USF Overhaul Urged in Comments on 10th Circuit Remand NoI

Although the proceeding raises a USF issue, the 10th Circuit remand seems too narrowly worded to spur adoption of more comprehensive reform, said Dan Mitchell, legal vice president for the National Telecommunications Cooperative Association. The remand specifically addresses voice service in non-rural service territories, so it’s unlikely the FCC would use it as a springboard to tackle USF support for broadband, as it tried to do with the ISP remand last year, Mitchell said in an interview. But how the FCC defines “reasonably comparable” could have implications for later USF reform, he said.

It will be up to incoming Chairman Julius Genachowski to decide how broadly the FCC replies to the 10th Circuit remand, said Joshua Seidemann, vice president of the Independent Telephone & Telecommunications Alliance. The remand addresses a relatively narrow issue, but “it would be great if it served as a catalyst” for comprehensive reform, he said.

The court order’s narrow scope didn’t stop carriers from urging comprehensive USF high-cost reform, in comments Friday. Several companies urged a total USF overhaul, including Verizon, AT&T, Windstream and the NCTA. “The non- rural fund is only one small piece of the whole universal service puzzle,” said Verizon. Comprehensive reform of USF can address the non-rural problem, the NCTA said. “The Commission does not need to expand the size of the high-cost fund to address the needs of non-rural carriers; it just needs to distribute support more efficiently.”

AT&T urged the FCC to coordinate actions in the remand proceeding with its development of a national broadband plan, which the company said will “inevitably confront the need” for USF reform. The FCC plan is due to Congress Feb. 17, “a mere eight weeks before the date by which it has committed to adopt an order in this proceeding,” AT&T noted. “A lack of coordination would not only result in wasted resources but, more importantly, in a squandered opportunity.”

Qwest said fixing the non-rural program “can no longer wait to be addressed in comprehensive reform of the federal universal service program.” Serving rural areas is expensive, but USF currently under-funds non-rural incumbents, it said. Qwest serves “extremely rural areas” in 14 states, but only gets high- cost support in four, it said. More money to incumbents won’t block competition, which is “robust” throughout Qwest’s territory, it said.

Decisions on non-rural support shouldn’t affect rural support, said a coalition of small incumbent carrier associations, including the NTCA, National Exchange Carrier Association and Organization for the Promotion and Advancement of Small Telecommunications Companies. “If the Commission decided that rural price cap carriers need additional support, that support should be entirely outside the existing cap on the rural ILEC [high-cost support] mechanism,” they said. “It makes no sense to disadvantage customers served by rural [rate-of-return] ILECs in the process of providing additional support to carriers serving different territories.”

Telcos Back Qwest, Embarq Plans

Mid-sized incumbent phone companies called for better targeting of USF funds. The companies, which get non-rural support, backed modified versions of Qwest and Embarq proposals responding to the 10th Circuit remand. In its notice last month, the FCC sought feedback on separate plans submitted by Qwest, Embarq, CostQuest Associates and telecom regulators in Vermont and Maine. The agency also asked how to define the terms “reasonably comparable” and “sufficient” with regard to Section 254 of the Communications Act.

The FCC should “provide explicit support for all areas where a free market would not provide such service at affordable rates comparable to those available to consumers in urban areas,” said Embarq. “It should end support in areas where a free market would produce service without it.”

Qwest urged the FCC to either adopt the carrier’s own proposal, or a modified version of Embarq’s. “Both specifically eliminate the use of statewide average costs to allocate high- cost support and re-target the support directly to high-cost wire centers.” But Qwest opposes Embarq’s plan to include a commitment to broadband deployment, and believes any broadband funding should come from a separate mechanism. The state and CostQuest proposals “are not effective solutions,” Qwest said.

Embarq said the details of its plan “are not set in stone.” The carrier said a “sensible alternative” would be a plan by the ITTA that takes the Embarq proposal but replaces the broadband commitment with adoption of a USF broadband pilot program. In separate comments, the ITTA said it took the best elements of the Qwest and Embarq plans. The two proposals, “taken together and modified, offer a solution that provides proper resolution of the Tenth Circuit remand and a gateway to comprehensive USF reform and broadband deployment,” the alliance said.

