Pai Wants Connect America Fund for Rate-of-Return Carriers
FCC Commissioner Ajit Pai called for a Connect America Fund to support broadband buildout for rate-of-return carriers. Also at an NCTA conference Monday, Rural Utilities Service Acting Administrator John Padalino noted he and U.S. Department of Agriculture Secretary Tom Vilsack had asked for expanded USF support (CD Feb 20 p3). Broadband buildout support for rate-of-return telco carriers “would recognize that line loss in rural America is real, and that direct support for broadband-capable facilities” is “critical,” Pai said. Rural representatives twice interrupted him with applause, as Pai, who grew up in Kansas, repeatedly characterized himself as a friend of rural interests. “My name is Ajit, and I am a rural American,” he said. “When I confront a rural issue, whether it is about call completion or universal service or outdated regulations, it isn’t just an abstraction to me."
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Much of the FCC’s recent work regarding rate-of-return carriers has been focused on reforming the old universal service funds, Pai said. “But those funds still support only telephone service, not the high-speed broadband service that Americans increasingly need and want,” he said. “It’s time for the commission to start moving forward with a Connect America Fund for rate-of-return carriers."
Padalino noted that at a February meeting with FCC Chairman Julius Genachowski, “I said, ‘Sir, you've got to have certainty.'” He said he told Genachowski the Connect America Fund is a “good idea on the whole, but maybe you need to implement it for price cap, mid-size, and the rural rate-of-return carriers. Get it going for everybody.” However, “I can’t say any changes have happened since that meeting,” he said.
Pai also criticized the quantile regression analysis (QRA) benchmarks, which “have issues,” he said. Those benchmarks determine how much support a telco can get by comparing companies’ expenditures to their peers. But the benchmarks aren’t linked to the cost of serving an area, and they're based on “flawed maps” and “incorrect data,” Pai said. Plus, the 2013 benchmarks penalize rural carriers today for investment decisions they made in 2011, he said.
The biggest problem with the models is unpredictability, Pai said. “Next year’s model won’t be the same as this year’s,” he said. “Unless the Wireline Competition Bureau decides otherwise, the QRA benchmarks will change each and every year. So even though these benchmarks are designed to affect only 10 percent of rural carriers, no carrier is safe. If you want to serve your customers with new investment, you'd better make sure that it doesn’t push you over the line. If you think counting your own pennies will be enough, think again, because your benchmarks are based on what others do. By design, the QRA benchmarks create a race to the bottom.”
Only 37 percent of the available RUS loans were applied for, and only 11 percent went out the door, Padalino said. “Those were the numbers last year,” Pai said. “The numbers don’t lie.” Like Pai, Padalino blamed the low numbers on the uncertainty caused by changing USF standards. “Let’s get some more certainty on this regression analysis,” Padalino said. “Let’s get some more fact-based science into this quantile regression analysis,” so borrowers and lenders can figure it out and know what to expect in the next five years, he said.
"It was truly encouraging to see Commissioner Pai shine a spotlight on the need for universal service rules to evolve sensibly as consumer demands change,” said NTCA Senior Vice President-Policy Michael Romano. “NTCA has been advocating for a transition -- as most recently captured in its IP evolution petition -- that enables universal service support for multi-use networks without penalizing consumers who choose to take broadband only on those networks. The FCC took steps toward such support for larger carriers in its 2011 order, and we remain hopeful that it will soon undertake the technical fixes to the rules necessary to fulfill this vision in all areas.”