THE NEW FCC NPRM THE CHALLENGES, THE RESPONSES AND THE PLAN OF ATTACK

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THE NEW FCC NPRMTHE CHALLENGES, THE RESPONSES
AND THE PLAN OF ATTACK

• A Briefing Provided By The Rural Broadband
  Alliance
• 
  STEPHEN G. KRASKIN and DIANE SMITH
• February 11, 2011

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TODAYS DISCUSSION

• HIGHLIGHTS OF WHAT IS IN THE NEW NPRM
• Overview
• FCC Proposals
• Access long term and short term
• USF long term and short term
• Our Responses and Positions
• Our Thoughts On Strategy

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Here They Go Again . . .

• Like the movie Groundhog Day
• Familiar content in a new box
• This time they mean it . . . (sort of)
• Do we really want them to do more or less?

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LOGISTICS

• Short comment cycle
• State comment opportunity
• Intent to act this year on some specific
• Framework Divides Consideration Of Existing,
  Transition, and End Game

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FCC Sets 5 Basic Tenets

• Modernization
• Fiscal Responsibility
• Accountability
• Market-driven approaches
• No flash-cuts a sensible transition

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LONG TERM FOCUSINTERSTATE ACCESS

• Begin to phase down access and move network
  support provided by access to explicit USF
  recovery mechanism.
• Provide a glide-path with consideration of
  reducing large carrier rates quicker.

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LONG TERM FOCUSINTRASTATE ACCESS

• Objective reduce intrastate rates end
  arbitrage gaming
• Alternatives
• Provide states a carrot to move intrastate
  access to parity with interstate or consider how
  to mandate state access reductions.

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LONG TERM FOCUSRevenue Cost Recovery Mechanism

• Recognition that cost recovery mechanism will be
  implemented to offset access revenue loss.
• Reduced rates will begin 2012

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NEAR TERM ACTIONSIntercarrier Compensation

• 1.Access Stimulation proposes that any
  carrier with a revenue sharing arrangement will
  default interstate access rate to the lowest
  interstate access rate of any incumbent operating
  in the same state.

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NEAR TERM ACTIONSIntercarrier Compensation

• 2. Phantom traffic by proposing to require
  signaling information.
• 3. VoIP Treatment - asks for comment on 3
  proposals
• a. bill and keep
• b. using a rate lower ( .0007)
• c. apply access

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UNIVERSAL SERVICEGeneral Considerations

• Initial proposed inclusion of 4 Mbps down and 1
  Mbps up, subject to comment and revision
• Everyone will have to adapt
• Focus on legacy investment and transition
  mechanisms

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UNIVERSAL SERVICELong Term Considerations

• End Game support only from new Connect
  America Fund
• Current focus is not on end game details
• Initiate consideration of three possible long
  term approaches
• a. Reverse auctions
• b. Models
• c. Rate of return with incentives

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UNIVERSAL SERVICEBeginning The Connect America
Fund

• Phase out Interstate Access Support for Price Cap
  carriers over 2-3 years
• Phase out Identical Support to CETCs
• over 5 years
• Retarget these funds to unserved and underserved

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UNIVERSAL SERVICEBeginning The Connect America
Fund

• Funding proposal could be for any area
• Overlapping with existing incumbent
• Distribution could be reverse auction
• Continued wireless prejudice
• (most bang for the buck)
• Possible Wireless Opportunities?

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UNIVERSAL SERVICENear Term Proposals For Rate
of Return Carriers

• 1. Reduce reimbursement rates for high cost fund
  fund is capped change in distribution. No
  immediate cap on ICLS
•  
• 2. Consider elimination of local switching
  support (LSS) to recognize movement to soft
  switch
• 3. Benchmarks guidelines for capital and
  operational expenses may be established
•  

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UNIVERSAL SERVICENear Term Proposals For Rate
of Return Carriers

• 4. Consider limitation of fund availability in
  highest cost to serve areas last 256,000
  estimated cost of 14 billion alternative use
  of satellite carrier and state role in
  determination.
•  
• 5. Streamline study area waivers and
  encouragement of study area consolidation within
  a state.

