Net neutrality is the “big brawl and stumbling block” to passage of telecom legislation, Stifel Nicholas said Tues. Nondiscrimination safeguards are unlikely this Congress, the report said, though partisanship could ease in a lame-duck session if Republicans hold both Houses. “Overall we believe the prospects of a franchise bill being enacted this year look iffy at best,” said the report on the updated bill (HR- 5252) posted Fri. on the Senate Commerce Committee website. The report compared the House and Senate versions. Federal franchise authority is the main driver of the legislation, so if the Senate passes its bill, differences “probably can be ironed out with the House,” the report said. But Universal Service Fund reform could be a “tough issue” in House-Senate conference, the report said. If the bill fails, Congress is likely to try to extend for another year exemption from Anti- Deficiency Act rules for the E-rate program. Discussion of the Senate bill’s VoIP and interconnection provisions is hung up over state sovereignty issues, but this could be resolved in conference, the report said. Still unresolved are matters dealing with E-911 as applies to VoIP providers. A “white space” provision is vulnerable to broadcaster opposition, the report said. Another “tough issue” is broadcast flag, which Senate Majority Leader Frist (R-Tenn.) is said to support but which House Commerce Committee Chmn. Barton (R-Tex.) opposes unless fair-use legislation is included, the report said. Broadcaster opposition also is likely to sap support for the Senate cable/satellite downconversion mandate, the report said: “Cable carriage language may bolster multicast must- carry, but litigation fights may loom.” Broadcasters are expected to “shoot at” the Senate requirement that the FCC do a further NPRM before changing its media ownership rules, the report said.

Net neutrality is the “big brawl and stumbling block” to passage of telecom legislation, Stifel Nicholas said Tues. Nondiscrimination safeguards are unlikely this Congress, the report said, though partisanship could ease in a lame-duck session if Republicans hold both chambers. “Overall we believe the prospects of a franchise bill being enacted this year look iffy at best,” said the report on the updated bill (HR-5252) posted Fri. on the Senate Commerce Committee website. The report compared the House and Senate versions. Federal franchise authority is the main driver of the legislation, so if the Senate passes its bill, differences “probably can be ironed out with the House,” the report said. But Universal Service Fund reform could be a “tough issue” in House-Senate conference, the report said. If the bill fails, Congress is likely to try to extend for another year exemption from Anti-Deficiency Act rules for the E- rate program. Discussion of the Senate bill’s VoIP and interconnection provisions is hung up over state sovereignty issues, but this could be resolved in conference, the report said. Still unresolved are matters dealing with E-911 as applies to VoIP providers. A “white space” provision is vulnerable to broadcaster opposition, the report said. Another “tough issue” is broadcast flag, which Senate Majority Leader Frist (R-Tenn.) is said to support but which House Commerce Committee Chmn. Barton (R-Tex.) opposes unless fair-use legislation is included, the report said. Broadcaster opposition also is likely to sap support for the Senate cable/satellite downconversion mandate, the report said: “Cable carriage language may bolster multicast must- carry, but litigation fights may loom.” Broadcasters are expected to “shoot at” the Senate requirement that the FCC do a further NPRM before changing its media ownership rules, the report said.

Broadband Internet access providers “over all platforms” should contribute to the Universal Service Fund, 3 groups representing rural telecom companies told the FCC in an Aug. 4 ex parte. A recent FCC vote to raise the safe harbor for wireless USF contributions and to add VoIP providers to the USF contributions pool was “positive and necessary” but not enough to assure the fund’s “sustainability,” OPASTCO, the Independent Telephone & Telecom Alliance and Western Telecom Alliance said Aug. 4. As of Aug. 14, facilities-based DSL providers operating as non-common carriers no longer must contribute. Wireless and VoIP contributions might offset this drop in contributions, but “there is no assurance this will occur,” the groups said.

Broadband Internet access providers “over all platforms” should contribute to the Universal Service Fund, 3 groups representing rural telecom companies told the FCC in an Aug. 4 ex parte. A recent FCC vote to raise the safe harbor for wireless USF contributions and to add VoIP providers to the USF contributions pool was “positive and necessary” but not enough to assure the fund’s “sustainability,” OPASTCO, the Independent Telephone & Telecom Alliance and Western Telecom Alliance said Aug. 4. As of Aug. 14, facilities-based DSL providers operating as non-common carriers no longer must contribute. Wireless and VoIP contributions might offset this drop in contributions, but “there is no assurance this will occur,” the groups said.

