Growth in High Cost Fund threatens sustainability and burdens telecom consumers

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(No Transcript)
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Whats the Problem?

• Growth in High Cost Fund threatens sustainability
  and burdens telecom consumers
• Total fund grew from 2.6B in 2001 to over 4B in
  2007
• Over 1B of growth due to increased payments to
  CETCs

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Whats the Problem? (continued)

• CETC support distribution is skewed heavily
  toward a few states and is unrelated to need

• Top ten states (exclusive of Alaska Puerto
  Rico) receive almost 45 of CETC support
• Examples
• Mississippi 140m Wisconsin 51m
• Kansas 55m Washington 44m
• 290 million

• Other rural states receive less than 10 of that
  amount
• Examples
• Idaho 0 Utah 0.3m
• Missouri 0.1m Tennessee 1.5m
• 1.9 million

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Whats the Problem? (continued)

• Current mechanism encourages duplicative
  networks/subsidizes competition, while many rural
  areas remain without wireless service

• CETC support is based on costs of incumbents

• Broadband services are not explicitly supported
  despite need in many unserved areas

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Background

• May 2007 Recommended Decision

1. Emergency/interim cap--Limits growth in high cost
   support to competitive eligible
   telecommunications carriers (CETCs) to 2006 level
   

1. Committed to comprehensive high-cost USF reform
   by November 2007

1. Public Notice - Comments on reverse auctions,
   use of GIS technology, disaggregation of support
   and support for broadband, etc.

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Background (continued)

• Sept. 2007 Public Notice
• 1. Support for voice, broadband and mobility
• 2. Comprehensive reform cost control,
  accountability, state participation, and
  infrastructure build-out in unserved areas

• November 2007 Recommended Decision Boards
  long-term reform proposal released

• January 29 NPRM FCC seeks comment on
  Recommended Decision

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Objectives
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Objectives (continued)
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Key Elements of Proposal
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Key Elements of Proposal (continued)
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POLR Fund

• High cost support for wireline providers of last
  resort (initially ILECs)

• Sum of all existing ILEC support mechanisms

• Board unable to reach consensus on specific
  changes to legacy mechanisms

• Recommend FCC develop new unified POLR mechanism
  to apply to all ILECs

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POLR Fund (continued)

• Drawbacks of current ILEC support mechanisms

• Rural and non-rural company distinctions
• Some costs are not
  recognized, e.g. transport
• Cost averaging across wide
  areas vs. wire centers
• Non-regulated revenues not reflected

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Mobility Fund - Purpose

• Primary purpose
• Expand availability of wireless voice services
  to unserved areas, focus on populated unserved
  rural areas and public safety concerns

• Secondary purpose
• FCC to seek additional comment on whether to
  expand availability to underserved areas where
  service is not reliable

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Mobility Fund Support Type

• Primary support type
• One-time, project-specific grants for
  construction of new wireless facilities

• Funding should decrease as build-out occurs

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Mobility Fund - Distribution

• FCC determines allocations to each state
  (unserved population, highway miles, etc.)

• State cannot exceed allocation

• States develop and publish maps of unserved areas

• States award support based on federal standards
  and accountability safeguards options (RFPs,
  reverse auctions, etc.)

• USAC processes and audits funds

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Mobility Fund - Recipients

• Eligible Recipients
• Eligibility rules specific to fund to be
  established
• Only one carrier supported for wireless services
  per geographic area/project

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Broadband Fund - Purpose

• Primary purpose
• Expand availability of broadband internet
  services to unserved areas

• Secondary purpose
• Enhance broadband services in areas with
  substandard service

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Broadband Fund Support Type

• Primary support type
• One-time, project-specific
  grants for construction of new broadband
  facilities

• Secondary support type
• Ongoing support for expenses in areas where
  subsidy is required for continuing operations

• Funding should decrease as build-out occurs

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Broadband Fund - Distribution

• FCC determines allocations to each state (based
  on number of residents without broadband, etc.)

• State cannot exceed allocation

• States develop and publish maps of unserved
  areas/stimulate demand

• States award support based on federal standards
  and accountability safeguards options (RFPs,
  reverse auctions, etc.)

• Focus on high-cost areas of non-rural carriers

• USAC processes and audits funds

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Broadband Fund - Recipients

• Eligible Recipients
• Eligibility rules specific to fund to be
  established
• Only one carrier supported for broadband services
  per geographic area (includes ILECs, cable,
  satellite, wireless broad, etc.)

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Funding Levels - Caps

• Total cap of 4.5 billion (approx. 2007 level)
• Excludes any new support ordered in response to
  Tenth Circuit Remand in Qwest II

• Mobility Fund cap 1 B (Jt. Boards May 2007
  decision recommendation)

• POLR Fund cap 3.2 B (2007 ILEC level)

• Broadband Fund (initial) 0.3 B

• Collection of funds targeted to constant 4.5 B
  annual total not based on variable forecasts of
  support as currently

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High Cost Fund Changes
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More on Funding

• Broadband Funding
• Available support can accumulate from
  year-to-year if unspent
• Will grow as other funds decrease
• RUS monies also available for broadband expansion
  in RLEC areas
• Avoid duplication of funding

• State Matching Funds
• For broadband and mobility funds
• Base funding level supplemental funding
  available if state provides matching funds

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Issues for Further Comment

• Allocation of funds among states

• Identification of unserved areas

• Definition of broadband

• Impacts on Lifeline/LinkUp

• Implementation, transition and review

• Compliance with federal law

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FCC Actions

• No FCC order on interim cap to date

• Approximately 50 wireless support capped at June
  2007 levels via merger/sale conditions (Alltel,
  ATT/Dobson) Verizon/RCC (pending)

• FCC released RD for comment on January 29, along
  with two other NPRMs
• Elimination of identical support rule support to
  CETCs based on own costs
• Reverse auctions to determine support

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FCC Actions (continued)

• Comments due 30 days after
  publication in Federal Register

• Reply comments due 60 days
  after publication

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• Will any action be taken before elections?

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