FCC Waiver Process ‘Destroying’ Alaskan Carriers, Adak Eagle Says

In April 2012, AEE and WCC had asked for a waiver of new rules limiting monthly federal support to $250 per line, warning that the “flash cut” in support would push the companies into bankruptcy within months. What they didn’t realize at the time was that the process of seeking a waiver could be just as damaging as the rules themselves, they said. “The waiver process has left AEE and WCC underfunded, understaffed, and on the brink of collapse. The companies simply do not have the resources to continue the costly cycle of providing more and more supplemental information when they already have provided exhaustive amounts of detailed information demonstrating they satisfy the waiver standard set forth,” they wrote.

The denials’ repercussions are echoing throughout the Adak community, wrote Alaskan Sens. Lisa Murkowski, a Republican, Mark Begich, a Democrat, and Republican Rep. Don Young. AEE and WCC have reduced their workforce by half and are likely to declare bankruptcy, the lawmakers said. The companies “appear to provide the only fully-functional and reliable 9-1-1 service on Adak,” which could be jeopardized. “We ask the FCC to fully consider the ramifications of AEE and WCC declaring bankruptcy,” such as certain default on their Rural Utilities Service (RUS) loans, which could jeopardize U.S. tax dollars in the process, the lawmakers said.

The commission’s denial has already had a chilling effect on investment, the lawmakers said: A second Alaskan telecom company has curtailed its investments in remote areas and informed the RUS that, based on the agency’s positions stated in the waiver denial, “it will not draw funds from its previously approved RUS loan and will not attempt to complete construction of its wireless system in several remote villages in the Arctic.” This is just the beginning of the “domino” effect the RUS has warned about, the lawmakers said. In August, RUS acting Administrator John Padalino cautioned Clyburn that the FCC’s denial of AEE’s waiver application not only puts that loan at risk of default, but also “sets bad precedence that all other outstanding RUS loans to rural providers may be treated in the same manner. We believe that in instances where Federal debt is at risk due to a denied waiver, RUS should be given deference during that decision-making process."

"The rules are not clear and they're incredibly cumbersome,” said Rob Strait, principal at Alexicon Telecommunications Consulting, which represents small rural telecom and broadband providers. It’s a time-consuming and very expensive process, he said, with small companies spending more than six figures in legal fees and expenses to try to gather whatever data the FCC wants. “It moves into this very subjective requesting process,” where the FCC makes various requests, “one round after another after another, followed up with meetings with the FCC,” he said. “There’s really not a whole lot of clear guidance to follow."

In contemplating the companies’ petition for reconsideration, FCC staff members have sought detailed information on any savings that could be realized by continued belt-tightening, such as the insurance costs that could be saved by decommissioning some of the company vehicles. They have also looked for evidence of obfuscation, asking whether executive compensation was “disguised under the label of any other category,” such as plant and equipment. “The answer is no,” the companies responded. Staff requests about the executive compensation connected with Adak Cablevision, a non-regulated company that doesn’t get USF funding, go “beyond what the Commission set forth in the waiver standard” described in its USF order. “Nevertheless, the companies provide this information because they feel they have no choice” and don’t want to give the commission “the appearance that they are hiding anything,” they said.

"Contrary to the Commission’s repeated promises of a predictable, transparent waiver process, the seemingly endless review process has destabilized the companies,” they wrote. At an “operational standstill” for the past year and a half, under the “looming threat of RUS loan default and bankruptcy,” the companies have been unable to receive credit or plan investments. Their equipment and infrastructure “continue to deteriorate and ruin as a result.”

What’s so confusing to the companies is how, after having provided hundreds of pages of detailed information demonstrating need and showing they satisfy the waiver standard, the bureaus’ denial can stand, they said. Even more “perplexing,” said the companies, is the agency reliance on “the unenforceable and unsubstantiated assurances of a competitor to provide hypothetical service at some point in the future as sufficient to qualify as a ’terrestrial alternative’ that is ‘available’ under the Commission’s waiver standard.” That competitor is General Communications, which has promised to provide voice and enterprise services on Adak Island (CD Aug 16 p5). AEE characterizes it as nothing more than a “pinky promise.”

The FCC waiver process is yet another layer of expansive regulation for carriers that are already “regulated to death,” said Strait. They get audited and reviewed at least annually by state commissions, sometimes multiple times a year by the National Exchange Carrier Association and by the Universal Service Administrative Co., which distributes the funds. Those audits already show that carriers have been following the rules, Strait said. “And now the FCC is saying despite that ... ‘We're going to force arbitrary and capricious takings of money because we think you're spending more than other carriers,'” he said. “If I were in their place I certainly would be challenging this in court."

The Alaskan lawmakers asked the FCC to send a representative to Adak Island “to experience, firsthand, the unique conditions under which AEE and WCC must operate.” They also asked the commission “to take the time to explain to the local community on Adak how the bankruptcy of AEE and WCC will help improve broadband and phone service on this remote and isolated island. We feel that our constituents on Adak deserve at least that much. We look forward to helping you arrange your trip in the very near future.” -- Matthew Schwartz (mschwartz@warren-news.com)