FCC Needs to Better Define State Role as It Revamps USF, ICC, FCC Workshop Told

Successful revamp needs provider of last resort policies (POLR) and a support mechanism that would enable long-term viability, said Bill Gregg with Universal Consulting, citing a proposal by the state members of the Joint Board. Defining the elements of provider of last resort and determining how they will be applied would be a key objective in achieving universal service goals for broadband, under the proposal. While the FCC might want to directly administer POLR duties, it might be more advisable for it to delegate some or all of that to state commissions, the proposal said. States are best positioned to make the actual decisions about service areas, though states would benefit from FCC guidance on the criteria for defining service area sizes, it said. State staff recommended that the Joint Board say states should be actively involved in requiring eligible telecommunications carriers (ETC) to develop service area maps and ensuring they are filed with the FCC. The agency can’t prohibit states from imposing additional requirements on carriers otherwise eligible for ETC designations, it said.

The commission must put together support mechanisms that not only pay for the initial rollout of the service but also for its long-term viability, said consultant Robert Loube of Rolka Loube Saltzer Associates. To obtain support, carriers must meet POLR responsibilities, including meeting specific goals for broadband buildout and participating in Lifeline programs, he said. Eliminating support for early adopters would discourage other carriers from making initial investments in broadband technologies because carriers couldn’t be confident that the revenue needed to support that investment would be sustained over the life of the investment, he said. A proposal by Loube and consultant Peter Bluhm recommended a POLR fund of $500 million, a broadband fund of $500 million and a mobility fund of $500 million. USF is all about infrastructure, particularly in areas where there isn’t a rational business case that can attract investment, said consultant Glenn Brown with McLean & Brown Associates. If the FCC was to change USF policies, there’s a real risk for companies that receive support, he said. Those companies need some certainty in return on investment, he said.

A proposal by Joe Shifman, a member of the staff subcommittee on telecom at NARUC, suggested unifying all intercarrier compensation, including reciprocal compensation, access and local, and creating a $15 billion fund. The FCC’s rulemaking notice approved recently, as well as two other proposals by state members of the Joint Board, proposed a $4.5 billion fund. When looking at fund size, regulators need to keep budget constraints and statutory requirements in mind, said Mike Romano, a senior vice president with NTCA. The goal is not just about getting broadband everywhere, it’s also about keeping broadband and keeping it affordable, he said. The issue is that the rates consumers are paying may not be able to support costs associated with maintaining and upgrading the network over time, he said. The key is to have a contribution base on a more solid foundation, he said. NTCA appreciates the approach that the FCC takes in its rulemaking, he said. It’s important to move things forward, he said.

State staff also cited the Omaha plan, which proposed USF revamp consistent with the proposals of the Joint Board that were submitted as a recommended decision to the FCC in 2007. The Omaha plan proposed that the inclusion of mobility and broadband services within the USF umbrella requires that the USF contribution mechanism be expanded to include total revenue for all telecom and information service providers as reported on FCC Form 499 that currently equal $448 billion annually. That requires a USF contribution factor of 1.8 percent, as opposed to the current contribution factor of 15.5 percent. The Omaha plan proposed a legacy fund of $1.1 billion, a broadband fund of $2 billion and a mobility fund of $1.4 billion.

There’s a real urgency to get things done, said Jonathan Banks, a senior vice president with USTelecom. USF and intercarrier compensation are tied together and they need to be done together and as soon as possible, he said. Intercarrier compensation needs continued price regulation, said Gregg, citing a proposal by state staff. Functionally equivalent intercarrier compensation services should be offered at a single rate, the proposal said. While low intercarrier compensation rates create public benefits, the rates shouldn’t be prescribed at zero, it said. The proposal suggested total element long-run incremental costs, or TELRIC, pricing as a reasonable long-term plan for compensation rates. It urged the FCC to create financial inducements for states to set intercarrier compensation rates at or below a stated ceiling.

The Rural Cellular Association is concerned with how the FCC plans to implement its proposed USF reform, and the group continues to encourage the agency to adopt a success-based, competitively and technology neutral USF revamp, said President Steve Berry. “If you look at the national goals in the” rulemaking, “to provide networks at reasonable prices to unserved and underserved areas,” said Berry, “the FCC can meet these goals if it uses a success-based USF mechanism that is forward-looking, revenue neutral and technology neutral.” The commission must ensure a transition period to the Connect America Fund that doesn’t disparage wireless, he said. The transition should be comparable or equal to wireline, he said. The group also opposed reverse auctions, Berry said, calling the mechanism anti-competitive and particularly harmful to smaller, rural carriers. Reverse auctions promote a “race to the bottom” mechanism, allowing larger carriers to eliminate competition at their will, he said.