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THE NEW FCC NPRM THE CHALLENGES, THE RESPONSES AND THE PLAN OF ATTACK

THE NEW FCC NPRM THE CHALLENGES, THE RESPONSES AND THE PLAN OF ATTACK. A Briefing Provided By The Rural Broadband Alliance STEPHEN G. KRASKIN and DIANE SMITH February 11, 2011. TODAY’S DISCUSSION.

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THE NEW FCC NPRM THE CHALLENGES, THE RESPONSES AND THE PLAN OF ATTACK

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  1. THE NEW FCC NPRMTHE CHALLENGES, THE RESPONSES AND THE PLAN OF ATTACK A Briefing Provided By The Rural Broadband Alliance STEPHEN G. KRASKIN and DIANE SMITH February 11, 2011

  2. TODAY’S DISCUSSION HIGHLIGHTS OF WHAT IS IN THE NEW NPRM • Overview • FCC Proposals Access – long term and short term USF – long term and short term • Our Responses and Positions • Our Thoughts On Strategy

  3. Here They Go Again . . . Like the movie “Groundhog Day” Familiar content in a new box This time they mean it . . . (sort of) Do we really want them to do more or less?

  4. LOGISTICS Short comment cycle State comment opportunity Intent to act this year on some specific Framework Divides Consideration Of Existing, Transition, and “End Game”

  5. FCC Sets 5 Basic Tenets Modernization Fiscal Responsibility Accountability Market-driven approaches No “flash-cuts” – a “sensible transition”

  6. LONG TERM FOCUSINTERSTATE ACCESS Begin to phase down access and move network support provided by access to explicit USF recovery mechanism. Provide a “glide-path” with consideration of reducing large carrier rates quicker.

  7. LONG TERM FOCUSINTRASTATE ACCESS Objective – reduce intrastate rates; end arbitrage gaming Alternatives: Provide states a “carrot” to move intrastate access to parity with interstate; or consider how to mandate state access reductions.

  8. LONG TERM FOCUSRevenue Cost Recovery Mechanism Recognition that cost recovery mechanism will be implemented to offset access revenue loss. Reduced rates will begin 2012

  9. NEAR TERM ACTIONSIntercarrier Compensation 1.“Access Stimulation” – proposes that any carrier with a revenue sharing arrangement will default interstate access rate to the lowest interstate access rate of any incumbent operating in the same state.

  10. NEAR TERM ACTIONSIntercarrier Compensation 2. “Phantom traffic” by proposing to require signaling information. 3. VoIP Treatment - asks for comment on 3 proposals: a. bill and keep b. using a rate lower ($ .0007) c. apply access

  11. UNIVERSAL SERVICEGeneral Considerations Initial proposed inclusion of 4 Mbps down and 1 Mbps up, subject to comment and revision “Everyone will have to adapt” Focus on legacy investment and transition mechanisms

  12. UNIVERSAL SERVICELong Term Considerations “End Game” – support only from new Connect America Fund Current focus is not on “end game” details Initiate consideration of three possible long term approaches: a. Reverse auctions b. Models c. Rate of return with incentives

  13. UNIVERSAL SERVICEBeginning The Connect America Fund Phase out Interstate Access Support for Price Cap carriers over 2-3 years Phase out Identical Support to CETCs over 5 years Retarget these funds to unserved and underserved

  14. UNIVERSAL SERVICEBeginning The Connect America Fund Funding proposal could be for any area Overlapping with existing incumbent Distribution could be reverse auction Continued wireless prejudice (most “bang for the buck”) Possible Wireless Opportunities?

  15. UNIVERSAL SERVICENear Term Proposals For Rate of Return Carriers 1. Reduce reimbursement rates for high cost fund – fund is capped – change in distribution. No immediate cap on ICLS 2. Consider elimination of local switching support (LSS) to recognize movement to soft switch 3. Benchmarks – guidelines for capital and operational expenses may be established

  16. UNIVERSAL SERVICENear Term Proposals For Rate of Return Carriers 4. Consider limitation of fund availability in highest cost to serve areas; last 256,000 estimated cost of $ 14 billion; alternative use of satellite; carrier and state role in determination. 5. Streamline study area waivers and encouragement of study area consolidation within a state.

