"The odds favor” the FCC adopting the USTelecom-brokered agreement on the Universal Service Fund and intercarrier compensation regime reforms, MF Global analyst Paul Gallant said Thursday. The so-called framework could be filed as early as Friday (CD July 28 p8). It “would be a neutral-to-positive” for publicly-owned, mid-sized rural carriers such as Frontier, CenturyLink and Windstream, Gallant said. “We also believe the plan would be a boost for AT&T and Verizon by reducing their overall payments into the federal and state subsidy mechanisms.” Despite some opposition, he expects the commission to adopt the USTelecom-brokered deal more or less as-is because FCC Chairman Julius Genachowski has made USF and intercarrier comp reforms “a centerpiece of his National Broadband Plan” and the framework “would redirect federal subsidies from voice to broadband buildout, which is what the Broadband Plan called for.” Also, he said the proposal “has the support of a strong coalition” and Gallant “would not be surprised if it gained additional support” in the next few weeks, and “key legislators have indicated that the FCC is better suited than Congress to reform USF/ICC because of the level of detail required for reform. Congress’s key asks are that rural and urban interests are both clearly recognized, and that the overall USF … not grow larger -- and ideally shrink over time. We think the FCC’s final rules this Fall are likely to satisfy those criteria."

A breakaway group of rural telcos organized a last-ditch effort to keep their trade associations from signing on to a USTelecom-brokered agreement on Universal Service Fund and intercarrier compensation regime reforms. “It is simply a bad deal for rural America!” said a draft letter circulated by the Rural Broadband Alliance’s Diane Smith and Stephen Kraskin.

The three largest rural telecom associations defended their decision to engage in the USTelecom-led talks on universal service and intercarrier compensation revisions, but told their members to brace themselves for “give-and-take” on rate-of-return cuts and “deeper” cuts in intercarrier compensation. “We understand that many of you may see it as hard to work with carriers and other companies who often look to undermine the support networks that are essential to operation in rural areas,” said NTCA CEO Shirley Bloomfield, OPASTCO President John Rose and Western Telecom Alliance Vice President Kelly Worthington in a mass email to their members.

Phone companies aren’t the only industry group divided by potential Universal Service Fund change proposals. With a group convened by USTelecom poised to give the FCC on Friday a plan to make USF pay for broadband (CD July 26 p1), large and small cable operators also have different views on that framework. Just as major phone companies like AT&T and Verizon are expected to back the plan, with some mid-size telcos also joining in, the biggest U.S. cable operators also may support many if not all parts of the plan. As with small telcos that are net recipients of USF money and intercarrier compensation funds, cable operators that get such money also may back few if any aspects of the framework. That’s according to interviews with cable executives Tuesday.

Rural carriers and their advocates closed out the week by lobbying the FCC to protect their investments. In a meeting Wednesday, NTCA re-pitched its idea of putting limits on recovery of capital loop investments, the group said in an ex parte posted to docket 10-90 (http://xrl.us/bk256d). A day later, the Rural Telephone Service Co. “emphasized that in addition to the substantial debt service requirements they are responsible for, the high costs of serving their rural service area and the ongoing maintenance and operating costs require USF support in order to continue providing broadband service,” the company said in its ex parte notice (http://xrl.us/bk256q).

The FCC wouldn’t distribute Universal Service Fund cash for broadband in areas where any ISP already sells Internet service, under a USTelecom-brokered industry agreement that could be made public as early Friday (CD July 22 p3), industry and FCC officials told us. Talks are still going on, they said Monday. Under the agreement, which USTelecom has been calling a “framework,” VoIP wouldn’t be classified either as telecom or information service, and VoIP carriers would be required to pay interstate access rates for all non-local calls, the officials said. Comcast and other major cable operators continue to evaluate the USTelecom proposal, and it’s possible they'll join it, industry officials said.

The FCC can modify “the current High-Cost Loop support program” and still reach the Universal Service Fund reform goals for the Connect America Fund without completely reworking the system, NTCA said in a meeting last week, according to an ex parte notice in docket 10-90 (http://xrl.us/bk2uth). The tweaks would “promote sustainability, sufficiency, and predictability for USF/CAF recipients, while also helping to place reasonable, carefully tailored controls on the growth of the USF/CAF that take into account ‘conditions on the ground’ across the wide variety of areas served by small companies nationwide,” the group said. Instead of focusing on what might be the “cheapest” network to build, engineers “must take into account reasonably anticipated capacity demands over the life of a network and the reasonably anticipated costs associated with meeting those demands over time,” it said. “Particularly when labor (rather than materials) comprises a substantial portion of the costs of capital investment, planning ahead in this regard clearly represents the most efficient and cost-effective method of deployment for both the provider and the consumer, and such efficiencies accrue to the benefit of the USF.”

Invitations to serve on the FCC’s diversity committee will be made shortly, as work on the Universal Service Fund “soon” will culminate in a comprehensive order, Chief of Staff Eddie Lazarus told minority and women communications entrepreneurs Friday. A day earlier, Commissioner Robert McDowell told the Minority Media and Telecom Council conference (CD July 22 p7) he worried about delays in changing USF to also fund broadband and in rejuvenating the Committee on Diversity for Communications in the Digital Age. Chairman Julius Genachowski’s staff told the Federal State USF Joint Board last week that the order on USF and intercarrier compensation (ICC) will be ready for the October meeting, an FCC official told us.

NARUC’s board approved a batch of policy resolutions at the conclusion of the group’s meeting in Los Angeles. A Universal Service Fund/intercarrier compensation resolution supports proposals on USF revamp by the state members of the Federal/State Joint Board. The resolution emphasized the critical role assigned to states by Congress, including in part through the mechanism of the Joint Board. If an industry-supported “settlement” proposal is filed in the USF/ICC rulemaking notice and subsequently released by the FCC for public comment, that agency is urged to jointly offer the state members’ plan for comment simultaneously and include a request to contrast the two plans, the board said. A Lifeline/Link-Up resolution urges the commission and states to work within the existing USF program budget to improve broadband adoption in urban and rural areas and for native nations communities on tribal lands through coordinated Lifeline and Link-up Broadband Service Pilot Program projects, among other issues. The FCC should say the pilot program participants are not required to change local phone service providers, purchase bundled broadband and voice services or otherwise be penalized in order to obtain Lifeline and Link-Up broadband services and enabling access devices, the resolution said. It urged the FCC and states jointly create at least one pilot program in each of the five NARUC-affiliated regulatory conference regions that will include digital literacy and outreach components and that will defray a meaningful amount of the program participants’ average cost for the installation and activation and monthly charges for broadband and acquisition of devices enabling access. A call termination resolution encourages the FCC to reaffirm “that no carriers, including interexchange carriers, may block, choke, reduce or restrict traffic in any way” and recommends the FCC and states take all appropriate actions to protect consumers by immediately addressing call terminating problems.

A closely watched FCC filing on reforming the Universal Service Fund to pay for broadband, which is backed by Comcast and others selling landline phone connections, will be ready as soon as next week. Verizon’s top executive in Washington predicted at a Minority Media and Telecom Council conference Thursday that the filing will be made next week and may be joined by the cable operator. Talks among many USF stakeholders led by USTelecom have been ongoing for some time, with the expectation of finishing the work this month or early next. Regardless of how wide support is for the USTelecom plan, the agency needs to soon approve an order on USF, Commissioner Robert McDowell told the conference. The USTelecom-led “framework” reached its conclusion in late June and has won favor with mid-sized telcos Windstream, CenturyLink and Frontier (CD July 6 p6).