American Cable Association seeks changes to USF reform plans

With two weeks to go until the FCC votes on whether to adopt major reforms to the Universal Service program, the American Cable Association still hopes to persuade the FCC to make certain changes to the brokered reform solution proposed by large and small telcos. (CP: Rural carrier associations confirm agreement with large carriers on broadband USF funding) Although FCC Chairman Julius Genachowski said last week that the FCC does not plan to adopt the brokered solution outright (CP: Genachowski outlines USF reform plans: “Status quo is no longer an option”), the proposal has heavily influenced the FCC’s plans.

On a conference call with reporters this week, ACA President and CEO Matthew Polka took aim at the brokered solution’s suggestion that price cap carriers have a right of first refusal to build broadband to unserved areas within their ILEC serving areas—provided that the carriers already have deployed broadband to at least 35% of the homes in the area (CP: Rural carrier associations, price cap carriers defend Universal Service reform proposal).In areas where the price cap ILEC hasn’t built out to that threshold level competitive carriers would be able to bid to provide service through a reverse auction.

The ACA wants the ability to bid more widely—and to enable that to happen, Polka proposed that ILECs be offered the right of first refusal only in areas where they have built out service to less than 35% of homes in the area.

Cable companies’ broadband offerings often provide four times the bandwidth of telco DSL deployments, Polka said. “Our members have competency and experience in providing broadband today,” said Polka. “We strongly object to the commission’s plan to provide price cap carriers with the opportunity to enter in a soul-source contract that doesn’t reflect competitive realities and won’t drive broadband efficiency to high-cost areas.”

The brokered solution recommended $2.2 billion for Universal Service support in price cap carrier territories. Polka said the price cap carriers estimated that the brokered solution would give them a right of first refusal in 80% of those territories, suggesting that the price cap carriers would receive the lion’s share of the $2.2 billion—a substantial increase from the $900 million that price cap carriers get in high-cost USF support today. The ACA, he said, would like to see no more than $600 million in broadband USF support awarded to price cap carriers.

The ACA represents smaller, more rural cable companies. Perhaps not surprisingly, Polka’s proposed changes to the brokered USF reform plan were confined to price cap carriers. The ACA apparently is not seeking changes to the proposal’s recommendation to award broadband USF to incumbent telcos in rate of return areas—perhaps because a substantial portion of ACA members also have an ILEC business unit.

Small cable companies speak up
Joining Polka on this week’s call were representatives of several of the smaller cable companies that comprise the ACA’s membership, including John Higginbotham, superintendent for cable and telecommunications for the Frankfort Plant Board in Frankfort, Kentucky.

Higginbotham said the Frankfort Plant Board has compiled the names of 500 people in rural areas surrounding Frankfort who would like to get broadband service from the organization, but the organization has not been able to justify the business case. “We want access to [Universal Service] funds so we can build out [to these people],” Higginbotham said.

Also on the call were two other smaller cable companies that would like the opportunity to bid to obtain USF dollars. One of these was Chris Hilliard, CEO of USA Communications, a company that serves communities as small as 600 people using a wireless overlay to extend its cable plant. The other was Craig Martin, general counsel for WOW Internet, Cable & Phone--a smaller cable operator that has an excellent customer service record. To date WOW has focused on suburban areas, but the company is looking to extend service into rural areas, Martin said.

USTA offers a veiled response
Walter B. McCormick Jr., CEO of the US Telecom Association, did his own conference call with reporters this morning. The USTA was one of the creators of the brokered USF reform solution—and McCormick said that solution continues to be the frontrunner reform proposal.

“We were the only parties to present a comprehensive proposal aimed directly at the principal objective—accelerating deployment to those who don’t have it,” said McCormick.

McCormick added that 50 members of Congress have voiced support for the brokered solution and another 12 have endorsed aspects of it. “Not a single member has written in opposition or in support of any other plan,” he said.

Although the topic of the ACA proposal did not come up directly, McCormick offered a veiled rebuttal to what the group proposes. “If the Number One priority is to get [broadband to] unserved [areas] as quickly as possible, the best way is to fund the upgrade of networks that are already out there,” said McCormick.

ACA members might argue that their networks also are out there already. The hitch is that the reverse auction process itself could delay the cable companies’ ability to quickly extend broadband service. Then again, some unserved rural Americans might prefer to wait, say, two years to get cable modem/ broadband wireless speeds rather than getting DSL speeds in a year.

The question then becomes whether the cable companies could actually win in a competitive bidding situation. I don’t know the answer to that, but perhaps some readers do. Please weigh in if you do.