fcc_newThere has been some tension in the marketplace regarding broadband and voice service, particularly in rural markets. It stems from growing consumer demand for standalone broadband – that is subscribing to broadband without the requirement for an accompanying voice line (sometimes referred to as naked DSL).

Regulated rate-of-return rural carriers are challenged with this marketplace desire, given the regulatory requirement for an underlying voice line with DSL, for cost recovery purposes. As a result, rural telcos have been implementing creative ways to package DSL with home phone service, even as more and more customers look for a broadband only option.

Why Force a Landline?
To some rural telecom outsiders, the practice of forcing customers to take a landline with DSL may seem quite odd. Why force customers to buy something they don’t want (telephone line) just to get the one thing they do (broadband)?

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This dilemma flows from regulatory requirements, which tie Universal Service Funding and other cost recovery mechanisms to traditional phone service, not broadband. In other words, if the telco delivers a circuit to a home, it must include home phone service to qualify to receive cost recovery, in the form of High Cost Loop Support (“HCLS”) and Interstate Common Line Support (“ICLS”). A broadband-only circuit is considered special access in this context, which is not eligible for USF support. Cost recovery is crucial in high cost rural markets. Without it, phone service and broadband would be too costly for end customers.

FCC Opens the Door
NTCA and others have brought this marketplace reality to the attention of the FCC and have pushed to change the rules to allow cost recovery for broadband-only lines. The FCC is finally starting to listen and issued a public notice requesting comments about how and if cost recovery should be extended for standalone broadband services offered by rate-of-return rural carriers. This debate is part of a broader debate on how to implement the next generation of USF, the Connect America Fund.

“It’s an intriguing idea as consumers increasingly subscribe to fiber, DSL or cable broadband Internet access service and use a mobile phone to talk. So we’re soliciting specific proposals for carrying out this idea,” says Julie Veach, Chief, FCC Wireline Competition Bureau in an FCC blog post.

I view this proceeding as critical. If rural carriers can begin to market a competitively priced standalone broadband service, which is also eligible for cost recovery, I believe they are much better positioned to compete over the long term. It’s a key missing piece that will help truly transform rural telcos into rural broadband carriers.

“It’s exciting to see some steps forward on this,” commented Mike Romano, SVP of Policy for NTCA. Romano has been spearheading NTCA’s leadership on this issue. “It’s fairly significant that the [FCC] bureau has acknowledged a need to explore the details and respond to the needs of the marketplace. We view this as a co-equal priority, together with fixing problematic aspects of the November 2011 [USF/ICC Transformation] order.”

Romano tells me that NTCA intends to respond to this public notice with “something specific,” noting that it’s nice to see this progress, but there is still “more to do.”

With a competitively priced standalone broadband offer, rural carriers can better focus on building a broadband future, which will involve layering a variety of applications (voice included) across their broadband pipe into the home. It’s an important part of the strategy I’ve advocated for some time, ditch POTS and embrace IP communications. I believe this FCC proceeding is an important step in that strategy. Comments for WC Docket No10-90 are due June 17, 2013.

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10 thoughts on “FCC Cracks Door Open on Naked DSL, Standalone Broadband

  1. Bernie writes: "If rural carriers can begin to market a competitively priced standalone broadband service, which is also eligible for cost recovery, I believe they are much better positioned to compete over the long term."

    Compete against who? If rural customers have competitive options for broadband service, it begs the question why should the RLEC's broadband offering be subsidized at all?

    1. Point well taken. I would say that eligibility for those subsidies do carry obligations that all competitors do not have, including carrier-of-last-resort obligations and a requirement to serve "everyone" in a study area. I would also add, as I understand it, this change would still require the rural carrier to make a traditional POTS line available (even if the customer chooses not to take it), another obligation that a competitor potentially does not have.

      It's a complex issue, I admit, with valid arguments on both sides.

