THE NEW FCC NPRMTHE NEW FCC NPRMTHE CHALLENGES, THE RESPONSES THE CHALLENGES, THE RESPONSES

AND THE PLAN OF ATTACKAND THE PLAN OF ATTACK

A Briefing Provided By The Rural Broadband AllianceA Briefing Provided By The Rural Broadband Alliance

STEPHEN G. KRASKIN and DIANE STEPHEN G. KRASKIN and DIANE SMITHSMITH

February 11, 2011February 11, 2011

TODAY’S DISCUSSIONTODAY’S DISCUSSION

HIGHLIGHTS OF WHAT IS IN THE NEW HIGHLIGHTS OF WHAT IS IN THE NEW NPRMNPRM• OverviewOverview• FCC ProposalsFCC Proposals

Access – long term and short termAccess – long term and short term

USF – long term and short termUSF – long term and short term• Our Responses and PositionsOur Responses and Positions• Our Thoughts On StrategyOur Thoughts On Strategy

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Here They Go Again . . .Here They Go Again . . .

Like the movie “Groundhog Day”Like the movie “Groundhog Day”

Familiar content in a new boxFamiliar content in a new box

This time they mean it . . . (sort of)This time they mean it . . . (sort of)

Do we really want them to do more or Do we really want them to do more or less?less?

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LOGISTICSLOGISTICS

Short comment cycleShort comment cycle

State comment opportunityState comment opportunity

Intent to act this year on some Intent to act this year on some specificspecific

Framework Divides Consideration Of Framework Divides Consideration Of Existing, Transition, and “End Game”Existing, Transition, and “End Game” 44

FCC Sets 5 Basic TenetsFCC Sets 5 Basic Tenets

ModernizationModernization Fiscal ResponsibilityFiscal Responsibility AccountabilityAccountability Market-driven approachesMarket-driven approaches No “flash-cuts” – a “sensible No “flash-cuts” – a “sensible

transition”transition”

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LONG TERM FOCUSLONG TERM FOCUSINTERSTATE ACCESSINTERSTATE ACCESS

Begin to phase down access and move Begin to phase down access and move network support provided by access to network support provided by access to explicit USF recovery mechanism.explicit USF recovery mechanism.

Provide a “glide-path” with Provide a “glide-path” with consideration of reducing large carrier consideration of reducing large carrier rates quicker. rates quicker.

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LONG TERM FOCUSLONG TERM FOCUSINTRASTATE ACCESSINTRASTATE ACCESS

Objective – reduce intrastate rates; Objective – reduce intrastate rates; end arbitrage gamingend arbitrage gaming

Alternatives:Alternatives:

Provide states a “carrot” to move Provide states a “carrot” to move intrastate access to parity with intrastate access to parity with interstate; or consider how to mandate interstate; or consider how to mandate state access reductions.state access reductions.

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LONG TERM FOCUSLONG TERM FOCUSRevenue Cost Recovery MechanismRevenue Cost Recovery Mechanism

Recognition that cost recovery Recognition that cost recovery mechanism will be implemented to mechanism will be implemented to offset access revenue loss.offset access revenue loss.

Reduced rates will begin 2012Reduced rates will begin 2012

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NEAR TERM ACTIONSNEAR TERM ACTIONSIntercarrier CompensationIntercarrier Compensation

1.“Access Stimulation” – proposes 1.“Access Stimulation” – proposes that any carrier with a revenue that any carrier with a revenue sharing arrangement will default sharing arrangement will default interstate access rate to the lowest interstate access rate to the lowest interstate access rate of any interstate access rate of any incumbent operating in the same incumbent operating in the same state.state.

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NEAR TERM ACTIONSNEAR TERM ACTIONSIntercarrier CompensationIntercarrier Compensation

2. “Phantom traffic” by proposing to 2. “Phantom traffic” by proposing to require signaling information.require signaling information.

