rural telco assocations+usf capFour rural telco associations last week filed an application for review and petition for stay of new caps  on Universal Service support. The caps, adopted several weeks ago by the FCC’s wireline competition bureau, have come under fire because of their use of quantile regression analysis to impose limits on the funding that small rate-of-return carriers receive to help cover the cost of their local loop infrastructure in areas that are expensive to serve.

The quantile regression formulas are “arbitrary, unpredictable, utilize faulty data and ultimately fail to accomplish what they were intended to do: encourage carrier efficiency and increase broadband deployment,” said Stuart Polikoff, vice president of regulatory policy and business development for the Organization for the Promotion and Advancement of Small Telecommunications Companies, in a press release.

OPASTCO is one of the associations that filed the application and petition, along with the National Exchange Carrier Association, the National Telecommunications Cooperative Association and the Western Telecommunications Alliance.

“Implementation of the Bureau’s regression-based caps would harm many rural consumers, who would face declines in service quality and higher rates for service,” continued Polikoff. “The Commission can and should protect rural consumers by setting aside the bureau’s order.”

Also in the release, NTCA CEO Shirley Bloomfield said that the regression analysis formulas “impose caps that are random from the start and will shift over time in ways that no carrier can hope to predict.” She argued that “a support system that requires carriers, lenders and investors to guess where caps will be imposed next – and does not signal clearly why those caps might apply in any given case – will undermine access to capital for rural broadband and violate the basic requirements that Universal Service be predictable and sufficient.”

Rural telcos also have expressed concerns about the retroactive nature of Universal Service caps,  and that issue is expected to be addressed as part of an appeal about the Connect America Fund order that the NTCA filed back in December, Bloomfield told Telecompetitor recently.

The rural associations’ concerns about regression analysis are shared by Mike Balhoff, a respected financial analyst who has facilitated numerous small carrier mergers and acquisitions, and by CoBank, a major lender to rural telecom companies.

Both Balhoff and CoBank have expressed concerns that lenders will be reluctant to make loans to small carriers as a result of the new caps.

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