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Senate Hears ‘Consensus Framework’ Proposal and Concerns for Universal Service Reform

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Thursday October 13th 2011 – As BroadbandBreakfast.com gears up for our panel on “Bringing Broadband Infrastructure to Rural Areas: Where is the Progress?” we have been taking some notes on the FCC’s efforts to reform the Universal Service Fund and listened in on Wednesday’s Senate Commerce Hearing on “Universal Service Reform – Bringing Broadband to All Americans.” Here is a summary of some of the talking points and some highlights from the hearing.

Senator Kerry (D-MA) made the first remarks at the hearing, and highlighted an issue that became a recurring topic of conversation in yesterday’s proceeding. Senator Kerry was concerned about the difference between what Massachusetts residents pay into USF and the amount of the subsidy that Massachusetts receives in return.

Kerry said, “Inequity might be ok if the fund is really efficient and targets only the communities that need it the most … it might be ok if Massachusetts still did not have large pockets of geography without access to broadband and spotty wireless service, but we still do.”

Senator Inouye (D-HI) followed, “the draft order is a concrete step toward sustaining investments already made and will encourage new investment in broadband infrastructure in unserved areas.” He added however that he was “concerned that the fund will not go far enough to serve native communities and remote insular areas.” Although the FCC proposal dedicates special fund for tribal communities, Inouye believed that the amount was inadequate. Hawaii and Alaska have indigenous populations that face similar hardships and should be eligible for similar universal service support. The Senator asked for specific recognition of the needs of remote insular areas.

Chairman Rockefeller (D-WV) began his comments by applauding the intentions of the FCC to move ahead on USF reform but then gave a word of caution to the audience and witnesses. “We have been talking about reform for over a decade…reform will pit sector versus sector and will affect how much different companies get paid…reform means vested stakeholders will be unhappy because they prefer the status quo…but that is the definition of reform.” Rockefeller also raised the issue that some states are underpaying and some are over paying and restated that the definition of insular is very important for Alaska and Hawaii.

In addressing the hurdles that lay ahead for the FCC Rockefeller stated “there are issues about wireless and areas where towers are very scarce…there are issues about consumer bills, consumers need more value for what they pay for… there are serious questions about how state commissions fit into the reform….accountability and deployment are critical…but we must remember that adoption is also an essential part of our mission. Waiting relegates too many communities to the wrong side of the digital divide.”

In her remarks, Senator Hutchinson (R-TX) expressed what she would like to see in the USF reform. 1) Ensure the fund is sustainable for consumers who cannot afford increasing fees, 2) The high cost fund should support carriers only where no one else is providing unsubsidized service 3) USF needs to become broadband centric 4) USF must be technology neutral and 5) the rates telephone companies charge each other need to be rational and providers need to have time to adapt to the new system.

In brief opening remarks Senator Mark Warner (D-VA) noted that the “minimum broadband standards of 4 Mbps may sound fast now, but won’t sound very fast in the near future. We need to lock in on standards that will change with technology.”

Senator Wicker (R-MS) ended the opening statements by making two points, First, USF reform needs to be adequately responsive to the needs of rural America and second the FCC needs to make sure that the best technology for each separate region gets the support. “Those that want to compete in rural areas should not be impeded by anticompetitive regulatory policy,” said the Senator.

Witnesses testifying in front of the Committee included Kathleen Abernathy, Chief Officer and VP of Frontier Communications, Mary Dillon, President and CEO of US Cellular, Michael Powell, President and CEO of National Cable and Telecommunications Association (NCTA), Shirley Bloomfield, CEO of National Telecommunication Cooperative Association (NTCA) and Philip Jones, Commissioner of Washington State Utilities and Transportation Commission.

Frontier Communications and other telecom companies were signatories and supporters of America’s Broadband Connectivity (ABC) Plan which was a proposal submitted to the FCC to reform the universal service and intercarrier compensation services.

NTCA’s proposal to the FCC, the RLEC plan for rural areas served by small carriers was combined with the ABC plan to make up what the organizations have referred to as the “Consensus Framework.” Bloomfeld noted that “no one in the industry is getting exactly what they wanted and everyone is sacrificing to promote reasonable reform.”

