New FCC Rules On USF Will Trigger Economic Crisis In Rural America Putting Small Businesses And Jobs At Risk

Rural Broadband Alliance Press Release October 19, 2011:

As President Barack Obama travels key battleground states with heavy concentrations of rural voters to bolster his chances for reelection in 2012, prospects for the economic recovery in rural America are set to go into a quick reverse if rumors of a Federal Communications Commission (FCC) ruling come to pass that would radically alter the nation’s universal service rules. Based on briefings of selected industry associations and parties conducted last week by staff for FCC Chairman Julius Genachowski, rumors are circulating that the agency will put in place new telecommunications policies that are inconsistent with current law and threaten the viability of small rural telecommunications businesses that have brought advanced services to the rural communities they serve.

The briefings provided by Genachowski’s office reportedly outlined the changes in the Universal Service Fund (USF) and intercarrier compensation policies that the FCC is expected to adopt at its October 27 meeting. The briefings have fed the concerns of small rural telecommunications businesses that the FCC’s new rules will make their operations more unstable and uncertain.

According to reports from the FCC Chairman’s briefings, the new rules will not only apply to future operations and investments, but also will apply retroactively and threaten carriers’ abilities to recover the investments they have made in reliance on the FCC’s existing rules and policies. Several rural associations that participated in the briefings have reported that the FCC plans to adopt rules that “fail to adhere to the statutory mandate for consumers to have access to reasonably comparable rates and services.”

In anticipation of the FCC action, small, rural and independent telecommunications companies (45 at last count) – many of which provide services in key battleground states across the country – have written directly to Genachowski to “reserve all legal rights and remedies, including, but not limited to, the right to recover our established operational costs and historic capital investments.” The concerns of the rural small telecommunications businesses were included in a formal series of ex parte filings made for the companies to the Commission recently by the Rural Broadband Alliance (RBA), a coalition of small, rural and independent telecommunications carriers formed to preserve universal telecommunications service for rural consumers.

These small businesses provide telecommunications services in rural areas in such key states as Illinois, Wisconsin, Virginia, Pennsylvania, Iowa, Michigan, and Maine – all states that political strategists say Obama must carry to win reelection next year. According to the rural carriers, these rules will discourage rural broadband deployment where it is most needed in these states; stifle new economic investments; and lead to more job losses in rural areas throughout the country.

“As President Obama often has said, broadband is the new engine of the American economy,” said Steve Kraskin, RBA counsel, who filed the ex partes on behalf of the group’s members. “If the rumors that emerged from the briefings by the FCC Chairman’s office are correct, the new FCC rules will turn back the clock on a commitment to rural Americans that they are entitled to receive a range of telecommunications services, including broadband, comparable to those available in urban areas. The impact of this policy change will be felt for years to come, but its immediate effect will be to freeze new investment and cut existing jobs.”

“President Obama is now travelling the country with a message that the federal government must do all it can to encourage job growth and bring about an economic recovery. But, there is a major disconnect between the President’s message and what our rural representatives have heard from the FCC Chairman’s office. Instead of stimulating the economy, these new rules will further frustrate the economic recovery in rural America and lead to even more job losses and missed economic opportunities.”

Kraskin added that members of the RBA have responded to the President’s call to deploy broadband infrastructure to stimulate rural and economic development and bring the technology of the 21st century to rural consumers and communities, but will now pay a heavy price for making that commitment.

“These small rural telecommunications businesses participated in good faith in the administration’s excellent Rural Utilities Service (RUS) finance programs and the broadband stimulus program included in the American Recovery and Reinvestment Act (ARRA),” he said. “They developed business plans in reliance on these programs and in conjunction with the FCC’s universal service program.”

“If the reports from those that were briefed by the Chairman’s office are correct, the new rules will not stifle new rural infrastructure investment and job creation, they will destabilize existing small businesses that have successfully met a commitment to carry out the nation’s universal service policy.”

“The idea that an appointee of this President – even an appointee to an Independent agency - would propose the retroactive application of new rules to deprive small businesses of an opportunity to recover investments made in reliance on existing government programs is remarkable and should be unthinkable,” Kraskin continued. “The result would not only be contrary to everything the President has said he stands for with regard to rural economic development and stability for rural small businesses, but it would be unfair and inequitable – a blatant example of what Americans are saying is wrong with government.

“I am hopeful that the rumors and reports that are being circulated about the briefings are inaccurate. But, the small rural businesses that are members of the RBA cannot run their businesses on hope. That’s why we recommended that our members individually write to Chairman Genachowski and contact their congressional delegations to share their concerns.”

