
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Some state commissioners offered general support for the FCC proposals. Other state and local officials urged the FCC to ensure continued funding for voice services in the most rural areas of their states. Native American groups supported a proposal to establish a "tribal broadband factor" to provide additional funding support for deployment of high-speed Internet systems on tribal lands.
FCC oversight changes should be implemented on a going-forward basis only, said the National Exchange Carrier Association, ITTA and WTA. "NECA agrees there is a need for the Commission to clarify what expenses may or may not be included in carrier rate bases and universal service data submissions," said the ILEC group, which administers tariff pooling mechanisms. "New rules adopted in this proceeding should be clear and simple for carriers, NECA, and the Universal Service Administrative Company (USAC) to administer, and should apply on a prospective basis.”
NTCA said the FCC should continue to use "time-tested and court-tested standards" to "provide predictability and avoid a haphazard approach to cost recovery." The FCC, NECA and USAC have "multiple layers of expense caps" and oversight that provide many incentives for efficient operations, NTCA said. Because RLECs "operate under shared tariffs and fixed USF budgets, their incentives are aligned with the Commission in seeking to ensure that only reasonable expenses are recovered through regulated mechanisms," it said. "If anything, the isolated instances with respect to expenses incurred by a few firms that appear to drive some concerns in the [FNPRM] highlight the effectiveness -- rather than any shortcomings of these multiple layers of mechanisms and oversight." The group said more clarity on recoverable expenses would be helpful, but it would undermine clarity if the FCC followed through on some proposals, including to broadly extend "affiliate transaction" and other cost-allocation rules, or create a "potential new exception to the 'deemed lawful' provision of the Communications Act.”
WTA listed expenses under review that it believes enhance marketing and adoption of regulated services or are effective in recruiting and retaining high-quality employees: "(a) charitable contributions; (b) sponsorships; (c) scholarships; (d) dining facilities; (e) housing allowances; (f) company social events; (g) executive compensation; (h) Board compensation; (i) certain membership fees; (j) certain office furnishings; and (k) certain off-road vehicles." The group recognized "some of these operating expenses can be subject to reasonable limits," but said "prohibiting them in whole or major part is likely to have adverse consequences on broadband adoption, revenues and expenses that may well result in increased high-cost support." It said most were already subject to regulatory limits.
USTelecom said its members are concerned the actions of bad actors "unfairly" reflect on all rural carriers, causing the FCC "to unnecessarily consider potentially overly prescriptive rules" that would prevent RLECs from making legitimate business decisions. "One primary area of concern is meals and entertainment," it said. "While there is probably reasonable argument for eliminating costs associated with entertainment, providing food for employees while traveling on business or maintaining/rewarding productivity are legitimate business purposes. These are costs that cannot simply be eliminated, so their exclusion from cost recovery would be very concerning.”
The Kansas Corporation Commission was more supportive of the FCC thrust. "Regulations allow, and actually incentivize, carriers to include unregulated costs in regulated accounts to increase their revenue requirement and universal service subsidy. Thus, the KCC supports the FCC's efforts to address the issues raised in its Order," it said. The Nevada Public Utilities Commission said it generally supported the FCC intent "to streamline and standardize the accounting in part 64 and part 32 [rules] and believes that such standardization and simplification would be beneficial to telecommunication providers and their customers.”
The National Tribal Telecommunications Association said it appreciated the FCC commitment to act to promote tribal broadband deployment by year end. "NTTA submitted a proposal nearly a year ago to develop a Tribal Broadband Factor (‘TBF’), a simple approach designed to target additional universal service support to rate-of-return carriers serving Tribal lands," the group said. "Due to the demonstrably higher operating costs for carriers serving Tribal lands and the historic lack of investment in these areas, there is a clear need for high-cost [USF] rules that reflect the unique challenges and costs to serve Tribal lands. ... NTTA proposes that the Commission waive or significantly modify the operations expense limitation rule for carriers that predominantly serve locations on Tribal lands." Other Native American groups also supported the TBF proposal.