Rural Telco Associations Defend Participation in USTelecom Talks, Brace Members for ‘Give and Take’

"We understand too that it is difficult to sit at the table with larger carriers whose primary interest would be in obtaining more of the support that today goes to your operations,” the joint letter said. “But walking away from such discussions would have been a substantial risk, as we would all be left ‘on the outside looking in’ while others in the industry come up with proposals that could shape the direction of USF and ICC reform.”

According to the joint letter, the rural associations are pressing USTelecom members to: (1) maintain rate-or-return levels; (2) allow cost recovery “that starts in the aggregate from current funding levels by rate-of-return ILECs”; (3) prevent the Universal Service Fund from being capped; (4) restructure intercarrier comp rates over eight years; (5) maintain “charging of ICC for terminating transport and tandem switching functions at current interstate levels”; (6) “provide sufficient funding for access restructuring”; (7) include VoIP in the intercarrier compensation reforms; (8) “adopt strict phantom traffic rules that would require identification of the true calling and called parties.”

The six companies who have agreed to sign the USTelecom-brokered “framework” are still hoping to file their agreement on Friday but are quietly telling Hill and FCC staff that it may not be ready until early next week, telco officials told us. Meanwhile, talks continue with rural carriers and cable operators. “We would not sign onto any ‘USTA plan,’ nor would any of the USTA companies sign onto the plan we filed previously,” the rural association leaders said in their email Wednesday. “But any joint filing would indicate to the FCC that those two plans taken together, along with very carefully defined modifications to them and specific ICC reforms and restructuring, could present a reasonable path forward for USF and ICC reform.”

Despite having brokered the agreement, USTelecom is now trying to fade into the background. The framework is expected to be filed by the companies that agree to it. Six of the agreeing companies have hired former Verizon spokesman David Fish to handle media matters on the industry agreement.

The framework calls for a seven-year access recovery mechanism, but a five-year transition to the so-called “triple zero” option for intercarrier compensation (CD July 26 p1). The rural associations told their members in Wednesday’s email that they may have to swallow a reduction in the rate-of-return from 11.25 percent to 10 percent. “But this is substantially better than the 8.5% or 9% rates-of-return that some have suggested the FCC use in an order,” the letter said.

Turning to the “triple-zero” option, the rural association leaders said: “Some may find the idea of charging a low rate such as $.0007 per minute for local switching to be problematic or arbitrary. But if the restructure mechanism is compensatory and funded as has been discussed in the consensus framework, this may be less of a concern for some -- particularly when transport and tandem switching would not be included in the per-minute rate reduction.”

Discussions over the access recovery mechanism are focused less on the amount and more on how long rate-of-return carriers can draw from it, a telecom lobbyist said. The mechanism will probably be “in the hundreds of millions of dollars,” but it trails off to nearly zero within five years for price-cap companies under the USTelecom-brokered framework, the lobbyist said. Large companies have offered to keep the recovery mechanism open indefinitely for rate-of-return carriers, but those carriers are worried that -- given all the FCC’s talk of capping the fund -- there won’t be enough money in the fund in the future, the lobbyist said.

The rural associations are disappointed “that restructuring of originating access could not be included in this proposal, since we are concerned about the implications of leaving such access without reform while terminating access is restructured,” Wednesday’s joint email said. “We have included steps in the proposal to ensure that originating access can continue to be charged, and also have pressed for protections to ensure that rural carriers will not be required to haul traffic to locations beyond their study areas and existing meet-points."

"The states are very concerned that the ICC transition in any industry plan might be achieved through preemption of state authority,” the rural associations’ letter said. “We share this concern, and have made clear that even if the ‘economics’ of any industry plan could work, we would not under any circumstances sign onto a filing or otherwise advocate that these reforms could be implemented without state involvement. But joining an industry consensus framework, regardless of whether we speak as to preemption, could alienate some state regulator."

If the news seems bleak, rural telecoms should “be aware of the political and economic climate in which these discussions take place,” Wednesday’s letter said. “When defense spending, Social Security, and farm subsidies are all at substantial risk of massive cuts and even USF has been put on the table for a potential $1 billion diversion to support deficit reduction, one Congressional staffer recently noted that any plan that enables us to: (1) retain current funding levels in the aggregate and (2) enables those funding levels to grow pursuant to a budget target (and without a firm cap) should be considered a substantial step forward -- particularly when, in addition to the current political climate, one considers where this all started with the NBP [National Broadband Plan] and the NPRM [Notice of Proposed Rulemaking].”