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UNIVERSAL SERVICENear Term Proposals For Rate
of Return Carriers

•  
• 6. Elimination of parent trap rule that limits
  USF for an acquired exchanges to the level of USF
  available to the former owner. (Sleeves out of
  vest?)
•  
• 7. Encourage efficiencies by encouraging use of
  shared facilities and resources (leads to
  questioning investment - used and useful
•  

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RESPONSES

• Recognize that FCC has divided issues into
• 1. Short term impact on existing investment and
  expenses
• 2. Transitional mechanisms
• 3. Long-term

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RESPONSES

• Qualitative and quantitative response needed to
  proposals that would jeopardize existing cost
  recovery
• Clarity required to provide reasonable mechanism
  to recover additional investment while FCC
  debates long-term

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RESPONSES

• Concern with the possibility that initial CAF
  could go to another provider in your area rural
  incumbent is designated ETC COLR
• VoIP at minimum, retro must be access. Going
  forward, should be left as access to offset USF
  pressure

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RESPONSES

• Ensuring that cost recovery mechanism to replace
  access is sufficient
• Too much new investment cost recovery for rural
  left in intrastate jurisdiction
• Rural carrier CETCs should have recovery based on
  costs as promised

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RESPONSES

• Potential Reductions In High Cost Funding and
  Removal of LSS jeopardize universal service
• Proposed use of expense benchmarks must include
  opportunity to recover actual used and useful
  costs
• FCC Should Not Disregard Need For Universal Fixed
  and Mobile

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RESPONSES

• Best bang for buck requires long term
  considerations short term wireless in lieu of
  fixed is not long term investment-wise
• Targeted Funding should not ignore carrier
  responsibilities rural incumbents make common
  carrier service commitments others are unwilling
  to make

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RESPONSES

• FCC USF long term plan should not assume that USF
  size cannot grow.
• FCC should not delay or ignore fixing
  contributions.
• Public interest requires new contribution
  mechanism to ensure fair share based on value
  of connection

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STRATEGY

• Evaluate proposals in the context of impact on
  rural consumers
• Impact on ability to invest in infrastructure
• Impact on job creation
• Impact on job loss
• IDENTIFY CONSTRUCTIVE ALTERNATIVES

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FOCUS ON OBJECTIVE

• Ensure that an explicit universal service
  funding mechanism provides carriers committed to
  the provision of universal service with revenues
  that are sufficient to enable the company to
  recover the costs, including a reasonable return
  on investment, that it incurs in the provision of
  a universal broadband network to rural consumers
  at rates and conditions comparable to those
  charged to consumers in urban areas.

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Build On What We Have Achieved

• We changed the tone and then the direction
• No longer leaving rural behind
• No longer ending legacy mechanisms without
  recognition of need for cost recovery
• No longer assumes end of ROR

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Strategic Fronts

• 1. Protect to the extent possible cost recovery
  of established investment and operational
  expenses incurred to provide universal service
• Reliance on rules, policy need for stability,
  predictability. Emphasize
• impact on jobs, infrastructure investment

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Strategic Fronts

• 2. Obtain a mechanism to ensure stability for
  recovery of needed additional investment and
  operational expenses during the transition to the
  end game.
• Lead the way on accountability, fiscal
  responsibility, and modernization.

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Strategic Fronts

• 3. Long term take advantage of the fact that
  the FCC is deferring focus.
• Use advocacy in Fronts 1 and 2 to lay a
  foundation for the long term answer that works
  best for rural carriers and consumers
  consistent with our RBA objective

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QUESTIONS

• ?????

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NEXT STEPS

• Frame responses to the NPRM and provide to
  associations
• Work with associations to emphasize Front 1
  (recovery of existing investment) and Front 2
  (mechanism to recover additional expenses needed
  to provide broadband universal service

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NEXT STEPS

• Work with industry advisors to operationalize
  the RBAs
• Transitional Stability Plan
• Build factual data to support positions rural
  economic development impact demonstrate that
  bigger provider is not more efficient provider

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NEXT STEPS

• We wont stop at FCC comments
• Eye on the Hill and legislative concerns
• Rebuild more than the Congressional Farm Team

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NEXT STEPS

• Build the Rural Economic Development Team not
  only members of Congress with rural interests -
  include urban business interests that need rural
  infrastructure
• Begins with the grassroots specific message,
  specific asks, specific targets, and reach out
  to new allies

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OUR TEAM, OUR EFFORTAND OUR ASK

• POLICY AND STRATEGY
• FCC AND HILL
• State Commissions
• Industry Communications
• Other parties
• Community Interest
• OUR ASK OF YOU