Federal Communications Commission Universal Service and InterCarrier Compensation Rulemaking Prepared by texaltel compensation Related Issues Access Stimulation

A CLEC that engages in traffic stimulation must file the access rates of the lowest Price Cap provider in the state within 45 days of meeting the definition.¹⁰

CLECs are allowed 15 days from the effective date of reduced ILEC tariffs to file their reduced rates. The benchmark rules for CLECs are unchanged except for those engaging in revenue sharing (see phantom traffic above).

The FCC leaves to the states to determine the points on a network at which a carrier must deliver terminating traffic to avail itself of bill-and-keep.²² A LEC may include traffic grooming requirements in its tariffs. These traffic grooming requirements specify when a long distance carrier must purchase dedicated DS1 or DS3 trunks to deliver traffic rather than pay per-minute transport charges, a determination based on the amount of traffic going to a particular end office. ²³

Originating access should move to bill-and-keep, but no specifics are mandated.²⁴ The FCC declines to apply Bill and Keep to originating access.²⁵

CMRS-LEC Compensation - We adopt bill-and-keep as the default methodology for all non-access CMRS-LEC traffic. A call is considered to be originated by a CMRS provider for purposes of the intraMTA rule only if the calling party initiating the call has done so through a CMRS provider. Finally, we affirm that all traffic routed to or from a CMRS provider that, at the beginning of a call, originates and terminates within the same MTA, is subject to reciprocal compensation, without exception.²⁷

Rate of Return ILECs – The baseline for recovery is the 2011 interstate switched access revenue requirement plus FY2011 intrastate terminating switched access revenues plus FY2011 net reciprocal compensation revenue. “Eligible for Recovery” is the difference between the Baseline (subject to 5% annual reductions) and revenues from reformed ICC in that year, based on actual MOUs.

ILECs may recover amounts “eligible for recovery” via a monthly fixed Access Recovery Charge (ARC). ARC may not increase by more than $.50 per year on consumers (residence) and single line business²⁸, and may not be applied to lifeline customers.²⁹ ARC on consumer and single line business is also limited to a weighted share of the amount eligible for recovery based on the carrier’s residential and business lines. The ARC may not be applied on a consumer already paying $30 or more local rate plus SLC³⁰. The ARC is calculated separately from the SLC, but may be included with the SLC as a single line item on customer bills. ARC may not be applied to multi line business where the SLC plus ARC would exceed $12.20 per line. The present SLC cap is $9.20.³¹ RBOC SLCs are typically in the $6 range. Total ARC is limited to 5 annual increases.

Rate of Return ILECs may implement ARCs with 6 annual increases of no more than $.50 per month for residence and single line business for a max of $3 per month in the 6^th year, and $1.00 per month per year for multiline customers with a max of $6.00 in the 6^th year.

CLECs may recover reduced revenues through end user charges.³² There is no recovery of lost ICC revenues from USF for CLECs.³³

If an ILEC is unable to recover all of the amounts “eligible for recovery” from ARCs, they may recover them from the CAF. For Price Cap ILECs, any such recovery is to phase out over 3 years beginning in 2017. For rate of return ILECs, ICC-replacement CAF support will phase down as Eligible Recovery decreases over time.³⁴

The Commission re-affirms its T-Mobile order that CMRS providers have an obligation to negotiate interconnection agreements with ILECs,³⁷ but 251(c) requirements are not imposed on CMRS providers. CMRS providers may fulfill their interconnection requirements with indirect interconnection.³⁸

The Commission mentions “cooperative federalism” – a term by which it sets the policy and goals and the states carry them out. Some states have less gentle terms for a process that they believe usurps their authority.

