The USF contribution factor for carriers will fall in Q2 to 17.9 percent of interstate and international telecom revenue due to lower subsidy demand, industry consultant Billy Jack Gregg said in an email update Tuesday. He said the Universal Service Administrative Co. projected industry long-distance telecom revenue for Q2 at $14.74 billion, about $191 million less than in the current quarter. The downward revenue trend is putting upward pressure on the contribution factor over time, but Gregg noted USF demand for Q2 also edged down to $2.211 billion -- due mainly to "out of period adjustments" (see 1602020047) -- allowing the rate assessed to carriers to decline somewhat from the current quarter's 18.2 percent.
FairPoint Communications reported lower revenue and net income in Q4 than in Q3, but lower operating expenses helped the company beat an analyst's expectations on cash flow metrics. FairPoint is "committed to delivering on our unlevered free cash flow [FCF] objectives," said CEO Paul Sunu in a company earnings release Wednesday. It also expects "to be an active participant in our consolidating industry," though that partially depends on reasonable financing, he said. Revenue dropped $11.8 million to $209.8 million in Q4 due to "seasonality" and an anticipated $4.8 million reduction in regulatory funding, primarily lower USF subsidies under a transition to Connect America Fund Phase II support, the telco said. Net income was down $10.8 million to $42.3 million, primarily due to the revenue reduction, which was partially offset by a $1.9 million decrease in operating expenses to $90.9 million due to lower head count and debt expense, it said. The company ended 2015 with 2,718 employees, down 334 from a year before. Adjusted EBITDA dropped $2.8 million to $63.9 million and unlevered FCF fell $9.8 million to $23.3 million due in part to higher pension contributions. But Wells Fargo analyst Jennifer Fritzsche said she had estimated adjusted EBITDA would be $60.2 million and unlevered FCF would be $21.2 million. So while the revenue decline had been expected, the company's cost containment focus allowed it to beat expectations on both adjusted EBITDA and unlevered FCF, she emailed investors. FairPoint said it continued to make progress in 2015 on customer service, reporting "fewer repair tickets in the queue and improved ability to timely address the service orders received." The improvements produced less employee overtime and fewer repeat calls, and should yield more brand loyalty and lower customer churn over time, it said. FairPoint's share price closed down 3 percent to $14.98 Wednesday.
FCC Chairman Tom Wheeler faced many questions about his set-top box proposal during Wednesday's Senate Commerce Committee oversight hearing. Both committee leaders questioned the merits. But there was little rancor at the two-and-a-half-hour hearing, with much attention devoted to spectrum policy and relatively little to the agency’s net neutrality order.
Broadband providers and consumer advocates jointly backed modernizing Lifeline USF support for low-income subscribers. Almost two dozen major telcos, cable companies, consumer groups and public-interest organizations signed a letter to commissioners Tuesday saying it was time to use Lifeline subsidies to make broadband more affordable for low-income persons and change the way the program is administered regarding consumer eligibility verification and industry participation. An informed source said the FCC continues to target its March 31 meeting for adopting a Lifeline order, as expected (see 1602180055).
Senate Commerce Committee members filed 25 amendments, not released publicly, to Mobile Now (S-2555) ahead of its Thursday markup. Some of the amendments would raise the broadcaster repacking relocation fund by $1 billion, force a national unlicensed spectrum strategy, and include stronger dig once provisions. But Senate Commerce Committee Chairman John Thune, R-S.D., told us Tuesday that he doesn’t expect too many up-or-down votes during the markup and he anticipates a possible manager’s package to address some of the members’ concerns. Thune filed a substitute amendment text, as expected (see 1602290069), proposing some technical changes to Mobile Now.
A year after the FCC approved its net neutrality order in a contentious 3-2 vote, tensions remain high. Commissioner Ajit Pai, who voted against the order, said in a speech at the Heritage Foundation Friday that the order has led to a reduction in spending by ISPs on their networks, a result he said he had predicted. Small ISPs in particular have cut investments, he said.
The FCC should include an Alaska Plan in a looming rate-of-return USF overhaul, General Communications Inc. (GCI) and other Alaska telecom interests are telling commission officials. The plan is aimed at supporting broadband deployment in rural Alaska, and time is of the essence, given the state's construction season, they say. Native American groups are separately pushing for including a Tribal Broadband Factor, citing a projected reduction of almost $33 million in support for carriers serving tribal lands under a draft FCC order. Alaska Communications Systems (ACS) also has asked the FCC to adopt its price-cap USF proposal for Alaska.
Competitive Carriers Association President Steve Berry and others from CCA met with Jon Wilkins, FCC managing director and soon-to-be Wireless Bureau chief, to discuss issues most important to small carriers, said a filing posted Wednesday in FCC docket 10-208. Top among CCA’s issues is USF reform and the launch of Mobility Fund Phase II “or another ongoing support program,” CCA said. “CCA will continue to collaborate with the Bureau to further develop its Mobility Fund II proposal.” It called on the agency to distribute $73 million left over from the first mobility fund. Just as important, CCA said, is access to spectrum. CCA reiterated its support for requiring broadcasters to move within 39 months of the TV incentive auction. “Likewise, it is increasingly difficult for competitive carriers to get access to additional low-band spectrum through secondary market transactions,” CCA said.
CenturyLink and Frontier Communications asked the FCC to allocate $176 million in interim USF support to price-cap incumbent telcos providing voice service in costly remote areas where they are no longer being subsidized. “This support would flow for a maximum of two years, and likely less,” the two ILECs said in a filing, posted Wednesday in docket 10-90, summarizing recent meetings with aides to all five commissioners and a senior Wireline Bureau official. The telcos said the support is needed to ensure voice service continuity “in extremely high-cost and other unfunded locations” of territories served by price-cap carriers in states where they accepted new Connect America Fund Phase II support. Those areas constitute about 6 percent of the census blocks carriers serve in those states, the telcos said. In those areas, they said, the incumbents aren't receiving either the CAF II broadband-oriented support or legacy USF phone support but still must continue to offer voice service under FCC rules. Carriers have complained of an unfunded mandate (see 1601220046). CenturyLink and Frontier noted that the FCC plans to deal with the costs to serve areas either through an interim CAF II subsidy reverse auction or a remote areas fund (RAF), neither of which has been set up. “In the interim, however, restoring the inevitable voice service disruptions in unfunded areas presents a significant universal service challenge. Price cap ILECs that accepted offers of model-based CAF Phase II support are obligated to use such support to deploy broadband to covered locations; they cannot shift these monies to support voice service in the unfunded areas,” said the two telcos, which noted the ILECs must invest “significant amounts” to provide broadband in areas where they accepted CAF II money. They said the proposed interim funding should be based on previous legacy "frozen support" for the unfunded areas, as determined by the cost model. It would last only until the end of the CAF II auction process and could be drawn from the $100 million per year budgeted for the RAF and a “tiny fraction of the existing CAF reserve amount” held by the Universal Service Administrative Co., they said.
State and federal regulators need to be focused on making broadband work, experts said during a National Regulatory Research Institute webinar Wednesday. The NRRI event expanded on a panel -- with the same participants -- held at a NARUC meeting in Washington last week (see 1602160004).