FCC ADOPTS NEW UNIVERSAL SERVICE SYSTEM FOR RURAL TELCOS
FCC Thurs. revised universal service system that’s used to help nation’s 1,300 rural telcos defray cost of providing service in remote areas. Action at Commission’s agenda meeting came in response to Telecom Act mandate that Commission revise high-cost universal service mechanism to accommodate competition and remove implicit subsidies. Agency’s order increases high-cost fund by cumulative $1.2 billion over 5 years, raising it to $5.6 billion total over period. In first year, $124 million will be added to fund, which currently stands at $840 million annually. Order retains cap on high-cost fund, which rural telcos have fought, but includes mechanism that permits it to grow annually. There’s also some “above-cap” support for carriers that make new investment. New plan will begin July 1.
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FCC’s order was based in large part on recommendation by Rural Task Force (RTF), which was made up of telcos, competitive LECs, long distance carriers, wireless providers, consumer advocates and state regulators. Several commissioners said RTF recommendation was marvel in itself because it’s unusual for such diverse group to come to any consensus. Commissioners said RTF plan isn’t perfect but it’s probably best for all segments of rural telephony, including consumers. Comr. Ness said S.D. PUC Comr. Laska Schoenfelder, who died recently, would have been pleased with order. Schoenfelder, with Ness, was very active on Joint Board on Universal Service.
New mechanism bases level of support to carriers on their embedded, or historical, costs, which is somewhat of a departure for agency, which generally favors forward-looking, rather than embedded costs, for such measurements. Ness said after meeting that agency didn’t think model used to determine forward-looking costs was structured in way that suits rural carriers. Based on fact that RTF looked into costing issue, agency decided to follow its recommendation, “for now,” Ness said. FCC order emphasizes that new mechanism is interim plan that will continue for 5 years while FCC continues to review rural costing issues.
Paul Garnett, Common Carrier Bureau attorney, said during meeting that new system should stimulate competition in rural areas because it makes universal service support portable. Garnett said “consensus nature” of RTF recommendation was evident in fact that some parties said it provided too much support and others said too little.
Chmn. Powell called order “one of the most significant items we will do this year” but said it represents only half of job -- other part is reforming access charge regime for rural telcos. Powell said agency plans to act on that part, including proposal by Multi-Assn. Group, “on an expedited schedule this year.”
Comr. Furchtgott-Roth criticized agency for not acting more quickly on reforming rural universal service. He pointed out FCC didn’t act on rural high-cost issues until it already had acted on other universal service components such as e-rate and universal service reform for non-rural price-cap companies. He said senators from rural states who served on so-called “farm team” during debate leading to 1996 Telecom Act adoption didn’t envision this much delay. He also criticized growth of universal service support in urban areas, saying that’s not what farm team wanted. Nonetheless, RTF plan represents “amazing consensus,” he said. Ness responded that she “cannot allow this to conclude with an assumption that the rural piece was left to the end.” Universal Service funding program already exists for rural telcos, she pointed out: “We have always cared about rural America. We didn’t want to impose on rural carriers an untested regime. We wanted to make sure whatever we did in rural America worked.” Tristani said “it saddens me that sometimes the United States is viewed as being divided as urban vs. rural, poor-poor vs. middle- poor.”
Asked at follow-up news conference why fund has to grow, Common Carrier Bureau Chief Dorothy Attwood said rural telcos have argued that their investment in plant has been inhibited by cap and by uncertainty about what FCC will do to meet Telecom Act requirements.
Among changes to rural high-cost support system: (1) Fund was “re-based” as recommended by RTF with retention of indexed cap. (2) Rural Growth Factor was adopted that lets high-cost support grow based on annual changes in Gross Domestic Product- Chained Prices Index as well as number of rural carriers’ working loops. (3) RTF proposal for corporate operations expenses was modified. (4) Modified version of RTF “Safety Net Additive” was adopted which lets carrier receive support above cap for expenses associated with new investment. (5) Safety Value recommendation was adopted which provides support for additional investment made when telephone exchanges are acquired from other carriers. (6) Declined to adopt RTF proposal to freeze high-cost loop support upon competitive entry into rural carrier study areas “because it may have unintended consequences such as discouraging investment in rural America and increasing high-cost support levels.” FCC issued further notice asking for comment on alternative approaches. (7) Order adopts RTF disaggregation proposal but requires additional regulatory oversight.
USTA Interim Pres. Gary Lytle praised FCC for “removing some of the regulatory uncertainty” for small and rural carriers. “We are particularly pleased that the Commission has chosen to use actual costs rather than proxies as the method for determining support needs for rural carriers.” Assn. said it still seeks removal of cap and will support bills in Congress that address issue. National Telephone Co-op Assn. said indexed cap is “good first step” but NTCA still wants full repeal. “The cap is not consistent” with Telecom Act, said NTCA, which also pledged to push for passage of legislation to repeal it. NTCA also praised adoption of embedded costs. “Proxy models are completely inappropriate for the rural telecommunications industry,” said NTCA CEO Michael Brunner.
On order’s “safety mechanisms” aimed at allowing for additional support beyond cap, NTCA said it would have to see details to determine if system is adequate, particularly for small carriers that purchase telecom exchanges that need upgrades. NTCA said it was glad FCC issued further notice seeking comments before determining if it should freeze high-cost loop support upon competitive entry. NTCA opposed that recommendation by RTF, Brunner said.