Abrupt End of Quantile Analysis Pleasant Surprise to Industry, Which Offers Depreciation-Based Replacement
The impending end of the USF quantile regression analysis, disclosed by FCC Chairman Tom Wheeler while being questioned at Thursday’s House Communications Subcommittee hearing, came as a shock to industry members who had long been urging QRA’s elimination. Wheeler told Subcommittee Chairman Greg Walden, R-Ore., he had asked the bureau to draft an order “to eliminate the QRA and return to the high-cost loop support model” (CD Dec 13 p4). There’s no word from the Wireline Bureau about what the replacement will look like, but many industry officials we interviewed were hoping for a predictable model based on plant depreciation.
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"He said what?” National Exchange Carrier Association’s Jeff Dupree, vice president-government relations, remembers thinking when he heard Wheeler “dropping that bomb” on a live stream of the hearing. Dupree searched in vain for a rewind button to try to hear the words again. “We were stunned,” said another telecom lawyer. “That went through the industry like wildfire, and we were parsing his words."
Criticized throughout the telecom industry for creating uncertainty and hampering investment, the QRA is a process created by the 2011 USF/intercarrier compensation order that was intended to identify inefficient spenders. Companies that the QRA showed were at the top of the spending chart saw their high-cost loop support (HCLS) capped and redistributed to other companies. “The problem that it tries to address is a legitimate problem,” said David Cohen, USTelecom vice president-law and policy. The HCLS fund was capped, and companies that invested more would get more money, he said. It was known in the industry as a “race to the top” that created “an incentive for some companies to overinvest,” he said.
But the commission’s ambitious fix has led to uncertainty for companies that don’t know whether they'll be affected, Cohen said. There’s been congressional critique: Wheeler has received close to 80 letters from members of Congress about the problems with the QRA, said Cohen. “There’s an awful lot of political blowback for very little, if any, substantive improvement in the high cost universal service system.” Cohen thinks Wheeler, whom he sees as “very politically astute and substantively knowledgeable,” looked at it and realized he has “bigger fish to fry."
The question now is what will replace the QRA. Neither Wheeler nor the bureau has contacted industry representatives we interviewed about the possible replacement. An FCC spokesman said Wheeler is “committed to moving forward with the vision for a broadband-focused Universal Service Fund unanimously adopted by the Commission, but is also open to modifications to the reforms if it is clear that particular rules are not serving their intended purpose. Where we are making progress we will continue moving full steam ahead. Where the reforms are not achieving their intended goals, we will make changes based on sound data."
One proposal with considerable industry backing has been dubbed the “Capital Budget Mechanism” (CBM). The proposal, supported by NTCA, USTelecom, NECA and the Western Telecommunications Alliance, is “truly a replacement for the QRA,” said Michael Romano, NTCA senior vice president-policy. CBM would look at each carrier’s “need to invest,” defined by its amount of depreciated plant, he said. It would ameliorate the FCC’s concern about telcos that invest too much too soon, Romano said.
Instead of the QRA, which tells a company whether its investments are justifiable after they've already been made, the CBM would indicate how much a company could spend going forward that would be eligible for recovery, Romano said. “You wouldn’t be caught flat footed.” The “so-called race to the top” concerns would be eliminated because the CBM would ensure investments really are tied to replacement of depreciated plant, he said. A “trigger” could “flag alleged outliers” and the companies could then adjust their future budgets, he said. The trigger could help promote efficiency while not penalizing companies for investments they made under then-current rules, Romano said.
The four telecom associations supporting the CBM met with Wireline Bureau officials before Thanksgiving, and the officials “were engaged and seemed eager to have further discussions,” Romano said. Others at the meeting said bureau staff seemed receptive to the idea. Also in on the meetings were a few telcos that also back the CBM.
"We're happy, but I think we're caught off guard because we hadn’t heard any indication in any of our meetings” that Wheeler had decided to end the QRA, said Derrick Owens, WTA vice president-government affairs. Owens was at the CBM meeting with the bureau, but since then there hadn’t been any contact from the chairman’s office or anyone in the bureau indicating what was about to happen, he said. “We're just glad that Chairman Walden asked the question to figure out what’s going to happen next."
The CBM seems to be the best option, unless the FCC has something that would work better, Owens said. Now that the QRA is on its way out, WTA leadership has been trying to get feedback from its members about what kinds of investments they can make immediately, he said. “Once we see whatever comes out of the bureau,” it will give WTA a better idea about what new investments are possible, and how quickly they can be made, Owens said. “We're playing the waiting game like everyone else to figure out what’s next.”