Small Carriers Say Federal Audit Costs Should Carry Interstate Jurisdiction
The FCC should allow rate-of-return carriers to allocate federal audit expenses completely to interstate jurisdiction, said small carriers supporting a petition by the National Telecommunications Cooperative Association. The change would make recovery of audit expenses more certain, and save small companies time and money, they said. However, Verizon condemned the petition as having “no basis,” and urged the FCC to do away with jurisdictional separations altogether.
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Verizon said federal Universal Service Fund audit costs are properly divided between interstate and intrastate jurisdictions. “The subsidies that flow from the USF are indeed federal dollars collected from consumers across the country, but the use of this support is not limited to interstate facilities,” it said. About half of the $4 billion USF high-cost fund is paid to NTCA members and other rate-of-return carriers through the high cost loop and local switching support programs, noted Verizon. The high cost loop program supports facilities used for interstate and intrastate calls, while the local switching support program subsidizes local facilities, it said.
But small carriers said allocating all audit costs to interstate would ease recovery. Interstate allocation “will preclude the problems of regulatory lag and uncertainty with seeking to recover a portion of those costs on the intrastate side through the costly and lengthy rate case procedures for rate-of-return regulated companies,” said the Missouri Small Telephone Company Group, which includes 22 small carriers. Audits are expensive, it added. One member, Mark Twain Rural Telephone, paid $47,500 for its most recent audit, and others have paid more than $30,000, it said. Existing FCC rules direct Mark Twain to allocate 35 percent of audit costs to intrastate, it said.
There’s no evidence that any state has banned carriers from recovering federal USF audit costs, Verizon said. In “reality,” it said, the small carriers want to recover all audit costs from interstate “because these costs would then be substantially covered by interstate access rates paid by wireless providers and IXCs, and generally not by NTCA members’ end-users.”
NTCA hasn’t received any reports of a state denying recovery of federal USF audit costs, admitted Karlen Reed, regulatory counsel, in an interview. But Verizon “fails to recognize that the cost of seeking state recovery imposes an unreasonable burden” on small carriers, she said. To recover the intrastate portion of federal audits, a small carrier has to initiate a rate case with the state commission. “This state regulatory procedure is heavily time-consuming and expensive in its own right,” she said. “Small rural rate-of- return carriers are faced with the daunting prospect of either a rate case or else bearing the increasing burden caused by not being able to recover” audit expenses.
Regardless of the merits, the FCC shouldn’t bother with “piecemeal” separations reform proposals like the NTCA petition, said Verizon. The big company won forbearance from cost allocation requirements last year. “Antiquated rules such as the separations requirements should be phased out, for all providers, in today’s competitive environment,” it said.
Audit allocation is no small issue to NTCA’s rate-of- return members, said Reed. Verizon may dismiss it because the company is “a large price cap and alternative regulation carrier” that “would barely notice such an expense,” she said. The issue of whether to revamp or remove separations is teed up in a separate proceeding, and it should stay there, she said.