IP – to IP Interconnection – Seeks comments regarding IP – IP Interconnection³⁹

Non-payment Disputes. Several parties have requested that the Commission address alleged self-help by long distance carriers who they claim are not paying invoices sent for interstate switched access services.⁴⁰  As the Commission has previously stated, “[w]e do not endorse such withholding of payment outside the context of any applicable tariffed dispute resolution provisions.”⁴¹ We otherwise decline to address this issue in this Order, but caution parties of their payment obligations under tariffs and contracts to which they are a party. ⁴²

CAF stimulus package. (Credit to Frank G. Louthan, IV, and U.S. Research)

With over 83% of the estimated 18 million underserved population residing in price-cap carrier territories, the Connect America Fund (CAF) will provide $300 million in one-time funding in early 2012 to the price-cap carriers for an immediate broadband build-out. The $300 million was expected; however, we believe Frontier, Windstream, and to a certain extent CenturyLink will be the prime recipients of these funds, and will be required to build out to one home for every $775 of this allotment received. This equates to approximately 387,000 additional homes in 2012 and 2013 assuming it is all spent. If we assume a modest 35% penetration (since the local exchange carrier [LEC] will be the only broadband provider, higher levels would not be unrealistic), then these carriers stand to add about 136,000 new customers. In general, the focus on the 18 million and funneling support to unsubsidized areas like these tends to imply the price-cap and mid-sized carriers like the ones we cover stand to benefit the most from the order. From a simple standpoint, just having certainty to the rules is a positive, and with the potential for more support (assuming it is applied to profitable projects), these carriers should be seen as better investments.

Phase II for the CAF is expected to begin in 2013, and will involve competitive bidding in areas where the ILEC declines to provide service. Phase II is less clear to us at this point, and we do expect some more arguing over the next round of mostly smaller issues and details to be decided. The CAF will provide up to $1.8 billion annually to support those areas in which there is currently no unsubsidized broadband provider. As expected, the minimum speed requirements will be 4 Mbps down and 1 Mbps up, initially, moving up to 6 Mbps/1.5 Mbps in Phase II over time. Additionally, the order addresses broad latency requirements, such that voice over Internet protocol (VoIP) and other real-time applications will be possible. Speed and latency requirements will be measured from the end-user to the nearest Internet access point, will be reported annually, and will be subject to FCC/state government audit.

We note that money from CAF will not be provided to assist any carriers with existing build-out commitments. In particular, the order notes that CenturyLink and Frontier both have existing build-out obligations as part of their recent acquisitions that will not be eligible for additional funding. We note that with the ultimate goal of reaching 100% broadband availability, both carriers still have plenty of opportunity to receive funds for the percentage of homes not included in their prior commitment. The Connect America Fund will still rely heavily on the individual state regulators in order to enforce certain ICC regulations and designate ETCs. The CAF specifically avoided making any changes to the state’s carrier of last resort (COLR) obligations, which means the incumbent carriers will still be held liable to provide service to all homes in their territories.

Rate of return (RoR) carriers will be largely unaffected in the short term, retaining the $2 billion in annual high-cost fund support that they are to receive in 2011, despite only providing service to 5% of the nation’s total access lines. However, beginning in 2012, these carriers will have to begin to operate at higher efficiencies, in order to receive the same levels of support. The rate of return currently set at 11.25% appears to be heading lower closer to 9%, although no final decision has been made. Additionally, cost based carriers will see their support decline at about 5% per year, as the commission moves all RoR to some form of incentive-based regulation over the next few years. Ongoing support will be more specifically directed at particular areas and no longer based on the regulatory status of the carrier, thus the need for the rate of return or price-cap designation appears to be no longer necessary. One other very interesting change that we believe is welcome is the move to base support at a more granular wire-center level. This will allow the truly high-cost lines to receive support.