The RBA members are concerned that the new USF rules that Genachowski plans to adopt will slow broadband deployment in rural areas; result in dramatic price increases for rural consumers; and further depress rural economies. The rural carriers also have asserted that the new rules must not sanction a slower broadband threshold speed for rural America. They believe that the failure to provide reasonably comparable services in rural areas as those available in urban areas of the nation will discourage economic development and job growth in already economically depressed parts of rural America.

“We believe that the establishment of any differential between urban and rural service standards is simply contrary to law,” the carriers state in their ex parte letters, “and deprives rural communities of the infrastructure most necessary for economic stability and advancement.”

The carriers warned that the FCC’s approach to formulating the new rules has “marginalized the operational impact on individual companies and, worse, ignored the consequences to consumers, businesses, and the economy in rural America.”

In their individual ex parte letters to Genachowski, the rural carriers also noted that they have built their companies and deployed services consistent with current laws and regulations. Changing those regulations will impact their ability to continue to deliver services to rural consumers at affordable prices.

“My company’s historic investment and operational structure has been based upon a specific statutory and regulatory framework,” the ex parte letters state. “Simply put, after-the-fact modifications to regulations cannot interfere with our company’s expectation and right to recover historic costs, or the public expectation and right to continued service at reasonable costs.

“Our resort to this formal reservation of rights is required because, in a rush to implement an industry-sponsored solution, the very purpose of Section 254 – the preservation and advancement of universal service – has been undermined, and we must preserve our legal rights as result.”

FCC Chairman Outlines USF And Intercarrier Comp Reform Proposal

By Tom Smith, Editor, The Independent Telecom Report

FCC Chairman Julius Genachowski outlined a framework for USF reform in a hastily-scheduled speech last week at the FCC. The speech came amid growing opposition to a USF reform plan pushed by the industry’s price-cap carriers, the ABC Plan. Much of that opposition came from consumer and public interest groups and state commissioners, but also included extensive opposition from the wireless and cable industries, some mid-sized carriers, and many small rural carriers.

The speech by the FCC Chairman was long on rhetoric, but short on details. Yet, it capped an often-wild and furious lobbying effort at the FCC over the ABC Plan in recent weeks. The speech seemed to suggest that the plan put forward by the FCC Chairman will not be as comprehensive as first thought and will focus primarily on cost controls by capping USF and establishing a broadband speed threshold that, in effect, will limit the amount of funds spent to provide and maintain high-speed broadband services in rural areas. The proposal, if approved, could lead to two different broadband standards: one for urban communities and a slower speed standard for rural communities. Genachowski is now circulating his proposal for USF reform among his colleagues on the Commission. The FCC is tentatively set to take up the Chairman’s plan at its October 27 public meeting. (Click here to see this week's Report.)

Politics, AT&T Merger To Shape Telecom Agenda In U.S. Congress

U.S. Congress Is Punting On USF, Spectrum, And Retransmission Policies

By Tom Smith, Editor, The Independent Telecom Report

Political partisanship and the proposed merger of AT&T and T-Mobile will both shape and dominate the telecommunications policy agenda in the U.S. Congress for the rest of this year. After last year’s Congressional elections, many political analysts predicted that a divided Congress – in which Republicans dominated the U.S. House of Representatives and Democrats dominated the U.S. Senate – would be deadlocked on most policy issues. As we reach the six month-mark in the life of the current Congress, gridlock does not describe the legislative environment. Dysfunction might be a better description. (Click here to read more of Tom Smith's Analysis in this week's Independent Telecom Report Special Edition.

Reflections From The Boxing Ring

Last week was my "bout" with Broadband Plan architect Blair Levin at the Las Vegas joint meeting of RICA and RTG. I'll be writing more to you about this and the Rural Broadband Alliance efforts in upcoming Back Pages, but I thought I'd share some quick thoughts tied into this week's Report.

I have to begin by thanking Blair Levin for coming and joining me in the discussion.

I think that it was valuable for the companies in attendance to hear first-hand some of the challenges and issues we face. I think it was also helpful for our industry to have the opportunity to address some of Mr. Levin's thoughts and perceptions about the rural industry and today's cost recovery regulatory mechanisms.

The discussion was good, energetic and provocative - literally provocative! A few of Blair Levin's comments definitely provoked the audience! And, it was good for all of us to hear his comments in order both to gain a better understanding of the issues we face, and to identify the facts and political support we need to assemble to support our industry positions.

While both Mr. Levin and I became fiercely involved in our discussion/debate, I don't think either of us landed any death-blows. We listened to each other, but neither of us said, "I never heard it put that way - you changed my mind!" The fact is that we disagree on many issues. For example, we probably disagree on how to utilize USF most efficiently and effectively. One of our lead stories in this week's Report is about FCC Chairman Genachowski's speech to NARUC last week in which he stated that the FCC focus is now on infrastructure investment and job creation. Both Blair Levin and I would probably argue to the other that each of our proposals is better than the other's in terms of stimulating investment and job creation. Another example of our disagreement is Mr. Levin's proposed use of auctions to determine USF recipients.