Abernathy gave her witness testimony on behalf of Frontier Communications touting Frontier’s commitment to deploying broadband to some of the hardest to serve areas in the nation and pointing out that Frontier had deployed high speed internet to 91% of the households in their rural footprint that covers 27 states. Abernathy presented the four principles encompassed in the ABC plan 1) transitioning the voice supported mechanism to one that supports broadband, 2) fiscal responsibility which does not increase the size of the current high cost fund 3) accountability where funded recipients are required to provide defined results and 4) market driven policies that will allow funds to be distributed quickly and efficiently. With respect to ICC Abernathy mentioned that the ABC plan will phase down access charges over a five year period and will do a better job of targeting the highest cost areas of the country.

Powell representing the cable companies focused on the issues of fiscal responsibility and competitive neutrality for providing services to the unserved. Powell also suggested that the “goal of reform for the ICC regime should be regulatory certainty that ensures fair treatment of competitors and encourages migration from circuit-switched to IP technology.” “A reform that treats VoIP calls the same as “circuit-switched”” he added. The former FCC chairman called for a cap on the high cost fund at its current level of $4.5 billion and stressed the importance of cable companies being able to compete with the companies that have traditionally been subsidized by the fund.

Dillon from US Cellular spoke on behalf of the mobile providers when she stated that the goal of the fund was to invest efficiently. She expressed her concern that the commission tends to favor wireline over wireless in a marketplace that is moving towards mobile. “Investing in wireless provides more job growth and can deliver speeds faster than required in the National Broadband Plan.” She added, “The decisions that the FCC makes will affect the development of broadband in the long run, and reform must put consumers first and recognize the growth trend of wireless and mobile technologies.”

Bloomfield stressed the point that all broadband networks whether wireless or wireline ultimately rely upon a wired network. “Wired networks provide the capacity to support the type of application that the Nation critically needs.” Bloomfield was adamant that small rural carriers have invested most efficiently in connecting consumers in places where the low customer density and vast distances would discourage almost any other provider. Without USF support to these small carriers, rural customers would pay substantially more for communications services and companies would cut investments in their networks.

Commissioner Jones from Washington State wrapped up the panelist testimony. Jones’ major concerns with the new proposal  the FCC may adopt are that the consumers will give up whatever protections they currently have under the state utilities regime and that the states may loose their role as the Carrier of Last Resort (COLR).

Jones applauded the FCC chairman’s statement reiterating the States’ “crucial role in protecting consumers as we move forward in the transition of this federal subsidy regime.” Additionally, Jones was concerned that “any approach that allows the FCC to assume exclusive jurisdiction over VoIP services is short-sighted and will likely only promote additional arbitrage opportunities…Any reform must benefit the consumer and not the bottom line of carriers, assure accountability, and maintain build out and service quality requirements – a role that States are best positioned to handle.”

During the questioning session, when Senator Hutchinson asked about ICC reform, Bloomfield made the case that “lowering ICC rates is one of the only ways to come to real reform,” but she warned, “that the reduction must come in the form of a 6 to 7 year glide cut. A flash cut would be detrimental to the reform efforts.”

In response to Senator Hutchinson’s claim that NCTA does not really cover the most rural areas, Powell countered that cable’s roots were founded in rural America and that they reach 93% of American households.

Senator Warner addressed Ms. Abernathy when he asked “why being an incumbent alone should give a company the right of first refusal under the ABC plan.”
Abernathy answered by pointing out that the issue at hand is how fast one can you build out in that market. The only infrastructure in place will be the wireline provider’s, and they will inevitably build out faster than the auction process will take. Powell did add later on in the hearing that the auction process needs to be in place, and that the Commission is already an expert when it comes to auctions. “At the end of the day being hasty and efficient are two different things” claimed Powell.

Senator Pryor (D-AR) continued the questioning about the right of first refusal by asking, what was the timeframe that was proposed?

