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Nationwide Competitive
Local Exchange Carrier



January 2012
Volume XVI, Number 1

USF Reform Faces Legal Challenges
As the FCC works to implement its massive regulatory overhaul of the telecommunications industry, more than a dozen groups hope to overturn the Universal Service Fund (USF) and Intercarrier Compensation (ICC) Reform Order in federal court.

Thirteen groups filed Petitions for Review, among them the National Telecommunications Cooperative Association (NTCA), the National Association of State Utility Consumer Advocates (NASUCA), the Ohio, Pennsylvania and Vermont utility boards, Core Communications and AT&T. The U.S. Judicial Panel on Multidistrict Litigation consolidated all petitions into one case, to be heard before the Tenth Circuit Court of Appeals. A shared complaint among petitioners is that the Commission has exceeded its authority.

NTCA, which represents close to 600 smaller, rural carriers, argues the new rules contradict fundamental mandates of the Communications Act. Senior Vice President of Policy Michael Romano questions whether it's lawful to reduce switched access and reciprocal compensation rates to zero. He also said in a statement, that "These provisions will harm rural communities, and will not help to advance the availability and affordability of services for all rural consumers."

Rural providers warn the new rules will cripple their ability to recover costs, and that, in turn, will diminish quality of service for rural customers and hamper efforts to expand infrastructure.

In what could be considered a temporary reprieve, the Commission reconsidered its December 29 effective date for default bill-and-keep methodology for non-access traffic between Commercial Mobile Radio Service (CMRS) carriers and local exchange carriers (LECs). The NTCA and mid-sized price cap carriers filed numerous comments pointing to a six-month gap between rate reduction and the availability of any Recovery Mechanism funds. The Commission has now set an effective date of July 1, which is when the Recovery Mechanism takes effect.

Conversely, several mobile carriers and the Cellular Telecommunications Industry Association (CTIA) asked the FCC to reject the price cap carriers' request. CTIA claimed any adjustment will upset the delicate balance of interests currently crafted in the Order. Plus, LECs can now recoup costs by billing VoIP service providers, which on December 29 became subject to ICC requirements.

The recent ruling shows the Order is still a work in progress. Some of the issues for which the FCC seeks further comment are:

•    Structure and operational details for the competitive bidding mechanism.
•    Transitioning rate-of-return carriers to a broadband-focused Connect America Fund (CAF) mechanism.
•    Reducing the interstate rate-of-return from its current level of 11.25 percent.
•    Structure and operational details for the Mobility Fund, including proper distribution methodology, eligible geographic areas and providers and public interest obligations.
•    Reassessing existing subscriber line charges (SLCs) to determine whether those charges are set at appropriate levels.

Comments on the universal service/Connect America Fund-related issues are due January 18; replies due February 17. Comments on the ICC and interconnection-related issues are due February 24; replies due March 30.

Below is a summary of the Order's key reforms.

Universal Service

•    Establish a broadband-focused Connect America Fund (CAF), with an annual budget of $4.5 billion. Eligible telecommunications carriers must offer both voice and broadband services.
•    Create a separate Mobility Fund focusing on mobile broadband.
•    Freeze all existing legacy high-cost support to price cap carriers as broadband build-out begins in early 2012.
•    No CAF support where unsubsidized competitors already offer qualifying broadband service.

Intercarrier Compensation

•    Address access stimulation by requiring competitive carriers and rate-of-return incumbent local exchange carriers (LECs) to refile their interstate switched access tariffs at lower rates.
•    Address phantom traffic by requiring providers to include the calling party's telephone number in all call signaling; with intermediate carriers required to pass this signaling information, unaltered, to the next provider in a call path.
•    Adopt a national bill-and-keep framework as the ultimate end state for all telecommunications traffic exchanged with a LEC.
•    Reduce terminating switched access rates through a gradual, multi-year transition.
o    Carriers must immediately cap most ICC rates.
o    To reduce the disparity between intrastate and interstate terminating end office rates, carriers must bring these rates to parity within two steps by July 2013.
o    Carriers must reduce their termination (and for some carriers also transport) rates to bill-and-keep, within six years for price cap carriers and nine for rate-of-return carriers.
•    Transition Interconnected VoIP traffic to a bill-and-keep framework.
o    VoIP service providers that are interconnected with the PSTN will be required to pay applicable interstate access or reciprocal compensation charges in the interim.
•    Allow incumbent telephone companies to charge a limited monthly Access Recovery Charge (ARC) on wireline telephone service to offset declining ICC revenue.
o    $0.50 per month maximum for residential and small business customers.
o    $1.00 per line maximum for multi-line businesses.

