USTelecom, NTCA Propose Reducing RLEC Rate of Return From 11.25% to 9.75%
The FCC would reduce rural telcos’ rate of return from 11.25 percent to 9.75 percent over six years under a USTelecom and NTCA proposal to revamp USF mechanisms for broadband coverage. The groups also proposed broadband buildout obligations requiring RLECs to reach up to 80 percent of unserved locations over five years and a screen for phasing out USF support in high-cost areas where unsubsidized competitors reach 85 percent of locations, said a filing posted Monday in docket 10-90. It summarized a meeting last week with senior FCC officials, including Chairman Tom Wheeler. NTCA, WTA and individual RLECs made separate filings citing concerns and offering proposals. Wheeler is said to be interested in circulating a draft order soon (see 1602040055).
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USTelecom CEO Walter McCormick and NTCA CEO Shirley Bloomfield met Wednesday with Wheeler, Commissioner Mike O’Reilly and Rebekah Goodheart, an aide to Commissioner Mignon Clyburn. The “parties discussed elements of Universal Service Rate-of-Return reform that would be essential" to a broadband effort, said their filing, which included an attachment that “memorializes” the elements. The groups proposed the FCC lower its current 11.25 percent rate of return for rural carriers by one-quarter of a percentage point per year to 9.75 percent after six years.
WTA voiced concern recently about a possible reduction in the rate of return. It’s unclear if the FCC has the authority to reset the rate of return “without an appropriate Section 205 proceeding” under the Communications Act, WTA said in filings (e.g., here) of meetings with FCC officials. “The Commission does not appear to have compiled a record consisting of current information and analysis regarding the cost of debt and/or the cost of equity affecting RLECs that would support a re-prescription, nor has it sought comment upon the rationale for its action,” said the group. Because some states tie their intrastate rates or USF support to FCC policies, a federal rate-of-return reduction could have “substantial additional adverse consequences on RLEC intrastate cost recovery in some states,” WTA said. The group is reviewing the proposals and consulting its members, Vice President-Government Affairs Derrick Owens told us Monday.
NTCA and USTelecom proposed a tiered broadband deployment schedule for rural carriers that would continue to receive legacy interstate common line support (ICLS). Those rural carriers would have to provide 10/1 Mbps “to locations without such service, based on current buildout status as follows: 0-20% of locations at 10/1 = 35% of projected interstate common line support over a 5 year carrier-specific forecast; 20%-40% of locations at 10/1 = 25% of projected interstate common line support over a 5 year carrier-specific forecast; 40%-80% of locations at 10/1 = 20% of projected interstate common line revenue support over a 5 year carrier-specific forecast.” The duties would be reduced proportionately to any ICLS support cuts due to FCC budget controls, with different levels of depreciation allowed.
The two incumbent telco groups proposed a screen to end USF support where an unsubsidized competitor shows it serves 85 percent or more of locations in a census block with at least 10/1 Mbps, VoIP grade “latency” and “a 100 gigabyte/month usage allowance at a reasonably comparable price.” They said qualifying competitive voice service should have to comply with various public-safety and number-portability duties and provide service at “reasonably comparable rates." There would be various options for "disaggregating support" (between contested and uncontested areas), with subsidies phased out for competitively served census blocks over two or five years, depending on carrier-specific details, they proposed, but the screens would be applied only once every seven years at most. NTCA made a separate filing with further proposals regarding the details of a process for implementing “competitive overlap policies” with "specific disaggregation options.”
WTA's filing said it was difficult for its members to understand the need for additional buildout duties, which “will become unfunded mandates.” The group proposed various specific requirements for what would constitute a "qualifying" unsubsidized competitor. Owens also said some WTA members already providing broadband well above 10/1 Mbps have concerns about losing USF support when facing competitors offering just 10/1 Mbps. In another filing voicing its own concerns, NTCA urged the FCC to avoid a cost recovery "black hole" in which existing rules would require the assignment of costs to the interstate jurisdiction but new rules would preclude any opportunity to recover the costs.
Some individual RLECs made separate filings addressing various USF issues: Hargray Communications proposed its own disaggregation principles and details. Blackfoot offered buildout proposals and backed the NTCA/USTelecom proposals for revising the rate-of-return mechanisms. Great Plains Communications requested the FCC approve "support at either up to $200 monthly per eligible location or up to a total $200 million annually in additional funding plus current legacy support for rate-of-return ('RoR') companies that select the optional model in the above proceeding for RoR universal service support." TDS Telecommunications discussed with FCC officials "the model-based approach to reform, including potential implementation dates, the use of a non-burdensome challenge process to increase the accuracy of the locations deemed competitive, the treatment of partially funded locations, and the timing of the final published run of model results."