FCC Further Adjusts CAF Framework, Nixing QRA and Contemplating Standalone Rural Broadband Fund

"Changes to any entitlement program are always difficult,” Commissioner Mignon Clyburn said on the USF changes. But 2011’s order was 800 pages and was bound to contain policies that didn’t meet the objectives, she said. Wednesday’s items make “needed adjustments” to ensure USF funds are used as “prudently” and “efficiently” as possible, she said. The complex set of rules, passed in November 2011, deals with everything from reining in the costs of providing USF support to ensuring the U.S. gets blanketed with broadband in areas where it’s lacking.

Commissioner Ajit Pai continued (CD April 22 p1) to rail against the rate floor increase. As a result of “an unfortunate legacy” rule, the FCC “sets a minimum price that telephone companies can charge their customers for local telephone service, and penalizes those companies that do not comply with this government mandate,” he said. More than a million rural Americans can expect their local phone rates to increase by up to 46 percent, he said. The rate floor “targets those very Americans who are still waiting for the economic recovery to arrive,” Pai said, warning it would lead to less broadband deployment as rural companies lose subscribers and become less able to plan future investments.

Rate floor changes came from a congressional mandate to make urban and rural rates reasonably comparable, Chairman Tom Wheeler said. “This isn’t a rural versus urban issue,” Wheeler said. “This is a matter of how subsidies work. And Congress told us that those subsidies should not produce disparate results in consumers’ wallets. So it falls to us to implement that instruction.” Pai on Monday slammed the move to make rural Americans pay “almost 50 percent more” for phone service than Washington, D.C., residents. But the first step, Wheeler said, is to look at “broad averages and not anecdotes.” While it’s true that some non-subsidized areas have lower average rates than others, “that’s as irrelevant as the fact that some subsidized subscribers in 16 states pay $5 a month or less,” Wheeler said. The agency is doing what it can to “follow the statute as humanely as possible” by phasing in the adjustment in the local rate floor, he said.

The “Seventh Order on Reconsideration,” part of Wednesday’s approved package of items, not only eliminates the QRA benchmarking rule but also provides relief on the safety net additive (SNA), officials said. NTCA and the Western Telecommunications Alliance had long been pushing for reinstatement of the SNA, which provided support to carriers that had a qualifying 2010 or 2011 increase in their total per-line telecom plant in service cost. Rural groups criticized the agency for retroactively eliminating funding, leaving telcos without reimbursement they say was promised to them. Many in Congress and at the FCC “saw the harmful effects the QRA had on rural America,” said Derrick Owens, WTA vice president-government affairs, in a statement. NTCA President Shirley Bloomfield called the changes “significant and very welcome."

CAF Phase II

As expected, the further NPRM would increase broadband buildout speeds for price-cap telcos that choose to accept Phase II money (CD April 8 p1). “Because 98 percent of the population in urban areas has access to fixed broadband at speeds of 10 Mbps or more, among the proposals being explored is whether to more than double the download speed required for subsidized broadband networks,” the FCC said in a news release (http://fcc.us/Qz17Xa). “The last thing that we want” is for USF support to lead to “second class status” in rural areas, Wheeler said. The earlier requirement, contemplated in the 2011 order, was a 4 Mbps buildout requirement.

Not everyone was happy with the proposed speed increase. “Higher speeds will require commensurate changes in other parts of the program,” said Steve Davis, CenturyLink executive vice president-public policy and government relations, in a statement. “Reverse auctions, extended challenge processes, and funding unlicensed and untested technologies will not help rural Americans get the benefits and opportunities that come with high-speed Internet."

CenturyLink wants to participate in the Phase II program, said Jeff Lanning, vice president-federal regulatory. If the requirements are reasonable, it will do so, he told us. “We can do 10 megs,” he said. “But it just has to be a program that makes sense economically.” The FCC’s model contemplates fiber to the home over a period of 25 years, but the industry is moving in increments, Lanning said. To increase speeds will require getting fiber closer to the home, and that requires a longer funding period and a reasonable timeframe, he said.

Commissioner Mike O'Rielly also expressed concern with the increase. “I too want to get the most bang for our limited USF bucks and I want greater speeds for all Americans, especially rural citizens,” he said. “However, raising the speed standard will come at a substantial cost and implementing it within the budget could entail significant tradeoffs for consumers.” The 4 Mbps standard the FCC set in its 2011 order seems “reasonably comparable” to what’s offered in urban areas, O'Rielly said. “For those that have dial-up service or no service at all, getting access to broadband can be a welcome improvement. And given the way that networks are constructed, delivering 4 Mbps to the very remote homes meant that most homes would have access to far greater speeds. However, the Commission seems ready to explore undoing that fundamental decision and more parts of rural America could remain unserved for a lot longer as a result.”