Industry Still Divided on USF/Intercarrier Comp Reforms as Clock Ticks

USTelecom is leading talks among LECs, trying to come up with an industry-endorsed reform package (CD May 19 p9), and the parties have agreed to finish the talks by June, a telecom official told us Tuesday. The commission has promised to move to orders on USF and intercarrier compensation by summer’s end. Former Rep. Rick Boucher, D-Va., said Tuesday that Congress has to get involved for reform to be meaningful. “My initial recommendation is that this reform be considered and adopted by the Congress,” he told us Tuesday. He said the bill he and current Rep Lee Terry, R-Neb., introduced last year is the best template for reform.

National Broadband Plan architect Blair Levin said the private negotiations have been the “most productive negotiations about Universal Service in my years of following the sector,” but the FCC should remember that USF isn’t just about the industry: “At the end of the day … there are a number of public policy concerns that may or may not be reflected in those negotiations and the commission can’t simply do an up or down vote. They're going to have their own input."

The commission “must resist calls to avoid or drag out (through excessive transition periods, unwarranted ‘access replacement’ mechanisms or simple inaction) difficult rule changes,” Sprint Nextel said. “The long-term health of the telecommunications industry and the competitiveness of the telecommunications market demand rationalization of the ICC and USF mechanisms.” LEC intercarrier comp rates are “bloated,” Sprint said. It singled out mid-sized CenturyLink: “In many areas today [it] charges $0.0007/minute to terminate a call subject to reciprocal compensation. However, when it terminates an interstate call, CenturyLink charges an average estimated rate of $0.0065/minute -- or a rate over nine times higher even though CenturyLink’s termination costs are identical” (emphasis in original).

Mid-sized carriers think “it is critical that the Commission proceed carefully to ensure its effort to expand broadband deployment ‘do no harm’ to those high-cost areas already benefitting from broadband, in large part provided by carriers of last resort … for voice services,” ITTA said. The FCC shouldn’t “adopt competitive bidding where existing providers” have carrier-of-last-resort obligations, but should “continue to provide USF where existing network providers are operating and expanding broadband services,” the group said. The agency should take care not to “shortchange wireline broadband customers to fund mobile carriers based on the unproven promises of mobile broadband,” ITTA said. Cheryl Parrino, a consultant to Nebraska Rural Independent Cos. and other rurals, believes “wireless should be part of the equation,” she told us. Giving wireless too big a slice of the pie will lead to disaster, she predicted: “A few years from now, we'll look back and say, ‘We wasted all that money. Now what?'”

VoIP continues to be an industry-wide sticking point. CLECs Paetec, MPower, USTelePacific, RCN Telecom and TDS Metrocom jointly urged the commission to reject ILEC-backed “market-based” solutions to VoIP traffic. “AT&T, for example, never explains the legal basis for limiting an incumbents’ section 251(b)(5) and 251(c)(2) duties to ‘circuit-switched’ telecommunications and interconnection,” the consolidated comments said. Verizon, in litigation with some CLECs over its VoIP rates, told the FCC it “should immediately set a single, low national default rate of $0.0007 per minute for this traffic."

Satellite continued its fight to get a share of USF support. “A wide range of commenters” recognize the ability of satellite broadband to serve many customers cost-effectively, said Dish Network, EchoStar, Hughes Network Systems, ViaSat and WildBlue jointly. Those cost efficiencies can only translate to lower Connect America Fund costs if satellite can participate in all phases, they said. Several state public utility commissions and major broadband companies advocate for rules that would let satellite compete throughout, the satellite companies said. Worries over usage caps are misguided, especially considering that such caps will see major change with the new satellites on-orbit and most broadband providers include usage caps, they said. The FCC should recognize the argument from RLECs asking for the first rights of refusal even when not the most efficient provider as “self-interested attempts to advance private interests at the expense of the public,” they said.

Satellite companies haven’t been a part of USTelecom’s ongoing efforts to find an industry consensus to present to the agency, a satellite executive said. The exclusion isn’t surprising since satellite broadband companies aren’t members of USTelecom, said a terrestrial broadband industry executive. Suggestions that USTelecom is running talks across industry boundaries among members and non-members is misleading, the executive said.

State commissions were generally supportive of recommendations by state members of the Federal State Joint Board and urged the FCC to continue the cooperative working partnership with states. States also attacked proposals by companies like AT&T and Verizon. South Dakota shared many of the concerns regarding auctions that were noted by the board, including constraints on the ability of certain entities to participate, the possibility that bid prices would be above the bidders’ efficient costs and risks inherent in the use of auctions for USF may result in bidders adding a risk premium to their bids.

The Michigan Public Service Commission continued to support reform based on the existing jurisdictional framework. “Intrastate access is, as suggested by its name, an intrastate service and therefore should remain in the jurisdiction of the states.” The commission noted it’s set up an access rate transition that will have intrastate rates at levels no higher than corresponding interstate rates by Jan. 1, 2015. Indiana, Iowa, Massachusetts, Nebraska and Ohio are some of the other states that have seen an intrastate access revamp. Wyoming and Washington state regulators both believed that the FCC should adopt a broad view of the extent to which states have accomplished intrastate access charge reform.

It’s essential that the FCC reject the AT&T and Verizon proposals and ensure that reasonably comparable services exist, said Vermont regulators. Basing USF funding on achieving only speeds of 4 Mbps or less doesn’t make sense if urban areas are many times faster, they said. But they agree with AT&T, Verizon and Sprint in that all intercarrier comp amounts must be the same for an individual carrier regardless of the nature of the traffic and that intercarrier comp for VoIP traffic cannot be set at an amount different from other traffic. Wyoming, which ranked second lowest in state population density and lowest in population in last year’s Census, criticized AT&T’s proposal, saying discontinuing legacy service in high-cost areas is cause for great concern. While AT&T envisions next-generation all-IP communications as replacement, the economics of providing such service in sparsely populated, high-cost rural areas of Wyoming would be an impossible business case, the Public Service Commission said.

The Wyoming commission agreed with the New Jersey Board of Public Utilities that support could be limited to one provider in a geographic area, although it’s not clear how that single provider will be chosen if the FCC doesn’t employ reverse auctions. The Wyoming PSC supports the New York PSC’s advice to avoid penalties for early adopter states. It agrees with the Michigan PSC that recipients of USF must continue to be designated as eligible telecom carriers and the existing plan requiring providers to undergo a review process as a condition of eligibility should continue. Wyoming regulators agree with their counterparts in Florida that support for the FCC’s proposals should be conditioned on retargeting reclaimed support from other programs and not increasing the overall size of the fund. The Michigan PSC agreed with Nebraska that it’s important to target USF support on a more localized or specific basis.