Rurals Take Aim at USTelecom-Led Cost Modeling
A handful of rural rate-of-return telco executives took aim at the USTelecom-led efforts to create cost models for Universal Service Fund and intercarrier compensation regime reforms, an ex parte notice released Monday showed. USTelecom had brought in analyst CostQuest to create cost models as it continues to lead industry-wide talks on wholesale reform. CostQuest executives have been sitting in on ex parte meetings since at least May to discuss some of their findings (CD May 24 p14).
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But research by accounting firm Warinner, Gesinger & Associates and funded by rural telcos dismissed cost modeling. “The FCC’s established Part 36, Part 69 [under Title 47 in the federal code] and the related USF calculations provide existing [rate of return] methods that already include recovery for broadband services,” Warinner said in a slide show as part of an ex parte notice. Warinner’s presentation was filed after meetings last week between FCC officials and Warinner principal Andrew Denzer, OPASTCO Vice President Stuart Polikoff and executives from three rural telcos. “USF and ICC reform should be conducted using modifications to these industry proven models instead of transitioning to new unproven models,” Denzer said. Rate of return carriers are already “fully regulated” and “accountable to the FCC and State commissions,” so the FCC ought to “develop procedures to obtain and use the existing reporting information from these entities,” Denzer said. “The FCC should not implement USF/ICC reform on carriers who are using USF revenues to deploy broadband services to their rural customers.”
Denzer told us in a phone interview Monday that he’s not sure industry should be focusing on “sweeping” changes to the current system. “There’s some tweaks that can be made,” he said. “Right now we can’t formulate a business plan because we don’t know where they're going with USF and intercarrier comp.” Denzer said he’s skeptical of CostQuest’s modeling work because it “has not been made public” and because he’s not sure any model will adequately address the unique needs of scattered, high-cost rural areas.
A USTelecom official said the trade association hired CostQuest merely to provide a guideline for potential costs, not the definitive answer to universal service reform. USTelecom continues to lead talks with disparate industry groups and companies, hoping to hammer out an industry-endorsed reform package. Among the key issues are the size, scope and length of the proposed access recovery mechanism as the old public switched telephone network gives way to an all-Internet protocol network (CD April 20 p5). Last week, USTelecom and member company executives made an implicit defense of their modeling efforts, saying part of the discussion ought to focus on “how to properly model rate transitions given declining access minutes, transparency of any modeling efforts and how to create efficiency incentives for fund recipients.”
Warinner said its research shows that high loop costs are the biggest factor in universal service and intercarrier comp. “The FCC should consider raising all ILEC Subscriber Line Charges (SLCs) to the maximum allowed for those entities currently charging less than the maximum allowed,” Denzer said in the presentation. “The benefits would be additional revenues available for voice and broadband network connections and additional Federal USF revenue contributions, lowering the contribution factor.” Warinner said auction proposals “are fraught with economic disincentives, quality of service concerns and conflict with Carrier of Last Resort (COLR) obligations.”
Parallel to the rate-of-return carriers’ concerns, the CLEC-backed Rural Independent Competitive Alliance and Rural Broadband Alliance said in separate notices that competitive LECs should be given “the opportunity to recover the substantial investments” under the current Universal Service Fund and intercarrier compensation rules. CLECs also need “clarity as to the future rules” and reforms that “resolve the anomalous mismatch of a fund being transitioned to support Broadband based on a contribution system reliant on the declining base of the voice telephone model,” the groups said in an ex parte notice in docket 10-90. As part of its reform, the commission should “promptly eliminate” the identical support rule and instead fund eligible telecommunications carriers “based upon their individual costs,” the groups said. “For wireline CLECs, costs should be determined under the same rules as a rural ILEC.” CLECs are worried that the commission will lower rural CLEC access charge rates “without commensurate consideration of established cost recovery requirements,” the group said in their notice.