MAG PLAN FOR RURAL TELCOS FACES CRITICISM

MAG group told FCC that its plan was carefully crafted to take into consideration diversity of rural carriers, for example giving them option of moving to incentive regulation or remaining under rate-of-return regulation. Group said access reform part of plan “is the best possible for the efficient provision of services to public.” Subscriber Line Charges (SLCs) would increase, to be consistent with CALLS plan for nonrural carriers that FCC approved last year, group said, while per-min. access rates paid by long distance carriers would decrease. Alaska Rural Coalition said plan “represents a balanced consensus of a diverse group of rate of return LECs” and it should be adopted as submitted “to retain the thoughtful balance of ideas and representation of compromise.”

Plan will “introduce more efficient cost recovery mechanisms for non-price cap local exchange carriers,” BellSouth (BS) said. “While not identical to the recently implemented CALLS proposal, the MAG plan is conceptually consonant” with it, said BellSouth, which was member of CALLS group. Sprint, another CALLS member, disagreed, saying there was “one critical difference” between MAG and CALLS plans. MAG plan was devised solely by rate-of-return rural ILECs while CALLS was “developed through give-and-take negotiations between major price-cap ILECs and major IXCs.” Sprint said MAG plan moved in right direction but “suffers a number of defects” that require that it be rejected.

General Services Administration (GSA), commenting on behalf of govt. users, said it liked plan but didn’t think it should be adopted without modification, even though MAG members had urged FCC not to change it. GSA said plan would help competition develop in areas with high costs and low population densities but modification was needed, for example to “to reduce disparities between the charge for business and residence lines.” GSA said “there is no sound justification for singling out multiline businesses for higher SLCs.”

Cal. PUC said MAG proposal “suffers from serious shortcomings” that “taken together would increase rural LEC earnings and universal service funding significantly while shielding the rural LECs from risk and providing little incentive to operate more efficiently or invest wisely.” PUC said such “overly generous treatment of rural LECs” would be at expense of consumers, particularly those living in states such as Cal. that are “net contributors” to universal service fund. Some states such as Cal. send more money to universal service fund than they receive back in form of subsidies. Fla. PSC told FCC it opposed MAG plan because, although designed to affect only interstate rates, it would “have a direct impact” on rates paid by Fla. consumers. “We have considerable doubt about the realization of consumer benefits under this proposal,” PSC said in comments to FCC. Fla. regulators said that, while plan called for long distance companies to flow through savings from access reductions, there was no guarantee that would happen. Long distance carriers signed “commitment letters” under CALLS plan but such agreements don’t accompany MAG plan, PSC said.

“The MAG plan virtually assures higher prices without meaningful reduction in regulation,” National Assn. of State Utility Consumer Advocates (NASUCA) said: “The plan virtually assures lower quality service. [It] fails to promote innovation and fails to promote competition in either the local exchange markets or the long distance markets.” N.Y. Dept. of Public Service (NYDPS) urged FCC not to adopt part of MAG plan that would eliminate existing caps on rural high-cost fund. Increasing that fund, even to support deployment of advanced services, “would be a particularly inefficient means of promoting such investment.” Eliminating caps also “invites unchecked spending at the public expense,” NYDPS said.

Another plan proposed by Rural Task Force (RTF) didn’t fare much better, with NYDPS saying it suffered “from the same infirmities” as MAG plan. Ad Hoc Telecom Users Committee said neither plan made “persuasive showing that the Commission should depart from its earlier decisions in the universal service arena.” FCC asked for separate comments on 2 plans but on same schedule. RTF, which already has cleared review by Federal-State Joint Board on Rural Services, concentrates on universal service while MAG plan seeks to reform both.

Ad Hoc criticized RTF’s use of embedded cost model to size rural carrier support. By doing so, RTF “is encouraging economic inefficiencies and creating barriers to competition, 2 results that a forward-looking cost model would avoid,” said Ad Hoc, which represents business users. Ad Hoc also took issue with proposals in both RTF and MAG plans to “disaggregate support to multiple areas below the wire center level.” Disaggregation offers efficiency and assures more cost-based support but “both of the proposals before the Commission lack necessary regulatory oversight and provide rural carriers with both an opportunity and an incentive to ‘game’ the universal service system,” Ad Hoc said.

Cal. PUC opposed RTF’s reliance on embedded costs as basis for universal service need, rather than moving to forward-looking costs. It also complained that plan wouldn’t eliminate National Exchange Carrier Assn. (NECA) pooling system “despite the fact that the pools violate the universal funding requirements” in Telecom Act. NECA supported plan, although it questioned “longer term effects of imposing artificial limits such as caps on the amount of funding available to rural carriers.” NECA said FCC should institute RTF plan and then consider cap problem separately.

MAG member NTCA said it supported many parts of RTF, including use of embedded cost approach and partial lifting of cap on rural support. However, it urged FCC to go further in eliminating what it called “parent trap rule” that limits amount of universal service support rural carriers can receive for exchanges they acquire from other carriers. NTCA said RTF’s “attempt to address this problem through its proposed safety valve mechanism will not provide sufficient support for the expected number of acquired exchanges by rural carriers during the 5-year life of the RTF proposal.”

Wyo. PSC said it “wholeheartedly supports” RTF plan: “We have watched the Joint Board study the recommendation carefully and forward it to you without change… We have waited while nonrural support was… put into place. We have waited while schools and libraries got their share. Equitable consideration of the needs of rural high-cost customers is long overdue. We urge you to adopt the RTF recommendation without further delay.”