The Senate shut down for Aug. recess early Fri. without passing the telecom bill (HR-5252), despite Commerce Committee Chmn. Stevens’ (R-Alaska) week-long drive to round up the 60 votes needed to avoid a filibuster. On Tues. Steven was somewhat optimistic, he told reporters after the Republican policy lunch. “I think I've got them, but I'm not sure yet.”

The Senate shut down for Aug. recess early Fri. without passing the telecom bill (HR-5252), despite Commerce Committee Chmn. Stevens’ (R-Alaska) week-long drive to round up the 60 votes needed to avoid a filibuster. On Tues. Steven was somewhat optimistic, he told reporters after the Republican policy lunch. “I think I've got them, but I'm not sure yet.”

CTIA asked the FCC to make clear that carriers won’t have to make potentially significant retroactive payments to the USF because of confusion over the definition of “toll revenue” on a key reporting form. CTIA filed a petition for declaratory ruling at the agency, seeking guidance on questions tied to the agency’s latest USF contribution order, approved at the June agenda meeting (CD June 22 p1).

Speakers at a NARUC panel on issues surrounding large incumbents’ selloffs of rural exchanges said the public policy implications of such transactions remain unsettled. Jessica Zufolo, analyst with Medley Global Advisors, noted investors have been urging Bell companies to sell off their low- or no-profit rural landline exchanges and invest the money in higher-profit wireless, Internet and video ventures. “Wall Street expects to see [rural] divestitures. The question is when, at what price and under what terms.” She said there’s lots of uncertainty that might inhibit potential buyers of Bell rural exchanges. Zufolo said universal service fund requirements might discourage smaller telcos from buying up Bell companies’ rural exchanges, if the new owner is forced into costly upgrades to keep receiving subsidies. She said current uncertainties might lead small companies to bid on only small pieces rather than on an entire market or region, or to sit out altogether for now. Consultant Michael Balhoff said “all companies are doing strategic re-evaluations of their rural exchanges” because of technological and regulatory uncertainties. He said rural line prices have slipped substantially as new technologies expand rural competition opportunities, and potential major changes loom to universal service and intercarrier compensation systems that will greatly effect revenue streams. Bob Udell, western region pres. of rural carrier Consolidated Communications, agreed these factors could be “deal killers,” but said other factors bear on his company’s decisions to buy an exchange. He said overall condition of the physical plant and customer records, extent of competition, potential market demand for new or add-on services, network upgrading costs, and regulatory policy regarding multiple universal service providers in a market all can be deal makers or deal-breakers. He said a run-down, neglected exchange in a stagnant rural market in a state that certifies multiple universal service providers wouldn’t be attractive. He said rural companies also want the best possible return on their investments. Dorothy Atwood, AT&T senior vp-regulatory policy & planning, said her company is committed to its rural markets and to exploring new ways for bringing advanced broadband services to underserved rural areas, including satellite and fixed-wireless broadband service. Atwood said public policy should “encourage the ability and willingness to serve rural areas.” She said rural broadband penetration requires regulatory policies that support ubiquitous broadband. Fierce competition, she said, means large companies no longer can overprice in urban markets to subsidize rural customers. Atwood also challenged cable-industry arguments that large incumbent telcos like AT&T don’t need subsidies: “If your are investing to serve rural customers, then public policy should support you. The cable people aren’t. Who’s serving rural America? It’s the wireline and satellite providers.”