“The right of first refusal model would identify high cost areas, calculate the service area and see if a provider wanted to provide support,” Abernathy explained. The provider would either have to take the money and build out or there would be an auction. Abernathy mentioned that the basic timeframe would include a requirement of accepting the money in the first year and a demonstration of the companies’ ability to build out.

Senator Pryor then added, “Does accountability include quality of service and commitments to improve technology?”

“Under Frontier accounting is done every month,” said Abernathy. She added that companies should always asses the quality of their services and assessments of progress should be made at least once a year.

Senator Ayotte (R-NH) raised a similar issue to the ones initially raised by Senators Kerry and Rockefeller when she asked about what is the equitable balance of the fund if New Hampshire is contributing much more to the fund than they are receiving.

Jones from Washington blamed this inequity on the way the system works, “some states are net donors and some are net recipients,” he said “the same thing happens with electricity and rural telephone.”

As Deputy Editor, Chris Naoum is curating expert opinions, and writing and editing articles on Broadband Breakfast issue areas. Chris served as Policy Counsel for Future of Music Coalition, Legal Research Fellow for the Benton Foundation and law clerk for a media company, and previously worked as a legal clerk in the office of Federal Communications Commissioner Jonathan Adelstein. He received his B.A. from Emory University and his J.D. and M.A. in Television Radio and Film Policy from Syracuse University.

Broadband Updates

Missouri’s BEAD Initial Proposal, Volume Two

The state is unsure if any of its $1.7 billion allocation will be left over after funding new infrastructure.

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Photo of the Missouri River by Robert Stinnett.

Missouri released a draft volume two of its Broadband Equity, Access and Deployment initial proposal on November 15.

It was part of a wave of states and territories that began seeking public comment on their drafts in recent weeks. All 56 have now done so.

After a 30-day comment period, states and territories are required to submit their proposals to the National Telecommunications and Information Administration by December 27. The proposals come in two volumes: volume one details how states will ground-truth broadband coverage data, and volume two outlines states’ plans for administering grant programs with their BEAD funds.

The Missouri Broadband Office is “not yet able to determine” whether it will have any of its $1.7 billion in BEAD money left over after funding infrastructure projects.

The state is planning to administer two rounds of funding, something the state’s broadband director BJ Tanksley has flagged as being potentially difficult given BEAD’s one year timeframe for grant awards. The MBO said in the proposal a “sub-round” might be necessary if some undeserved and underserved areas receive no applications, and the state might seek an extension from the NTIA.

Missouri is looking to release multiple “advisory figures” for its high-cost threshold, the price at which fiber becomes expensive enough for the state to consider other technologies not favored by BEAD. Cost modeling data will be used for an initial figure before the first round of grant applications, and the number will be updated based on the applications the state receives in each round.

The state will also be using the NTIA’s updated financing guidance, which gives states more options to ensure the financial viability of a project. The new guidance makes room for performance bonds and reimbursement milestones, which tie up less money than the 25 percent letter of credit required by initial BEAD rules.

The agency made the change on November 1 after months of pushback from advocates and lawmakers, who warned small providers could be edged out by the letter of credit.

The public comment period for Missouri’s volume two is open until December 15.

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Broadband Updates

Alabama’s BEAD Initial Proposal, Volumes One and Two

The state is asking for a waiver to open up RDOF areas to BEAD applications.

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Photo of an Alabama field, used with permission.

Alabama released a draft of its Broadband Equity, Access and Deployment initial proposal on November 14.

It was part of a wave of states and territories that began seeking public comment on their drafts in recent weeks. All 56 have now done so.

After a 30-day comment period, states and territories are required to submit their proposals to the National Telecommunications and Information Administration by December 27. The proposals come in two volumes: volume one details how states will ground-truth broadband coverage data, and volume two outlines states’ plans for administering grant programs with their BEAD funds.

Volume one

The state is planning to adopt the NTIA’s model challenge process to accept and adjudicate claims of incorrect broadband data. The Federal Communications Commission’s largely provider-reported coverage map was used to allocate BEAD money, but is not considered accurate enough to determine which specific locations lack broadband.

Local governments, nonprofits, and broadband providers are able to submit those challenges on behalf of consumers under the model process. 