      1. Complex issue? No very simple. The answer: symmetric and consistent regulation.

        Open/equal access is even more important in rural markets as 2+ facilities based competitors more difficult to achieve given teledensity differences. That said the smartphone is a big leveler and contributor to demand and while the FCC is making efforts to facilitate this, other flawed policy measures have made hetnet/SON (self organizing networks) difficult to achieve and bring BB widely to rural markets. Again, consistent policy would mean that the FCC would have forced interconnection and device interoperability in the 700 band.

        Complex? Seemingly. But self made. A consistent policy towards layer 1 and 2 across all topologies and markets (no matter how you slice it: telco, cable, wireless, bb, voice, video, data, mid/last mile, etc…) would produce a simple result. Pricing would reflect marginal cost. Rapid amortization/recovery/utilization of investment and opex would occur. Rural demand would be inherently tied to urban/suburban demand and vice versa.

        Time for a rethink of policy, or simply recognizing that open/equal access led to an enormously stimulative WAN/IXC boom (Dial-1) in the 80-90s, which led to a data boom (also nurtured along by open access) and finally the A/B roaming/interconnect for analog, then digital wireless in the 1980-90s, both of which led to America's resurgence and ascendancy in the two most important industries in the planet. But since 1996 we've taken steps backwards and supported vertically integrated, silo-ed and non-competitive service providers.

        Complexity born of forgetting these past successes and principles. Simplicity in going back to them.

  2. Recently my DSL provider told me I have to start coughing up 90% more a month on my DSL bill and take a phone line even though I had not had one for 8 years. We were told it is because of the FCC. The FCC says its not them its NECA. NECA says its the FCC. The DSL provider said they have no choice. Really?? No one knows who is forcing them to charge 90% more a month?!?

    1. Unlike Obamacare, the FCC doesn't MAKE you buy anything. This is strictly your telco's fault.

      As the article explains, the telco gets no subsidy if it sells a naked DSL line. That is because of FCC rules. The telco gets a subsidy only when it sells a POTS line. THAT's why your telco (not NECA and not the FCC) is making you buys a POTS line with your DSL line. The revenue from a naked DSL line doesn't cover its cost, but the subsidy helps defray that cost (along with the cost of the POTS line).

      Fortunately the FCC is looking at changing its rules so the subsidy may be applied even to naked DSL lines.

  3. We are a small rural telco that offers voice video and data. We have the same problem with customers wanting dsl only and we force them to take a phone line. I am not the decision maker on this but i feel like it would be easier to raise the bill 3 or 4 dollars a month and due away with this garbage. If there needs to be some rules in place to make us the carrier of last resort that's fine but i don't understand why we can operate independently without subsides.

    If subsidies stay then everyone offering broadband should pay into it. And cell companies, cable companies and phone companies offering broadband in the rural could receive this funding.

  4. Thank you for finally answering my question. I live in a rural area. I want to have "Naked DSL". That said, impossible to obtain. Service providers in our area provide no service at all. We have consolidated comm. which insists that we have a landline. Now thanks to your article I know why. Doesn't help my situation but thanks for the information.

  5. Let me expand on my comment above. I had to find a different provider for long distance calls as the cost was so high with my service provider. Selected Vonage. I also have a mobile phone as does my husband. We have stayed grandfathered into a Sprint package with unlimited everything plan. We won't give that up because of our (Don't laugh) son. I have tinnitus so I am looking for a amplified phone. Studying these different phones, I can get one with Bluetooth and connect it to my cell phone. This will allow me to drop Vonage but not my land line. Wading through all of this is a nightmare but moving back to the city for wifi service is not an option. Never thought I would paying more for phone services than combined other utilities, but here I am. Seems to me than FCC should just include broadband in recovery fees for rural areas. We can play the blame game but when it is all said and done the world is changing and forcing rural customers into unnecessary costs is a delay tactic to a communications problem for universal broadband solutions.

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