The FCC’s proposed methodology for setting an upper limit of high-cost loop support paid to incumbent rate-of-return LECs is fundamentally sound, but needs additional analysis of specific implementation issues, said two economists asked by the Wireline Bureau to do peer reviews (http://xrl.us/bmxvwu). The Universal Service Fund/intercarrier compensation order adopted a rule to limit reimbursable capital and operations expenses relative to a LEC’s “similarly situated” peers.
Federal Universal Service Fund
The FCC's Universal Service Fund (USF) was created by the Telecommunications Act of 1996 to fund programs designed to provide universal telecommunications access to all U.S. citizens. All telecommunications providers are required to contribute a percentage of their end-user revenues to the Fund, which the FCC allocates for four core programs: 1. Connect America Fund, which subsidizes telecom providers for the increased costs of offering services to customers in rural and remote areas 2. Lifeline, which directly subsidizes low-income households to help pay for the cost of phone and internet service 3. Rural Health Care, which subsidizes health care providers to offer broadband telehealth services that can connect rural patients and providers with specialists located farther away 4. E-Rate, which subsidizes rural and low-income schools and libraries for internet and telecommunications costs The Universal Service Administrative Company (USAC) administers the USF on behalf of the FCC, but requires Congressional approval for its actions. Many states also operate their own universal service funds, which operate independently from the federal program.
Changes in the Universal Service Fund are throwing many rural carriers into confusion about how to keep afloat once the USF spigot is turned down starting July 1. Companies that invested heavily in rural broadband say new rules limiting reimbursable capital and operating costs mean they won’t be able to repay loans. Others question the “safety net additive” reforms that they say unexpectedly eliminated promised financial support. The end result, rural carriers say, will be decreased investment in broadband, and an inability to maintain the phone lines currently in place.
A Georgia bill would rapidly eliminate the state’s $16 million Universal Access Fund (UAF), which funds rural phone companies and is financed by larger telecom companies like AT&T. HB-855 (http://xrl.us/bmwmgc) is being considered in the House. It would ignore the 20-year phase out of the UAF passed in 2010 and instead eliminate it by 2015. If the bill were passed, the UAF would be reduced to $6 million in 2013, to $3 million in 2014 and be eliminated in 2015.
Rural Utilities Service Administrator Jonathan Adelstein defended the pace of broadband stimulus projects and the failure of Open Range Communications, at a budget hearing Thursday of the House Appropriations Subcommittee on Agriculture. The White House’s FY 2013 budget proposal provides “adequate” broadband funding for rural areas, Adelstein said. RUS is studying the impact of the recent Universal Service Fund and intercarrier compensation overhaul, he said.
Rural telecom companies protested the FCC’s Universal Service Fund and intercarrier compensation revamp efforts, in testimony at a hearing Wednesday of the House Small Business Subcommittee on Healthcare. Witnesses also complained about high administrative costs to apply for federal grants and loans. Subcommittee leaders urged accelerated broadband buildout, particularly in rural areas. Chairman Renee Ellmers, R-N.C., urged passage of her bill (HR-2128) to stop the federal government from imposing penalties on health care providers who can’t make electronic prescriptions.
Implementing the Universal Service Fund and intercarrier compensation order, tackling consumer issues like bill shock and cramming, and developing a framework for Next Generation 911 are priorities for FCC this year, bureau chiefs said during NARUC’s telecom committee meeting Tuesday.
Consolidated Communications agreed to buy SureWest for $341 million in cash and stock, the companies said. The deal gives Consolidated SureWest’s 130,000 residential subscribers and 15,700 commercial businesses in the greater Sacramento and Kansas City areas. The combined companies will have about 1,775 employees. The move came less than two weeks after an analyst said Google could buy SureWest to boost its fiber initiatives. Consolidated will pay $23 per SureWest share, or an equal amount of Consolidated common stock. The per-share price represented a 47 percent premium to SureWest’s Friday closing stock price. The deal is expected to save $25 million in operating cost and $5 million to $10 million in capital expenditure, the companies said. Consolidated expects to incur merger and integration costs, excluding closing costs, of around $20 million to $25 million over the first two years after closing.
Broadband pilots, proposed by FCC Chairman Julius Genachowski as part of a revamped Lifeline program, have emerged as a likely bone of contention at the agency as work on the order continues prior to a vote Tuesday. The amount proposed by Genachowski is small -- in the $20 million range -- to be paid for by savings as the FCC clamps down on abuse, agency officials said. But some industry and FCC officials question the wisdom of looking at ways of expanding a program that is already getting bigger just paying for traditional phone service.
Almost three months after the FCC approved a Universal Service Fund/intercarrier compensation reform plan, major industry players continue to seek significant changes. Comments were due last week on a further rulemaking notice approved as part of the order. How USF dollars ultimately will be divided as the fund is reconfigured to primarily pay for broadband is the key question addressed in most filings. They show that the FCC still has a huge job ahead as it continues to tackle changes to the USF. Numerous petitions for reconsideration have been filed in response to the Oct. 27 order. A second round of comments focusing on intercarrier compensation issues is due Feb. 24. Next week, the commission will begin to tackle Lifeline reform. Also looming are likely changes to the contribution side of USF.
The latest numbers emerging as the FCC pushes forward on an order addressing Lifeline funding reveal sharp growth in the cost of the Universal Service Fund program. Lifeline spending was up sharply in Q4 2011, ending in September, to $525 million, but it remains unclear whether that number is an anomaly or means real, across the board growth in the Lifeline program. Meanwhile, a senior FCC official said Chairman Julius Genachowski is committed to putting in place significant controls on the size of Lifeline program, which are projected to save $2 billion over a period of years versus the status quo.