FairPoint Private Broadband Move Said to Target USF Payments; Others Expected
FairPoint Communications will no longer pay into USF for the wholesale broadband telecom service it plans to take private, said an official for another rural-oriented carrier that has similar plans. "This is really about USF," said Trey Judy, Hargray Communications director-regulatory affairs. "I think other companies are going to follow suit. ... It’s just correcting an inequity that’s been there for a while," he told us, citing cable competitors as not paying into the fund for their broadband offerings. "This puts [rural telcos] on a level playing field." Separately, Republican FCC commissioners recently voiced concern the agency could begin to assess industry broadband revenue in general to pay for USF.
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FairPoint notified the FCC Thursday it would cease offering its broadband internet transmission service as a telecom service and instead offer it as a private service, starting on Aug. 22 (see 1606230071). In a letter in docket 14-28, the telco said it was making the change for its rate-of-return ILECs pursuant to an FCC decision in its 2015 net neutrality order, which reclassified broadband internet access service as a Title II telecom service under the Communications Act. It also cited FCC instructions in a rate-of-return USF clarification order for rural carriers from early June (see 1606170058). FairPoint has had no further comment since then.
"Many rate-of-return carriers have historically sold wholesale DSL service under tariff to affiliates that, in turn, offer retail broadband Internet access services to residential consumers," said the recent USF clarification order. "While rate-of-return carriers have typically offered Internet transmission services as telecommunications services subject to the full scope of Title II for various historical reasons, nothing in our rules requires them to do so today. They are free to detariff the service and provide it only to their own affiliate on a private carrier basis, comparable to the price cap carriers."
Asked about FairPoint's move, an FCC spokesman pointed us to paragraph 25 of that order. Its first sentence says that "if a rate-of-return carrier chooses to offer and provide transmission only to its affiliated Internet service provider on a private carriage basis as an input in the provision of a mass market retail broadband Internet access service, that service would not be a telecommunications service subject to a mandatory contribution obligation." Carriers electing that option have to give the FCC 60 days' notice, the order said.
FairPoint will no longer have to make USF contributions based on the revenue from the wholesale broadband service it's taking private, Hargray's Judy said. He said under traditional Title II, rate-of-return carriers had generally been acting as common carriers in offering their broadband internet transmission services as telecom services. He said that "theoretically" allows unaffiliated carriers or ISPs to lease out the telecom transmission component, though he wasn't aware of any such arrangements. The classification did subject the carriers' wholesale broadband service to USF assessments, an obligation that will end under private carriage, he said.
Judy confirmed that Hargray is looking at making the same shift as FairPoint announced, and he believes other rate-of-return carriers also will. "I would anticipate you would see similar filings," he said. "The industry is still working out some of the logistics." He said the FCC looked at the potential revenue that could be affected and found it to be "de minimis." Several other rate-of-return telco officials didn't comment. Carriers continue to make USF contributions based on their interstate and international (long-distance) telecom service end-user revenue.
Meanwhile, FCC Republicans voiced concern the agency could assess broadband internet access revenue to fund contributions to USF. Speaking at a news conference after the commission meeting Friday, Commissioner Ajit Pai said the FCC decision to reclassify broadband internet access as a Title II telecom service opened the door to imposing broadband "taxes." He said the last thing consumers want to see is an "additional amount of money extracted from them to fund some of the agency's profligate Universal Service Fund programs."
Commissioner Mike O'Rielly said he agreed with Pai. "It is just a matter of time before they impose this tax, this fee, on Internet access," he said. "I'd be loath to move forward on any plan that's going to raise the costs. ... We have had problems getting our hands around the spending side of universal service. Until you do that, you have deep barriers before I'm going to be supportive. I don't see myself as favoring some type of Internet access universal service tax."