The FCC will vote next month on an order that would eliminate a rate floor rule that, according to the commission, has inflated pricing for telecom service in rural areas. The FCC rate floor rule, adopted in 2011, penalizes rural telecom service providers if they set prices below the rate floor, a draft order explains. Carriers that receive funding through the Universal Service Fund (USF) program currently have their funding reduced if they charge rates below the rate floor.

“The upshot of this rule is that many rural subscribers, who are often older Americans on fixed incomes, lower-income Americans and individuals living on tribal lands, pay higher rates,” the FCC said in a fact sheet accompanying the draft order.

FCC Rate Floor
The rate floor rule has taken on increased importance recently, as a 50% increase in the rate floor is currently scheduled to take effect on July 1. The rate floor is currently set at $18 but will increase to $26.98 if the order is not adopted.

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Eliminating the rate floor rule would also eliminate “burdensome reporting and customer notification requirements imposed on carriers in order to comply with” the rule, the FCC noted.

According to the draft order, “the rate floor neither targets spending in an efficient manner nor creates incentives for carriers to control costs. Instead it simply reward carriers that artificially inflate prices, regardless or whether they invest efficiently or control their costs.”

The draft order also notes that changes to the USF since the rate floor’s adoption have “largely eliminated any potential impact rates would have” on USF support mechanisms. The system has been reoriented away from a focus on carriers’ embedded costs and toward the fulfillment of certain broadband deployment obligations, the draft order argues. As a result, of the number of study areas potentially subject to the rate floor has dropped from 940 to 654.

NTCA –The Rural Broadband Association, which represents small rural service providers, has been a key advocate for eliminating the rate floor rule. In an ex parte notice filed with the FCC, NTCA Senior Vice President of Industry Affairs & Business Development Michael Romano said that in addition to raising consumer prices, the impending increase in the rate floor would suppress network investment in advanced voice and broadband services as a result of rate floor-driven reductions in USF support.

In view of the changes that have been made to the USF program, I would expect the draft order to have strong support from the FCC’s five commissioners, who likely will vote to adopt the order. FCC Chairman Ajit Pai already voiced support for the order, issuing a statement arguing that the rate floor was “a counterproductive regulation that hurts rural Americans.”

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