Rural carrier associations confirm agreement with large carriers on broadband USF funding

A letter from three rural carrier associations, six large price cap carriers and the U.S. Telecom Association sent to the FCC Friday afternoon confirmed that the organizations have reached an agreement on how price cap and rate-of-return telcos would like to move forward on transitioning today’s high-cost voice-focused Universal Service program to one focused on broadband. A critical component of that accord is agreement on how today’s $4.5 billion high-cost Universal Service fund would be redirected.

Friday morning, the six large carriers—including AT&T and Verizon—proposed allocating $2.2 billion to themselves and other price cap carriers, $2 billion to rate of return carriers such as those represented by the rural carrier associations, and $300 million to wireless carriers. The joint letter sent later on Friday confirms that the rural telco associations that represent most of the nation’s ROR carriers endorse the same funding split. Signing the letter on behalf of the ROR carriers were the National Telecommunications Cooperative Association, the Organization for the Promotion and Advancement of Small Telecommunications Companies and the Western Telecommunications Alliance.

“It is important to note that all parties made difficult compromises in order to find consensus,” the letter states.

The $2 billion allocated to the ROR carriers is approximately what they receive now in high-cost USF funding, said OPASTCO Vice President of Legislative Policy Randy Tyree in an interview. Much of that funding already has gone toward broadband deployment in rural areas, as broadband infrastructure is often shared with voice services. Friday’s letter also recommends that funding for ROR carriers should be increased by up to $50 million per year over the next six years “to enable access restructuring, promote further broadband build-outs . . . and provide a reasonable opportunity to recover the costs associated with existing investments in broadband-capable plant.”

Additionally, the letter confirms the essentials of what the price cap carriers and rural telco associations are calling a proposed USF reform “framework.” According to that framework, the price cap carriers are responsible for recommending details about how their $2.2 billion would be allocated within their group, while the rural carrier groups recommend details about how their potion of the funding would be allocated.

Rural carrier compromises
In an interview this morning, NTCA Senior Vice President of Policy Mike Romano said the rural associations still stand by the USF reform recommendations that they made earlier this year, with two key modifications outlined in Friday’s letter.
Those modifications include:
- a reduction in the proposed return rate for ROR carriers from 11.25% to 10%
- deeper reductions in per-minute access charges than originally advocated, but not as deep as what price cap carriers envision for themselves (CP: AT&T, Verizon and other price cap carriers send broadband USF proposal to FCC)

Both price cap carriers and ROR carriers envision creating access charge replacement mechanisms, but there are substantial differences about what price cap carriers are recommending for themselves and what the rural telco associations envision for their members. Most importantly, while price cap carriers envision funding their access charge replacement needs from their $2.2 billion, ROR carriers would be able to draw upon the additional funding that kicks in for them each year.

“If the funding doesn’t materialize, the rate reductions don’t occur,” said Romano. “We’re willing to accommodate some restructuring of access charges to help with reform but contingent upon sufficient funding available for access restructure support.”

Both Tyree and Romano also noted that there are key differences between how the price cap carriers would like to see broadband USF dollars allocated within their group and how the rural associations envision those dollars being allocated within their group. The price cap carriers envision using a cost model and if the incumbent declines to offer service at that level, a reverse auction would be used. The rural associations instead want to use a system that would compensate carriers based on how their actual costs compare to nationwide benchmarks.

Other stakeholders dissent
Even though the price cap and ROR carriers have reached a meeting of the minds on USF reform, other industry groups were quick to dissent. The Rural Cellular Association called the proposed framework a “wireline-centric proposal designed to benefit wireline companies, not consumers.” Even worse, the RCA said, the proposal “relegates rural consumers that need or want mobility to second class citizens without a choice.”

Meanwhile, competitive carrier association Comptel argued that proposed per-minute terminating access charges violate the Communications Act, which the association said requires state commissions to “determine a cost-based rate by applying the FCC’s methodology.” Comptel also argued that the proposal is “inconsistent with the Act in its treatment of IP-to-IP interconnection.”

The National Cable & Telecommunications Association, meanwhile, said it had “important questions” about how the framework would be “fairly applied.”