Ongoing mobility support from the Mobility Fund will begin at $50 million and expand $100 million per year until it reaches $500 million annually, of which tribal lands will receive up to a $100 million in consideration. The order freezes identical support rules, and will phase out the existing support over a five-year period beginning on July 1, 2012. Between the existing identical support funds and the new Mobility Fund, over $900 million per year will be made available to mobile providers through 2015. We believe the order takes into consideration the challenges that Alaskan carriers General Communications and Alaska Communications face in operating in that state, but does not specifically exempt them. However, the barn door appears wide open, and the order does say it will expedite waiver requests from Alaskan carriers should the imposition of the rules place undue hardship on them. While the majority of our coverage universe declined to comment on the impact this order would have on their business until the full report came out, Alaska Communications (ACS) hinted at losing half of its $20 million of wireless ETC revenue over a two-year period between 2012 and 2014. ACS hinted that this potential lost revenue would impact the company’s ability to continue paying its $0.86 annual dividend, which it would be reviewing in the future. The impact on ACS is not clear to us as it may lose some funding in larger markets, but it is hard to tell at this juncture how much is exposed. Many additional details are not clear, and exactly how multiple wireless carriers in the state will be treated requires some further analysis and conversations with the company and other industry contacts.

Broadband is defined by the statute as high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology.

A fixed voice and broadband service is one that serves end users primarily at fixed endpoints using stationary equipment, such as the modem that connects an end user's home router, computer, or other Internet access device to the network. This term encompasses fixed wireless broadband services (including services using unlicensed spectrum). The term does not include a broadband service that serves end users primarily using mobile stations.

As a condition of receiving federal high-cost universal service support, all ETCs, whether designated by a state commission or the FCC, will be required to offer service that is reasonably comparable to similar services in urban areas at rates that are reasonably comparable to those services.

1. 
   Performance requirements must be reasonably comparable” to that available in urban areas.
   
2. 
   The Benchmarks have three core characteristics.
   
   1. 
      Speed The FCC adopted an initial minimum broadband speed benchmark for CAF recipients of 4 Mbps downstream and 1 Mbps upstream over the broadband provider’s network as a reasonable benchmark for the availability of advanced telecommunications capability.
      
      1. 
         The best data currently available to determine whether broadband is available from an unsubsidized competitor at speeds at or above the 4 Mbps/1 Mbps speed threshold will likely be data on broadband availability at 3 Mbps downstream and 768 kbps upstream. Such data is collected for the National Broadband Map through FCC Form 477. It is therefore be used as a proxy for the availability of 4 Mbps/1 Mbps broadband.
         
   2. 
      Latency The FCC requires ETCs to offer sufficiently low latency to enable use of real-time applications, such as VoIP. The FCC’s broadband measurement test results show that most terrestrial wireline technologies could reliably provide latency of less than 100 milliseconds.
      
   3. 
      Capacity The FCC declined to adopt specific minimum capacity requirements, but stated that a 250 GB monthly data limit is reasonably comparable to major current urban broadband offerings. TheWireline Competition Bureau and Wireless Telecommunications Bureau will monitor urban broadband offerings and adjust minimum usage requirements over time.
      
      1. 
         For the Mobility Fund Phase I, the FCC also declined to adopt a specific minimum capacity requirement. However, it emphasized that any usage limits must be reasonably comparable to any usage limits for comparable mobile broadband offerings in urban areas.
         

1. 
   CAF recipients are obligated to build out broadband within their service area, subject to certain limitations. But, providers of fixed broadband do not have to spend the funds to serve customers in areas already served by an unsubsidized competitor. An unsubsidized competitor is a facilities-based provider of residential terrestrial fixed voice and broadband service.
   

a. The FCC expects ETCs to offer broadband at greater speeds to community anchor institutions in rural and high cost areas, although it did not set requirements at this time. Community anchor institutions generally require more bandwidth than residential customers. Accordingly, the FCC expects ETCs to provide higher bandwidth offerings to community anchor institutions at rates reasonably comparable to similar offerings in urban areas.

3. 
   Price Cap cost of service - The Wireline Competition Bureau will develop a forward-looking cost model to estimate the cost of serving locations, including community anchor locations, in price cap territories.
   
4. 
   Temporary Waivers - Other than for the Phase I Mobility Fund, if a CAF recipient can demonstrate that support is insufficient to enable 1 Mbps upstream for all locations, then temporary waivers of the upstream requirement for some locations will be available.
   
5. 
   Terrestrial fixed Broadband Service serves end users primarily at fixed endpoints using stationary equipment, such as the modem that connects an end user’s home router, computer or other Internet access device to the network. It includes fixed wireless broadband services (including those offered over unlicensed spectrum).
   
