Rural Associations Seek Commission-Level Review of Wireline Bureau’s Quantile Regression Caps
The FCC Wireline Bureau exceeded its delegated authority when it adopted a quantile regression methodology that imposes unreasonable burdens on rural LECs, applies support limits randomly, and will fail to provide incentives for efficient operations, several rural telecom associations said in a petition for commission-level review Friday (http://xrl.us/bm9ege). The National Telecommunications Cooperative Association, OPASTCO, the National Exchange Carrier Association and the Western Telecommunications Alliance have accused the bureau of acting in an “arbitrary and capricious” manner, and have asked for a stay of the methodology and initial caps adopted by the bureau in its April 25 order until the commission can respond to its petition for review (http://xrl.us/bm9eg7).
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"The formulas and resulting caps developed by the Bureau impose support limitations in an arbitrary, nearly random manner,” the groups said, alleging the formulas are “based on data riddled with material errors, as the Bureau itself admits.” In addition to study boundary data known to be wrong, the groups took issue with the inclusion of new variables “without necessary data quality controls and the use of coefficients that have intuitively incorrect and inconsistent signs.” Also, despite a direction in last fall’s USF/intercarrier compensation order to rely on a statistical analysis of “similarly situated” companies, the bureau’s formulas “do not establish any comparator groups,” the petition for review said.
Reductions in support for many rural local exchange companies will be “severe,” the impacts “only partially ameliorated” by an 18-month phase-in period, the petition said. The adopted formulas fail to give RLECs any plainly stated business rules to follow -- “the impenetrable and constantly shifting caps provide no clear signals as to what the Commission or the Bureau may view as ‘efficient’ or ‘prudent’ expenditures going forward, utterly undermining claims that the formulas will encourage broadband efficiency or increase broadband deployment,” the petition said.
The groups asked the commission to immediately suspend implementation of the quantile regression-based caps set for July 1, and consider alternative proposals for support limitation methods that “will in fact accomplish the objective of identifying and excluding imprudent investment or inefficient spending.” Any new analyses should find a way to correct errors in the underlying data before using it to determine support payments to companies, and address the relationship between capital expenditures and operating expenses, “an effect that remains masked under the Bureau’s two-formula approach,” the groups said. They emphasized that the commission “must find ways to reduce the volatility of any support limitation formulas and ensure that support payments remain sufficient and predictable” as required in Section 254 of the Communications Act.
"The regression analysis formulas impose caps that are random from the start and will shift over time in ways that no carrier can hope to predict,” said Shirley Bloomfield, NTCA’s chief executive officer. “A support system that requires carriers, lenders, and investors to guess where caps will be imposed next -- and does not signal clearly why those caps might apply in any given case -- will undermine access to capital for rural broadband and violate the basic requirements that universal service be predictable and sufficient."
OPASTCO Vice President-Regulatory Policy Stuart Polikoff said it was “critical” the FCC immediately suspend implementation of the caps, arguing they would “harm many rural consumers, who would face declines in service quality and higher rates for service.” WTA Executive Vice President Kelly Worthington said the unpredictability of the caps would “depress broadband build-out” in rural areas, and be “completely contrary to President [Barack] Obama’s goal of expanding broadband access in all rural areas."
In its order designed to fix “problematic incentives and inequitable distribution of support,” the Wireline Bureau last month passed new rules that would reduce support to about 100 study areas with “very high costs relative to similarly situated peers” (CD Apr 27 p3). At the time, NTCA Senior Vice President-Policy Michael Romano told us the association was “encouraged” that the bureau “took steps to acknowledge many of the concerns raised about the caps,” calling the order “a productive step forward.”