But Vermont and Maine regulators said the Qwest and Embarq proposals are too costly. “Targeting support based on highest cost wire centers could inflate the Fund size by as much as $1.2 billion, rendering it unsustainable,” the states said. “However, Qwest’s and Embarq’s plans to avoid this result by providing support only to some high cost carriers is inconsistent with the Act’s sufficiency requirement.” To ensure USF doesn’t get too big, the FCC should maintain statewide averaging and determine support based on carriers’ net costs, they said.

The NCTA rejected all four proposals, saying there may be no need for increased support to non-rural companies. A key goal of USF is to ensure consumers have affordable access to voice service, it said: “The time has come for the Commission to declare victory on that point.” The Embarq proposal in particular fails “to consider the extent to which competitive providers are able to serve the area without subsidy, nor does it look at the extent to which network costs can be recovered through the provision of unregulated services,” it said.

The definition of “reasonably comparable” spurred debate among carriers and states. Section 254 of the Act requires the FCC to ensure consumers in high-cost areas have access to telecom services at rates “reasonably comparable” to those paid by consumers in urban areas. Currently, the commission defines rates as comparable if they fall within two standard deviations of the national urban rate.

The FCC should define rural rates as “reasonably comparable” to urban rates if the rural rates are within 25 percent of the statewide average urban rate, Qwest said. When the state can’t certify rates are reasonably comparable and the state has rebalanced rates to remove implicit subsidies, the FCC “should have an automatic process” to give the state extra funding, it said. Vermont and Maine regulators asked for a bigger differential, saying rural rates should be considered comparable as long as they don’t exceed urban rates by more than 125 percent.

Embarq called for a less specific definition, and urged the FCC to adopt a certification process to test for reasonable comparability. “The plain meaning of reasonable comparability is that rural customers are able to purchase similar services as can urban customers, and at similar rates,” the carrier said.

Commenters clashed less over the definition for “sufficient.” Section 254 requires the FCC to establish “specific, predictable and sufficient” support mechanisms to preserve and advance universal service. “Sufficient high- cost support for non-rural carriers should be just enough to enable those carriers to offer in high-cost areas, quality services at rates that are affordable and are reasonably comparable to rates for similar services offered in urban areas,” said Qwest.

Wireless Demands Equity

In responding to the 10th Circuit’s remand, the FCC must recognize the increasingly dominant role that wireless communications is playing in the U.S. marketplace, CTIA said. It said there are more than 270 million wireless subscribers in the U.S. at the end of last year, compared to 55 million in 1997. CTIA said the end game for the FCC must be comprehensive overhaul of the USF program. But it also said the definitions the agency formulates in response to the court will have “broad significance well beyond the non-rural support mechanism at issue in the remand.”

“While … fundamental changes have taken place in the market, the universal service system remains a vestige of the last century, designed to support wireline voice networks in a monopoly environment,” CTIA said. “The universal service system must be revised to reflect the new technological and marketplace realities by focusing on efficient support for today’s communications services.”

The Rural Cellular Association offered four principles it asked the FCC to follow as it develops its response to the remand of the 10th Circuit decision in the Qwest II case. The commission’s definitions and its modifications to the support mechanism must be designed to lead to “more efficient carrier investments and operations” in rural and other high-cost areas, RCA said. Second, the FCC’s definitions of reasonable comparability and sufficient support should be consistent with its “principle of competitive and technological neutrality,” the group said. “Competitive neutrality encourages market entry in rural and high-cost areas, market entry forces incumbents and competitors to operate efficiently in order to attract and retain customers, these efficient operations lower operational costs, and these lower costs, in turn, translate into affordable rates for consumers.”

The FCC also should allow the use of USF support to pay for broadband deployment, RCA said. “Broadband funding provided by the American Recovery and Reinvestment Act of 2009 is a good start, but substantially more funding will be needed to ensure that consumers in rural and high-cost areas have access to broadband services reasonably comparable to those provided to consumers in urban areas,” the group said. Finally, RCA said, the agency’s actions in the proceeding “should avoid excessive subsidization” that could lead to “unnecessary increases in federal support mechanisms.”

“The Commission should take the actions necessary in this Qwest II remand proceeding to promote competition between wireline incumbents and mobile wireless service providers in rural and high-cost areas,” RCA said. “This competition will provide an expanding array of affordable services and will also hasten the availability of broadband services to rural consumers.” RCA also said the commission should address the remand before proceeding with more comprehensive USF reform, though it said the principles it laid out apply equally to the broader overhaul.