ICC/HIGH-COST USF NPRM:

http://www.fcc.gov/Daily_Releases/Daily_Business/2011/db0209/FCC-11- 13A1.pdf

IMMEDIATE ICC REFORM TO CURB ARBITRAGE OPPORTUNITIES

The FCC proposes immediate reforms to the intercarrier compensation (ICC) regime to address Voice over Internet Protocol (VoIP) traffic and arbitrage opportunities that have arisen as a result of ambiguities in the FCC’s current ICC regime. Following are some of the FCC’s key near-term reform proposals:

  • The FCC proposes that interconnected VoIP providers be fully subject to ICC obligations and seeks comment on whether this should involve bill-and-keep, VoIP-specific ICC, or payment of all existing ICC charges. The FCC also seeks comment on the impact of any short-term reform on existing commercial arrangements that include compensation for VoIP traffic.  
  • To address phantom traffic (that is, terminating traffic, the origin of which cannot readily or accurately be identified), the FCC proposes to amend its call signaling rules to require that calls received by terminating carriers include sufficient, unaltered call signaling information, so that terminating carriers can identify and bill the appropriate provider for access traffic terminated on their networks. The FCC proposes that these requirements apply to interconnected VoIP providers as well.  
  • To address access stimulation (also referred to as “traffic pumping”), the FCC proposes that carriers with revenue sharing arrangements be required to refile their interstate switched access tariffs to reflect a low rate consistent with their volume of traffic.  
    • For rate-of-return incumbent local exchange carriers (ILECs), the rate would be adjusted to account for new demand, rather than set at historical rates.
    • For competitive local exchange carriers (CLECs), the rate would be benchmarked to that of the Bell Operating Carrier in the respective state, or if none exists, the incumbent LEC with the largest number of access lines in the state.  

LONG-TERM ICC REFORM

The FCC’s ultimate goal for long-term reform of its current intercarrier compensation regime is to phase out per-minute access charges and replace the existing ICC subsidies with some form of recovery mechanism, and, possibly, funding from the CAF. The FCC seeks comments on the following proposals for handling ICC traffic:  

  • Bill-and-Keep – where the originating service provider recovers the cost of transportation and terminating calls from its own end users, not other carriers. This option would be coupled with a potential subsidy from the CAF.  
  • Flat rate ICC – which would convert the perminute access charges to a flat rate imposed on Interexchange Carriers (IXCs) or on all traffic. The FCC indicates, however, that marketplace changes, especially the bundling of services, may not support a flat rate proposal.  
  • Other alternative methodologies proposed in past rulemakings or to be proposed, including whether the FCC should retain the per-minute rates.  

The FCC also seeks comment on what recovery mechanisms should be adopted to address the decrease in ICC rates that would result from certain of its proposals. In its NPRM, the FCC considers, and seeks comment on, cost recovery, revenue recovery, benchmark rates, Subscriber Line Charge (SLC) changes, and CAF funding as possible recovery mechanisms.  

Other key ICC issues raised in the NPRM include whether the FCC’s proposed reforms should apply retroactively, and what impact, if any, such reforms should have, or will have, on existing litigation and contracts involving access traffic, including VoIP traffic. A related issue is how the FCC’s proposed immediate reforms on arbitrage abuse involving VoIP, phantom traffic, and access stimulation will impact current litigation and contracts involving “arbitrage-related” traffic. If the FCC must effectuate the proposed reforms through rule changes, it may be unable to impose the changes retroactively, but may consider change of law provisions, “fresh look”, and revised tariff requirements as a means to ensure compliance on a going-forward basis for existing arrangements.

HIGH-COST USF REFORM AND ESTABLISHMENT OF THE CONNECT AMERICA FUND

The proposals for reform of the Universal Service Fund (USF) in the ICC/High-Cost USF NPRM reflect the FCC’s long-term goal to transform the current telephony-focused federal high-cost USF program into a new high-cost broadband-focused program, called the Connect America Fund (CAF). The FCC is proposing to accomplish this reform in two stages.

The FCC seeks comment on its authority to use the USF program to support broadband, and among other things, specifically asks whether it should classify interconnected VoIP as a telecommunications service regulated under Title II as a means of authority to support networks used to provide interconnected VoIP, including broadband networks.

Immediate High-Cost USF Reform (Stage 1)

As part of Stage 1, the FCC proposes immediate high-cost USF reforms that are intended to capture funding from the existing high-cost USF program for the establishment of the CAF and the distribution of broadband support through an initial "reverse auction" process under the CAF. The FCC seeks comment on these reform efforts, as well as the details of its proposal to conduct an initial "reverse auction" process, one in 2012 and one in possibly 2014, that will provide an initial infusion of support to lowest cost bidders to build out and operate broadband networks in certain rural areas.

Reform efforts to capture funding for the initial CAF auction process include:

  • Reducing the reimbursement rates and eliminating the "safety net" for High-Cost Loop Support (HCLS);  
  • Phasing out Local Switching Support (LSS) and Interstate Access Support (IAS);  
  • Eliminating the reimbursement of corporate operating expenses;
  • Imposing caps on reimbursable capital and operating costs;  
  • Capping total support per line to $3,000 per line per year; and  
  • Eliminating, over a five year period, “identical support” currently provided to competitive Eligible Telecommunications Carriers (ETCs).  