3. VoIP Treatment - asks for 3. VoIP Treatment - asks for comment on 3 proposals:comment on 3 proposals:

a. bill and keepa. bill and keep

b. using a rate lower ($ .0007)b. using a rate lower ($ .0007)

c. apply accessc. apply access1010

UNIVERSAL SERVICEUNIVERSAL SERVICEGeneral ConsiderationsGeneral Considerations

Initial proposed inclusion of 4 Mbps Initial proposed inclusion of 4 Mbps down and 1 Mbps up, subject to down and 1 Mbps up, subject to comment and revisioncomment and revision

““Everyone will have to adapt”Everyone will have to adapt”

Focus on legacy investment and Focus on legacy investment and transition mechanismstransition mechanisms

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UNIVERSAL SERVICEUNIVERSAL SERVICELong Term ConsiderationsLong Term Considerations

““End Game” – support only from new End Game” – support only from new Connect America FundConnect America Fund

Current focus is not on “end game” Current focus is not on “end game” detailsdetails

Initiate consideration of three Initiate consideration of three possible long term approaches:possible long term approaches:

a. Reverse auctionsa. Reverse auctions

b. Modelsb. Models

c. Rate of return with incentivesc. Rate of return with incentives 1212

UNIVERSAL SERVICEUNIVERSAL SERVICEBeginning The Connect America FundBeginning The Connect America Fund

Phase out Interstate Access Support Phase out Interstate Access Support for Price Cap carriers over 2-3 yearsfor Price Cap carriers over 2-3 years

Phase out Identical Support to CETCsPhase out Identical Support to CETCs

over 5 yearsover 5 years

Retarget these funds to unserved and Retarget these funds to unserved and underservedunderserved

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UNIVERSAL SERVICEUNIVERSAL SERVICEBeginning The Connect America FundBeginning The Connect America Fund

Funding proposal could be for any areaFunding proposal could be for any area

Overlapping with existing incumbentOverlapping with existing incumbent

Distribution could be reverse auctionDistribution could be reverse auctionContinued wireless prejudice Continued wireless prejudice

(most “bang for the buck”)(most “bang for the buck”)

Possible Wireless Opportunities?Possible Wireless Opportunities?1414

UNIVERSAL SERVICEUNIVERSAL SERVICENear Term Proposals For Near Term Proposals For

Rate of Return CarriersRate of Return Carriers 1. Reduce reimbursement rates for high 1. Reduce reimbursement rates for high

cost fund – fund is capped – change in cost fund – fund is capped – change in distribution. No immediate cap on ICLSdistribution. No immediate cap on ICLS

   2. Consider elimination of local switching 2. Consider elimination of local switching

support (LSS) to recognize movement to support (LSS) to recognize movement to soft switchsoft switch

3. Benchmarks – guidelines for capital and 3. Benchmarks – guidelines for capital and operational expenses may be establishedoperational expenses may be established

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UNIVERSAL SERVICEUNIVERSAL SERVICENear Term Proposals For Near Term Proposals For

Rate of Return CarriersRate of Return Carriers 4. Consider limitation of fund availability in 4. Consider limitation of fund availability in

highest cost to serve areas; last 256,000 highest cost to serve areas; last 256,000 estimated cost of $ 14 billion; alternative estimated cost of $ 14 billion; alternative use of satellite; carrier and state role in use of satellite; carrier and state role in determination.determination.

   5. Streamline study area waivers and 5. Streamline study area waivers and

encouragement of study area encouragement of study area consolidation within a state.consolidation within a state.

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UNIVERSAL SERVICEUNIVERSAL SERVICENear Term Proposals For Near Term Proposals For

Rate of Return CarriersRate of Return Carriers

   6. Elimination of “parent trap” rule that 6. Elimination of “parent trap” rule that

limits USF for an acquired exchanges to limits USF for an acquired exchanges to the level of USF available to the former the level of USF available to the former owner. (Sleeves out of vest?)owner. (Sleeves out of vest?)