One of the more provocative comments Mr. Levin made at last week's meeting relates to a story in this week's Report regarding the RUS filing of comments at the FCC expressing the need for the FCC to provide financial revenue predictability in order to support financing of rural infrastructure projects. Mr. Levin questioned whether the audience thought that the government owed anyone a guarantee of profitability, and indicated that the question extends to the RUS portfolio of loans to rural providers, suggesting that even the RUS should not look for rules that guarantee return.

On the other hand, Blair Levin, both in his presentation and in his most recent paper issued under the auspices of the Aspen Institute, clarified in a favorable way several of the concerns that I and others in our industry have raised about the Broadband Plan.

For example, he points out that the intent of the plan was never to leave rural "behind" urban. In his newest paper, he calls for regular review of service levels in urban and rural areas with resulting modification of the definition of universal service, as needed. With regard to our industry concern that the Plan would leave rural companies with no source of needed revenue recovery, Mr. Levin points out in his Aspen Institute paper that the the Plan anticipates that several billion dollars of today's USF will be retargeted for use to replace revenues lost as a result of a transition away from reliance on switched access revenues.

More to come on this and all in the coming weeks.

Best wishes to you and yours for a Happy Thanksgiving,

Steve Kraskin

THE FUTURE OF U.S. RURAL TELECOM POLICY AND THE 2010 ELECTIONS (“We Got Trouble!”)

(Excerpt from October 14, 2010 "Back Page" by Tom Smith)


“I want all of them – Democrats and Republicans – to be voted out of office. All of them should go.”

This is one American’s hopes for the outcome of the November 2 congressional elections. The comment reflects a level of frustration experienced nationwide with Congress and politicians, in general, these days, if the public opinion polls are to be believed. These frustrations are helping to spur the growth of a national grassroots Tea Party movement among conservative-minded voters that has left some politicians quaking in their boots. But, these frustrations also are spurring a new level of activism among many others who are disappointed that a mostly liberal President Barack Obama and a Democratic Congress have not championed all of their causes or met the litmus test of the liberal-minded progressive policy agenda.

Why should small, rural and independent telecommunications companies care about the November 2 elections? Does it really matter whether Democrats or Republicans control the Congress in 2011-2012? Does it matter if the Congress is in control of conservatives or liberals? Are there any moderates left anymore anyway to worry about? (Click here to view the entire "Back Page")

It Takes More Than Words . . .

On a hot, humid Washington, D.C. summer day last week, 35 rural company representatives representing 38 companies operating in 25 different states gathered for a meeting in response to an invitation issued by one of their colleagues.

The purpose of the meeting was to discuss the formation of an alliance of companies open to all small rural companies interested in working actively with their associations to bolster industry advocacy efforts and to reestablish the industry's grassroots support.

Only a day before this group gathered, Senator Jay Rockefeller, Chairman of the Senate Commerce Committee, sent a letter to FCC Chairman Genachoski that unfortunately provided yet another example of the very concerns and issues that brought the group together - as if meeting the challenges of the FCC Broadband Plan was not enough.

This week's Back Page is about industry unity and responding to the Rockefeller letter - it takes more than words. (Click here to view this week's Back Page.)

(The link to the "Rockefeller Letter" referenced in the Back Page may not work, depending on the program you utilize to open the pdf. You can view both the Senate Commerce Committee press release about the letter and the letter itself by clicking here: "Rockefeller Letter")

"Would you believe . . . ?"

In this week's Back Page, our Congressional advisor Tom Smith evokes the memory of the 1960 TV series "Get Smart" and secret agent Maxwell Smart.

Difficult as it is to believe, administration political strategists apparently really do believe that the rhetoric surrounding the Broadband Plan and the Broadband stimulus program will buy them crucial votes in November. They are oblivious to reality and the growing criticism of both the fundamental flaws in the Broadband Plan and the stimulus program that has funded duplicative facilities instead of needed focus on broadband adoption and permanent job creation.

Yet, these strategists advised the President to show his "ownership" of the Broadband policies by taking the lead in making the announcement himself of the latest second round broadband stimulus funding. At the same time, Congressional members of the President's own party called for reductions in the broadband stimulus program funding.

Tom Smith's Back Page explains how this political environment can provide the rural telecommunications industry an opportunity to utilize a strategic grassroots effort to shape positive solutions and influence the outcome by rebuilding an effective Congressional rural farm team - an opportunity we can seize if we "Get Smart."
Click here to view this edition of the Back Page.