Today I attended the PUC panel presentation on the Implications for Minnesota of the FCC’s Universal Service/Intercarrier Compensation Order. “The Order” is the Connect America Fund Order, Reforms USF/ICC for Broadband; it includes USF and ICC rules related to price-cap and rate-of-return carriers, the Connect America Fund and ICC for VoIP providers among many other issues. The report is 700 pages long – and as the panelists pointed out that while the ink is drying many parties are bringing up lawsuits and items for consideration that may change how the particulars play out.

My understanding of the Order is very high level and a little looser than I’ve like it to be. There are changes in who may get the funding. The push seems to be to move towards explicitly funding broadband deployment in unserved areas. Broadband has been defined as 4 Mbps download and 1 Mbps up. Strides are being made to track access at an increasingly granular level and to fund only one provider in each area and only if no other provider is present. (One speaker noted that this may be setting the stage for a voucher system in the future.)

There are also changes in sources of the funding. Upheaval of the funding will have an impact on those currently receiving it. So regardless of the long term game plan those changes are an issue – businesses cases have been made based on the old criteria. In fact ARRA funding was awarded based on those business cases. Providers in most areas seemed sensitive to that issue – although clearly some will benefit from the changes too.

There seem to be concerns about the sources of funding being felt more acutely by the end customer than is previously the case. There were also concerns about the speed goals set out by the FCC (via the National Broadband Plan). One provider was wary of the 4down/1up goal because that eliminates some technologies (DSL). It was noted that deployment would be faster and wider if the up goal was 768 kbps. Another provider was discouraged at the limitation of 4down/1up, pointing out that this was not fast enough, especially since cable is more in line with 14down/6up.

The providers also had advice for the PUC. Pay attention and make sure Minnesota gets it fair share of the $4.3 billion caught my ear. It was suggested that while on the surface it appears as if the FCC has handed down an edict of sort, the devil will be in the details and those will be sorted out by the PUC. The video below actually includes comments from all of the presenters on advice/observations for the PUC.

So there are some broad strokes from the day. I will also include my detailed notes – but again there are portions of this that are alphabet soup for me. I’ve done my best to take down what folks said – but if you feel I got something wrong – please feel free to shout it out. Also I know there were some technical glitches so I’m doing my best to get this out in a timely fashion. (In other words please excuse typos.) I did hear that an audio archive of the presentation will be available on the PUC site. If I hear when I’ll post again.)

During the session, industry leaders addressed three topics:

1. universal service funding
2. intercarrier compensation and
3. the substantive and procedural tasks that the Commission can be expected to face in the coming months (video of answer to this below)

The speakers were:

• Jeff Lindsey; CenturyLink
• Brent Christensen; Minnesota Telecom Alliance
• Dan Lipschultz; Moss & Barnett PA, competitive carrier perspective
• Tom Cohen; Kelley, Drye & Warren LLP for the American Cable Association
• Dave Conn; T-Mobile
• Dennis Ahlers; Minnesota Department of Commerce.

Moderated by PUC Commissioner Betsy Wergin

Ellen Anderson (PUC Chari) welcomes folks

Betsy Wergin will be moderating. Here to talk about new FCC Order

Look back to 1996 – even then the reform for USF/ICC was on the table. When competition opened up the industry was on notice. Since then the FCC has made (mostly) minor changes. The task over the last 16 years has been difficult – partially because there are so many sides; partially due to tech and business changes.

We believe that there is awareness that the current method does not work. Payment into system is climbing. Arbitrage, inefficiencies are problems. Voice is dropping. The FCC promotes new funding mechanisms and move ICC to bill and keep.

There’s a lot of consider.

Mike Rothman (Commissioner of Commerce)

Nice to have so many folks here. Want to introduce Dennis Ahlers (new to Commerce staff on Energy reliability & Telecommunications) was at AG. (He’s on panel.)

The FCC order has a significant impact. It’s 750 pages. The decisions will have an impact across the State. The Governor is committing to making BB border to border. We have a Task Force. We’re looking at the issue of broadband. A major issue of the FCC Order is broadband.

We need to look at the FCC order. It will take a public/private partnership to understand complexities for state & industry. MN economy depends on broadband/communications. It’s also important for communities & children.

THE PANEL:

1. Universal Service Fund changes – how will changes have an impact on their industry?

JEFF: (Only speaking to price cap carrier areas.) We think the order is manageable – but there’s a lot of interpretation going on. There are some opportunities, risks.

Pros:

• Goals of National Broadband Plan – getting speeds. We think CAF Connecting American Fund (to census tract) will go a long way to making deployment happen. We think we will be able to better track.
• It’s important that the FCC get the cost model right. If they don’t the issues will fall to the states.
• The legacy was support at 2011 levels. But there’s an interim. We think that’s a piece of additional certainty.

