USF Agreement Filed, But Debate Only Begins

Six companies -- AT&T, Verizon, CenturyLink, Windstream, Frontier and Fairpoint -- filed Friday’s agreement. They were joined by a “complementary” letter endorsing most of the so-called framework from NTCA, OPASTCO and the Western Telecommunications Alliance.

Experts we talked to were divided on whether FCC Chairman Julius Genachowski, having leaned so heavily on “stakeholder” consensus generally and the USTelecom talks specifically (CD May 20 p1), could say no to the agreement. “Chairman Genachowski has shown some leadership in explaining the need for meaningful USF reform and getting the issue teed up again,” said Free State Foundation President Randolph May. “Having done so, it is almost inconceivable he would walk away from what would be an important accomplishment. I certainly hope he leads the Commission to adopt at least as much reform as recommended in the plan presented today.”

But Public Knowledge Legal Director Harold Feld said consumer groups may well prove decisive on whether the industry agreement is ratified by the commission. “There’s a significant consumers issue here. The consumers’ associations are likely to raise a lot of concerns about the cost to consumers of the package,” he said. “There is certainly a lot of room for … Genachowski to either put very significant changes in or even walk away from it on the grounds that, ‘Look, you're still only talking about six telephone companies that signed on to it.'"

A breakaway group of rural carriers has been urging their colleagues to scuttle the deal (CD Bulletin July 29) and they, too, could undermine the agreement for Genachowski, Feld said. “The problem he has here is that this is not an abstract question about future business models. What you have here is a really bread and butter issue with carriers who are worried that they may go belly up here,” Feld said. “The sword that’s hanging over all this is, when you have an uncertainty over authority such as this, you only need one disgruntled rural carrier in a bad court district and you've got real trouble.”

Earlier this week, incumbents had been promising that cable carriers were close to signing on to the USTelecom-organized reform package (CD July 26 p1). NCTA said Friday that it had some questions that it wanted answered. “While we recognize some positive elements in the proposed framework, we have important questions regarding how these principles would be fairly applied during the transition period,” the association said. “We believe these issues deserve to be aired and considered, but more than anything, we hope that our collective interest in change will serve as a springboard to reform that will establish meaningful controls on the size of the high-cost fund, expand broadband to those without access today, and create a new mechanism more attuned to the realities of modern technology and fair competition.”

Cable operators were a late entry into the USTelecom talks, but were dropped in the last few days when it appeared that the rural associations were eager to make a deal, a telecom lobbyist said. Executives from the six incumbents and the three rural associations said on a conference call Friday that they were optimistic that cable could be brought aboard. “We've been talking to a number of folks,” Windstream Vice President Mike Rhoda said. “I think there are a lot of good things for all folks in our industry."

The agreement would set aside some $300 million per year for a mobility fund, from which both wireless and satellite companies would be allowed to draw. Two telecom officials told us that the set-aside was placed into the agreement at the express request of Genachowski’s staff. It wasn’t enough for the Rural Cellular Association, which said the accord would be “a disaster” if it’s implemented by the commission. “The USTA proposal is a wireline-centric proposal designed to benefit wireline companies, not consumers, and even worse, relegates rural consumers that need or want mobility to second class citizens without a choice,” RCA President Steve Berry said. “There are a few concepts of merit that could reduce the costs of USF to the consumer, and we welcome those concepts. However, true reform should be based on forward-looking, market-driven policies. USTA’s proposal fails to embrace the principles of revenue neutrality, competitive and technology neutrality, and success-based portability."

Sprint was more sanguine in its analysis, saying the company “strongly supports a rapid transition from the broken access charge regime” but Friday’s proposal “ignores the industry’s transition to all-IP networks and will deter deployment and adoption of broadband technology.” “Applying the defunct access regime to VoIP services is fundamentally incompatible with today’s packet networks and attempts to impose the antiquated architecture of yesterday’s technology on the Internet,” Sprint said. A spokeswoman the company doesn’t “expect the FCC to rubber stamp” the agreement.

The Ad Hoc Telecommunications Users Committee represents businesses that buy telecom service. Its economic consultant, Susan Gately, sees the deal as “incomplete,” she said. “It ignores some critical aspects of the FCC’s rulemaking proposals, like taking into account the ILECs’ revenues from their unregulated broadband services before deciding they need a subsidy,” Gately said. “Or greater use of reverse auctions for funding eligibility, to ensure that the most efficient provider gets the subsidy. And the six-year transition to reduced ($.0007) termination rates is too long."

Gately also said she was worried the plan “excludes IP-to-IP,” which she saw as “a serious problem.” Even worse: “The last element of the proposal -- to eliminate all regulation of price cap carriers in 2016 -- is simply untenable,” Gately said. “There is no record in this proceeding to do that. More importantly, the industry proposal would do nothing to introduce the competition that is required to justify that kind of de-regulation.”

Despite the widespread concerns, the executives behind Friday’s agreement said they hope it leads to a better USF/intercarrier comp system. “There have been years where these issues weren’t addressed,” AT&T Vice President Hank Hultquist said. “This is, I believe, the largest consensus approach to have ever emerged. I think, ultimately, this is a really good framework and a really good set of proposals.”