USF, ICC Overhaul Likely FCC Priority After DTV Transition

The three sitting commissioners essentially had a deal in late October on intercarrier compensation. The FCC then asked for comments on various proposals. Replies were due Dec. 22, so the record is fresh, though it deals with proposals by former Chairman Kevin Martin.

Commissioners worry that the FCC faces additional penalties unless it gives the U.S. Court of Appeals for the District of Columbia Circuit a response on the ISP remand beyond an interim order released in November (CD Dec 17 p2).

“Last year’s record is comprehensive and fresh enough to sustain a springtime or summer order on intercarrier compensation and universal service,” said an industry official. “Furthermore, the court has ordered the commission to justify its intercarrier compensation regime in a more legally sustainable manner. Therefore not much time will pass before the commission starts to feel legal pressure to get something done.”

Jessica Zufolo, a Medley Global Advisors analyst, agreed the FCC is likely to look more closely at changes to the Universal Service Fund and intercarrier compensation, probably starting in the summer. “As switched access revenues continue to bleed year after year, the needs for reform industry-wide just becomes more apparent,” she said.

A wireless industry attorney said some of the record that the FCC built last year probably won’t be very useful, since the comments dealt with “humongous” proposals by Martin likely “to be pitched right in the trash bin.” But the official said President Barack Obama has long proposed that universal-service money go to extending broadband. “They're going to do the broadband stimulus package first,” the official said. “We're talking second half of the year. But when they turn to USF I think the focus is going to be how to promote advanced wireless and wireline broadband. I think there are going to be some big changes to the program tied to that.”

The revamp will probably have to wait until the FCC has a full contingent of commissioners or at least a permanent chairman, said Curt Stamp, president of the Independent Telephone & Telecommunications Alliance. Others agreed. It has a better shot if Copps, Adelstein and McDowell stay at the commission, because they seemed committed late last year to seeing the changes through, said Dan Mitchell, the legal vice president for the National Telecommunications Cooperative Association.

The government’s emphasis on economic stimulus may improve an overhaul’s chances, since a revamp could promote broadband and cut costs, Mitchell said. But the DTV transition and other matters may push revamp work off until at least the second half of 2009. With the postponement of the analog cutoff, an overhaul may not get the FCC’s attention until July, Stamp said. Copps’ top priority is DTV, and he has said he wants to concentrate on less-controversial items that could help the economy, an industry official said. The FCC will have to deal with duties created by statute, such as handling forbearance petitions, and Congress may tell the commission to decide broadband definitions under the stimulus package, the official added.

Intercarrier compensation remains a tough, divisive issue, said John Rose, president of the Organization for the Promotion & Advancement of Small Telecommunications Companies. Copps, Adelstein and McDowell appear from a joint statement on the matter last year to have some common ground, Rose said. But when OPASTCO later met individually with commissioners, agreement seemed to have ebbed, he said. Copps may grab “low-hanging” fruit like phantom traffic or traffic pumping, where there’s more agreement, rather than try do something more comprehensive, the industry official said. If he doesn’t, those items will be attractive for the next chairperson, who may seek “early wins,” Stamp said.

The new FCC should be able to salvage much of the record compiled late last year in response to Martin’s revamp proposal, but another comment round may still be on the horizon, said industry officials. The new chair will probably look at the record and put out a further notice asking specific questions, Mitchell said. Stamp expects another comment round, too, but hopes the FCC will use the proposals and comments from last year’s round as a “jumping off point,” rather than starting over, he said.

Meanwhile, industry groups plan to keep revamp talks alive. OPASTCO is talking USF as it pushes for broadband stimulus measures, Rose said. The NTCA predicts opponents will push for a revamp this year and NTCA plans to do the same to stay in the game, Mitchell said. The ITTA isn’t making a big push at the commission but has maintained discussions with other industry groups, Stamp said.

“The Hill wants to have a more fulsome debate about the future direction of USF reform,” said a wireless industry lawyer. “That can’t happen until stimulus and some other top shelf issues get cleared out. At the FCC, nothing big can really move without a new chairman.”

Meanwhile, a challenge to last year’s ISP remand order remains in the appeals court. The case concerns a piece of intercarrier compensation: whether ISP-bound traffic should be subject to reciprocal compensation rates. In November, the FCC offered a new statutory justification for the traffic to instead have a $0.0007 a minute terminating rate. On Jan. 14, the court granted challenger Core Communication’s petition for expedited consideration. Core submitted a brief last week, and the FCC’s reply is due March 2. AT&T, Qwest, Verizon, Sprint Nextel and Level 3 have asked to intervene in support of the FCC. The court hasn’t set a date for oral argument.