FCC and Industry Tensions Over Scope, Timing Complicate Rural USF Reform

FCC Chairman Tom Wheeler Thursday said he intends to circulate a draft rate-of-return USF item in December but won’t be “held hostage to the calendar.” He said he is working with Commissioners Mignon Clyburn and Mike O’Rielly on changes that would both support existing broadband networks and encourage new deployment (see 1511190057). Although O’Rielly Thursday acknowledged a commitment commissioners made to Senate Commerce Committee Chairman John Thune, R-S.D., to address rate-of-return USF this year, he said it was more important to get the policy changes right. If an overhaul proves too difficult near term, Commissioners Ajit Pai and Jessica Rosenworcel want the FCC next month at least to remedy the stand-alone broadband problem, which prevents rate-of-return carriers from receiving support for broadband customers using other voice providers (see 1511160043).

The FCC is looking at a two-track rate-of-return USF plan that would give rural carriers the option of receiving new broadband-oriented Connect America Fund support based on a cost model, or receiving funding under a “bifurcated approach” to legacy mechanisms. Under the latter, USF support for investments before a selected date would be based on the old rules and USF support for investments after that date would be based on new rules. “What Chairman Wheeler is putting on the table is a comprehensive reform package that includes a fix to the stand-alone broadband problem,” Jon Banks, USTelecom senior vice president-law and policy, told us Friday.

Asked for comment on Wheeler’s remarks, NTCA said it appreciated the commission efforts, but again suggested the FCC take more time to fine-tune some reform elements. “As NTCA has outlined in recent filings, we believe there are several common-sense, transformative changes -- a fix for the standalone broadband problem, new expense limits, and budget measures, as well as affirmatively deciding to adopt a voluntary model option -- that could be adopted in the very near term and would both help pay for existing broadband and stimulate greater investment in new broadband,” said Mike Romano, senior vice president-policy. “Other changes under consideration might also be helpful in achieving one or both of these goals, but these other changes are also more complex, are less developed, and require time to analyze some early data and refine the proposals accordingly. We look forward to continuing dialogue with the FCC on getting reform done both quickly and right." NTCA has suggested the bifurcated approach in particular needs more work and testing of carrier outcomes (see 1511100064).

WTA’s position is similar to NTCA’s, said Derrick Owens, WTA vice president-government affairs, told us. “Our primary objective is to make sure our members have a thorough understanding of both approaches,” he said. “My members want to make an informed decision about whether to opt into the cost model, or stay with the [non-model] mechanisms as changed, but they just don’t have enough information at this point. Some members want to go to the model immediately, and we want to make that happen, but we also have a large number of members who don’t know what the bifurcated approach means for them and can’t make an informed decision. … We’d like to have more time.” Owens said it’s tough to expand broadband when USF support is going down, not up. “We’ve always talked about having the budget increased, but that goes over like a lead balloon” at the commission, he said. There are about 1,000 rural carriers overall and they will be affected differently by changes, complicating the task, he said.

The FCC and industry are continuing to work on open issues in comprehensive reform proposals, ITTA president Genny Morelli told us. “We’re trying to close out those open issues so the commission can adopt comprehensive reform by the end of the year, and if not then, soon thereafter.” She said the FCC and industry are “very close” to reaching agreement on a model-based plan. “There are more open issues to resolve with respect to the bifurcated plan, but we’re spending a lot of time trying to close them out.” An ITTA filing posted Friday in docket 10-90 detailed its views on a number of issues.

The FCC and industry are “moving toward reform,” USTelecom's Banks said. He said “reform has to happen soon” but he suggested USTelecom wouldn't oppose a short delay to get comprehensive reform right. “I think everybody has the same goal of coming up with a Connect America Fund that will help build modern broadband networks and keep the networks up and running, and we’ve made a lot of progress.” Banks said there are a few “very important issues to be resolved, but there’s a very constructive dialogue between the parties and the commission.”

Banks said the ITTA filing did a good job of detailing the open issues. Among the sticking points, he said, are “accounting issues around depreciation” and related transition issues under the bifurcated approach. “When does the old system finally go away?” he asked; as assets depreciate, “at some point it makes sense to transfer everything to the new system." He said there were also questions about how the FCC would define “competitive overlap” in the bifurcated approach under which an incumbent carrier wouldn’t receive support if an unsubsidized competitor is present.