Weighing in on a fight between rural carriers in Ia. and the Bells over alleged call blocking, CTIA said the ever nastier fight (CD April 20 p4) shows why broad intercarrier compensation reform is needed. In that rumpus, small carriers claim big carriers wrongly blocked calls to their subscribers. Big carriers allege rural local carriers are allying with service providers to stimulate high incoming traffic volume and increase terminating access revenue. The Ia. carriers want the FCC to take up the fight as a stand-alone item not tied to the broader intercarrier compensation fight.
House Telecom Subcommittee Chmn. Markey (D-Mass.) is waging an effective oversight campaign over the FCC, NTIA and DTV transition issues, according to interviews with industry sources and analysts. Markey presides today (Tues.) over a 4th hearing on broadband, examining how the U.S. policy compares with those of other countries. Controversy is likely given new rankings that show that the U.S. slipping even further behind in broadband deployment.
Stifel Nicolaus predicted Ia. Telecom will get some of the relief it’s seeking from the FCC through its forbearance petition asking for USF support, in a research note. The FCC must act by Aug. 6. “While the issues surrounding the petition are complicated, and approval is far from certain, we believe it more likely than not, that the FCC will grant Iowa Telecom at least some partial relief on the forbearance petition, and allow the company to recoup some additional regulatory support,” the analyst firm said, predicting it could receive the full amount it’s seeking, $22.2 million. An Ia. Telecom win would add 69 cents per fully diluted share to its bottom line, but will likely drive up the value of the stock, Stifel Nicholas said. “We believe most investors continue to value Iowa Telecom’s equity largely on the basis of the company’s dividend yield, and we note the political challenges that the company would likely face by dramatically increasing its dividend payout shortly after a regulatory win premised on the company being able to increase investment in telecommunications plant in rural areas,” the firm said.
Members of Congress floated ways to widen broadband, some at odds with one other, at a Tues. Computer & Communications Industry Assn. meeting. They discussed Universal Service Fund reform, the 700 MHz auction, Carterfone rules, net neutrality and white spaces, giving different predictions on this year’s legislative trends.
By capping or freezing universal service subsidies to rural carriers (CD April 13 p1), the FCC could create the perfect setting for a much-needed study of subsidy distribution, Embarq told a federal-state board in an April 12 filing. Freezing or capping rural subsidies would stabilize the high-cost program enough to do a more “granular” study of rural telecom costs, the company told the Federal-State Joint Board on Universal Service. Some areas of the country with very high costs don’t get Universal Service Fund (USF) support due to the way costs are measured, Embarq told the joint board, which is close to recommending measures, including a temporary cap, to halt USF growth. “The ability to accurately identify high-cost areas at a very granular level has reached a level of precision that was unimaginable only a few years ago,” Embarq said: “Advances in modeling, better data and ever-increasing computing power” give the Commission “a set of tools capable of producing a study to ensure that all high-cost areas that truly require explicit support are adequately supported,” Embarq said. The FCC should freeze or cap the fund while it works on “stabilizing” the USF, it said: “All things being equal, a temporary freeze would be preferable to a cap… since it ensures that no individual recipient would be made any worse off.” A cap could allow “the possibility of individual winners and losers underneath the cap,” Embarq said.
Cap universal service subsidies across the board rather than targeting “one select group of providers,” 4 senators told the Federal-State Joint Board on Universal Service in a Fri. letter. “We reiterate the need for capping the overall program and doing so in a manner that does not pick winners and losers or favor one technology over another,” said Republican Sens. Sununu (N.H.), DeMint (S.C.), McCain (Ariz.) and Ensign (Nev.). Recommendations the joint board soon will make to the FCC may are expected to include temporary caps (CD April 13 p1), possibly applied only to new competitors -- mostly wireless -- rather than wireline incumbents. The FCC should regard caps not as an end in themselves, but as tools it can use to buy time in which to consider permanent reform, the letter said. The senators urged the joint board to “give significant weight to a reverse auction mechanism for distributing USF support,” a mechanism that should include all carriers, not just one “platform,” such as wireless. A reverse auction would “bid down support needed to serve particular consumers” thus reducing the USF high-cost program’s size, the senators said. Reverse auctions are efficient, guarantee “regulatory parity,” offer “market- oriented solutions” and “allow for the emergence of new technologies to many markets,” they said.
A state-federal regulatory board is expected to recommend a 2-year cap on the subsidies some rural carriers get from the Universal Service Fund (USF), sources said Thurs. The cap, which could be announced in a week or 2, probably will be applied only to competitive rural carriers, with incumbent landline rural telecom companies not subjected to the limit on subsidy growth, knowledgeable industry sources said. The so-called competitive eligible telecom carriers (CETCs) are mostly wireless.
