On November 18, 2011, the Federal Communications Commission (“FCC”) released their long awaited Universal Service Fund and Intercarrier Compensation Order (view order here). The FCC released the Executive Summary when it approved the Order on October 27, 2011, but industry is finally getting the opportunity to delve into the details and contemplate the implications of the Order and Proposed Rules.

As anticipated, the FCC will officially transition high cost support from traditional voice networks to broadband capable networks, which will incidentally carry voice traffic. This represents a fundamental shift in focus for high cost support. Although many rural consumers welcome the introduction of broadband into their communities, rural telecommunications carriers worry about stranded legacy investment and meeting the significant broadband benchmarks the Order requires to receive funding.

I’m a rate-of-return carrier, how will the broadband benchmarks affect me if I don’t have access to reliable middle mile transport?

The FCC introduced “Public Interest Obligations” that require rate-of-return carriers that continue to receive HCLS or ICLS or receive ICC-related CAF funding to meet broadband benchmarks. A carrier must provide broadband service at speed of at least 4 Mbps downstream and 1 Mbps upstream with latency suitable for real time applications and with usage capacity comparable to residential terrestrial fixed broadband offerings in urban areas. Rather than making this broadband benchmark a firm requirement, the FCC directs that rate-of-return carriers must only meet this benchmark “upon reasonable request.” ¶ 206. The intent is to provide greater flexibility in stretching broadband-capable networks further into rural areas based on consumer demand. The FCC’s definition and application of “upon reasonable request” will determine how flexible this concession is for small, rural carriers.

Reliable middle mile transport will play a significant role in the deployment of broadband services in the highest cost areas of the nation. In remote areas, like Alaska, the only middle mile is unreliable and expensive satellite facilities. The FCC’s requirement to provide broadband allows carriers to recoup costs under the applicable state line extension rules, focusing on extending facilities to a customer upon reasonable request, rather than connecting a community to the internet backbone. ¶ 209.

Carriers lacking access to terrestrial backhaul will be subject to a relaxed public interest obligation. ¶ 101, 47 C.F.R. § 54.313(g). After certifying that no terrestrial backhaul exists, a carrier will be obligated to offer broadband service at actual speeds of 1 Mbps downstream and 256 kps upstream within the supported areas served by satellite middle mile facilities. The cost of terrestrial backhaul will not trigger this exception, although there are other remedies to address fair and reasonable pricing. FN 162. A carrier has 12 months from terrestrial backhaul becoming commercially available to provide the faster broadband service.

What are the requirements to receive funding under the Mobility Fund Phase I?

The goal of Mobility Fund Phase I is use $300M to extend the availability of 4G wireless networks. ¶ 322. Mobility Fund Phase I is not intended to generate new infrastructure builds or direct funds to the highest cost areas. ¶ 323. The FCC will not permit more than one carrier to receive funds to extend broadband service per area unless there is a small overlap that will materially increase the units served. ¶ 320.

Mobility Fund Phase I will be awarded through a reverse auction process described generally in the Order and delegated to the Wireless Bureau. ¶¶ 321-480, ¶ 329 (delegated authority). To participate in the reverse auction, a carrier must be a designated ETC, have access to spectrum, provide a detailed description of the network design including whether the project will qualify as 3G or 4G, and provide an irrevocable letter of credit in an amount equal to the amount of support in case of default. See 47 C.F.R. §§ 54.1005-007.

Although Mobility Fund Phase I is unlikely to extend service in the highest cost areas, the FCC allocated an additional $50M from the universal service reserves to create a Tribal Mobility Fund Phase I. ¶ 482. The FCC acknowledged the special challenges involved in deploying mobile broadband on tribal lands. The two Mobility Fund Phase I programs are not mutually exclusive. Carriers that meet the qualifications, may apply under either program. The funds will be awarded through a similar reverse auction process, but there are additional tribal engagement obligations. ¶ 489.

My company participates in the e-rate program. Does the Order address any issues related to schools and libraries?

The primary focus of the Order is on the distribution of high cost support, but it does discuss application of the 4 Mbps/1 Mbps standard to community anchor institutions. The Order reiterates the definition of anchor institutions contained in the American Recovery and Reinvestment Act, which included schools, libraries, medical and healthcare providers, public safety entities, community colleges and other community support organizations and agencies. ¶ 102. Since ETCs typically offer broadband at greater speeds to anchor institutions, the Order does not set a required speed. It notes, however, that the greater bandwidth and speed ETCs provide to anchor institutions should be priced at a level reasonably comparable to a similar offer in urban areas. FN 163.

Given the FCC’s emphasis on greater accountability within the universal service system, we would not be surprised to see an increase in enforcement actions related to the pricing of broadband service to community anchor institutions. Prompt response remains critical to a positive outcome. If you receive a Notice of Apparent Liability, contact George Foote at Dorsey for immediate assistance.

Do the ICC reforms require me to renegotiate all of my existing contracts?

The Order does not require that existing contracts be reopened, but does make clear that the ICC reforms constitute a “change in law.” ¶ 816. Therefore, to the extent that any agreement may contain a “change in law” provision, the agreement may need to be renegotiated or revisited to implement the new regulations. If the change in law provision is not sufficient to address the changes in the Order, the dispute resolution provisions in the interconnection agreement should be utilized.

Virtually all interconnection agreements, SGATs and other state sanctioned agreements will have to be changed to reflect the new rules. However, since the rules are clearly spelled out in the Order and don’t implicate service issues, we don’t anticipate the required negotiations will demand substantial time to complete.