States Take Aim at USF and ICC reform

WASHINGTON December 8, 2011 – Wednesday TheHill.com reported that the Pennsylvania Public Utility Commission filed suit against the Federal Communications Commission for it’s Order and Further Notice of Proposed Rulemaking to reform the Universal Service Fund and Intercarrier Compensation regime.  The suit, filed in the 3^rd Circuit, alleges that the FCC order is “arbitrary and capricious” and that it violates the 10^th amendment by compromising the powers of the state commissions.

Core Communications a small telephone company has also filed suit.  Apparently any group seeking to block the FCC’s Order must file by December 9^th.

It has been a number of weeks since the FCC released their Order and FNPRM.  Right after the October Commission meeting where the Executive Summary was released, a majority of stakeholders generally praised the reform efforts.  There were a couple complaints from a number of companies, consumer advocates and state utilities, but since then there has been relative silence.

In their October press release, by the National Association of Regulatory Utility Commissioners (NARUC) stated that they were pleased with “the proposal to prevent traffic pumping and eliminate inefficient fund disbursements,” and appreciated the FCC’s acknowledgement of the role that States play regarding carriers of last resort and “Eligible Telecommunications Carrier”(ETC) designations.

NARUC hinted at some disappointment by adding, “We and many of our members have a number of concerns about preemption of State authority in other aspects of today’s decisions. Some elements raise a host of unanswered legal and procedural questions but also the specter of unintended consequences for consumers.”

In a phone conversation with Commissioner Anne Boyle from the Nebraska Public Service Commission last month, the Commissioner would not mention whether her state was gearing up to challenge the FCC order but did express disappointment in the one size fits all formula for intrastate rates threatened by the intercarrier compensation reform.  In general she felt that the states did not have a fair seat at the table in the drafting process.

As mentioned above the states were not upset with many of the broader provisions of the Order. They appreciated that only ETCs were eligible for Phase II competitive bidding support under the Connect America Fund.  Additionally the $300 million allocated yearly to the Mobility Fund  Phase I will be limited to ETCs in order to deliver support for wireless infrastructure to under-served and unserved areas.

In its effort to reestablish the Connect America Fund as one that supports deployment of broadband, the Order also places a number of new requirements on ETCs.  ETCs will be required to offer stand alone voice services throughout their area at rates that are comparable to urban rates.  The FCC adjusted the definition of “voice telephony services” to allow for voice services to be delivered through VoIP.  Furthermore, ETCs receiving support under the current High Cost fund, it will be required to offer broadband in their supported areas.  These are serious requirements that mandate, services must meet the basic designated broadband speed set by the FCC and must be able to support services like VoIP.  Finally the FCC has instituted a series of reporting obligations for ETCs that reflect their broadband obligations.

These are some serious new requirements that will be levied on the state designated carriers.

The part of the FCC Order that impedes the most on traditional State authority is the ICC reform.  This reform begins by capping the Local Exchange Carrier’s (LECs) interstate and intrastate rates.  This cap is effective immediately.  The FCC has adopted a bill-and-keep model as the national framework for intercarrier compensation that will eventually phase down termination charges to zero.  By 2013 all intrastate access rates will be brought down to interstate levels.  The total phase down for large carriers is scheduled for 2018 while smaller carriers have until 2012.

This section of the order also sets new rules for intercarrier compensation with respect to VoIP. All VoIP calls whether interstate or intrastate will immediately be subject to the interstate access charges.

In an effort to compensate the incumbent local exchange carriers for their lost termination revenues under the ICC reforms, the FCC will allow ILECs to impose monthly fees on end user customers.  State Commissions and consumer interest groups have disapproved of this measure and share similar concerns that this is not the time to be raising prices for the average American.

The FCC caps what they call Access Recover Charges (ARC) at 50 cents a year for residential and $1.00 for multi-line businesses. The Order does not establish any recovery for Cable Local Exchange Carriers (CLECs) because they are not subject to government regulation when it comes to raising end user rates. This raises a whole new set of issues and questions about disagreements between various stakeholders.

Now that we have been through roughly 700 pages of the FCC’s Order and FNPRM, Broadband Breakfast plans to follow up with summary and analysis of the document along with comments and opinions from a number of the stakeholders themselves.