   1. 
      Areas without Terrestrial Backhaul. Satellite backhaul may limit the performance of broadband networks as compared to terrestrial backhaul,. Thus, the broadband public interest obligation for carriers providing fixed broadband that are compelled to use satellite backhaul facilities is relaxed (as for some providers in Alaska).
      
   2. 
      Carriers seeking relaxed public interest obligations because they lack the ability to obtain terrestrial backhaul—either fiber, microwave, or other technology—and are therefore compelled to rely exclusively on satellite backhaul in their study area, must certify annually that no terrestrial backhaul options exist, and that they are unable to satisfy the broadband public interest obligations adopted above due to the limited functionality of the available satellite backhaul facilities.
      
   3. 
      Any such funding recipients must offer broadband service speeds of at least 1 Mbps downstream and 256 kbps upstream within the supported area served by satellite middle-mile facilities.
      
   4. 
      Latency and capacity requirements discussed above will not apply to this subset of providers.
      
   5. 
      Capacity in Gigabytes (GB) per month. ETCs whose support is predicated on offering of a fixed broadband service, other than recipients of the Phase I Mobility Funds, must meet usage at levels comparable to residential terrestrial fixed broadband service in urban areas.
      
   6. 
      Buildout obligations, which are dependent on the mechanism by which a carrier receives funding, remain the same for this class of carriers. To the extent that new terrestrial backhaul facilities are constructed, or existing facilities improve sufficiently to meet the public interest obligations, the FCC requires funding recipients to satisfy the relevant broadband public interest obligations in full within twelve months of the new backhaul facilities becoming commercially
      
   7. 
      The FCC limits the definition to fixed, terrestrial providers because it believes these limitations will disqualify few, if any, broadband providers that meet CAF speed, capacity, or latency minimums for all locations within relevant areas of comparison, while significantly easing administration of the definition.
      
      1. 
         For example, the record suggests that satellite providers are generally unable to provide affordable voice and broadband service that meets the minimum capacity requirements without the aid of a subsidy: Consumer satellite services have limited capacity allowances today, and future satellite services appear unlikely to offer capacity reasonably comparable to urban offerings in the absence of universal service support.
         

a. The FCC declines to relax the technical performance requirements due to satellite backhaul limitations for purposes of Mobility Fund Phase I, although it clarifies that funds may be used to upgrade middle mile facilities.

D. BROADBAND MEASURING AND REPORTING

1. Evolution of CAF broadband obligations - Technical capabilities and user needs will continue to evolve. Therefore, surveys of urban broadband performance data will be collected. and rural broadband offerings through the reporting data. The FCC will initiate a proceeding by the end of 2014 to review rural performance requirements and ensure that CAF continues to support broadband service reasonably comparable to service in urban areas.

2. Prior to that future proceeding, the FCC relies on its judgment to provide guidance to CAF recipients to satisfy its expectation that they invest the public’s funds in robust, scalable broadband networks. The National Broadband Plan estimates that by 2017, average advertised speeds for residential broadband will be approximately 5.76 Mbps downstream. Applying growth rates measured by Akamai, a projected average actual downstream speed by 2017 of 5.2 Mbps, and projects average actual peak downstream speed of 6.86 Mbps.

3. Broadband Network Tests - Recipients of funding shall test their broadband networks for compliance for speed and latency metrics, and certify the results to the USAC annually. States will assist in monitoring and compliance, therefore funding recipients shall also send a copy of the annual broadband performance report to the relevant state commission. Paragraph 111 and Figures 3 and 4 of the FCC’s Order provide explanations and diagrams for the tests.

a. The Wireline Competition Bureau, the Wireless Telecommunications Bureau, and the Office of Engineering and Technology will together to refine the specific methodology for ETCs to measure performance of their broadband services. Such methods shall be implemented in 2013.