Cons:

• Not going to CAF on day one was a missed opportunity. The interim process is another period of uncertainty.
• The NBP defines 4down/1up – going with 1up means no DSL. 768 would have been better for reaching more homes per dollar.
• Interim CAF set a limit of $775 per house served. That will ask as a prohibitive ceiling. It will likely inhibit deployment in some areas.

BRENT

Big message for PUC – is that you will have to be involved at all stages. Great that Betsy is on NARUC (National Association of Regulatory Utility Commissioners) in terms of having local presence/connection at national level.

Biggest change is that there is no plan for long term deployment. We’re looking at 99.13% via USF.

The service areas is unclear. If competition in 100% of exchange support is gone. Doesn’t impact a ton of MN – but that’s not a done deal. Now there are 27items of  reconsideration.

Local service rates will change. Basic rates need to be $10/month by Jan 1 or lose USF by July. It was announced November. It doesn’t impact a lot but may mean a change. By next year they need to be at $14.

July 1 – you need to add $.50 charge to qualify for CAF. That means the end user pays. That’s a big shift to the end user.

Two of our companies got ARRA funds – but the changes in USF changes at least one of their business plan. We build broadband networks.

DAN (CLEC in general)

CLEC aren’t  in the USF game. Except that everyone will feel the impact – including wireless. Everyone should be concerned esp of ICC. The order freezes support at $2 billion – will that be enough? Especially now that it include broadband.

I know the world has changed – but these are the same:

1. We’re still talking about transmission for A to B.
2. And it will predominantly go over wire.
3. It’s a capital intensive industry and condensing is natural.
4. Some areas are more expensive to serve.

Number 4 will especially have an impact on ongoing maintenance.

TOM:

Here for American Cable Assoc.

In a sense cable is a microcosm of the industry. Mostly cable but growing number of emerging telcos. Here’s the gist of the Order:

1. There needs to be fiscally resp.
2. Needs to be slower transition for smaller providers
3. Needs to be competitive neutrality.

The FCC is just catching up with what’s been happening in the industry. Also FCC works on average – and no one is average.

Pros:

• They reflected how the market has changed
  • Voice market for incumbent is 45 and dropping moving to cable and wireless
  • They have a budget $4.3 billion ($2 billion for rate of return / $1.8 price cap / $.5 billion for mobility). The issue is mobility.
  • The FCC looked at undeserved areas – mostly served by price cap carriers. And FCC gave more to price cap.
  • FCC started looking at granular basis. Money should not go where an unsupported provider exists.
  • Got the small area transition mostly right.

Cons

• They carved out areas in price (not rate of return) but gave price cap the rights of first refusal. Yet cable is broadband leaders.
• FCC is below market speeds (4/1 is too slow) we think 16/4 is a better speed.
• FCC did not take on issue of eligible telecom carrier. It should be easier for folks to bid.
• FCC

You can see where this is going as we get granular – we’re working beyond census tract to locations and that will mean vouchers.

DAVE:

Impact  of USF on wireless differs from carrier to carrier.

Major changes

• Now wireless guys have a budget/cap – the wireless carriers (taking USF) have had this cap for years.
• We saw where wireless connections surpassed wireline – yet USF allocated 8 times to wireline. There are some valid reasons – but we need to think of big picture.
• When carriers say we need USF – what they’re saying is we need other providers to help pay for our areas.
• Change in definition in voice – removes directory assistance as necessity. It’s no longer a supported service.
• Existing amts that competitive carriers get are frozen as of 2011 and phased out – starting July 1. Will go away in five years. It’s replaced by Mobility Fund
• Mobility Phase 1: $300 million fund for mobility for Capex only – for areas without 3G or 4G only. They will use census block centroid. They will use reverse auction to offer up those areas. (Rebuild time for 3G is 2 years; 4G is 3 years. )
• Looking for auctioning via road miles. Bidders must be ETCs. Winner have colocation and roaming obligations.
• Mobility Phase 2 – $500 million annually for Capex and Opex – for areas that will need ongoing support. One provider per area; only unserved areas. They are favoring reserve auctions.

DENNIS

There’s an emphasis on taking broadband everyone – border to border. That suits MN goals. MN has more aggressive goals. We’ll be looking at how to push broadband out. This is one vehicle to do that.

We want to do no harm. We want everyone to have voice availability. Broadband and voice may conflict. We don’t want that to get pushed to the side.

To the PUC – the FCC has just given you a lot more work.

There are some companies that will need to raise rates. That will mean tariff issues to PUC. The FCC makes decisions and expects PUC to carry them out. Kind of an unfunded mandate.

Carrier of last resort will come up. What rights will the consumers have?

Whole issue of ETCs. There will be more filings. The Department is also be involved. There’s a feeling that this order is taking away much from state commissions – but that’s not true in the short term. PUC will still make decisions on wireline and as DAN pointed out that where everything still stems.

