Rural, Native Telcos Slipping Through the USF Reform ‘Safety Net,’ Lawmakers Say

The FCC order reforming the high-cost portion of the USF to provide for the deployment of broadband-capable networks, approved in October, offered a waiver process so certain rural telcos could ensure that consumers weren’t inadvertently harmed by the reforms. The commission said the waiver carries a one-time $8,000 application fee, and asks only for generally accepted accounting principles to determine the financial health of the providers and whether reform jeopardizes their ability to provide service to consumers. Chairman Julius Genachowski told lawmakers at a House Small Business Committee hearing in July (CD July 19 p1) that hiring expert consultants isn’t required. The order said any failure to provide the necessary information on a waiver is “grounds for dismissal without prejudice."

Waiver applicants complain they can’t risk filing a waiver without assistance from outside experts whose services drive the application process into the hundreds of thousands of dollars. Saying the waiver asks for only generally accepted accounting principles doesn’t tell the whole story, said Michael Romano, NTCA senior vice president. “A total company earnings review is an extremely involved process” that necessitates all sorts of showings, he said. “It’s effectively like going through an audit. I may maintain my books like that all the time, but now I have to show it to the world, and audits aren’t free.” When a company has to show its books to a third party and have it tested, “it becomes a different animal,” he said. Romano said he’s never heard of a company only paying the $8,000 filing fee and nothing more. With accounting costs, legal fees and consulting costs, the lowest amount he’s heard of to apply for a waiver is about $50,000, and some companies have paid upward of $125,000, he said. “If you're staring down the barrel of potentially losing support that will allow you to sustain operations, there’s a lot of motivation not to wing it."

Rep. Don Young, R-Alaska, said several rural telcos in his state have complained that the process is too burdensome. During a June Indian and Alaska Native Affairs Subcommittee hearing, Chairman Young stacked a foot-high pile of waiver applications on his dais to demonstrate the amount of paperwork required, and urged the FCC to simplify the process (CD June 8 p3). “Not a whole lot has happened” since then, he said this month. “The FCC keeps saying they have an open door policy, and I do appreciate their policy, but we write them letters and they don’t do anything to correct the problem."

The FCC has received eight waiver applications and granted only one waiver in the “support reductions” category to the Allband telephone cooperative in rural Michigan (CD July 27 p6). The agency found “special circumstances” warranted the waiver request, because it’s a relatively new company with significant start-up costs, and the record supported Allband’s claims that consumers would lose voice service absent a waiver, a Wireline Bureau order said (http://xrl.us/bniaq3). The commission continues to evaluate waiver requests from Sandwich Isles Communications, for Honolulu; Accipiter Communications, central Arizona; Adak Communications, West Alaska; Windy City Wireless, West Alaska; Dell Telephone, West Texas; and Border to Border Communications, South Texas. The eighth waiver application, from Big Bend Telephone, for West Texas, was withdrawn after the FCC revised its benchmark methodology (CD April 6 p1), the agency spokesman said.

"The FCC wanted so much information,” said lawyer Don Keskey of the Public Law Resource Center in Lansing, who represents Allband. “It’s a rather exhaustive waiver application with attachments and obviously that takes a lot of work.” Seeking the waiver was a major undertaking, he said. “For a small co-op, or a small company, this is a real project to be involved in these proceedings and try to protect your investment and all the efforts you've put in up to this point, in what we thought was total compliance.” There were plenty of other ways Allband would have preferred to spend its money, he said. “You don’t want to say the FCC’s counterproductive, but on the other hand those are funds that aren’t going into providing good service for the public."

Rep. Jeff Landry, R-La., called the waiver process “more of a sham than a serious alternative.” On “the surface, the FCC claims that it intends to work closely with small businesses throughout the implementation of these reforms,” he said. “But in reality, the waiver process is just a way for the commission to play CYA [cover your ass]. The eligibility conditions for the waiver process are too restrictive; and for those rare times the prohibitive conditions are met, the process is too expensive and invasive.” Landry noted that Eatel, a family owned telco in Ascension Parish, La., spent more than $100,000 to hire outside consultants and attorneys to evaluate the waiver process. “Although they are dramatically impacted by the FCC’s USF reforms and although hundreds of Louisiana jobs are at risk, the company cannot pursue the waiver process due to the restrictive qualifications imposed to designate waiver eligibility,” he said. “The FCC has made the process so prohibitive that even a company that sees its future in jeopardy cannot pursue the very relief mechanism that the FCC often cites!”

