Wheeler Touts 'Bipartisan' Draft To Overhaul Rural USF Subsidies for Broadband Era

The draft appears to have the backing of Clyburn and O’Rielly, said an informed source, but their offices had no comment. The office of Commissioner Jessica Rosenworcel would like to see the order address Alaska-specific issues instead of deferring those until later, said an aide, but the office is still reviewing the lengthy draft. Commissioner Ajit Pai’s office had no comment.

Wheeler credited O’Rielly, Clyburn and staff for their “arduous efforts” to develop the "bipartisan solutions" proposed in the draft order he circulated Feb. 12. "All three of us agreed on two principles: the need for reform in the program to assure the funds went to the delivery of service, and a focus on maintaining existing service and bringing broadband to unserved areas,” Wheeler said. “All three of us had different ideas about how to achieve those goals. None of us got all we wanted in this item, but the public will get what it needs: broadband to rural areas and program reform.”

Wheeler also lauded RLEC trade groups that accepted changes to their positions, and said he was pleased that NTCA and USTelecom "have supported the result.”

“The order represents a consensus package that we can and do support,” said Jon Banks, USTelecom senior vice president. “We all share the same goals of getting broadband out to rural areas and having an efficient and effective USF program, and we think the package does that.”

NTCA appreciated the FCC efforts but took a wait-and-see approach. The group hopes the draft order will support consumer choice and "build upon the unparalleled work" of smaller carriers in leading the rural broadband charge, said NTCA President Shirley Bloomfield in a statement. “With any change of this magnitude, however, there is always a concern that it not be too complex and of course that it not disrupt the ability to serve customers. It will be absolutely essential to see the written words on the page and review the specific terms of the order to understand the actual effectiveness of the reforms and how all the moving parts will affect the ability of smaller providers to keep delivering on our national promise of universal service.” ITTA and WTA had no comment.

The draft would support stand-alone broadband service, a key driver of the overhaul effort spurred by Senate Commerce Chairman John Thune, R-S.D., whom Wheeler thanked for giving the FCC more time to work on a solution. Rate-of-return carriers currently lose USF support for a broadband customer that drops its voice service. The draft would also address the need to improve incentives to invest in broadband to connect unserved rural Americans “and the need to strengthen the rate-of-return system to provide certainty and stability for years to come,” Wheeler said.

RLECs would have the option of receiving funding based on a broadband cost model that was designed for larger price-cap telcos but has been modified for rate-of-return carriers, which would be subject to “defined milestones for efficient, accountable deployment,” Wheeler said. Carriers opting to stick with rate-of-return principles will gain certainty and support for stand-alone broadband under a fund that would ensure a “reasonable portion of support” goes to new buildout to the unserved, he said.

The draft would institute “budget control mechanisms” to limit the burden for telecom customers paying into USF, Wheeler said. He said it incorporated principles from the “Walden Rule” (named after House Communications Subcommittee Chairman Greg Walden, R-Ore.) to restrict support in areas served by an “unsubsidized Internet provider." Wheeler said it would also lower the authorized rate of return for incumbent carriers to better reflect financial market conditions -- NTCA and USTelecom recently agreed to a six-year reduction from 11.25 percent to 9.75 percent (see 1602080050). A Further NPRM is included in the draft to seek comment “on additional reforms that would further guard against waste,” he said.

“We hope that this order will help settle the playing field on some long-standing questions,” NTCA Senior Vice President Mike Romano told us before the Wheeler blog was posted. “We’re eager to see the stand-alone broadband problem fixed.” But “the devil is in the details” and “the way it comes out on the printed page” will be key. “So we’re hopeful, we’re optimistic. There are some parts of the order that may be of concern, and if they actually are of concern, we’ll have to address them. … It is too early to tell where this item ends up.”

NTCA recently urged the FCC to make sure any new limits on capital expenses eligible for USF support "are subject to reasonable provisions that reflect the diversity of circumstances" in areas served by RLECs." The rules should include a streamlined "safety valve waiver process" to accommodate such variations, the group said in a filing Thursday in docket 10-90. It also recommended "an adjustment to the inflationary index to be used in connection with any capital limits." Any inflationary index "used to bring past construction costs forward into current dollars should include a comparable labor cost component," it said.

The FCC should also strike a balance "between providing increased incentives and capability for carriers to respond to consumer demand for standalone broadband services while avoiding any artificial encouragement of carriers to leverage changes simply to maximize their own USF support in the short term -- which, under a fixed budget of course, could have negative implications for other recipients of USF support and the consumers they serve," NTCA said in an earlier filing.