Last Punches Thrown for 2008 on USF, Intercarrier Compensation Overhaul

Telecom industry attorneys active in the proceeding said Tuesday that the record the FCC is building through the most recent comment cycle may have little impact on eventual decisions on the future of USF, which could be many months away. Still, they said, many companies felt compelled to respond. “The commission put out comment and reply deadlines, which means everyone had to file comments and replies,” said a lawyer who filed in the proceeding. “I don’t think [the comments] will be useful. I'm not sure even if they'll be read. It is very frustrating.”

“Nobody leaves a stone unturned when billions of dollars turn on it,” said a wireless industry attorney, noting that nonetheless many companies did not file replies. “The chance of something happening between now and Jan. 20 is infinitesimal.” If the FCC actually acts on the proposals before it, the replies would form part of the record for a court challenge and thus are important, said a second wireless industry lawyer. “The new commissioners coming in, if they're going to make a decision, may use this as a starting point,” the official said. “If they intend to start over, we would welcome that and we would participate enthusiastically.”

The FCC’s delay of the reply comments deadline, which effectively killed all hope of doing reform this year (CD Dec 4 p1), created a more uncertain atmosphere that could have discouraged some in the industry from putting forth a strong effort on replies, said a wireline industry official. But filing replies was important, and the flurry of filings shows there was still enthusiasm among commenters, the official said. Industry will have to repeat arguments to new offices on the eighth floor next year, but replies will be read by FCC staff that will remain in 2009.

The Rural Utilities Service said rural broadband deployment would be hindered by overhauls to either USF or intercarrier compensation. “A recent analysis of borrowers receiving loans [from RUS] shows that 53% of those loans would not be feasible with frozen USF,” it said. “If toll revenues are frozen (interstate and intrastate access revenues, interstate and any intrastate USF, and end-user SLC charges), two-thirds of the loans are not feasible.”

Telecom investors Columbia Capital and M/C Venture Partners condemned the FCC’s proposed “additional cost methodology” for the intercarrier compensation revamp, and urged retention of TELRIC. “This methodology, if adopted, will have a profound and negative impact on investment in competition and innovation in the nation’s telecommunications markets,” they said. It “would turn long standing economic” principle “on its head, requiring carriers to cross subsidize their regulated services (terminating other carrier’s traffic) with revenues from unregulated services (such as broadband). Such a counter-intuitive and uneconomic methodology will deter investment in broadband,” it said. The pricing method will have a “disproportionate impact” on competitive local exchange carriers, “who typically do not offer as broad a set of products as the RBOCs, and thus do not have the same capability to spread the burden of recovering joint and common costs across many products.”

Utilities could suffer significantly increased USF fees if the FCC adopts a numbers- or connections-based USF contribution scheme, said the Utilities Telecom Council, an international trade association for the telecom and IT interests of electric, gas and water utilities. The council opposes all three of the FCC’s overhaul plans, which it says may violate FCC rules “by imposing inequitable and discriminatory contributions against certain business customers,” such as “utilities that have a large number of telephone numbers assigned to them and/or use special access or private line services,” the council said.

The benefits of numbers-based contribution outweigh any possible problems, said the AdHoc Telecommunications Users Committee, representing credit card companies and other large buyers of telecom services. “In this case, an undefined level of impact on a not well specified subclass hardly outweighs the stability and predictability that would come from moving to a telephone numbers based USF contribution methodology, particularly when the USF burden borne by residential users as a class and by the average residential user will lighten under a numbers-based scheme.”

The American Public Communications Council urged the FCC to exempt payphones from USF contribution. APCC collects payments that carriers make to payphone operators. Payphone service providers aren’t telecom carriers, and forcing them to contribute to USF “is directly contrary to the public interest,” APCC said. “Payphones are the only on-demand, pay-per-use communications service giving 24/7/365 access to the public network with no subscription, and no upfront costs, and thus themselves play a critical universal service function,” it said. They “also play a critical public safety role, providing an emergency communications infrastructure that has proven to be reliable in times when other services, like mobile networks, fail.”

Among wireless carriers filing replies, the consensus remains that the FCC should not now make any sweeping changes to the USF, especially any that would limit funding for eligible telecommunications carriers. “The initial comments reflect widespread agreement that none of the currently pending proposals represent meaningful and sustainable reform of the universal service fund,” the Universal Service for America Coalition and Rural Cellular Association said.

SouthernLINC said permanently capping the fund and phasing out relief in advance of adopting a replacement mechanism “would be fundamentally inconsistent” with the Communications Act. “Eliminating support on a flash-cut basis would be not only unlawful but also irresponsible,” the carrier said. “To the extent the Commission is determined to eliminate the identical support rule, it should expeditiously adopt a replacement mechanism rather than capping the fund or arbitrarily phasing out relief before a replacement mechanism has been adopted.”

Proposals on which the FCC seeks comment would “artificially” limit the number of eligible ETCs, the number that actually receive support, or the amount of support available to eligible ETCs, SouthernLINC said. “Each of these goals would be fundamentally inconsistent with the universal service provisions of the Act,” the company said. “The proposal would not only create incentives for eligible ETCs to enter rural, insular and high-cost areas as soon as possible, but also would end support as soon as it is no longer needed.”

U.S. Cellular cautioned the FCC against a “rush to judgment” on USF reform. Proposals to limit funding to ETCs would be unlawful and bad policy, the company said. “It simply would not be prudent for the Commission to take such a step when changes in the Commission’s membership are imminent, when the nation’s current financial crisis would greatly exacerbate the regulatory uncertainties that the Commission’s actions would likely produce, and when commenters have demonstrated that several of the Commission’s key universal service proposals have not been sufficiently formulated and require further elaboration by the agency before interested parties can properly evaluate them.”

Satellite broadband has a role if the FCC requires that carriers getting high-cost USF support provide customers broadband access, Hughes, Inmarsat and Telesat said in a joint reply. “The reality is … there will be customers in areas that are difficult or impossible to serve with terrestrial broadband facilities that may not gain access to terrestrially provided services in the foreseeable future, if ever,” they said. “Satellite broadband providers reach nearly all of these broadband users today, and these customers deserve the option of being able to utilize satellite-delivered broadband.” Iridium said any changes in the USF should allow satellite operators an equal chance to compete. The company said the FCC should “simplify the contribution process, provide clarity to contributors and consumers, and enhance transparency.”