CTIA Says Local Switching Support Rule Change Would Be Step Backward

The LSS program provides financial assistance for switching costs to incumbent LECs with no more than 50,000 access lines. ILECs with 10,000 or fewer access lines in a study area get the most assistance, followed by those with 10,001-20,000 and then those with 20,001-50,000. The amount of assistance is based on a factor of dial-equipment minutes (DEM) of use, which is higher for smaller carriers.

In the 2001 and 2006 separation-freeze orders, the FCC specified that when a small carrier passes a threshold, compensation is reduced, even if it loses lines later. The commission is working on a third order and studying changes in the LSS rule.

“To increase LSS now -- particularly for incumbent LECs that are losing lines -- would be a step in the wrong direction and a diversion from the pressing need for comprehensive reform,” CTIA said. “The Commission should focus its attention on designing a universal service system that works for the twenty-first century consumers.” The group had been active on other USF issues, but not LSS.

CTIA pointed to the rapid growth of wireless and its contribution to the economy. “Given these developments, 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 and consumers’ requirements,” the association said. “As CTIA has consistently advocated, ubiquitous mobility, and mobile broadband specifically, must be an important goal of the FCC’s universal service rules and policies.”

The Coalition for Equity in Switching Support had asked the FCC to clarify that current rules allow ILECs increased support when access lines drop below each threshold. Instead, the commission put out a rulemaking notice. The coalition of small ILECs replied that it’s asking for “a relatively minor change to an existing rule” that would have “substantial public interest benefits” at little cost.

“When it adopted the exception for LSS assistance, the FCC had no basis for thinking that a small incumbent LEC’s access lines might decrease during the period of the separations freeze,” the coalition said. “To the contrary, incumbent LEC access lines had been increasing steadily for decades. Further, that growth was accelerating at the time the exception was adopted as a result of second line additions spurred by dial-up Internet adoption.” The rule as applied is often irrational, carriers with the same number of lines getting different levels of reimbursement if one gained and then lost subscribers and the other’s line count remained steady, the coalition said.

The coalition said that changing the LSS rule would help the economy. “The network upgrades and service quality enhancements made possible by the rule changes would help to preserve existing jobs and to create new ones in the rural and other areas served by the affected small carriers,” it said.

TCA, a consultant to small carriers, filed in support of a rule change. “Over the past nine years access line counts have dropped continuously for TCA client companies at between 3-5 percent annually,” it said. “The Commission should allow companies with similar access lines counts, relative to the DEM weighting thresholds, to use the same DEM factor. This change to the rule will effectively eliminate the one-way ratchet effect, which results in rural ILECs losing LSS as their line counts increase over threshold levels, but not permitting them to increase LSS as their line counts drop below the thresholds.”

In a joint filing, the National Exchange Carrier Association, the NTCA, the Organization for the Promotion and Advancement of Small Telecommunications Companies, the Eastern Rural Telecom Association and the Western Telecommunications Alliance also endorsed the change. “The Associations recognize this action is no substitute for comprehensive reform of the Commission’s universal service mechanisms,” they said. “The rule revisions proposed in the Notice would remove unintended consequences resulting from the wording of current rules, but these changes should neither prejudge nor delay much-needed overall universal service reform.”

Some small LECs also endorsed the rule change, submitting data as the commission had asked. Farmers Telephone Cooperative reported that USF money is critical to its ability to serve rural parts of five South Carolina counties. “Specifically, the company projects that the imbalance in the rules will cause the Company to forgo an estimated $1,026,502 in 2009 LSS,” the co-op said. “This amount is significant for the Company. The amount would represent approximately five percent of all federal universal service [funding] the Company received and one percent of its total regulated revenues.” Vermont Telephone said the rule “imbalance” cost it almost $374,000 in 2008 LSS money. “This amount is significant for the Company,” the ILEC said. “The amount represents approximately eight percent of all federal universal service [funding] the Company received and two percent of its total regulated revenues.”

But Sprint Nextel opposed the change. “There is no basis for granting a certain class of carriers higher universal service support as a reward for losing access lines,” it said. “To do so would jeopardize the financial viability of the federal universal service fund, and violate the principle of competitive neutrality.”