   7. Encourage efficiencies by encouraging 7. Encourage efficiencies by encouraging

use of shared facilities and resources use of shared facilities and resources (leads to questioning investment - “used (leads to questioning investment - “used and useful”and useful”

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RESPONSESRESPONSES

Recognize that FCC has divided Recognize that FCC has divided issues into:issues into:

1. Short term impact on existing 1. Short term impact on existing investment and expensesinvestment and expenses

2. Transitional mechanisms2. Transitional mechanisms

3. Long-term3. Long-term

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RESPONSESRESPONSES

Qualitative and quantitative Qualitative and quantitative response needed to proposals that response needed to proposals that would jeopardize existing cost would jeopardize existing cost recoveryrecovery

Clarity required to provide Clarity required to provide reasonable mechanism to recover reasonable mechanism to recover additional investment while FCC additional investment while FCC debates long-termdebates long-term

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RESPONSESRESPONSES

Concern with the possibility that Concern with the possibility that initial CAF could go to another initial CAF could go to another provider in your area – rural provider in your area – rural incumbent is designated ETC COLRincumbent is designated ETC COLR

VoIP – at minimum, retro must be VoIP – at minimum, retro must be access. Going forward, should be left access. Going forward, should be left as access to offset USF pressureas access to offset USF pressure

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RESPONSESRESPONSES

Ensuring that cost recovery Ensuring that cost recovery mechanism to replace access is mechanism to replace access is sufficientsufficient

Too much new investment cost Too much new investment cost recovery for rural left in intrastate recovery for rural left in intrastate jurisdictionjurisdiction

Rural carrier CETCs should have Rural carrier CETCs should have recovery based on costs as promisedrecovery based on costs as promised

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RESPONSESRESPONSES

Potential Reductions In High Cost Funding Potential Reductions In High Cost Funding and Removal of LSS jeopardize universal and Removal of LSS jeopardize universal serviceservice

Proposed use of expense benchmarks Proposed use of expense benchmarks must include opportunity to recover actual must include opportunity to recover actual “used and useful” costs“used and useful” costs

FCC Should Not Disregard Need For FCC Should Not Disregard Need For Universal Fixed and MobileUniversal Fixed and Mobile

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RESPONSESRESPONSES Best “bang for buck” requires long Best “bang for buck” requires long

term considerations – short term term considerations – short term wireless in lieu of fixed is not long wireless in lieu of fixed is not long term investment-wiseterm investment-wise

Targeted Funding should not ignore Targeted Funding should not ignore carrier responsibilities – rural carrier responsibilities – rural incumbents make common carrier incumbents make common carrier service commitments others are service commitments others are unwilling to makeunwilling to make 2323

RESPONSESRESPONSES FCC USF long term plan should not FCC USF long term plan should not

assume that USF size cannot grow.assume that USF size cannot grow.

FCC should not delay or ignore fixing FCC should not delay or ignore fixing “contributions.”“contributions.”

Public interest requires new Public interest requires new contribution mechanism to ensure contribution mechanism to ensure “fair share” based on value of “fair share” based on value of connectionconnection 2424

STRATEGYSTRATEGY

Evaluate proposals in the context of Evaluate proposals in the context of impact on rural consumersimpact on rural consumers

Impact on ability to invest in Impact on ability to invest in infrastructureinfrastructure

Impact on job creationImpact on job creation Impact on job lossImpact on job loss IDENTIFY CONSTRUCTIVE IDENTIFY CONSTRUCTIVE

ALTERNATIVES ALTERNATIVES 2525

FOCUS ON OBJECTIVEFOCUS ON OBJECTIVE

Ensure that an explicit universal service Ensure that an explicit universal service funding mechanism provides carriers funding mechanism provides carriers committed to the provision of universal committed to the provision of universal service with revenues that are sufficient to service with revenues that are sufficient to enable the company to recover the costs, enable the company to recover the costs, including a reasonable return on including a reasonable return on investment, that it incurs in the provision of investment, that it incurs in the provision of a universal broadband network to rural a universal broadband network to rural consumers at rates and conditions consumers at rates and conditions comparable to those charged to consumers comparable to those charged to consumers in urban areas.in urban areas.

