USTA PANELISTS SAY ‘BILL-&-KEEP’ PLAN COULD BE TOUGH ON RURAL AREAS

Michael Balhoff, Legg Mason analyst who served as moderator, said investors might shy away from rural investment under bill & keep unless they saw its benefits. Key, he said, would be to make sure additional universal service was available to make up what could be huge reduction in rural telco revenue. Bill & keep essentially would eliminate access charges, which now account for more than 25% of rural carriers’ revenue, said Al Pedersen, Sandwich Isles Communications vp-regulatory affairs. “From my perspective, this looks a little scary for rural America,” he said. “It’s difficult to know if you can take the Universal Service Fund much higher” and customers rates can only be raised so high, he said: “It doesn’t give rural America a real comfortable feeling. Maybe we should wait for other solutions to shore up universal service before going to this.”

Many larger carriers support idea of moving to uniform intercarrier compensation, and bill & keep is gaining popularity as system to use, several USTA attendees said. Panelist Peter Martin, BellSouth exec. dir.-federal regulatory affairs, said bill & keep would eliminate some problems in current systems, such as disputes over ISP-bound traffic, arbitrage, erosion of subsidies once in access charges and inability of current systems to accommodate changes in technology and competition. Bill & keep also reduces need for regulatory intervention, Martin said. He said FCC already had taken some steps toward bill & keep through: (1) CALLS plan, which lowered per-min. interstate access charges. (2) CLEC access charge order. (3) 2001 reciprocal compensation order that reduced terminating charges for ISP-bound traffic. That order has been remanded back to FCC, meaning agency in responding to remand could use bill & keep as replacement, he said. Martin acknowledged there were issues to be resolved in any move to bill & keep, especially universal service funding for rural LECs, as well as jurisdictional questions.

Patrick DeGraba, now FTC economist but author of often- quoted White Paper on bill & keep while at FCC, said another flaw in current systems was that they needed a lot of regulatory decision-making. For example, regulators must determine termination costs of each network and must classify traffic, he said. DeGraba’s proposal -- Central Office Bill & Keep (COBAK) -- called for dividing traffic at central office, although other proposals have surfaced, including BellSouth plan to divide traffic at tandem location rather than central offices, panelists said. DeGraba said there might be need to cover lost access revenue in general, not just for rural carriers, and one proposal was to increase subscriber line charge.

Martin said bill & keep originally was envisioned as being implemented in 2005, when CALLS order expired, but it could be moved up if reciprocal compensation remand “puts pressure on the FCC to move more quickly” on replacement payment system for local-ISP traffic. That would mean that at outset bill & keep would be used for only one type of intercarrier compensation. Carriers such as BellSouth had envisioned moving all payment methods to uniform system at same time, Martin said. However, he said many carriers now were “comfortable with a staged approach.” He said: “If we don’t deal with this issue. I think we will regret it in a few years.”

Legg Mason’s Balhoff said investors hadn’t focused on that issue yet but if he were asked by investor, he would say bill & keep “has inherent appeal for large carriers because it solves a lot of problems” such as arbitrage. “In rural areas, it could be a good thing if regulators have the courage to deal with issues such as universal service,” Balhoff said. -- Edie Herman

USTA Notebook…

Disney Exec. Vp Preston Padden said he wanted to form better relationships with telecom companies, particularly in areas of content theft and licensing issues. At USTA convention in Boca Raton earlier this week, he said it was probably first time Assn. ever had invited Disney official to its convention. Padden said that some in telecom industry had indicated interest in compulsory licenses but said: “I think we have more in common than at loggerheads.” Content providers are faced “either with outright theft of our product or the government forcing licenses at prices set by the government,” he said, likening such govt.-set prices to telecom industry’s problems with govt.-mandated TELRIC prices: “I hope you'll see commonality with our position.” In panel discussion moderated by Chris Israel, deputy asst. secy. for technology policy at Commerce Dept., Padden invited telcos to attend meeting in Disney World in Orlando later in fall to discuss those issues. Invitation appeared somewhat spur of moment so Padden told group he would contact USTA officials with more information. After session, several USTA members told Padden privately that he also ought to contact National Telecom Co-op Assn. when meeting details were set. Trent Boaldin, pres. of rural telecom company Epic Touch, said telcos were beginning to offer content as part of their broadband services and “it doesn’t take long to see it’s in our best interests to work together, telecom providers and content providers.” Goal, he said, is “to come up with a low-cost solution to [lessen] the incentive to steal.” Padden said it was time to make overtures to telecom companies that were becoming more involved in providing content. “The theme today is common ground,” he said: “We're not speaking enough together. We both want broadband deployed. We want direct connection to the consumer and not have blockbuster take half of the rental fee.” Attorney James Halpert said telcos had stake in Internet content issues because under Digital Millennium Copyright Act they could be held liable if one of their employees knew of illegal act being conducted by customer and didn’t report it. Halpert urged telcos to work with providers to find “consensus solution” because “it’s better to keep the government out of it.” Halpert said “there should be business negotiations [because] government mandates is not the answer.”