Nearly all of the telcos that have borrowed from the Rural Utilities Service receive high-cost Universal Service Fund support, RUS said in an analysis (http://xrl.us/bk3xqr). Of the 480 companies that have borrowed for telecom infrastructure, 476, or 99 percent of them, receive interstate universal service cash, the RUS said. More than 70 percent of RUS’ borrowers rely on universal service for more than a quarter of their operating revenue, RUS said. A 5 percent reduction in universal service cash would strand some 98 borrowers, representing nearly $794 million in loans, RUS said. The three largest rural telecom associations, calling themselves the Save Rural Broadband alliance, seized on the RUS filing, saying it was “independent confirmation of a point Save Rural Broadband has long argued -- the FCC’s USF reforms will force many rural broadband providers to either delay their deployment of broadband services or go out of business.” Rural carriers made a separate peace with bigger incumbents last week and filed a “complementary” brief with the USTelecom-brokered industry agreement (CD Aug 1 p1). A spokesman for the three associations said the RUS filing had no bearing on the incumbent compromise.
Rural Cellular Association President Steve Berry sharply criticized the Universal Service Fund/intercarrier compensation proposal formally filed by a U.S. Telecom-organized group of carriers at the FCC Friday (CD Aug 1 p1). He argued it’s a wireline-centric plan that largely leaves wireless in the cold. Berry called the proposal “a joke.” RCA represents small to mid-sized carriers. Satellite broadband companies, who also were not part of negotiations on the proposal, also criticized it Monday. Consumer groups and states’ rights advocates expressed concerns, while executives representing small and mid-sized cable operators expressed support for elements of the plan.
Incumbent telcos were able to bang out an agreement on the Universal Service Fund and intercarrier compensation regime reforms after months of negotiations. The rest of industry said the real debate has only begun. The USTelecom-brokered agreement won a last-minute okay from the three biggest rural telecom associations Friday. Left out of the discussions, though, were cable, CLECs, states’ rights and consumer advocates, many of whom were already slinging arrows at Friday’s announcement. CompTel, XO Communications, NARUC, NCTA, Sprint Nextel and the Rural Cellular Association all issued statements praising the agreement as a step forward but raising substantive questions about the deal.
"The odds favor” the FCC adopting the USTelecom-brokered agreement on the Universal Service Fund and intercarrier compensation regime reforms, MF Global analyst Paul Gallant said Thursday. The so-called framework could be filed as early as Friday (CD July 28 p8). It “would be a neutral-to-positive” for publicly-owned, mid-sized rural carriers such as Frontier, CenturyLink and Windstream, Gallant said. “We also believe the plan would be a boost for AT&T and Verizon by reducing their overall payments into the federal and state subsidy mechanisms.” Despite some opposition, he expects the commission to adopt the USTelecom-brokered deal more or less as-is because FCC Chairman Julius Genachowski has made USF and intercarrier comp reforms “a centerpiece of his National Broadband Plan” and the framework “would redirect federal subsidies from voice to broadband buildout, which is what the Broadband Plan called for.” Also, he said the proposal “has the support of a strong coalition” and Gallant “would not be surprised if it gained additional support” in the next few weeks, and “key legislators have indicated that the FCC is better suited than Congress to reform USF/ICC because of the level of detail required for reform. Congress’s key asks are that rural and urban interests are both clearly recognized, and that the overall USF … not grow larger -- and ideally shrink over time. We think the FCC’s final rules this Fall are likely to satisfy those criteria."
A breakaway group of rural telcos organized a last-ditch effort to keep their trade associations from signing on to a USTelecom-brokered agreement on Universal Service Fund and intercarrier compensation regime reforms. “It is simply a bad deal for rural America!” said a draft letter circulated by the Rural Broadband Alliance’s Diane Smith and Stephen Kraskin.
The three largest rural telecom associations defended their decision to engage in the USTelecom-led talks on universal service and intercarrier compensation revisions, but told their members to brace themselves for “give-and-take” on rate-of-return cuts and “deeper” cuts in intercarrier compensation. “We understand that many of you may see it as hard to work with carriers and other companies who often look to undermine the support networks that are essential to operation in rural areas,” said NTCA CEO Shirley Bloomfield, OPASTCO President John Rose and Western Telecom Alliance Vice President Kelly Worthington in a mass email to their members.
Phone companies aren’t the only industry group divided by potential Universal Service Fund change proposals. With a group convened by USTelecom poised to give the FCC on Friday a plan to make USF pay for broadband (CD July 26 p1), large and small cable operators also have different views on that framework. Just as major phone companies like AT&T and Verizon are expected to back the plan, with some mid-size telcos also joining in, the biggest U.S. cable operators also may support many if not all parts of the plan. As with small telcos that are net recipients of USF money and intercarrier compensation funds, cable operators that get such money also may back few if any aspects of the framework. That’s according to interviews with cable executives Tuesday.
Rural carriers and their advocates closed out the week by lobbying the FCC to protect their investments. In a meeting Wednesday, NTCA re-pitched its idea of putting limits on recovery of capital loop investments, the group said in an ex parte posted to docket 10-90 (http://xrl.us/bk256d). A day later, the Rural Telephone Service Co. “emphasized that in addition to the substantial debt service requirements they are responsible for, the high costs of serving their rural service area and the ongoing maintenance and operating costs require USF support in order to continue providing broadband service,” the company said in its ex parte notice (http://xrl.us/bk256q).
The FCC wouldn’t distribute Universal Service Fund cash for broadband in areas where any ISP already sells Internet service, under a USTelecom-brokered industry agreement that could be made public as early Friday (CD July 22 p3), industry and FCC officials told us. Talks are still going on, they said Monday. Under the agreement, which USTelecom has been calling a “framework,” VoIP wouldn’t be classified either as telecom or information service, and VoIP carriers would be required to pay interstate access rates for all non-local calls, the officials said. Comcast and other major cable operators continue to evaluate the USTelecom proposal, and it’s possible they'll join it, industry officials said.
The FCC can modify “the current High-Cost Loop support program” and still reach the Universal Service Fund reform goals for the Connect America Fund without completely reworking the system, NTCA said in a meeting last week, according to an ex parte notice in docket 10-90 (http://xrl.us/bk2uth). The tweaks would “promote sustainability, sufficiency, and predictability for USF/CAF recipients, while also helping to place reasonable, carefully tailored controls on the growth of the USF/CAF that take into account ‘conditions on the ground’ across the wide variety of areas served by small companies nationwide,” the group said. Instead of focusing on what might be the “cheapest” network to build, engineers “must take into account reasonably anticipated capacity demands over the life of a network and the reasonably anticipated costs associated with meeting those demands over time,” it said. “Particularly when labor (rather than materials) comprises a substantial portion of the costs of capital investment, planning ahead in this regard clearly represents the most efficient and cost-effective method of deployment for both the provider and the consumer, and such efficiencies accrue to the benefit of the USF.”