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Nationwide Competitive
Local Exchange Carrier



October 2011
Volume XV, Number 4

USF Reform in the “Home Stretch”

The FCC still expects to announce a decision on Universal Service Fund (USF) and Intercarrier Compensation (ICC) reform this fall, according to an August 8th blog post by the Commissioners. The post described the agency’s August 3rd Public Notice as the final stage of the reform process. That notice sought comment on three proposals to reform the USF and ICC systems. Critics say the current system rewards legacy wireline operations rather than encouraging broadband expansion.

  1. Those proposals include:
    A plan by the State Members of the Federal State Joint Board on Universal Service
  2. The America’s Broadband Connectivity (ABC) Plan
  3.  The RLEC Plan

The FCC’s notice elicited a flurry of comments in response to the ABC Plan, which was crafted through a coalition of AT&T, CenturyLink, Fairpoint, Frontier, Verizon and Windstream.

The Rural Cellular Association (RCA) is calling for the Commission to reject the ABC Plan. RCA President Steven Berry in a statement called the plan self serving, adding that it “blatantly favor(s) outdated wireline technologies, which consumers are choosing less and less every day.”

The American Cable Association (ACA) and the National Cable and Telecommunications Association (NCTA) share many of the RCA’s concerns: that the ABC Plan is anti-competitive. In a joint letter to the FCC, both entities wrote, “The proposal to provide price cap LECs a right of first refusal, rather than distributing support through competitive bidding, is an unwarranted departure from market-driven policies.”

But the LECs argue that right of first refusal (ROFR) is designed to accelerate broadband deployment and prevent the duplication of existing facilities. The ABC group in its reply comments maintains that ROFR “appropriately minimizes such risks for substantial broadband investments that have been made by USF-supported ILECs in high-cost areas, while sustaining competitive and technological neutrality.” The group also argues ROFR is not available to an ILEC that hasn’t deployed broadband service to at least 35% of a given service area.

While still advocating for its own RLEC Plan, a coalition of rural telecom associations threw their support behind the ABC group. USTelecom, the National Telecommunications Cooperative Association (NTCA), the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) and the Western Telecommunications Alliance (WTA) sent a letter to the FCC acknowledging a “Consensus Framework” for USF and ICC reform.

 Summary of Proposals

The State Member’s Plan

  •  Limit support to cases of demonstrated necessity, based on “total company revenues,” where there is no private-sector business case to provide broadband service
  • Distribute support based on three new mechanisms to support both broadband and mobility
    • Provider of Last Resort (POLR) Fund
    • Mobility Fund
    • Wireline Broadband Fund
  •  Expand the base of contributions to universal service to include DSL, cable modem and wireless broadband
  • Define VoIP as a telecommunications service · Limit the high-cost USF budget to $4.2 billion per year

The ABC Plan

  • Create a $4.5 million high-cost USF budget from 2012-2017
    • $2.2 billion for price cap carriers
    • $2 billion for rate-of-return carriers
    • $300 million for mobile broadband
  • Eliminate rural and non-rural carrier distinctions
  • Give ILECs right of first refusal to provide service
  • Target Connect America Fund (CAF) support only in high-cost areas where there is no business case to offer broadband
  • No CAF support for areas already served by an unsupported broadband competitor
  • Reduce terminating ICC rates of all carriers, except rate-of-return incumbents, to $0.0007 per minute
    • Transition occurs gradually over a five-year period, to be completed by July 2017
    • Compensate for decreasing ICC revenue by increasing federal SLC rates

The RLEC Plan

  •  Subject interconnected VoIP providers to interstate access rates and reciprocal compensation
  • Address “phantom traffic” and traffic stimulation
  •  Cap interstate originating and terminating access rates
  • Set the local service rate benchmark at $25
  • Reduce the interstate rate of return from 11.25% to 10%
  • Create a $4.5 million high-cost USF budget from 2012-2017
  • $2.2 billion for price cap carriers
    • $2 billion for rate-of-return carriers
    • $300 million for mobile broadband
  • No set budget for high-cost USF after 2017


Feb. 4 - FCC releases USF-ICC Transformation Notice of Proposed Rulemaking (NPRM)
April 18 - RLEC Plan submitted
May 2 - State Members Plan submitted
July 29 - ABC Plan submitted
Aug. 3 - FCC releases Public Notice seeking comment on the different plans
Aug. 24 - RLEC Plan, amended under the “Consensus Framework”, submitted
Sept. 6 - Deadline for reply comments

Comments/Replies on Lifeline Reform Proposals

Two days after releasing a Public Notice regarding USF-ICC reform, the FCC on August 5th released a Public Notice requesting further comment on four specific issues regarding reform of Lifeline and Link Up, two programs under the current USF. Link Up provides discount service installation, while Lifeline provides discounted monthly service for low income customers.

