Feds Urged: Reform Intercarrier Compensation, ETC Definitions Before Overhauling USF

Industry representatives and experts testified Wed. at an en banc hearing here on high-cost reform held here immediately following the NARUC annual convention. Joel Lubin, an AT&T public policy vp, said “intercarrier compensation must be harmonized along with the definition of an eligible telecom carrier (ETC). The solutions you adopt to these will affect where and how you reform the rest of the system.” He said revenue from a rational compensation system could reduce the need for subsidies, while the number of ETCs being helped will be a determining factor.

Speakers had many other suggestions for high-cost reform. Richard Coit of the NTCA, representing small rural incumbent interests, urged the FCC to continue basing high-cost support on embedded costs: “The FCC must adopt a mechanism that’s consistent with promoting continued rural investment,” which would mean embedded costs. Paul Garrett of CTIA said any high-cost reforms should be kept simple, reward efficiency and target support only to the actual high-cost areas. He suggested changing the basis for support from study areas to specific wire centers. He said universal service subsidies will determine how and when advanced services are deployed in rural areas, and he advocated having rural end-users pick up a larger share of universal service through modestly higher retail rates.

Jeffrey Reynolds of the Independent Telephone & Technology Alliance, representing mid-sized incumbents, said resolution of intercarrier compensation could make many other universal service issues moot. He said a shift to forward-looking costs for rural support would produce a “disastrous decrease” in funding for many carriers. Dale Lehman, an economist with Alaska Pacific U., argued in favor of continued use of embedded costs, saying: “Future rural investment decisions will depend on how you now treat the good-faith investments of the past.” But he also asserted that settlement of intercarrier compensation and ETC definition were essential prerequisites for universal service reform.

Economist Lee Selwyn of Economics & Technology Inc. advocated a policy shift from emphasis on rural carriers toward one on rural consumers. He also said continued escalation of universal service fees on consumer phone bills could eventually erode popular support for universal service programs. Selwyn said if regulators intend to continue their reliance on embedded costs as the basis for subsidies, there needs to be a review of those costs to determine which have been already recovered. But other panelists expressed dismay at the prospect of dozens of mini rate cases.