Debate Over PSTN Transition Continues
Another dilemma the Commission faces during this transition to a broadband-focused Connect America Fund, is how to transition from the Public Switched Telephone Network (PSTN) to newer technologies. The legacy PSTN continues to lose subscribers as consumers turn to IP networks that support text, email and VoIP.
The FCC is taking measured steps to examine how that transition should happen. The agency held two workshops in December, with panelists from across the telecom industry and consumer advocates discussing the impact on public safety and accessibility. The second workshop examined the economic and technological ramifications.
Some panelists proposed setting a firm PSTN phase-out date. The Commission has not indicated any further action beyond following up on workshop results.

17.9% Proposed Contribution Rate
The FCC has proposed increasing the first quarter universal service contribution factor to 17.9 percent. A Public Notice released December 14 projects demand for service will exceed collected revenues. Projected revenues for the first quarter of 2012 are $16.609 billion, about $72 billion below the revenue base for the last quarter of 2011.

The newly proposed rate is the highest on record. One year ago, the rate was 15.5 percent.

Since contributions are based on interstate and international traffic, carriers are taking a closer look at how they're reporting revenue. Tele-Tech has received several inquiries from interconnected VoIP service providers to conduct a Traffic Study, an alternative method of determining interstate revenue for those who believe the safe harbor of 64.9 percent is not an accurate representation of their interstate traffic.

Contact krusso@telecomdb.com to learn if a Traffic Study is an option for you.

Commissioner Nominees Await Approval
The New Year will likely start with new faces at the FCC. Ajit Vradaraj Pai and Jessica Rosenworcel are expected to get Senate approval as the agency's newest Commissioners. The Senate Commerce Committee in December approved their nominations; a full Senate vote is next. Pai and Rosenworcel will replace former Commissioners Michael Copps, who resigned after a decade of service, and Meredith Atwell Baker, who left in May for a position at Comcast.

Rosenworcel worked at the FCC from 1999 to 2007, serving in the Common Carrier and Wireline Competition Bureaus. She later became Copps' Senior Legal Advisor. She currently works under Senator Jay Rockefeller IV as Senior Communications Counsel for the Commerce, Science and Transportation Committee.

Pai also has extensive communication experience, from trial attorney in the U.S. Department of Justice Telecommunications Task Force to Deputy General Counsel for the FCC. Currently, he's a Partner at nationwide law firm Jenner & Block.

AT&T Pulls T-Mobile Deal
The FCC on November 29 granted AT&T's request to withdraw its application to buy T-Mobile. The $39 billion deal was heavily criticized by many cellular service providers, and the U.S. Department of Justice (DOJ) filed an anti-trust lawsuit to stop the deal. At the time of the DOJ filing, the FCC was still reviewing the request. In late November, FCC Chairman Julius Genachowski proposed sending the deal to a hearing, a move which prompted AT&T to reverse course.

According to the Order, FCC staff analysis of the proposed merger would have given AT&T about 75 percent of market share. Staff also found that the carrier's claims  the deal was necessary to expand its LTE network to 97 percent of Americans contradicted internal AT&T documents.

Fourth Quarter Rate Increases
Several carriers increased monthly Subscriber Line Charges (SLC) last quarter.
•    AT&T increases affect Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina and Tennessee.
•    Windstream increases affect Arkansas, Florida, Georgia, Iowa, Missouri, New Mexico, North Carolina, Oklahoma, Pennsylvania and Texas.
•    Century Link increases affect Wisconsin.
•    Verizon increases affect Virginia.

Please email custserv@telecomdb.com for any questions regarding rates.

NANPA Fourth Quarter Recap
•    Maryland: NPA 667 to Overlay NPA 410/443, effective March 2012
•    California: NPA 669 to Overlay NPA 408, effective October 2012
•    Saskatchewan: NPA 639 to Overlay NPA 306, effective May 2013
•    British Columbia: NPA 236 to Overlay NPA 250/604/778, effective June 2013
•    NPA 566 assigned For Personal Communication Services

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