FCC Defends High-Cost Regression Methodology, Denies Stay

The FCC is not buying the argument that its plan for limiting Universal Service high-cost loop support (HCLS) is flawed. Yesterday the commission denied petitions filed by rural telcos and rural telco associations requesting a stay of the HCLS benchmark order that the FCC adopted in April.

Citing several earlier court cases, the commission said that in order to obtain a stay, the petitioners were required to demonstrate four things. In an order adopted yesterday, the FCC argued that rural telcos and telco associations had not demonstrated that they met any of those conditions, which include the following:

1. The petitioners are likely to prevail in their argument
2. Petitioners will suffer irreparable harm if a stay is granted
3. Other interested parties will not be harmed if a stay is granted
4. Public interest favors granting a stay

Regression analysis
The FCC’s plan for limiting high-cost loop support relies on complicated regression analysis and the carriers and carrier groups argued that the regression approach was not suitable for that purpose because of its unpredictability.

Citing another previous court case, the commission argued that it is only required to adopt “predictable rules,” not to ensure “predictable outcomes.” Accordingly, petitioners are unlikely to prevail in attempts to stop the plans for HCLS limits, the FCC said.

The FCC added that “in any event, it is unlikely that the benchmarks will produce unpredictable funding amounts.” The commission noted, for example, that the independent variables are likely to behave in predictable ways. “Most of the independent variables capture conditions like bedrock or climate that change only slowly if at all,” the FCC wrote. “And the two independent variables that are most likely to change are at least partially in carriers’ control: the number of loops in service and the fraction of plant that is undepreciated. Second, although the dependent variables (i.e., loop cost) will change as a carrier changes its own costs, it has always been true under the previous rules that a carrier’s HCLS is affected by other carriers’ costs. Perhaps more importantly, even if carriers with expenses greater than the benchmarks reduce their costs to the benchmarks, the benchmarks will remain the same. . . In sum, independent variables will not change quickly or unexpectedly, and we do not expect changes to the dependent variables to lead to large changes in the benchmarks.”

The commission argued that a waiver process could be used to address problems with how the HCLS model affects an individual carrier – such as errors in study area boundaries cited by some carriers.

Other requirements
Petitioners also failed to demonstrate that they would suffer irreparable harm if plans were to move ahead on limiting HCLS support, the FCC said.

“Economic loss does not, by itself, constitute irreparable harm unless it threatens the very existence of the movant’s business,” the FCC said – and the FCC argued that petitioners did not demonstrate that their businesses were immediately threatened.

The commission also argued that interested parties would be harmed if a stay were granted. For support, the commission pointed to filings from wireless association CTIA and from the National Cable & Telecommunications Association. The CTIA argued that a stay would force other carriers to absorb rate-of-return carriers’ “excessive costs” and the NCTA said a stay would be “tremendously harmful” to other companies operating in the study area.

Finally the FCC said a stay would not be in the public interest because the public has “a strong interest in the benchmarks being implemented as currently scheduled.”