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ICC-USF Reform Federal Regulatory Update

ICC-USF Reform Federal Regulatory Update. Bob Schoonmaker, Sr. VP Jonas Karlson, Sr. Consultant November, 2013. Overview. Future Financial Impacts ETC Requirements-2014 Special Access Data Request IP Technology Transition Call Completion First Net Other. Future Financial Impacts.

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ICC-USF Reform Federal Regulatory Update

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  1. ICC-USF ReformFederal Regulatory Update Bob Schoonmaker, Sr. VP Jonas Karlson, Sr. Consultant November, 2013

  2. Overview • Future Financial Impacts • ETC Requirements-2014 • Special Access Data Request • IP Technology Transition • Call Completion • First Net • Other

  3. Future Financial Impacts • ICC-USF Transformation Order • ICC Terminating Rate transition • ARC Rates • CAF-ICC Impacts • HCL – Rural Growth Factor • HCL – Various limits • Originating Minute and Line Losses

  4. ICC Terminating Rate Transition • 2012-2013 – Intrastate rates (EO Switch & Tdm. Switch Transport) to interstate levels • 2014-2016 – EO Switching – Both inter- and intra-state to $0.005 • 2016-2019 – EO Switching - $0.005 to $0.0007 • 2020 – EO Switching to “bill and keep” • Continued loss of terminating minutes

  5. Terminating EO Rate Transition

  6. ARC Rates • Residence & Single Line Business • Increase $0.50 per year to a maximum of $3.00 • Maximum Res Rate of $30.00 – (Basic + SLC + ARC + EAS additive + State SLC + state USF + State TRS + State 911) • Multi-Line Business • $1.00 per year but max of ARC and SLC of $12.20

  7. CAF-ICC Transition • 2011 Base Revenue Requirement • Multiplied by 95% each succeeding year • Less • ARC • Interstate billed switched access • Intrastate billed terminating switched access • Equals eligible recovery

  8. Hypothetical Example • Local line loss – 4%/year • Interstate minute loss – 7%/year • Intrastate minute loss – 5%/year • Term Minutes approx. 67% of total • 2011 Base period rev req - $800,000 • Band 8 Local Switching rate in 2012-2013

  9. CAF-ICC Recovery

  10. High Cost Loop (HCL) Cap • Rural Growth Factor limit on total fund – Rural access line change + GDP-CPI • Total HCL Fund-2010 through 2014

  11. Other HCL Limits • $250/line/month – • Corporate Operations Expense Limit • Formula adjusted by GDP-CPI • Based on # of Loops-may be impact as loops go down • 2013 Submission – 199 nationwide, 1 Iowa • Safety Net – 38 Iowa companies

  12. QRA • Currently based on sum of OpEx and CapEx results • Phase in for 2014 same as 2013, max 15% decrease in USF • Same factors in 2014, but against 2013 HCL data submission • FCC “working on” single formula • One IA company impacted in 2013

  13. QRA - Future • RAG and others pointing out flaws in the process • NECA hypothetical test - QRA only identified 26% of the highest cost companies • FCC Staff very committed to QRA • Proposals to use QRA as a “trigger” for review rather than a hard cap

  14. Future Financial Impacts • Revenue Impacts • Regulatory – generally negative • Minutes and access lines – mostly negative • Broadband – positive • New Services – can be positive • Need to assess financial impacts on cash flow to project future investment ability

  15. 2014 ETC Report Requirements • FCC 481 – Filed October 2013 • Filing Delayed to FCC due to Shut Down • Initial Responses/Feedback • Other Issues with This Year’s Filing • Additional Requirements Next Filing • Filing Due July 1, 2014

  16. 2014 ETC Report Requirements • Additional Requirements for 2014 • Broadband Data as well as Voice • Emergency Functionality • Unfulfilled Service Requests • Number of Complaints • Company Price Offerings • Broadband and Voice • Keep Track of Rate Floor Changes • Within 2 Standard Deviations of National Average

  17. Five Year Plan • Required with 481 due July 1, 2014 • Should Include Broadband Deployment • Community Anchor Institutions • Progress Report of Past Work • Broken out by voice/broadband • Financial/Strategic Plan • Stay Conservative in Projections

  18. 2014 ETC Report Requirements • 4Mbps Down/1Mbps Up Service Standard • Based on “Reasonable Request” • Define Criteria for Limits • Mileage • Cost for Extending Facilities • Cost to Upgrade Network

  19. Special Access Data Request • FCC investigation of PC Special Access • September 18, 2013 Order • Response date - after OMB approval • Must file a response if: • A Provider of special access in a PC area • A Purchaser of special access in a PC area • A Best Efforts Business Internet Access Service Provider • Filed Form 477 in 2012

  20. Special Access Data Request • Filers of Form 477, but not in other categories certify to that effect only. • Responses for provision and/or purchase of special access in price cap areas. • If you are either a provider or a purchaser of dedicated special access in a price cap area-start reviewing DR now – it is very detailed • 100 pages of form and instructions

  21. Circuit Switched to IP Transition • FCC – Speak of it as key priority • IUB – Recently held workshops primarily on regulatory and legislative issues • Technically – investments being made • Softswitches & routers • Ethernet based transmission equipment • Broadband transmission to end users • IP voice over LTE close for wireless • VOIP being provided by some

  22. Circuit Switched to IP Transition • Competitively Offered IP services • Vonage, Skype and others – public internet • Magic Jack • Cloud business system offerings – Level 3, 8x8, ANPI • Cable systems – IP based managed service network