Speakers at an intercarrier compensation reform panel at NARUC were sharply split on whether the Missoula Plan to unify intercarrier rates for similar carriers would fix the compensation system’s problems. Joel Lubin, AT&T regulatory & policy vp, said the plan, backed by AT&T and more than 350 other large and small carriers across the industry, “is a workable means for managing the transition from the narrowband world to the new world that’s dependent on broadband.” He said consumers and the American economy will be the ultimate winners, calling the proposal significant because a group of diverse carriers once “at each other’s throats” came together on terms. The Missoula Plan would move over 4 years from today’s tangle of compensation rates to a unified intercarrier compensation rate for all types of traffic. There would be different rates for large, medium and small carriers. Revenue losses would be balanced by SLC increases, a new restructuring subsidy method and, as a last resort, local rate increases. Lubin said the plan would cut regulatory costs, end most interconnection disputes and advance universal service, and do so “by a rational, logical transition that will put technology in consumers’ hands in a meaningful and efficient way.” Prior intercarrier compensation reforms produced substantial consumer benefits and this one will, too, he said. But the Missoula Plan won’t hit FCC Chmn. Kevin Martin’s goal of intercarrier compensation solutions not raising local rates or hiking universal service costs, said Billy Jack Gregg, W.Va. PSC dir. of consumer advocacy: “This plan does both. It raises local rates through huge SLC increases and requires a 32% increase in a universal service fund that’s already bloated and unsustainable.” The roughly $6 billion in net revenue losses from unifying rates would be made up by SLC raises and universal service subsidy hikes totaling nearly $7 billion, Gregg said. “For consumers, this means only pain, pain, pain,” he said, urging NARUC to oppose the plan. Nan Thompson, a former Alaska regulator now with competitive carrier GCI, said the plan’s subsidy approach would “permanently entrench” incumbents and keep competitors from fielding new technologies that don’t require subsidies. The plan would eliminate many opportunities for regulatory arbitrage but also create new arbitrage opportunities, said John Sumpter of PacWest Telecom: “If this plan’s goal is to eliminate arbitrage, it fails.” Speaking in support of the plan, Bill Hahn of Level 3 Communications said it will end residential rate subsidies that discourage competition, and encourage competition for transit traffic. Consumers won’t face big SLC increases “because the competitive marketplace won’t tolerate them,” he said: “Competition will keep prices reasonable.” Doug Garret, Cox dir. of western regulatory affairs, said the plan might impair competitive carriers’ ability to geographically deaverage rates and offer deals to selected customer classes, while creating new opportunities for regulatory gamesmanship: “AT&T presents this as a choice between higher access charges or higher SLCs. But maybe there’s a 3rd choice, and that is that companies who can spend billions of dollars on a broadband infrastructure to sell video service in competition with cable companies don’t need billions of dollars in ratepayer subsidies.”

The House passed the Deleting Online Predators Act (HR- 5319), 410-15, late Wed., as critics called it “redundant” and predicted trouble for it on constitutional grounds. The bill would require that those getting universal service support for schools and libraries bar children from accessing “commercial” social networking sites and chat rooms, “unless used for an educational purpose with adult supervision.” Rep. Fitzpatrick (R-Pa.), the bill’s sponsor, said: “Parents pay the taxes that fund the Internet access to schools and libraries and they should have a say in how their subsidy is used.” The bill is part of the Republican “suburban agenda” (WID May 12 p4). Fitzpatrick earlier hinted to us that a Senate companion bill was in the works, but aides to Sens. Talent (R-Mo.) and Santorum (R-Pa.) -- pegged as likely sponsors by Fitzpatrick staff -- couldn’t tell us by deadline if their offices were working on legislation. Rep. Stupak (D-Mich.) complained that Speaker Hastert (R-Ill.) rewrote the bill “behind closed doors.” A well-placed Democratic source said the Republicans fine-tuned the bill’s definitions, without Democratic input, after law enforcement observers termed them too ambiguous to enforce. Stupak also griped that the majority didn’t allow markup before the floor vote, noting the Commerce Committee just marked up a bill on “misleading thread counts for wool suits.” Stupak called HR- 5319 “redundant” because schools and libraries getting USF funding already must monitor minors’ Internet use and use filtering technology. No witnesses in hearings on the bill mentioned online child exploitation as a problem at schools and libraries, he said, adding that if implemented the bill will drive children to unsupervised sites and do nothing to hold ISPs accountable for reporting online predators to authorities and blocking dangerous content. The American Library Assn. (ALA) has said the bill would block constitutionally protected speech, Stupak said. But the ALA didn’t mention the issue in a statement after passage, saying the bill would complicate distance learning and block instant-messaging, e-mail, wiki and blog applications. Other parts of the bill: The FTC must define “social networking website” and “chat room” within 120 days of enactment. HR- 5319 instructs the Commission to consider the extent to which a website: (1) Is a commercial entity. (2) Lets users create profiles with detailed personal information, and share online journals with others. (3) Elicits “highly- personalized information” from users, and enables communication among users. The FTC also would be ordered to create Web resources to warn parents and schools about online dangers to minors.