Those issues are:

  1. Implementing a Lifeline/Link Up broadband pilot program
  2. Limiting Lifeline support to one discount per residential address
  3. Revising the definition of Link Up service and reducing the $30 reimbursement amount
  4. Improving methods for verifying continued eligibility

Issue number three drew a wide range of comments and replies. Sprint proposes the FCC eliminate Link Up support, because the cost to initiate service has fallen.

It’s a position supported by TracFone, one of the largest recipients of Lifeline funds. The company wrote in its reply comments, “The fact that TracFone and other wireless ETCs (Eligible Telecommunications Carriers) have been able to expand their Lifeline offerings without Link Up support is the best evidence available that Link Up support is not necessary to provide Lifeline service.”

Nexus Communications disagrees, along with the Link Up for America Coalition (which includes Life Wireless, Tag Mobile and NewPhone). Those providers oppose any elimination or reduction of Link Up support, arguing that activation costs have not declined. The Coalition also argues that Link Up “goes beyond mere cost reimbursement and instead was created and continues to serve as a carrier revenue replacement mechanism.”

As for issue number four, carriers agreed the FCC should not create more administrative burdens by adding a “sample-and-census” approach during the transition, as proposed in the Lifeline NPRM. The Commission’s proposal would require some carriers to verify eligibility of all their Lifeline customers every year. Verizon wrote in its reply comments that, “Instead of expending resources on changes to existing Lifeline program enrollment, certification, and verification procedures the Commission should develop and adopt a national database for these functions as soon as possible.”

Since the FCC in June had already adopted a one Lifeline service per customer rule, AT&T commented that it’s not necessary to implement a one-per-household rule.

Pennsylvania Approves Access Charge Reform

Intrastate carrier access rates in Pennsylvania will be coming down as the result of a June 30th decision by the Public Utility Commission (PUC). It’s estimated to reduce access charges by $50 million for Interexchange Carriers. The reform includes: 

  • Gradual reduction of intrastate access rates to $2.50 per access line
  • Allow local exchange carriers to recoup losses by increasing residential/business rates over a four-year period
  • Begin a rulemaking proceeding to consider changes to the state’s Universal Service Fund

The PUC’s latest move falls in line with the FCC’s National Broadband Plan, part of which attempts to rebalance local service rates with actual costs, rather than being subsidized by customers’ long distance rates. The National Broadband Plan also calls for the elimination of per-minute intercarrier compensation (ICC) charges over a ten-year period.

An analysis of the National Broadband Plan and its effect on ICC can be found on the Tele-Tech blog.

Trial Date Set for AT&T Lawsuit

According to news service Reuters, AT&T heads to trial February 13, 2012 to argue its case to buy T-Mobile. The Department of Justice in August filed an antitrust lawsuit to stop the acquisition.

The proposed $39 billion purchase would have merged two of the four largest wireless service providers in the country. Both companies compete in 97 of the largest 100 cellular markets.

In a press release, Deputy Attorney General James Cole said, “The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services.”

The FCC is still completing its review.

August Disasters’ Impact

The FCC is trying to determine what caused cell phone congestion right after a 5.8 magnitude earthquake struck the Washington, DC area on August 23rd, according to industry news service Broadcasting & Cable.

Many people in the affected area attempting to make calls on their mobile devices received busy signals because of congested networks. Callers did not report problems when using their landline phones. Users also had no trouble posting messages on web-based services like Twitter and Facebook.

Days later, the traditional wireline phone (models plugged into the power grid to operate) became useless when Hurricane Irene knocked out electricity to thousands along the East Coast. Instead, victims placed calls using their battery-powered cell phones.

Carriers reported the damage to cell towers as minimal.

The FCC did not receive any reports of public safety communications outages. Broadcast and radio communications were largely unaffected, although a significant number of cable customers in North Carolina lost service.

In reaction to the recent DC area earthquake, the Commission is also seeking comment on how to prioritize calls to 911 over other calls during emergencies, especially on wireless networks. That’s one of the questions being asked in a Notice of Proposed Rulemaking adopted in late September, which seeks to advance the deployment of Next Generation 911 (NG911), an IP-based emergency communications system.

Are You Paying Too Much into the Universal Service Fund?

If you’re a VoIP service provider and you’re paying into the Universal Service Fund (USF) based on the "safe harbor" of 64.9% of revenue, you could be paying too much!

Find out quickly and inexpensively if you’re overpaying! Tele-Tech Services can analyze a sample of your call records and deliver an estimate of the percentage you’d be paying if a thorough and complete traffic study were performed. We can even tell you if paying based on actual traffic percentage would be beneficial for you.

The universal service contribution rate is likely to increase nearly one percent next quarter, with service providers expected to pay 15.3% of their interstate revenue. The upward trend in contribution rates validates a closer look at how you determine your interstate revenue. Contact Kim at krusso@telecomdb.com

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