  23. IP Transition - FCC • AT&T Filed a Petition to conduct two trials • long on rhetoric, short on specifics • Let us conduct with very few regulatory requirements • NTCA and others • Trials OK, but look at individual regulatory requirements to see whether applicable

  24. IP Transition - FCC • Comments filed • FCC Technology Transitions Policy Task Force formed and working • No formal action on AT&T petition yet • Number assignment trials to VOIP providers underway

  25. IP Transition – Technical Issues • Technical requirements • who sets them? – Current Notes on the Network over 1600 pages • Interconnection – Sec 251 and 252 apply? • Translation of NPA-NXXs to IP addresses • Quality of service • Voice over public internet or managed “separate” IP network

  26. IP Transition - Numbering • Who will be eligible for number assignments? • Possibly require ten-digit dialing nationwide • Eliminate geographic meaning of numbers • Change thousand block assignments to hundreds blocks or individual number • Data base for number to IP addresses

  27. IP Transition – Public Safety • Impact on 911 and NG 911 systems • Identifying end user locations • Cost of upgrading • Potential impact of non-geographic numbers

  28. IP Transition – Customer Impact • End user instrument compatibility • Special feature “transitions” • Verizon Fire Island – wireless replacement • Alarm services • Credit card verification • Medical alert services • FAX impacts • Powering issues • Education - Training

  29. IP Transition - Government DoD on behalf of federal agencies filed comments in GN Docket No. 13-5 DoD/FEA customers continue to rely heavily on wireline TDM-based networks and services and will do so for the foreseeable future. The FCC should carefully consider potential adverse consequences on public safety and national security interests as a result of requiring DoD/FEA to prematurely transition to different technologies or services. 29 11/14/2014

  30. IP Transition - Government DoD cites example of Federal Aviation Administration (FAA) reliance on TDM technology and services 92% of the time for critical air traffic operations. Preliminary indications are that certain functionalities that DoD/FEA customers currently receive over wireline and TDM-based networks may not be available through wireless or IP-based networks 30 11/14/2014

  31. IP Transition – Rural CAF-BB • Proposal to provide support for data only broadband lines • Revenue Req. for data only lines shifts 75% of loop cost from state to interstate • Loop cost for data only lines shifted from Special Access to Common Line • CAF-BB provides support for total loop cost less $26 maximum BB SLC • Would reduce data-only interstate charges

  32. IP Transition - Summary • Will move forward – pushed by technology and cost issues • Many difficult issues to deal with both nationally and locally • Expect a considerable amount of change and possibly disruption

  33. Call Completion • Continues to be a vexing problem in rural areas • NPRM issued – Feb 7, 2013 • Enforcement Bureau action against Level 3 – March 12, 2013 • $950,000 “voluntary contribution” • $1,000,000 per quarter if certain parameters are not met

  34. Call Completion • FCC Order on circulation – On Oct 28 Meeting Agenda • Expect it will primarily require message data recording by IXCs • Will be some implementation time • Not end solution, but may give data for further Enforcement Bureau action

  35. FirstNet – What is it? • Nationwide LTE wireless broadband network for Emergency Responders • Early stages of implementation • $7 billion of funding to come from spectrum auctions • Intend to share and use facilities of existing providers • “Hardened” Network Capability • 700 mhz Block D spectrum – 10 mhz

  36. FirstNet - Implications • FirstNet works with state coordinators • State coordinates with in-state and local agencies • FirstNet will need to coordinate use of facilities and possibly spectrum with current providers • Potential for fiber use, towers, etc. of rural providers

  37. Transformation Order - NPRM • Rate of Return • Staff report – proposes high of 8.72% • Comments generally that is too low • Need to have a rulemaking • Don’t anticipate quick action • Originating Access Rate transition • No action apparent at this time

  38. Transformation Order - NPRM • Transport Access Rates transition • No apparent action at this time • QRA for ICLS • Was supposed to implement in July, 2012 • No action likely until QRA for HCL gets resolved

  39. Transformation Order - NPRM • Limit USF where there is unsubsidized wireline competition (voice and BB) • Implementing for PC companies as part of CAF I and CAF II • Major issue for cable TV groups • Not implemented yet for ROR study areas with 100% overlap • How to implement in other ROR study areas with lower overlap?

  40. Transformation Order - NPRM • CAF - Remote Area • $100 million budget • Provide funding for customers in “highest cost” areas not supported by CAF II both PC and ROR • Propose consumer subsidy • No significant action yet – may move forward after CAF II is implemented

  41. Transformation Order - Appeal • 10th Circuit Court of Appeals • Denver • Written briefs have been completed • Oral argument scheduled for Nov 19 • Possibility of delay because of government shutdown • No seats available

  42. Transformation Order - Appeal • Some key issues • FCC authority over state access • Recovery of costs in different jurisdiction • USF provisions sufficient and predictable • Is bill and keep (zero rate) appropriate compensation • Act differentiates between reciprocal comp and access • Broadband requirement unlawful

  43. Transformation Appeal - Decision • First half of 2014 • 1 – Uphold – Order Provision Stands • 2 – Remand – Order Provision remains in place, but sent back to FCC for modifications in rationale or the provision. • 3 – Vacate – Order Provision no longer applicable. FCC could replace it with something else.

  44. CACM • Connect America Cost Model • Currently close to finalization for PC companies and CAF II • Cost results at census block level • FCC Public Notice - comments regarding voluntary use for ROR companies • May have other longer-term uses for ROR companies

  45. Questions We are available to answer any of your questions here at the convention or contact us: Bob – bschoonmaker@gvnw.com – 719-594-5809 Jonas – jkarlsson@gvnw.com – 217-862-1511 45 11/14/2014

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