ILECs Ask 10th Circuit to Vacate FCC’s USF/ICC Order
Arguing the FCC lacks statutory authority to transition intercarrier compensation (ICC) rates to zero, ILEC intervenors asked the 10th U.S. Circuit Court of Appeals Wednesday to vacate the 2011 USF/ICC order in its entirety. But the court won’t decide the fate of the order anytime soon, as the FCC’s brief in support of the order isn’t due until spring, said attorney Greg Vogt, who represents the National Exchange Carrier Association and worked on the brief. Until then, “the FCC’s order is effective and it’s moving onward and it’s harming rural telephone companies and their customers right now,” he said. Another telecom lawyer and an executive told us the rules are hurting ILECs, and will continue to for at least another year, until the 10th Circuit decides the case.
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The FCC lacks authority to impose a mandatory bill-and-keep framework, intervenors argued. The commission’s USF reductions were inconsistent with Section 254 of the Telecom Act, they said, which requires support “sufficient” to preserve universal service, and “predictable” enough to promote investment in networks. That’s a reference to the “arbitrary overall ‘budget'” for high cost support, the monthly $250 per line cap, the eliminated safety net additive recovery for rate-of-return LECs and “regression formulas” to limit capital and operational expenses, they said.
Intervenors argued the commission doesn’t let ILECs recover their “prudently incurred” costs. “Neither cost cutting nor efficiency gains will permit rate-of-return carriers to recover their costs to remain financially viable as the FCC unreasonably assumes,” they said. Section 252(d) of the Act requires that reciprocal compensation rates be set by states where private negotiations fail, they said. Intervenors include NECA, OPASTCO, the Independent Telephone & Telecommunications Alliance, and several individual rural telcos.
"We're being required to make our networks available to our competition, for free,” said Jay Preston, CEO of Ronan Telephone Co. in Montana. “The FCC’s been talking about bill-and-keep so long that they think it makes sense. Well it doesn’t make sense. You don’t want to work for free, and neither do I.” The idea of transitioning the support mechanism from pure traditional voice to a more general data-centric Internet Protocol form makes sense, since that’s where the market is going, Preston said. “It’s just the way they're doing it isn’t going to provide enough support for rural areas,” which have much higher costs."
Until November 2011, ILECs and the FCC had a “regulatory compact,” intervenors wrote. ILECs would serve as carriers of last resort (COLRs), providing regulated telecom services to virtually everyone within their service areas even if the customers were uneconomical to serve. In exchange, the government gave the ILECs a reasonable opportunity to recover their costs, the brief said. “The Order abandons this regulatory compact by freezing and then reducing ICC rates, capping and cutting USF support, and imposing new and costly conditions for receiving such support, without affording ILECs a reasonable opportunity to recover their used and useful costs."
"Regulatory compact” isn’t a term the intervenors came up with, said Vogt. Regulators and courts have referred to it from time to time, citing it as the thing that makes it constitutional for a regulatory agency to control the rates a telco charges, he said. In exchange for the COLR requirement, regulators agree to allow carriers to recover their prudent costs -- “it’s a simple as that,” Vogt said.
Small telcos are being required to provide services without compensation, said Bingham McCutchen attorney Russell Blau, who represents OPASTCO. In the move to bill-and-keep, “we still have to terminate the traffic but are no longer being allowed to charge anything for doing so,” he said. “The FCC just assumed it would be possible without doing any analysis.” The commission also failed to consider if its reduced universal service support would be sufficient to cover existing obligations, let alone new ones, such as the requirement to provide broadband service to customers who reasonably request it, he said. Blau said oral argument won’t take place until fall 2013 at the earliest. Until then, the order stands and OPASTCO members are being affected, he said.
The FCC overstepped its bounds in prescribing specific rates for reciprocal compensation, said Rick Askoff, executive director-regulatory of NECA. Courts have said that the FCC can set a methodology, but not a specific rate, he said. The commission’s bill-and-keep transition sets rates “in the guise of setting a methodology,” he said: The reforms will “make it impossible for companies to recover their costs.” On the universal service side, the order violated the Act requirement that support be sufficient and predictable to meet its goals, he said. NECA doesn’t oppose having the USF be modernized for broadband, “but we want to make sure that we're not going to be forced out of business,” Askoff said.
"The numbers just don’t add up,” said Montana attorney Chuck Evilsizer, who represents Ronan and Hot Springs Telephone Co. As the access charges that small telcos charge to the long-distance carriers transition to zero over nine years, the “small rural companies are being required to subsidize the competition,” he said. Essentially, his clients are being forced to give away services to competitors with “vastly greater resources,” Evilsizer said. He said some at the FCC “flat out want these small companies to go out of business. They think we're inefficient because we're too small.”