The “America’s Broadband Connectivity Plan,” submitted to the FCC by six of the nation’s largest carriers on Friday would, in large part, apply only to price cap carriers such as themselves. The plan proposes how to reform today’s Universal Service high-cost voice program to instead cover broadband, but it doesn’t detail reforms for smaller rate of return carriers, instead leaving those details up to the ROR carriers to decide.

A letter sent jointly by the large carriers and three rural telco associations—including the NTCA, OPASTCO and the Western Telecommunications Alliance—on Friday outlines key differences between what is collectively proposed for the two different telco camps. The recommendations for ROR carriers are based in large part, on a proposal that NTCA, OPASTCO and WTA filed in April with the endorsement of several other rural telco associations—although several important modifications to those recommendations are detailed in the letter sent to the FCC on Friday. These include a reduction in the rate of return percentage from 11.25% to 10% and steeper reductions in access charges than originally recommended.

Price cap carriers and ROR telco associations were already in agreement on at least one important recommendation. Both camps have long agreed that the FCC should fund only a single carrier per area.

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In the following table, Telecompetitor highlights the key differences between what the accord or brokered deal reached on Friday means for price cap and ROR carriers.

Proposed parameter Price cap carriers ROR carriers
Amount to be redirected from today’s high-cost fund* $2.2 billion $2 billion
Future fund growth None proposed $50 million per year for next six years
Access charge reductions Would decrease to $.0007 within five years Would decrease to $.005 within five years, at which time the FCC would determine how much to reduce charges in the three following years
Access charge replacement To be funded from the $2.2 billion To be funded from the $2 billion, which rises to $2.3 billion in sixth year—if sufficient funding is not available, access charge increases would be adjusted accordingly
How broadband funding would be awarded A cost model would determine support for an area. If the incumbent has built out a certain percentage of broadband, it would have the option of accepting that support level or forgoing support, in which case another carrier could volunteer to serve the area. If more than one carrier volunteers an auction would be held. If no one volunteers, the FCC would need to reconsider the support level or service obligation. Incumbent carriers would be compensated for deploying broadband based on how their costs and revenues compare with national averages.
Minimum broadband speed target 4 Mb/s downstream-768 kb/s upstream Comparable with what is available in urban areas

*In addition wireless carriers would get $300 million through a mobility fund

Image courtesy of flickr user More Than Math's.

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4 thoughts on “Brokered USF Reform Deal is Not Uniform for Price Cap and Rate of Return Carriers

  1. Ok. Let's see if I have this straight:

    1) AT&T wants to buy T-mobile, but they can't afford to deploy broadband without USF funds.
    2) Windstream yesterday announces that they are buying Paetec for $2 BILLION, but they also need USF funds to deploy broadband.

    Huh? What am I missing here? More importantly, can't the FCC see this?

    1. Both (1) and (2) will grow the business, but building broadband in high cost areas doesn't. For the RBOCs its not that they don't have the money, it's that to spend the money there would not benefit their shareholders.

      1. As a small rural telco, we could say the exact same thing! It doesn't benefit our stockholders to build out broadband into our rural service area, but we did it anyway. USF definitely helped. And your statement above is exactly right – the RBOCs had (and still have) the money to build out broadband into the rural areas – if they wanted to. They didn't get USF in the past because of their urban population density. ie. They've made money in similar amounts to receiving USF, yet used the funds to pad their shareholder's pockets instead of extending broadband into their rural markets. And now they're making a powerplay for more money via USF and the NBP…and are trying to have it redistributed from the rural telcos who did the right thing by deploying broadband in the first place. Open your eyes people.

        1. The difference is that RLECs are mostly coops or owned by local shareholders. So the bottom line is balanced against providing services to their neighbor or those in the area. The bean counters at the RBOCs have no such relationship with their shareholders.

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