USCellular CEO John Rooney urged the FCC to provide more USF money to wireless carriers in rural America. Rooney filed a letter with the FCC following a meeting with Comr. Tate at the CTIA conference in Orlando. “Urban consumers have numerous choices in services and service providers today, and will continue to have such choices into the future,” Rooney wrote: “That is not the case in our nation’s rural areas. Many small towns are left out of the wireless revolution because no company’s business plan supports the construction of the networks needed to enable consumers to use a mobile phone everywhere they live and work.” Networks won’t get built without support, he said: “You can be certain that if it were profitable to do so, it would have happened in the nearly 20 years since the Commission first issued cellular licenses in rural America.” Rooney also urged the FCC to grant its ETC applications in N.C., Va., and N.H., saying consumers in those states “have been waiting nearly three years for us to accelerate our network construction and deliver new services.”
The Universal Service Fund high cost program has all sorts of problems, and simply curbing its size isn’t enough, Windstream told the Federal-State Joint Board on Universal Service Mon. in an ex parte filing. Windstream, formed in a merger between Valor and Alltel’s spun-off wireline business, isn’t “heavily reliant” on USF support, so implementing its ideas wouldn’t significantly change how much money it gets, it said. Among problems it cited: (1) The program inadequately targets high-cost, rural areas. (2) Based on embedded costs, it “provides higher levels of support to less efficient providers.” (3) Competitive eligible telecom carriers (CETCs) can get support based on incumbent wireline carriers’ costs, often “unrelated to the CETCs’ costs and based on different technologies.” Broader reform is needed, starting with how CETCs are funded, Windstream said. The joint board should recommend limiting USF support to one mobile and one wireline ETC per area, the company said. Windstream said support to CETCs should be based on their costs or a reverse auction. Reverse auctions to set support levels should be viewed with “caution,” but if the joint board goes that way it should take Verizon’s suggestion and start with auctions for mobile CETCs, Windstream said. The FCC shouldn’t designate any more CETCs until reform is finished, said Windstream. Other recommendations: (1) Target support to smaller areas, such as wire centers, to be sure support goes to the highest-cost rural areas. (2) Change how high-cost support levels are calculated by using forward-looking costs, if possible. Forward-looking cost models “may not be efficient or practical” for very small rural companies, Windstream conceded. (3) Consider using money “available from eliminating multiple mobile CETCs to support under-funded high-cost areas.” (4) The joint board should set an “affordability” benchmark to encourage comparable rates nationwide.
FCC Chmn. Martin has some questions to answer on the Universal Service Fund (USF), House Telecom Subcommittee Chmn. Markey (D-Mass.) said in a letter sent Mon. to the Commission. Markey wants a “blueprint for achieving affordable broadband service” for all Americans and plans to study proposals aimed at that goal, he told Martin in the letter. “I am eager to get your thoughts,” Markey said, voicing concern at the fund’s “explosive growth” to $7.2 billion so far this year, largely due to the uncapped high- cost fund. Martin said at the FCC oversight hearing (CD March 15 p1) that he favored capping the fund. Markey’s letter seeks specifics: “Will you ask the Joint Board to place a ‘cap’ or ‘freeze’ on the high cost program in its entirety, or on some portion of the program, such as the funding provided to a certain class of telecommunications carriers?” Markey asked Martin to quantify the effect of the FCC decision to treat DSL as an information service. Contributions for the service ended Q3 2006. “Does the Commission plan to take any action to broaden the contribution base to reduce the contribution factor and the corresponding burden placed on consumers?” Markey asked. The FCC policy shift on USF “portability” funding had a profound effect on the fund, causing incumbents to retain support for lines they lose to a competitor while the competitor also receives support, resulting in double payments, Markey said, noting that a Joint Board member testified to the committee that the rule change has added $1 billion to the fund since 2003. “Do you agree? Please explain your answer,” Markey said, asking Martin if the Commission is reviewing “whether it would be meritorious” to revive the portability rule. Markey also asked Martin if he would support enforcing the primary line restriction if Congress lifted a ban on the policy. Markey told Martin he has no position on reverse auctions, but is “intrigued” and wants to understand Martin’s criticism of a reverse auction that distributes support to more than one winner for a particular high cost area. “Does your reverse auction proposal encompass ‘bids’ that offer a more robust package of services, including affordable broadband access to the Internet” along with bids for subsidy for voice services? Markey asked Martin. He asked if Martin favors adopting such “attributes” in a reverse auction plan, and whether he favors lifting the E-rate program cap, now $2.25 billion. Finally, he asked Martin to clarify the rules for E-rate funding and to outline recommendations he would make to improve the appeals process. Markey asked Martin to answer by May 4.