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USTelecom's Rate-of-Return Advocacy Efforts

06.04.2018

In March of this year the Federal Communications Commission adopted a Notice of Proposed Rulemaking (NPRM) in conjunction with the Report and Order, Third Order on Reconsideration (Order) in its Connect America Fund docket (Rate-of-Return Budget Order and NPRM) and on May 25, 2018 USTelecom filed comments responding to the Commission’s request for comment on further reforms to establish a budget that will allow for robust broadband deployment in rate-of-return areas while minimizing the burden that contributions to the Universal Service Fund places on ratepayers. Below is a summary of USTelecom’s important advocacy points in this proceeding:
 
Support for Rural Broadband Should be Sufficient
As an association USTelecom advocated that broadband providers of all sizes in rural America are now faced with a greater demand for service from rural consumers, as well as increased demands for capacity. Such strains are coupled with an overwrought budget that is not distributing enough support to give broadband providers the ability to offer consumers reasonably comparable rates in rural areas. The high cost program is the underpinnings of all of the other programs and requires sufficient support in order for the other programs to be their most effective. 

Rural USF Budget Should Be Fully-Funded 
USTelecom supports fully funding the current rate of return mechanisms as well as making an additional A-CAM offer and other measures that provide stability and predictability as well as stimulates broadband deployment in rural areas in order to close the digital divide. The Commission should establish a budget that is wholistic in its approach and that fully funds the cost-based (a.k.a legacy) and A-CAM programs without making one budget dependent on the other.
 
USTelecom also whole-heartedly supports the Commission’s proposal to adopt an inflation factor adjustment which will increase the budget from $1.23 billion to $1.35 billion, noting that such an adjustment will not be enough to keep up with the increased costs associated with building a network that reaches further and further out into the more distant and more unserved and underserved portions of a service territory in rural America. 
 
USTelecom supports fully-funding existing A-CAM electors at the original $200 per location.  The $200 per-location funding cap was originally adopted, because it was deemed that that level of support was necessary to provide full support for locations where the average cost is much higher. If the Commission provides such support, the deployment obligations which were already set forth in the Commission’s rules can be executed by the carriers quickly and will ultimately lead to the deployment of more broadband in rural America.
 
In conjunction with fully-supporting the A-CAM, the Commission should also fully fund cost-based broadband providers. Those carriers for whom an A-CAM election was not possible were unable to anticipate the severe impact that the BCM would have on cost-based providers while at the same time, facing ever increasing costs to run the network. This is worsened by the fact that support is insufficient, in part, because rural providers are having to provide service at rates higher than in urban settings.  Due to caps on the fund, cost-based providers are unable to recover a significant percentage of their eligible costs. If the Commission increases the budget to fully fund the cost-based broadband providers rural broadband providers would have the incentive and certainty they need to match the targets set out in the current buildout obligations.

Another Opportunity to Elect A-CAM Should be Offered
The Commission makes a second A-CAM offer using the same parameters and deployment obligations originally adopted for the first offer.  Such an offer should, however, be open to all carriers, not just carriers willing to accept lower support amounts in exchange for increased certainty of funding, including carriers previously excluded from A-CAM because they had 90% build-out in their service territory.  USTelecom supports the Commission putting enough funding in the budget so that it anticipates the overall demand so that such an offer would be possible without impacting support available to cost-based providers.
 
The Budget Control Mechanisms Needs Revisions 
With respect to revising the Budget Control Mechanism, the Commission should set a 95% threshold of support that is not impacted by the Budget Control Mechanism but instead of basing that threshold on each carrier’s unconstrained 2016 or 2017 claims amount, the amount should be rolling such that the percentage is calculated using the lowest of the previous three years claims rather than a single year.  Offering such a flexible determination is important, because high cost support changes from year to year depending upon where a carrier is in their build cycle, and therefore, some years could potentially favor some carriers more than others without consideration for this build cycle factor.
 
Deployment Obligations Should Remain the Same
The deployment obligations that the industry supported and the Commission adopted in the 2016 Rate-of-Return Reform Order are still appropriate and supported by industry.  The Commission should focus solely on providing the appropriate budget to support the program as designed.
 
USF Should be Collected at the Full Authorized Amount
There is an ongoing need to maximize the budget, however, the Commission has yet to initiate proceedings on the budget all parts of the USF program. Therefore, USTelecom argues that at a minimum it would be prudent to continue to collect at the current rate as is necessary to fulfill the required budget. Because the Commission is authorized to collect $11 billion but is only actually paying out $8.75 billion out of that amount, the Commission could potentially meet the additional budget needs of the high cost program while remaining within the authorized $11 billion collection.  In the interim, the Commission should continue to collect at the $4.5 billion annual authorized amount for the high cost program.