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Build On What We Have AchievedBuild On What We Have Achieved

We changed the tone and then the We changed the tone and then the directiondirection

No longer leaving rural behindNo longer leaving rural behind No longer ending legacy mechanisms No longer ending legacy mechanisms

without recognition of need for cost without recognition of need for cost recoveryrecovery

No longer assumes end of RORNo longer assumes end of ROR

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Strategic FrontsStrategic Fronts1. Protect to the extent possible cost 1. Protect to the extent possible cost recovery of established investment recovery of established investment and operational expenses incurred to and operational expenses incurred to provide universal serviceprovide universal service

Reliance on rules, policy – need for Reliance on rules, policy – need for stability, predictability. Emphasizestability, predictability. Emphasize

impact on jobs, infrastructure impact on jobs, infrastructure investmentinvestment

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Strategic FrontsStrategic Fronts

2. Obtain a mechanism to ensure 2. Obtain a mechanism to ensure stability for recovery of needed stability for recovery of needed additional investment and additional investment and operational expenses during the operational expenses during the transition to the “end game.”transition to the “end game.”

Lead the way on “accountability,” Lead the way on “accountability,” “fiscal responsibility,” and “fiscal responsibility,” and “modernization.”“modernization.”

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Strategic FrontsStrategic Fronts3. Long term – take advantage of the 3. Long term – take advantage of the fact that the FCC is deferring focus.fact that the FCC is deferring focus.

Use advocacy in Fronts 1 and 2 to lay Use advocacy in Fronts 1 and 2 to lay a foundation for the long term a foundation for the long term answer that works best for rural answer that works best for rural carriers and consumers – consistent carriers and consumers – consistent with our RBA objectivewith our RBA objective

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QUESTIONSQUESTIONS

??????????

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NEXT STEPSNEXT STEPS

Frame responses to the NPRM and Frame responses to the NPRM and provide to associationsprovide to associations

Work with associations to emphasize Work with associations to emphasize Front 1 (recovery of existing Front 1 (recovery of existing investment) and Front 2 (mechanism investment) and Front 2 (mechanism to recover additional expenses to recover additional expenses needed to provide broadband needed to provide broadband universal serviceuniversal service

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NEXT STEPSNEXT STEPS

Work with industry advisors to Work with industry advisors to “operationalize” the RBA’s “operationalize” the RBA’s

Transitional Stability PlanTransitional Stability Plan

Build factual data to support positions: Build factual data to support positions: rural economic development impact; rural economic development impact; demonstrate that bigger provider is demonstrate that bigger provider is not more efficient providernot more efficient provider

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NEXT STEPSNEXT STEPS

We won’t stop at FCC commentsWe won’t stop at FCC comments

Eye on the Hill and legislative Eye on the Hill and legislative concernsconcerns

Rebuild more than the Congressional Rebuild more than the Congressional “Farm Team”“Farm Team”

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NEXT STEPSNEXT STEPS Build the Rural Economic Build the Rural Economic

Development Team – not only Development Team – not only members of Congress with rural members of Congress with rural interests - include urban business interests - include urban business interests that need rural interests that need rural infrastructureinfrastructure

Begins with the grassroots: specific Begins with the grassroots: specific message, specific “asks,” specific message, specific “asks,” specific targets, and reach out to new alliestargets, and reach out to new allies 3535

OUR TEAM, OUR EFFORTOUR TEAM, OUR EFFORTAND OUR “ASK”AND OUR “ASK”

POLICY AND STRATEGY POLICY AND STRATEGY FCC AND HILL FCC AND HILL State CommissionsState Commissions Industry CommunicationsIndustry Communications Other partiesOther parties Community InterestCommunity Interest

OUR “ASK” OF YOUOUR “ASK” OF YOU 3636