Martin Abandons, Then Revives Intercarrier Compensation Plan

(From The Independent Report, November 17, 2008)

FCC Chairman Kevin Martin has given into criticism that he sought to fast-track a controversial and complex plan to reform the intercarrier compensation and universal service programs. After abandoning plans to push forward with a proposal this year in the face of mounting criticism, Martin has changed course and agreed to put the plan out for a short period of public comment and setting up the potential for action by the Commissioners when they meet on December 18.

The FCC was set to take up on Election Day a controversial
167-page plan pushed by FCC Chairman Kevin Martin that many people described as a revolutionary restructuring of the intercarrier compensation system and USF. According to many critics, the plan would radically alter how some carriers provide telecommunications services in rural America. Consumer groups criticized the plan saying it would result in unprecedented rate increases.

Martin’s plan has support from Verizon, AT&T, and Qwest. The plan was criticized in part also because it was seen as benefitting the large national carriers disproportionately.

But, Martin quickly abandoned his efforts to push the plan through the FCC when he was unable to line up any support from the other Commissioners. He issued a bitter statement suggesting he had given up his efforts to reform what he called the “inefficient and outmoded intercarrier compensation and universal service programs.” In turn, the other Commissioners released a statement saying they hoped the issue would be put on the Commission’s December 18 agenda instead.

Once Martin announced the controversial plan would be pulled from the Commission’s November 4 meeting, stock shares of telecom companies serving rural areas shot up and rallied.

Martin pulled the controversial item from the November 4 meeting after strong opposition had mounted among some carriers, state regulators, consumers, and members of Congress. Nearly 100 members of Congress are thought to have called on the Commission to delay consideration of the plan until it could be put out for public comment. Just before Martin yanked the item from the FCC’s agenda, his plan came in for a new round of criticism from another group of influential U.S. Senators, including Senators Chuck Hagel (R-NE); Patrick Leahy (D-VT); Bernard Sanders (I-VT); George Voinovich (R-OH); Byron Dorgan (D-ND); and Robert Casey (D-PA).

In a rare joint statement, Commissioners Michael Copps, Jonathan Adelstein, Robert McDowell, and Deborah Taylor Tate said Martin should have delayed to seek public comment on his proposal. They said a public review was especially important given the current state of the economy. They also noted in their joint statement that they had provided Martin with “bipartisan, constructive, and substantive” suggestions.

“It is important to ensure that any reform proposal receive the full benefit of public notice and comment, especially in light of the difficult economic circumstances currently facing our nation,” they wrote.

Martin responded by expressing his disappointment that his colleagues wanted additional public review of the proposal. He was harsh in his criticism of the other Commissioners accusing them of wanting to avoid a vote on the issue.

“I would like to be encouraged by my colleagues’ commitment that they will truly be ready to complete this much needed reform on December 18,” he said. “The nature of the questions they would like to include makes me doubt they will have found their answers with an additional seven weeks. I do not believe they will be prepared to address the most challenging issues and the Commission will be negotiating over what further questions to ask in December.

“I recognize that few other issues before the Commission are as technically complex and involved, with as many competing interests, as are reforming the Intercarrier Compensation and Universal Service programs,” Martin continued. “But neither of those two realities are an excuse for inaction. They will be true in one month, in one year, or as we have now seen at the Commission, in ten years.”

Martin gave every indication after the meeting that he would not move forward with his plan this year. In various media interviews, he said the FCC had missed an opportunity to bring about comprehensive reform.

At the time, he committed to issue a far narrower ruling to comply with a federal court deadline on rules related to dial-up Internet traffic. Martin expressed doubt that the court would find the new rules adequate. Additionally, the FCC was required to release an Order by November 20 on recommendations made by the Joint Board. Those recommendations include an overall freeze in USF and the elimination of the identical support rule.

However, Martin pulled a surprise just a few days after failing to take up the controversial intercarrier compensation and USF reform plans. The FCC released the Order on the internet traffic issue on November 5 concluding that the FCC has the authority to regulate ISP-bound traffic and maintained the $0.0007 rate for such traffic. It also addressed the Joint Board’s recommendation with a three sentence paragraph saying the Commission would not implement the recommendations at this time.

But, the FCC also adopted a Further Notice of Proposed Rulemaking which attached Martin’s original proposal, an alternative draft, and a draft USF Order – all coming to a whopping 499 pages. The notice has been published in the Federal Register and comments are due on November 26, the day before Thanksgiving, and reply comments are due December 3.

Martin’s willingness to put his proposal out for public comment, however, did not alter his frustration with other Commissioners or their objections to taking up the issue at the November 4 public meeting.

“I am disappointed by the Commission’s unwillingness to step up and make tough choices to modernize our intercarrier compensation and universal service programs,” Martin said in agreeing to support issuance of the Further Notice. “I am also doubtful that the Commission will find itself any better equipped to act in another six weeks. However, I vote to approve this item because this is the only path my colleagues could agree on.

“I question whether my colleagues will be any more willing to adopt comprehensive reform in December,” he continued. “I had proposed a comprehensive approach that would have transitioned all traffic to a final uniform rate regardless of the type of traffic or jurisdiction. I also view our failure to implement the Joint Board’s recommendations as a tremendous missed opportunity.

“After a decade of comment on these issues, we begin again from square one. To be clear, this is not a targeted Further Notice on a specific reform proposal. We are putting out for comment several proposals that would lead to radically different outcomes.”

Martin took yet another shot at the other Commissioners in his statement of support for the Further Notice. “My colleagues invite comment on conflicting questions, which reveal that they have no fundamental proposal for reform,” he said. “These questions have been debated exhaustively in the record for years. I fail to see how further comment over the next six weeks will help us resolve these issues.”

The other Commissioners also issued a statement saying the Commission was reaching a consensus on many of the issues related to intercarrier compensation and universal service. They cited a list of issues on which they suggested there was agreement, including moving intrastate access rates to interstate access levels over a “reasonable” period of time, implementing an alternative cost recovery mechanism, and eliminating the identical support rule.

“This Further Notice reflects our commitment to comprehensive reform of the intercarrier compensation and universal service systems in an expedited fashion,” the other Commissioners said in a joint statement.

The FCC’s consideration of Martin’s proposal could be affected by the schedule of the lame duck session of the Congress. The U.S. Senate is expected to go into session today for a short lame duck session, possibly only until Thanksgiving. If the Senate ends its session completely and adjourns for the year, the FCC will be down to four members as Tate’s term on the FCC ends when the Senate goes out of session. If the Senate recesses but technically stays in session, Tate can continue to serve on the Commission through the end of the year.

Without Tate, Martin may find it difficult to get the three votes he needs to win passage of any proposal.

It is unclear also whether the Obama administration will weigh in indirectly on Martin’s proposal.

Meanwhile, the proposal also could represent a political mine field for the two current Democratic Commissioners. Both Copps and Adelstein are under consideration to become the next FCC Chairman. But, Obama may be reluctant to elevate either if they are associated with a decision that would result in new consumer rate increases.