E. REASONABLY COMPARABLE RATES

1. The FCC considers rural rates to be “reasonably comparable” to urban rates if rural rates fall within a range of urban rates for a similar service. Since the FCC has never compared broadband rates, it directed its staff to develop specific methods to define the reasonable range. The staff must take into account that retail broadband service is not rate regulated, and retail offerings are defined by price, speed, usage limits, as well as other elements.

2. Annual Survey of Urban Broadband Rates - The FCC proposes to collect pricing data through a revised FCC Form 477. It will rely on that data calculate a national average urban rate for broadband. It does not currently have sufficient data to establish such a range for broadband pricing, and is unaware of any adequate third-party sources of data for the relevant levels of service to be compared.

3. Annual Survey of Recipient Broadband Rates - The FCC also requires funding recipients to provide information regarding their pricing for service offerings, as described more fully below.

a. ETCs shall submit a self-certification that the pricing of their voice services is no more than two standard deviations above the national average urban rate for voice service, which will be specified annually in a public notice issued by the Wireline Competition Bureau. The certification requirement begins April 1, 2013, to cover 2012.

b. ETCs receiving only Mobility Fund Phase I support will self-certify annually that they offer service in areas with support at rates that are within a reasonable range of rates for similar service plans offered by mobile wireless providers in urban areas. ETCs receiving any other support will submit a self-certification that the pricing of their broadband service is within a specified reasonable range. That range will be established and published for recipients of high-cost and CAF support, other than Mobility Fund Phase I. The certification requirement begins April 1, 2013, to cover 2012.

3. ETCs must also report pricing information for both voice and broadband offerings. They must submit the price and capacity range (if any) for the broadband offering that meets the relevant speed requirement in their annual reporting. In addition, beginning April 1, 2012, all incumbent local exchange company recipients of high cost loops, frozen high-cost support, and CAF also must report their flat rate for residential local service to USAC so that USAC can calculate reductions in support levels for those carriers with R1 rates below the specified rate floor, as established above. Carriers may not request confidential treatment for such pricing and rate information.

By Sheri Hicks

The goal of the FCC’s Federal USF reform on Rural ILEC is stabilize the fund, to equalize local rates across the state, to eliminate unnecessary subsidies that promote stagnation rather than innovation, and to support and encourage broadband network buildout in rural areas. However, the FCC tried to balance those goals with the extremely high cost nature of Rural ILEC areas and their dependence on USF for solvency. With that in mind, the Order leaves Rural ILECs largely intact for another year with no changes before 2012. However, in 2012, the FCC intends to undertake a number of reforms including.

1. 
   The FCC will establish a benchmark of what loop costs can be reimbursable from the fund to remove Rural ILEC incentives to increase their loop costs to increase their USF support and limit recovery of corporate operational expenses
   

2. 
   High Cost Loop Support Reform – (Reporting Requirement).
   

1. 
   The FCC intends to end high cost loop support to subsidize the incredibly low local voice rates often seen in rural areas. Carriers (including Rural ILECs) will be required to annually report local rates where the FCC will calculate an average floor based on urban rates.
   
2. 
   So that rural customers do not experience a shock at a triple rate increase, the rate floor will be phased in over 3 years. NOTE: Should not affect low income users – Lifeline & Linkup will continue to be available – reform of those two programs are occurring in another docket.
   

3. 
   Elimination of the Safety Net in 2012 - Separate from High Cost Support, the Safety Net was used to encourage rural carriers to invest in their networks and was thus calculated on a per line basis with the expected increase of 14% per year. Recently, the 14% threshold has been met due to loss of lines to other technology and “cutting the cord” rather than actual network investments. The payout for this fund increased tenfold in the past 7 years and is expected to top $94 million in 2011.
   

4. 
   Eliminate Local Switching Support or Roll into ICC reform in the CAF - Due to increasingly cost efficient soft switches, the FCC deemed LSS was no longer necessary and this will be eliminated and/or rolled into CAF.
   

5. 
   Establishing a $250 per-line per month cap
   

6. 
   Eliminating subsidies in areas where there is an unsubsidized carrier in 100% of the area.