But the telco never filed a waiver, the FCC and Landry’s spokesman said. Eatel didn’t apply “due to the restrictive qualifications imposed to designate waiver eligibility,” the spokesman said. The company’s expenditures went to “investigate the FCC’s opaque process of implementing the reform model,” he said. Last week the 10th U.S. Circuit Court of Appeals denied Eatel’s stay request for the reimbursement limits in the USF order (http://xrl.us/bnky6h). An NCTA filing opposing the telco’s request for a stay noted Eatel had received over $130 million in federal USF support to “build a gold-plated network in an area that was already well served by the private sector” (http://xrl.us/bnky6w). “This situation is a perfect example of why it so important for the commission to move forward with reform,” the association said.

Young worries companies are “going to go belly up if there isn’t something done and the people they were serving won’t have any service at all. And that is the sad part of it,” he said. “Some people said there will be a stopgap measure ... but if this goes forth you will see a shrinkage of service that we've expanded. ... They'll shrink it down, it won’t be there and we'll have a lot of people who won’t have the communications services they had in the past.” In June, the Wireless Bureau approved limited interim relief for Windy City Wireless (WCC), an affiliate of Adak Communications, on the remote Adak Island of the Aleutian chain (http://xrl.us/bnbocq). The FCC spokesman said Alaska is the highest per capita recipient of USF funding in the country, and Adak’s annual per-line costs are $17,795, more than any company seeking waivers. Border to Border receives $16,208; Windy City, $15,609; Sandwich Isles, $10,705; Accipiter, $8,312; Dell, $6,711; and Big Bend, $3,623.

A critical part of the FCC’s USF reform process was making sure it offered a special focus on tribal areas and the telcos that serve them, the spokesman said. “We have an open door, we have a unique relationship with a tribal nations,” said Geoffrey Blackwell, chief of the FCC’s Office of Native Affairs and Policy. ONAP is helping illustrate why the FCC needs a “tribal lands coefficient” in the high-cost loop benchmarks, because there are “increased construction and permitting costs related to being on tribal lands,” he said.

Some in Alaska question if Adak has been a faithful steward of federal funds, in filings related to the company’s property records. Last year a certified rate of return analyst for that island’s utility company testified before the Alaska Regulatory Commission that Adak Communications had spent USF funds to purchase artwork, two four-wheelers, a lawn mower, a $95,000 boat and two office remodels (http://xrl.us/bnky7i). Such expenses were exactly the sort of items the commission was evaluating as a part of the waiver process, the FCC spokesman said. “When there are millions of dollars at stake, when significant questions have been raised about the expenditures of the companies ... it is a necessary part of fiscal responsibility, and it’s part of our obligation to consumers and small businesses who pay into the fund to be taking a harder look at this.” Adak had no comment.

Young said there’s enough support from House lawmakers for legislation that would simplify the waiver process. Such a proposal is unlikely to gain any traction in the Senate, he said. That’s the “big nut,” he said, “because it would never get through that Senate side,” Young said. “They'll say it won’t work, it will be abusive and everything else and I'm saying that the abuse now is coming from the agencies themselves.” Young said he'll “probably” hold a subsequent hearing to further examine the issue in September.

Daniel Akaka, D-Hawaii, is among senators closely eyeing the issue. “There is no question that it will make an adverse difference to the tribes if [the USF/ICC reform order] goes through the way it is,” the Indian Affairs Committee chairman said. “We think that that might cut back about 33 percent of the help that they have gotten from USF. So it is really important that we look at the cuts, and try to work it out, so it continues to be fair to the tribes.” Akaka recently held a hearing on the matter and wrote Genachowski, urging the commission provide “a better safety net” to native communities which rely on USF. Akaka told us he'd prefer to keep the USF program “the way it was,” but is open to “work it over and compromise and continue to be fair."

ONAP officials recently returned from a 10-day trip to visit more than half a dozen tribal communities in Alaska, Blackwell said. “It is not just an open door on these issues. It is an aggressive and assertive engagement effort that our office is making.” In September, ONAP staff will leave for its next tribal engagement trip in Wisconsin, then on to Oklahoma and Arizona before Oct. 31, Blackwell said. “We won’t be waiting for them to come to Washington. ... We are going to them.”