Carriers see good and bad in Universal Service reform order

Our in-box was flooded yesterday with reaction statements from various telecom industry stakeholders after the FCC unanimously adopted an order to transform today’s high-cost Universal Service program into a broadband-focused program (CP: FCC adopts Universal Service and inter-carrier compensation reform order). Here’s a recap of industry reactions:

Price cap carriers
The reforms adopted yesterday were heavily influenced by large price cap carriers such as AT&T and Verizon. Not surprisingly, the reaction from that camp was largely positive, although some comments noted that there had been deviations from what the carriers proposed.

“While no one [party] can say that it is thrilled with all aspects of what the FCC did today, we are cognizant that we shouldn’t lost sight of the forest—the significance of what this decision means to all Americans—through the trees,” said AT&T Senior Vice President of Federal Regulatory and Chief Privacy Officer Bob Quinn in a statement. “This is a significant achievement worthy of congratulations and its impact on all Americans should not be minimized.”

Rate of return carriers
Small rate of return carriers also were involved in the telecom industry USF reform proposal upon which the FCC drew in crafting its reform order. But there too the FCC deviated from what was proposed, initially retaining the current high-cost system, but leaving considerable vagueness about how longer-term broadband Universal Service support would be awarded to rate of return carriers.

The three major associations representing small rate of return carriers—the National Telecommunications Cooperative Association, the Organization for the Promotion and Advancement of Small Telecommunications Companies and the Western Telecommunications Alliance--expressed their concern about this vagueness in a joint press release, but used an optimistic tone.

“While we had hoped the FCC would adopt the [rural local exchange carrier] plan as part of a long-term vision for USF reform, we understand that the FCC will suggest that our plan reflects a sound touchstone for further reform and will seek further comment on it,” said NTCA CEO Shirley Bloomfield in a statement. “We urge the FCC to move quickly in taking up this opportunity and adopting this plan.”

Wireless carriers
Two different wireless associations--one representing larger carriers and one representing smaller rural carriers—expressed concerns that the reform order does not direct sufficient funding their way. But they had two different interpretations of the numbers.

While CTIA the Wireless Association President and CEO Steve Largent said in a statement that reforms would direct only 11% of long-term funding toward the wireless industry, the Rural Cellular Association calculated that number at less than 9%. (Connected Planet’s calculation matches what the CTIA found.)

“It is frustrating that the Commission’s actions to date do not match Chairman Genachowski’s previous statements that ‘broadband is the future of mobile and mobile is the future of broadband,’” said RCA President and CEO Steven K. Berry in a statement.

Cable companies
Associations representing large and small cable companies—including the National Cable & Telecommunications Association and the American Cable Association (CP: American Cable Association seeks changes to USF reform plans) --also expressed disappointment that USF reforms direct the lion’s share of funding to incumbent landline telcos.

“We are disappointed in the commission’s apparent decision to ignore its longstanding principle of competitive neutrality and provide incumbent telephone companies an unwarranted advantage for broadband support,” said NCTA President and CEO Michael Powell in a statement.

But the cable companies did gain a victory in the FCC’s decision to put all carriers on an “equal footing” in their ability to obtain inter-carrier compensation—and Powell acknowledged that, praising the commission’s efforts “to ensure that carriers are fairly compensated for completing VoIP calls during the transition to bill and keep arrangements.”

Cable companies connect virtually no Universal Service funding today—and while the reforms outlined by the FCC don’t do a lot to change that, cable companies will have the opportunity to bid to provide broadband in areas where an incumbent price cap carrier declines to deliver service at the support level calculated through the FCC cost model. ACA President and CEO Matthew M. Polka said in a statement that the ACA will remain “fully engaged” as the FCC determines how the competitive bidding process will work.

Competitive carriers
An important component of yesterday’s reform order specifies that VoIP providers will be required to pay inter-carrier compensation on calls that begin or end on the PSTN, resolving an issue that has been vague for many years. VoIP providers apparently have been expecting this and did not protest—perhaps because the order also specifies the phase down of per-minute access charges over the next few years.

The critical issue for VoIP providers now will be what moves the FCC makes with regard to calls that are interconnected directly in IP format. VoIP providers no doubt were encouraged by the FCC’s requirement that carriers negotiate such interconnection agreements in good faith—a requirement that is also encompassed in the reforms announced yesterday.

“We urge the FCC to take advantage of its reform momentum by rapidly establishing vastly more efficient IP interconnection arrangements and by establishing a rational means of funding universal connectivity,” said the Tech/Users Coalition, whose members include Vonage and Google, in a statement.