The Department will work on making sure USF happens and that broadband is a part of that. There are lots of reconsiderations and appeals – it will take a while to implement.

POST COMMENTS

JEFF – For prices cap areas will have $1.8 billion, about twice as prior. MN should make sure to get fair share of dollars for rural areas.

BRENT – There is a difference between telco and cable. The USF was designed for rural areas.

TOM – There is a process where competition and equity are colliding. This will cause a disaggregation process. We need to target the money where there is no service.

QUESTIONS FROM AUDIENCE: none

2. Please address ICC

DENNIS:

The order creates a lot more work for local regulators. There’s already a potential dispute filed at Commission on what this means in terms of rates. It’s easy to look at the order and think there’s nothing to decide – Interstate seems clear but there were a lot of debates on what that meant.

The transformation to bill & keep – how will that be implemented will involve the State.

There’s a potential for disputes with interconnection agreements and AFOR provisions. That will mean more work for PUC.

Access recovery charge will be another increase that may hit the PUC desk.

Rates for access are going down – and benefit interexchange carriers and PUC doesn’t regulate. That may be tough.

Commission will retain jurisdiction of some part of the industry – we need to make sure we further the goals of FCC and State.

DAVE

From wireless – ICC provisions are gratifying. We have been for bill and keep for years.

ICC distinction for wireless – there’s a difference if a call originates and terminates in major trading area at time of call it’s a reciprocal compensation call – only when it crossing boundary does is involve access compensation.

Non-Access

• Bill & Keep will be rule  Jul 1
• The FCC interim rural transit rule – when a rural wireline call to wireless call – who pays transit? The FCC says CMRS carrier is resp for call beyond local boundaries – at least for interim.

Accesss

• Rates are frozen. Intrasate moving to Interstate then 007 then bill and keep. Everyone will end up at Bill and Keep at least when tandem is same as originator.
• Access stimulation – new rules deal with stimulation – they will help but not solve the problem.
• Clarifies wireless in the middle.

TOM

Internally, we reflected a conflict between incumbents and competitors. The cable was unable to come up with a position.

VoIP PSTN traffic is benefit.

Glide path is OK. This seems like a logical conclusion.

A reason to move to bill and keep is that ICC had become Wild West. Now we have certainty.

The rules come up short

• In not allowing cable to come up with recovery mechanism.
• The FCC punted with VoIP. Looking at further proceeding.

DON

Two main points:

Verizon and AT&T have larger long distance. They will save a lot of money – not like smaller folks. They both have robust wireless businesses. Changes will be good for Verizon and AT&T for these reasons.

There is a problem when the big guys continually to win and the Order exacerbates the problem.

The end user now pays and that may make sense on one end. Policy makers need to ensure that there is competition. Especially in rural areas.

CLECs – there is no compensation recovery mechanism. CLEC are efficient – we use IP connections. If you are small you don’t have leverage – we need the policy makers – especially with VoIP.

The FCC got right – technology neutrality & competitive neutrality are good and VoIP does move that way. VoIP PSTN will have charges.

BRENT

We come from a world where the end user should pay and so should anyone else. Bill & Keep seems like a euphemism for end user pays all.

We are looking at a slower glide path. It costs more to serve rural areas and we need those funds.

Glad that we are looking at calls equally.

The PUC may not be setting rates – you will be involved in interconnect agreements and they will be very important.

JEFF

Pros:

• Unifying of rate
• Prohibitions on phantom rates
• ICC system was $6-8 billion, we’re taking that down and consumers should see difference.
• Reasonable transmission period (6-8 years) will help with management

Cons

• Preempting termination fees would have made more sense (esp from operational side)

DAVE

VoIP point – An obligation for good faith negotiation is better than nothing, which is what we had.

We think Bill & Keep makes sense because the person who makes the call is really the communicator.

BRENT

But in the wireless world there isn’t an IXE in the middle.

TOM

The policy the FCC are more fully baked on ICC – one there is one wildcard – court review. States are already saying the FCC cant’ touch their rates.  Maybe courts will only look at intrastate areas.

JEFF

In terms of USF intercarrier comp is phasing out so CAF will replace.

QUESTIONS FROM GROUP:

Onvoy – Intra issue – There’s a local area for LAN – MN PUC gets to set local carrier rates – but what happens when call goes to long distance?

The answer depends on where the call terminates (with wireless, wired VoIP). [Ann’s note – OK this was pretty steeped for me. I started to video the answer to get the gist.]

Another Question: About court appeals process – the deadline is end of January. They the question is – what will the court do? There are currently about 2 dozen filings on desk. We’ve had same number of petitions for reconsideration. SO what will that mean for the Order – yet to be determined.

How does this apply to PUC?

I captured this section in the video above (near top of post) because I learned at this point that the PUC video wasn’t working. There was also one final question on VoIP from a PUC staffer. (VoIP is really still an open question in many ways it seems.)