Alabama is also electing to use one of the NTIA’s optional modifications to the model process. The state’s broadband office will designate all homes and businesses receiving broadband from copper telephone lines as “underserved” – and thus eligible for BEAD-funded infrastructure. The move is an effort to replace older technology with the higher speed fiber-optic cable favored by the program.

The state will administer two optional challenge types the NTIA laid out: area and MDU challenges. States are not required to use these, but most are planning to do so.

An area challenge is initiated if six or more locations in a census block group challenge the same technology from the same provider with sufficient evidence. The provider is then required to show evidence they provide the reported service to every location in the census block group, or the entire area will be opened up to BEAD funds.

An MDU, or multiple dwelling unit, challenge is triggered when three units or 10 percent of the total units in an apartment building challenge a provider’s service. It again flips the burden of proof, requiring providers to prove they give the reported service for the entire building, not just units that submit challenges.

Alabama’s broadband office is requesting a waiver from the NTIA’s rule around enforceable commitments from other funding programs. The state wants areas set to get broadband from the FCC’s Rural Digital Opportunity Fund to be considered unserved for the purposes of BEAD.

That fund, the state argues, has a deployment deadline too far in the future – six to eight years to BEAD’s four years – and is too prone to defaults to be a reliable alternative to BEAD.

Volume two

Alabama does not expect to have any of its $1.4 billion BEAD allocation left over after funding broadband infrastructure.

The state is planning to award that money in a single round of grant applications, but may administer a second, according to its proposal.

Like most states, Alabama won’t be setting a high-cost threshold before looking over all BEAD grant applications. That’s the price point at which the state will look to non-fiber technologies to serve the most expensive, hardest to reach areas.

Alabama’s broadband office is seeking comment on using the NTIA’s updated financing guidance, but plans on implementing it.

That updated guidance allows options which tie up less capital, like performance bonds. BEAD rules initially required a 25 percent letter of credit, which advocates and lawmakers warned could prevent small providers from participating in the program. 

The public comment period for Alabama’s initial proposal is open until December 14.

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Broadband Updates

Arkansas’s BEAD Initial Proposal, Volume Two

The state is planning to expand its fiber technician training program after funding infrastructure projects.

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Photo of the Arkansas River by Robert Thigpen.

Arkansas released a draft volume two of its Broadband Equity, Access and Deployment initial proposal on November 14.

It was part of a wave of states and territories that began seeking public comment on drafts in recent weeks. All 56 have now done so.

After a 30 day comment period, states and territories are required to submit their proposals to the National Telecommunications and Information Administration by December 27. The proposals come in two volumes: volume one details how states will ground-truth broadband coverage data, and volume two outlines states’ plans for administering grant programs with their BEAD funds.

Arkansas expects its roughly $1 billion BEAD allocation will be enough to serve the estimated 190,000 homes and businesses in the state without adequate internet. 

The state is planning to have at least $20 million left over after funding infrastructure projects. The bulk of that will be used to expand the Arkansas Fiber Academy, a state-run fiber technician training program. The state said in its proposal the expansion will help address a shortage of the skilled workers necessary for deploying fiber-optic cable.  

The Arkansas broadband office will be soliciting two rounds of BEAD grant bids from broadband providers. The first round will be used to identify “Buy It Now” bids, applications that score enough points on the BEAD rubric to be tentatively granted over competing bids, and a minimum point threshold, above which applications will be tentatively granted in the absence of competing bids.

Arkansas will also be using the NTIA’s updated financing guidance, which gives states more options to ensure the financial viability of a project. The new guidance makes room for performance bonds and reimbursement milestones, which tie up less money than the 25 percent letter of credit required by initial BEAD rules.

The agency made the change on November 1 after months of pushback from advocates and lawmakers, who warned small providers could be edged out by the letter of credit.

Like most states, Arkansas will only set a high-cost threshold after both tranches of BEAD applications. That’s the cost of fiber at which the state will start accepting projects using other technologies. The state says it only plans to create such a threshold if it’s necessary to reach all unserved and underserved areas. 

The public comment period for Arkansas’s volume two is open until December 14.

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