Allband Gets Three-Year Waiver of Reduction in Per-Line USF Support
Allband got a three-year waiver of a new FCC rule limiting per-line USF support to $250 a month, in an order released by the Wireline Bureau Wednesday (http://xrl.us/bniaq3). The bureau said a limited waiver was necessary to ensure that consumers in the area would continue to receive voice service where there’s no terrestrial alternative. By granting Allband’s request, the bureau said it hoped “to provide it additional time to take cost-cutting and revenue-enhancing actions in order to improve its financial position and lessen its dependence on high-cost universal service support.” This is the first waiver granted in the “support reductions” category.
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Allband is a small telephone cooperative in rural Michigan, formed in 2003 to serve a remote area that previously had no voice service. Allband had argued that the monthly cap on universal service support would “irreparably and immediately harm” the telco, which otherwise would receive about $8,500 per line in 2012 (CD March 9 p3). Allband said its customers paying about $20 monthly for basic phone service would have to pay nearly $500 a month by July 2014 to make up for the shortfall.
"We find that special circumstances support Allband’s waiver request,” the bureau said. “Unlike many other incumbent telephone companies, Allband is a relatively new company, and therefore has significant start-up costs and undepreciated plant.” The record supports Allband’s claims that consumers would lose voice service absent a waiver in the near-term, the bureau said.
The bureau closely analyzed Allband’s financial records before making a determination. “In reviewing Allband’s financial statements, it appears that the management of Allband is mindful of its expenses and limited financial resources given the size of its business,” the bureau said. “In our view, the salaries and wages of Allband’s seven employees are modest. Similarly, while certain other expenses, such as legal, accounting, and insurance are ongoing and an unavoidable cost of doing business, Allband’s level of expenses, on a total dollar basis, are reasonable given the size and age of Allband’s operation.” An FCC official said decisions on reasonableness are based on information they have regarding the salaries, expenses and management practices of many other companies, including those of comparable size.
The bureau said three years would give Allband a “sufficient but not undue amount of time to make a good faith effort to come into compliance with the $250 cap” by actively pursuing “any and all cost cutting and revenue generating measures in order to reduce its dependency on federal high-cost USF support.” The bureau suggested Allband continue to expand its subscriber base, lowering costs as the company matures, and working with the Rural Utilities Service to rework its loan terms. If Allband cannot meet the cap in the next three years, the bureau said it would use the information gathered during that time period to “determine what further steps are necessary to reach that goal.” Possibilities could include a further waiver or the initiation of a phase-in period, the bureau said.
Allband’s attorney told us the co-op is studying the order, crunching the numbers and working with models to try to figure out what steps it can take to reduce expenses. But as confirmed in the order itself, Allband runs a lean operation and it will be tough to make cuts, said Don Keskey of the Public Law Resource Center in Lansing, who represents Allband. “Whatever the FCC was trying to accomplish in its rulemaking, where they're stating concerns about inefficient expenses, or perhaps private aggrandizements or affiliated transactions, et cetera, none of those perceptions fit Allband,” he said. “Unless something changes, you have limited market growth, and you have high expenses, and there’s always a baseline of expenses that you can’t cut."
The dynamics of the sparsely-populated, densely-forested area could change if businesses move into the area, which may happen now that Allband has created a backbone for further expansion and opportunities, Keskey said. As the depreciation schedule of Allband’s plant kicks in, that will reduce some costs over time and possibly bring the per-line cost down, he said. Allband had also requested a waiver of the benchmarking rule to limit high-cost loop support for capital and operating costs. But the bureau said the request was moot, because under the quantile regression methodology ultimately adopted by the bureau, Allband ended up not being capped. Bureau officials told NARUC this week they'd received about 10 waiver requests (CD July 26 p15). Two requests involving boundary conflicts were quickly resolved, they said. Interim relief was also granted to Windy City for USF in Alaska pending final disposition of the waiver filed by its parent Adak.