FCC Expected To Push Rural USF Broadband Overhaul Early Next Year

Although a model-based plan appears close, a proposed “bifurcated approach” for updating legacy funding -- treating old and new investments differently -- continues to raise concerns among small-carrier representatives. “A lot of things are falling into place, but this bifurcated approach seems to be longest pole in the tent,” said Mike Romano, NTCA senior vice president-policy. “There’s still work to be done to make the bifurcated approach possibly work.”

The FCC had been seeking to reform rate-of-return USF by December to meet a commitment to Senate Commerce Committee Chairman John Thune, R-S.D., for fixing a “stand-alone broadband problem” that prevents RLECs from receiving USF support for broadband customers who use other providers for voice service. But FCC Chairman Tom Wheeler recently said he wouldn’t be “held hostage to the calendar” and a committee spokesman said Thune believed the FCC should take “a few more months” if necessary to make broader reforms (see 1511190057 and 1511300046).

The commission's rural USF overhaul won’t be completed until 2016, an FCC spokesman confirmed. “The Hill and providers have recognized that it will take time to work through the many complicated issues involved with rate-of-return reform,” the spokesman said. “Chairman Wheeler agrees that getting the job done right is more important than getting it done fast, and is working closely with Commissioner [Mike] O’Rielly and Commissioner [Mignon] Clyburn to find a solution that will benefit rural Americans served by rate-of-return carriers through new deployment of broadband.”

More time is needed “to make sure these things get hammered out,” said Follansbee, saying the FCC’s patience has limits. “I get the sense they’re not going to let it slip more than a couple months.” Romano said NTCA is approaching the timetable on a month-to-month basis. “Right now, we’re looking at January, and if it doesn’t happen in January, then we’ll be looking at February,” he said.

The FCC and industry are “very close" to nailing down a model-based plan, said ITTA President Genny Morelli. The aim is to give rate-of-return telcos the option of receiving funding support based on a revised broadband cost model originally designed for larger, price-cap carriers. “There isn’t that much left to be resolved with respect to the model-based plan,” she said.

ITTA did urge the FCC to allocate an extra $200 million for the model-based mechanism in order to increase broadband deployment to unserved locations. ITTA said the commission was considering funding the mechanism with a combination of legacy support companies and additional allocations from USF collections. An additional $200 million over 10 years would produce 378,000 “fully-funded locations,” compared with just 49,000 if just $100 million extra were provided, the group said in a filing in docket 10-90.

NTCA believes the FCC can adopt an order soon setting the “key parameters” of a model-based approach, along with some updates to legacy mechanisms, including a stand-alone broadband fix. While it believes some technical aspects of the model should continue to be refined during implementation, it doesn’t believe the commission will need to conduct a second rulemaking on that piece of the reform effort (see 1512170060).

NTCA has bigger concerns about the bifurcated approach the FCC is considering to overhaul legacy mechanisms for companies that don’t opt into the model-based mechanism. Under the bifurcated approach, USF support for investments before a selected date would be based on the old rules and USF support for investments after that date would be based on new rules. Romano understands the concept's appeal. “It sounds simple and straightforward, but when you start unwrapping the specifics, there are many implications that flow from that,” he said. “The devil’s always in the details.”

Follansbee said some significant policy issues must be resolved on the bifurcated approach, including on carrier buildout obligations and a “competitive screen” to keep funding support from going to areas already served by unsubsidized competitors.

Romano said overall complexity is a big part of the problem. “You can put a date down as a line in the sand, but you have certain costs that you have to figure out on which side they are,” he said, citing ongoing expenses, support assets and depreciation. The terms of an ultimate transition from old to new support also are up in the air, he said. “The amount of work that any individual company has to do to understand the implications for them is substantial. You’re bifurcating costs into one bucket or another -- which costs go where?” WTA, another small carrier group, has similar concerns.

NTCA has suggested the FCC hold off on adopting the bifurcated approach, at least until it's further revised and tested. The group doesn’t want to repeat the experience of quantile regression analysis benchmarks that the FCC imposed on rural carriers in 2011 and then had to repeal under fire. “We just want to make sure any changes are tested this time around,” said Romano, saying the FCC keeps asking the National Exchange Carrier Association to make projections on the bifurcated approach’s impact on carriers.

Follansbee said the FCC seems intent on moving ahead “sooner rather than later” with a single reform order that includes the bifurcated approach: “I don’t think they want to leave any parts unfinished.” Morelli agreed: “Our understanding is the FCC is working toward having a vote on a comprehensive order early in the new year, and not just on a model-based plan but on reforms to existing rate-of-return mechanisms.”

Romano acknowledged the FCC plans to adopt an order with the bifurcated approach. “That’s certainly their goal,” he said. “But the ability to actually execute that will require more work.” While NTCA will continue to collaborate on the proposed mechanism, that doesn’t mean it isn’t looking for alternatives. “Even over the holidays, we’re racking our brains to see if there’s another way to make this work,” he said. “We’re trying to break the logjam and get things moving.”