FCC Gets Support for Separations Freeze Extension

Separations, governed by the FCC’s Part 36 rules, is the process that incumbent local carriers use to allocate interstate and intrastate regulated costs. The commission first froze its separations processes in 2001, after concluding that networks had changed vastly since the rules were written. The freeze was supposed to last five years, or until the FCC adopted a full-on separations overhaul. But commission inaction made a three-year extension in 2006 necessary. Last month, the FCC proposed lengthening it a year (CD March 31 p2).

“The continual extension of a freeze that was put into effect in 2001 only serves to increase the likelihood that the current allocations to the interstate and intrastate jurisdictions are not reasonable, a serious concern,” said state members of the Joint Board on Separations. But there isn’t enough time to complete a separations overhaul by the current deadline, they said. “Achieving comprehensive reform in little more than a year is a somewhat daunting task, but the State Members are committed to completing that assignment.”

The FCC should “commit to this being the last extension,” said the National Association of State Utility Consumer Advocates. Today, separations “are imbalanced to the tune of $2-6 billion” against ratepayers represented by the association, it said. “After more than a decade of inaction, in an industry that has changed as drastically as the telecommunications industry, the FCC must accomplish the major reforms needed,” it said.

But many carriers said one more year might not be enough. Embarq, for example, urged an extension of at least three years, because it said the FCC has many other critical tasks on its agenda and still doesn’t have five commissioners.

Revamping USF and intercarrier compensation should be the FCC’s top priority, the National Exchange Carrier Association, the National Telecommunications Cooperative Association and three other rural groups said in joint comments. They said the freeze should last until one year after the FCC completes a comprehensive overhaul of the other matters. “Separations reform is inextricably intertwined with both ICC and USF reform,” they said. “For new separations rules to be in place by June 2010, the Commission would not only need to establish new rules governing ICC and USF, but also conduct necessary proceedings -- including “extensive state input” -- to determine how those new ICC and USF rules might affect separations policy and promulgate specific regulations governing telephone company accounting practices.”

Rather than revamp separations, the commission should retire it altogether, USTelecom said. “Jurisdictional separations is an arcane and onerous federal regime that applies to a smaller and smaller portion of the telecom industry,” it said. Since last year’s FCC orders granting big carriers forbearance from cost-assignment rules, separations have applied only to small and midsized ILECs, the association said. “From a consumer standpoint, there is no longer any meaningful distinction between interstate and intrastate services,” it added. “Wireless calling plans and wireline bundles make no distinction between local and long distance calls, let alone differentiate between intrastate and interstate calls.”

Though the industry supported an extension of the freeze, many rural carriers urged the FCC to allow adjustments to category relationships -- measurements of investments and expenses within separations factors. Rate- of-return carriers should be allowed to apply 2009 category factors, replacing outdated 2001 factors, they said. The FCC’s 2001 freeze on separations factors was mandatory, but the freeze on category relationships was optional. Companies that elected to freeze category factors for five years didn’t realize that the freeze “might extend for an additional three years beyond 2006, much less until 2010, as the Commission now proposes,” the rural groups said.

The long freeze on category factors has cost Gila River Telecommunications more than $1 million annually in universal service high-cost support, the tribal-owned carrier said in separate comments. In 2006, Gila River asked the FCC for a waiver of the category freeze, but the petition is still pending.