Debate ‘Raging’ over Possible Intercarrier Comp, USF overhauls

Debate on $0.0007 is “raging” among small rural carriers, but so far a majority doesn’t support the rate, said OPASTCO President John Rose. The association is holding committee and board meetings on the topic, he said: “I can’t tell you where our members will come out on it.” Terminating rates should be cost-based, but the $0.0007 rate (called triple oh seven by some) seems “divorced” from cost, said Brad Mutschelknaus, an attorney who represents competitive local exchange carriers. Applying that rate, now used for ISP-bound traffic, to all traffic would be “totally inappropriate,” he said. Eric Einhorn, Windstream vice president, agreed. Any overhaul proposal needs to factor in transition to a new rate, he said.

Other panelists offered support for $0.0007. There needs to be a “unified rate,” said Charles McKee, government affairs director for Sprint, a signatory to the initial proposal for $0.0007. The rate is more fair than it might seem, said Joel Lubin, federal government affairs vice president for AT&T, which also signed onto the plan. Lubin clarified that, for rural carriers, $0.0007 doesn’t include transport, for which there would be an additional rate, he said. For non-rurals the rate covers the network “from the edge down,” he said.

Panelists gave mixed reviews on Verizon’s recent add-on to the $0.0007 proposal (CD Sept 15 p2), which detailed how carriers could recover lost access revenue. Verizon proposed a system in which carriers could increase subscriber line charges and also take from a new USF recovery fund. Shifting costs paid by intercarrier compensation to consumers “goes against the 1996 Act,” Rose said. Access replacement is a must, but Verizon’s plan isn’t “competitively neutral,” said Mutschelknaus. The plan would allow big carriers to increase subscriber charges in areas with less competition, he said.

Panelists disagreed on the merits of replacing access revenue with more USF support. Using USF funds to replace lost access revenue makes sense, because it will make explicit the implicit subsidies to carriers from intercarrier compensation, Einhorn said. There’s nothing shady about implicit subsidies, Mutschelknaus said. Access charges “have already been driven down” to a point at which subsidies go almost completely toward recovering carriers’ costs, he said. McKee disagreed, saying he’s “pretty confident” current access charges don’t reflect cost. If they did, there would be no traffic pumping schemes, he said. The FCC should make the subsidies explicit, then take a “hard look” to see whether they're required, he said.

If policymakers want to support broadband deployment, they can’t afford the status quo, Lubin said. Regulators should focus on promoting IP technology, not plain old telephone service, because POTS will die, he said. Delaying a decision only will make matters more dire, he said.

Panelists also disputed whether the FCC has authority to set terminating rates. States have power to set intrastate rates, and some said they feared a long legal battle once the FCC implements a revamp. The Verizon proposal “clearly preempts states,” and the FCC will have trouble explaining its legal authority, Mutschelknaus said. It’s been nearly a decade since the court ordered the agency to explain the legal rationale for its ISP-bound traffic compensation rules, and the FCC still hasn’t responded. Explaining a revamp for all of intercarrier compensation will be significantly tougher, he said. If the revamp is reversed, the issue will be “set in limbo” for another five to 10 years, he said.

The FCC has authority to define a uniform rate, and the agency will be protected when the change results in a “good public policy outcome,” said AT&T’s Lubin. Fear of litigation shouldn’t stall the FCC. No matter what the agency decides, it probably will be forced into court, he added.

The panelists also delved into USF overhaul, which some see as possible this year. The FCC needs to target USF support to rural carriers, not small companies, as it now does, Einhorn said. OPASTCO backs new USF funds for broadband and wireless, Rose said. Sprint is “leery” of them, because they might constrain development of new technology like WiMAX that doesn’t neatly fit either category, McKee said. There’s not enough money in the U.S. to support new USF funds, said Mutschelknaus. Anything expanding USF “should be avoided,” he said.

Panelists found consensus on the contributions side of USF. All, at least in principle, back a numbers-based system, with carriers paying into USF based on the amount of phone numbers they have. But “the devil is in the details,” Mutschelknaus said.

Few in the room seemed upbeat on chances of the FCC finishing a full-on intercarrier compensation and USF overhaul by Nov. 5, as Chairman Kevin Martin has said he intends. The issues are complex, and rushing to make a Nov. 5 deadline could have “unintended consequences,” McKee said. By Nov. 5, the FCC should be able to move forward on some, but probably not all pieces, Mutschelknaus said. However, AT&T’s Lubin said he is “cautiously upbeat.” The record is extensive, and a “window of opportunity” is open, he said, adding that it won’t get any easier. “Someone just has to have the will.”