Sixteen Rural Telcos, Broadband Alliance Break with Associations, Urge Tough Line on USF, ICC Reforms

A breakaway group of rural telcos organized a last-ditch effort to keep their trade associations from signing on to a USTelecom-brokered agreement on Universal Service Fund and intercarrier compensation regime reforms. “It is simply a bad deal for rural America!” said a draft letter circulated by the Rural Broadband Alliance’s Diane Smith and Stephen Kraskin.

The letter, already signed by executives from 16 rural telcos, urges rural telecom associations to fight for (1) “adequate non-discriminatory access pricing,” (2) “no pre-emption of state authority over intrastate rates,” (3) “shared sacrifice within the industry,” (4) “compliance with the law,” (5) “reasonable cost recovery” for rural telcos’ investments, (6) “no unfunded mandates,” and (7) “cost recovery fairly allocated between the jurisdictions.” At least six companies -- Verizon, AT&T, CenturyLink, Windstream, Frontier and Fairpoint -- were hoping to file the USTelecom-brokered USF deal on Friday. The three biggest rural telecom associations continue to negotiate, and earlier this week circulated an email to their members bracing them for “give-and-take” on rate-of-return and “deeper” cuts in intercarrier compensation (CD July 28 p8).

The Rural Broadband Alliance-led group has urged rural carriers to push back. “If the Joint Association Group endorses this proposal, they will put our communities and our companies at risk,” Smith and Kraskin said in a covering email to their draft letter. The Joint Association agreement “could irreparably harm small telephone companies nationwide and provide a windfall to AT&T and Verizon,” they said. The absence of rural support might mean the FCC would rely more on the state members of the Federal/State USF Joint Board and NARUC, a state regulator said. Without solid support from the rurals, the proposal would have significantly less support than the Missoula plan did, which could be interpreted as a major setback because that plan, an industry proposal to revamp intercarrier compensation in 2006, was unable to garner sufficient support to achieve critical mass, he said.

The 16 signing telcos are: Great Plains Communications, Consolidated Telephone, Matanuska Telephone, Home Telephone, Farmers Mutual Cooperative Telephone, Northeastern Pennsylvania Telephone Corp., Pine Belt Telephone, Farmers Telephone Cooperative, Lincolnville and Tidewater Telephone, Northeast Nebraska Telephone, Eatel, Poka Lambro Telephone Cooperative, K&M Telephone Co., Chickamauga Telephone and its affiliates, Hargray Communications and American Broadband.

David Fish, the new spokesman for the six major telcos, sent an email Thursday saying: “After months of discussion, including consultation with knowledgeable people across the sector, we're very close to sending the Commission a strong and balanced framework. It extends broadband to many more people, revamps the intercarrier compensation system, and we hope contributes to the FCC’s efforts to resolve these critical policy issues. We sense a lot of cooperation in the air and a good-natured resolve to help the FCC produce a plan that benefits consumers and the industry."

NTCA CEO Shirley Bloomfield defended her group’s advocacy efforts, in a Thursday email. “We have delivered to our members a balanced analysis of their options that takes into account the need for sustainable support mechanisms and the political and economic realities on the ground,” she said. Bloomfield dismissed the breakaway group’s efforts: “Unfortunately, a vocal few have rushed ahead to pursue individual agendas, spread rumors about what the industry’s options may be, and/or publish estimated numbers without adequate fact-checking."

Time may be running out on the rural carriers. On Thursday, House Commerce Committee leaders said USF reform can’t wait. After publishing data from the FCC on USF, committee Democrats and Republicans said it confirms it’s broken, and they urged the commission and industry to quickly find consensus on an overhaul. The committee expects the regulator will send more data in “the coming weeks,” it said. Hill aides have been active in recent months in the Joint Association talks. “We certainly support reform, but we have not endorsed a particular proposal yet, especially one that has yet to go through a public comment process,” said a Commerce Committee spokesman.

Reforming USF “will not be easy,” said Commerce Committee Chairman Fred Upton, R-Mich. “But I believe that if the industry comes together and if the FCC adopts market-based, technology-neutral mechanisms to target support to the high-cost consumers who need it most, real reform is within reach.” FCC data confirms USF “is in trouble,” he said. “After years of uncontrolled growth, the $8.4 billion fund subsidizes incumbents even where unsubsidized competitors can and do offer cheaper service. It supports the build-out of telephone lines where others have already built them, and it imposes few if any cost controls on recipients of its subsidies. This support is not free -- it is paid by every American who uses our telecommunications networks."

The FCC data “once again demonstrates the urgent need for USF reform,” said Ranking Member Henry Waxman, D-Calif. “I am encouraged that the FCC is serious about implementing reforms and urge all stakeholders to work towards consensus. The survival of the program requires new thinking and compromise, and I hope the FCC will act quickly and boldly.” Waxman urged targeted, cost-effective support and elimination of duplicative subsidies in the same area. “Providers must no longer be subsidized based on the costs of their competitors,” he said. “And we need to do a better job rewarding companies that can provide comparable services at the lowest possible price for consumers."

The FCC should use the data to “wring out waste, fraud, and abuse from the high-cost and low-income funds,” said Communications Subcommittee Chairman Greg Walden, R-Ore. “Putting the fund on sounder financial footing and getting the biggest bang for the ratepayer’s buck are necessary first steps towards closing the rural/rural divide” between price-cap and rate-of-return service areas. Subcommittee Ranking Member Anna Eshoo, D-Calif., said the new FCC data “will help guide the Committee’s work as we look at modernizing the universal service fund and bringing affordable broadband to all Americans.”