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A Melded Universal Service Support (USS) Mechanism

A Melded Universal Service Support (USS) Mechanism.

gary-rogers
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A Melded Universal Service Support (USS) Mechanism

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  1. A Melded Universal Service Support (USS) Mechanism RUS Presentation to the Rural Task Force - March 23, 2000

  2. This proposal is one permutation of a method with many possible variations. While we believe the general idea has merit, there are details which could be implemented in different ways. As such, this proposal is not a recommendation. It is intended to stimulate discussion. RUS Presentation to the Rural Task Force - March 23, 2000

  3. Assumptions for Purposes of Illustration:1. Same threshold (135%) as non-rural carriers. 2. No existing competitor at the start of process. When a competitor enters, it is an ETC. 3. All states will designate more than one ETC in every area. RUS Presentation to the Rural Task Force - March 23, 2000

  4. 4. Focus on support for the connection to the network. 5. Incumbent’s embedded cost may exceed the Model’s estimated cost. 6. The Incumbent will provide accurate geocodes for all customers if they wish to receive support. RUS Presentation to the Rural Task Force - March 23, 2000

  5. Run the Model: • calculate each cluster’s cost as a proportion of the national average cost so as to allocate embedded cost. • identify clusters in excess of the national support threshold. RUS Presentation to the Rural Task Force - March 23, 2000

  6. At first, mechanism based almost entirely on embedded cost: • Identify a small percentage (say 5 %) of the customer base, as being “subject to competition.” • Support for these customers based on the Model. RUS Presentation to the Rural Task Force - March 23, 2000

  7. Initial support will be based on 95% of excess embedded cost and 5% of excess forward looking cost where the excess cost customers are identified by the Model. RUS Presentation to the Rural Task Force - March 23, 2000

  8. What happens when a competitive ETC enters the area?The Model has identified the high cost customers. The second ETC will receive support if it serves a high cost customer. RUS Presentation to the Rural Task Force - March 23, 2000

  9. The portable support will be the incremental cost to serve: • If customer is won from incumbent, Model is run without this customer. • If customer was previously unserved, Model is run with the new customer. • The incremental cost is the difference between Model runs. RUS Presentation to the Rural Task Force - March 23, 2000

  10. When the incumbent’s embedded cost exceeds the Model cost, the portable support would be increased by the proportion: embedded cost Model cost. RUS Presentation to the Rural Task Force - March 23, 2000

  11. As a competitor increases market share, the percentage of the area that is “subject to competition” would be increased in stages, say to 10%, then 20%, and so on. RUS Presentation to the Rural Task Force - March 23, 2000

  12. When a competitor(s) had won 50% of the customers, all costs would be determined by the Model. The incumbent would receive the excess Model cost less the incremental cost, which would go to the competitor. If at some point, the competitor is named the incumbent, these roles would reverse. RUS Presentation to the Rural Task Force - March 23, 2000

  13. “hold harmless” We would expect a transition mechanism for the incumbent - perhaps annual support would not drop by more than 5% of the first year’s support level for the first five years, or 20% over the next five years. RUS Presentation to the Rural Task Force - March 23, 2000

  14. How does this mechanism fit FCC goals? • It is based on long-term incremental cost. • It provides portable support that is the same for incumbent or competitor. • It is technology neutral. RUS Presentation to the Rural Task Force - March 23, 2000

  15. How does this mechanism address other concerns? • Eliminates arbitrage because the gain/loss of a low cost customer will not effect USS. • Provides transition to forward-looking cost based on competition. • Motivates investment in high cost areas. RUS Presentation to the Rural Task Force - March 23, 2000

  16. It is also backward compatible to the territories of non-rural carriers. RUS Presentation to the Rural Task Force - March 23, 2000

  17. Possible Drawbacks? • Depends on Model maintenance and would benefit from improvements. • Requires Geocodes. • No direct incentive to invest in highest cost areas. RUS Presentation to the Rural Task Force - March 23, 2000

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