The FCC contemplates this initial CAF reverse auction process will:  

  • Award a significant amount of funding, such as $500 million to $1 billion;  
  • Limit the recipients to fixed (wireline or wireless) or mobile wireless providers, but allow such recipients to subcontract with other providers, including satellite broadband providers, to fulfill their service obligations;  
  • Require recipients to deploy broadband within a specific timeframe, such as 3 years, and require them to continue to provide the service for a defined period after deployment is complete, such as 5 years; and  
  • Limit support to one service provider per eligible rural service area.  

Other details of the initial CAF reverse auction process on which the FCC is seeking comment include:  

  • Setting the broadband service obligation at a minimum of 4 Mbps downstream and 1 Mbps upstream;  
  • Selecting the rural areas eligible for support based on census block data compiled by the National Telecommunications and Information Administration (NTIA), or alternatively, based on data from the proposed revised Form 477; and  
  • Limiting support in this stage to states that have engaged in access charge reform and/or prioritizing support to states that have established state high-cost universal service or other broadband support mechanisms.  

Also as part of Stage 1, the FCC proposes various reforms to increase accountability in the high-cost program, including the adoption of specific performance goals and measures, establishment of more robust reporting requirements for participants, and updated certification and audit processes.  

Long-Term High-Cost USF Reform (Stage 2)

The FCC's plan for Stage 2 of high-cost USF reform is to transition all remaining high-cost support to the CAF for broadband deployment and maintenance, with voice service provided as merely an application over broadband networks. The CAF would replace all other explicit high-cost USF support, as well as implicit support from ICC.

Among other things, the FCC is seeking comment on two proposals for awarding all ongoing highcost broadband support in Phase 2. Under the first option, support would be awarded through subsequent reverse auctions. Under the second option, support for a given eligible rural area would first be offered to the carrier of last resort (typically the incumbent carrier), and if that carrier refused, a reverse auction would be conducted to select the supported carrier.

LIFELINE/LINK UP NPRM:

http://www.fcc.gov/Daily_Releases/Daily_Business/2011/ db0304/FCC-11-32A1.pdf

Consistent with its proposals for high-cost USF reform, the FCC in its Lifeline/Link Up NPRM seeks comment on whether it should transition lowincome support from the existing Lifeline/Link Up program for voice telephony services to a new lowincome broadband program. As part of this goal, the FCC proposes and seeks comment on a new pilot program that would fund broadband services to low-income consumers in the immediate future. The FCC also seeks comment on other immediate, as well as more long-term, reforms towards that goal, and other proposed efforts to address "waste, fraud and abuse" and to streamline/centralize administration of the Lifeline/Link Up program.

IMMEDIATE LIFELINE/LINK-UP REFORM

As part of its immediate Lifeline/Link Up reform efforts, the FCC intends to create a broadband pilot program that would test different approaches to providing support for broadband to low-income consumers across geographic regions. The FCC envisions the pilot program would fund a series of low-income broadband projects proposed by industry participants, with the intention that valuable data would be obtained for evaluation in the establishment of a long-term broadband program for low-income consumers.

The FCC seeks comment on how to create and implement its low-income broadband pilot program, including details pertaining to the scope, duration, participant and consumer eligibility, application process, and the role of the states.

The FCC also seeks comment on funding for the pilot program, proposing that the initial funding be obtained from savings realized as a result of implementing numerous proposed steps intended to immediately address "waste, fraud and abuse" in the Lifeline/Link-Up program. These steps include:

  • Use of a unique household identifier and a new duplicate support resolution process, to ensure that the program does not provide multiple, duplicative discounts to the same residential address;  
  • Requiring ETCs to report partial or pro rata dollars when claiming reimbursement for Lifeline customers who receive service for less than a month;  
  • Eliminating the reimbursement for toll limitation service;  
  • Limiting Link Up support to the ordinary initiation charge that an ETC routinely imposes on all customers within a state, and reducing the current $30 cap on Link Up support to some lower figure;  
  • Eliminating funding for services that go unused for more than 60 days;  
  • Establishing minimum consumer charges;  
  • Mandating specific de-enrollment procedures for Lifeline customers no longer eligible for support;  
  • Conducting more extensive audits; and  
  • Imposing an annual funding cap, at the 2010 level ($1.3 billion) or some other amount.  

ADDITIONAL SHORT-TERM AND LONG-TERM LIFELINE/LINK-UP REFORM

Other key Lifeline/Link Up reform proposals on which the FCC seeks comment include:  

  • Defining more specifically the services and functionalities eligible for support;  
  • Changing the support amounts and adopting a new framework for support;
  • Establishing minimum standards of service for Lifeline-only ETCs;  
  • Permitting support for bundled services;  
  • Requiring more specific consumer outreach and marketing; and  
  • Clarifying and expanding the eligibility requirements for low-income Tribal households.  

The FCC also seeks comment on a number of proposals intended to "streamline and improve" administration of the Lifeline/Link Up program, including proposals to:  

  • Require all states to utilize the same baseline eligibility requirements as required by the FCC;  
  • Establish uniform national standards for the minimum verification of ongoing Lifeline customer eligibility;  
  • Encourage all states to deploy coordinated enrollment, where consumers are able to enroll in the Lifeline/Link Up program at the same time they enroll in a qualified public assistance program; and  
  • Create a centralized database of Lifeline/Link Up customer eligibility and enrollment information that would provide real-time electronic verification of consumer eligibility and a means of ongoing verification of eligibility.