  17. UNIVERSAL SERVICENear Term Proposals For Rate of Return Carriers 6. Elimination of “parent trap” rule that limits USF for an acquired exchanges to the level of USF available to the former owner. (Sleeves out of vest?) 7. Encourage efficiencies by encouraging use of shared facilities and resources (leads to questioning investment - “used and useful”

  18. RESPONSES • Recognize that FCC has divided issues into: 1. Short term impact on existing investment and expenses 2. Transitional mechanisms 3. Long-term

  19. RESPONSES • Qualitative and quantitative response needed to proposals that would jeopardize existing cost recovery • Clarity required to provide reasonable mechanism to recover additional investment while FCC debates long-term

  20. RESPONSES Concern with the possibility that initial CAF could go to another provider in your area – rural incumbent is designated ETC COLR VoIP – at minimum, retro must be access. Going forward, should be left as access to offset USF pressure

  21. RESPONSES • Ensuring that cost recovery mechanism to replace access is sufficient • Too much new investment cost recovery for rural left in intrastate jurisdiction • Rural carrier CETCs should have recovery based on costs as promised

  22. RESPONSES Potential Reductions In High Cost Funding and Removal of LSS jeopardize universal service Proposed use of expense benchmarks must include opportunity to recover actual “used and useful” costs FCC Should Not Disregard Need For Universal Fixed and Mobile

  23. RESPONSES Best “bang for buck” requires long term considerations – short term wireless in lieu of fixed is not long term investment-wise Targeted Funding should not ignore carrier responsibilities – rural incumbents make common carrier service commitments others are unwilling to make

  24. RESPONSES FCC USF long term plan should not assume that USF size cannot grow. FCC should not delay or ignore fixing “contributions.” Public interest requires new contribution mechanism to ensure “fair share” based on value of connection

  25. STRATEGY Evaluate proposals in the context of impact on rural consumers Impact on ability to invest in infrastructure Impact on job creation Impact on job loss IDENTIFY CONSTRUCTIVE ALTERNATIVES

  26. FOCUS ON OBJECTIVE Ensure that an explicit universal service funding mechanism provides carriers committed to the provision of universal service with revenues that are sufficient to enable the company to recover the costs, including a reasonable return on investment, that it incurs in the provision of a universal broadband network to rural consumers at rates and conditions comparable to those charged to consumers in urban areas.

  27. Build On What We Have Achieved We changed the tone and then the direction No longer leaving rural behind No longer ending legacy mechanisms without recognition of need for cost recovery No longer assumes end of ROR

  28. Strategic Fronts 1. Protect to the extent possible cost recovery of established investment and operational expenses incurred to provide universal service Reliance on rules, policy – need for stability, predictability. Emphasize impact on jobs, infrastructure investment

  29. Strategic Fronts 2. Obtain a mechanism to ensure stability for recovery of needed additional investment and operational expenses during the transition to the “end game.” Lead the way on “accountability,” “fiscal responsibility,” and “modernization.”

  30. Strategic Fronts 3. Long term – take advantage of the fact that the FCC is deferring focus. Use advocacy in Fronts 1 and 2 to lay a foundation for the long term answer that works best for rural carriers and consumers – consistent with our RBA objective

  31. QUESTIONS ?????

  32. NEXT STEPS Frame responses to the NPRM and provide to associations Work with associations to emphasize Front 1 (recovery of existing investment) and Front 2 (mechanism to recover additional expenses needed to provide broadband universal service

  33. NEXT STEPS Work with industry advisors to “operationalize” the RBA’s Transitional Stability Plan Build factual data to support positions: rural economic development impact; demonstrate that bigger provider is not more efficient provider

  34. NEXT STEPS We won’t stop at FCC comments Eye on the Hill and legislative concerns Rebuild more than the Congressional “Farm Team”

  35. NEXT STEPS Build the Rural Economic Development Team – not only members of Congress with rural interests - include urban business interests that need rural infrastructure Begins with the grassroots: specific message, specific “asks,” specific targets, and reach out to new allies

  36. OUR TEAM, OUR EFFORTAND OUR “ASK” POLICY AND STRATEGY FCC AND HILL State Commissions Industry Communications Other parties Community Interest OUR “ASK” OF YOU

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