FCC ADOPTS ACCESS CHARGE REFORM FOR RURAL TELCOS

Vote was 3-1, with dissent by Comr. Copps, who said it would have been “more prudent” for FCC to seek comment before approving order since it departed from MAG plan on which agency originally took comments. MAG group -- USTA, OPASTCO, National Telecom Co-op Assn., National Rural Telecom Assn. -- had asked FCC last year to adopt its proposal without changes because many of its components were interconnected. Copps said rural carriers, some state regulatory commissions and consumer advocates all had expressed concerns about FCC’s plan, and agency should look more closely at those concerns before adopting new version: “This is one area where there is not enough sunshine. The final plan has now only seen the light of day.”

However, Chmn. Powell said FCC had been looking at issue for 3 years, had “ample record,” and it was agency’s job to act independently: “I applaud the MAG industry group for its efforts to bring a plan to the Commission for its consideration. The Commission’s duty, however, is to exercise independent judgment that advances the public interest, rather than the interests of one side or the other. In doing so, we have declined to adopt the MAG plan in its entirety, taking account of other important interests and concerns.”

New access charge system affects 8% of telephone customers in U.S., served by 1,300 companies that operate under rate-of-return regulation. Rest are served by large and midsized telcos that already have moved to access charge reform through CALLS plan, adopted in May 2000. Under new rural plan, long distance providers will see their access rates cut roughly in half -- to 2.2 cents per min. from 4.6 cents on each end of call. FCC staff said reform plan would reduce access charges about $900 million, although it wasn’t certain entire reduction would be made all at once. Although long distance companies often reduce rates to consumers when their access rates go down, rural plan doesn’t require them to do that.

To offset reductions in rural telcos’ access charges, new regime increases their funding in 2 other ways: (1) Cap on subscriber line charges (SLCs) for consumers and small business will increase to $5 from $3.50 when plan goes into effect Jan. 1. SLC could rise higher in July 2002 and again in July 2003, following schedule set out by CALLS plan. Multiline business SLC cap will increase to $9.20 Jan. 1, 2002. (2) Rural telcos will get higher universal service support, which means telecom companies in general will see increase in their payments into universal service fund, amounting to about 0.5%.

Washington attorney John Nakahata, representing AT&T, Western Wireless and GCI, said his clients had worked to make some of changes in MAG plan adopted by FCC and generally were satisfied. Among key concerns 3 carriers had, said Nakahata: (1) Incentive regulation plan, proposed by MAG but deferred by FCC, was far too “generous” and would have raised universal service payments. (2) Proposal to make plan optional, which FCC didn’t adopt, would have retained implicit subsidies for some rural ILECs. (3) Portion of MAG plan that would have added universal service support for some carriers’ switching and transportation costs (universal service goes primarily to cover loop costs. Nakahata’s group actually wanted to expand that to all carriers but FCC didn’t adopt it for anyone, the one disappointment for his clients, he said. AT&T praised FCC for taking “difficult but appropriate steps to reduce regulatory disparities” but said Commission should have gone further to reduce rural carrier rates, “which will still be approximately 4 times greater” than Bells’ access rate. Still, said AT&T Vp Len Cali, FCC’s action “is a significant step.”

Not surprisingly, MAG group said it was unhappy with agency’s “piecemeal approach” and said FCC “could be creating more uncertainty than certainty for rural customers and for investment in rural communications infrastructure.” Spokesman for group said it was pleased with one thing -- that FCC said LECs could continue to set rates based on current 11.25% rate of return. USTA is “very concerned” that FCC departed from MAG group’s recommendations, Assoc. Gen. Counsel Linda Kent said. She said MAG strongly believed agency should have taken “holistic approach” to access reform, universal service and incentive regulation.

Other aspects of plan: (1) It allows “limited SLC deaveraging, which will enhance the competitiveness of rate- of-return carriers by giving them important pricing flexibility.” (2) Further notice of proposed rulemaking seeks more comment on MAG incentive plan “and how it might be modified to provide incentives for cost efficiency gains that will benefit consumers through lower rates and improved services.” It also seeks comment on MAG’s proposed changes in “all or nothing rule.”

“This reform undoubtedly will be painful” for rural telcos but status quo “isn’t an option,” Comr. Abernathy said. Telecom Act requires reform and courts will “remind us of that mandate,” she said. “Just because a decision is difficult is no reason for delay and I am not persuaded of any valid reason for delay.”