FCC releases USF reform order

by Teresa Evert, senior manager, Regulatory

The FCC issued its long-awaited Report and Order, Third Order on Reconsideration, and NPRM on March 23, 2018, on high-cost USF reform for rate-of-return companies. Here is a summary of important highlights relevant to our members.

Report and Order

The R&O adopts rules prohibiting the recovery of personal expenses, expenses unrelated to operations, and corporate luxury goods from high-cost support. These new rules will be applied prospectively, but the Commission stated the Order is not intended to undermine prior precedent such as the “used and useful” standard. 

The Commission does not believe it is necessary to alter NECA’s role to enforce these rules, and directs us to work with our members to develop processes for ensuring compliance with the new eligible expenses rules to make certain universal service support is being used only for its intended purposes. 

The R&O also:

  • Adopts a presumption against recovery through interstate rates for specific types of expenses not used and useful in the ordinary course.

  • Offers additional high-cost support up to $146.10 per location to RoR carriers that previously accepted A-CAM model-based support in exchange for increased broadband deployment obligations. 

  • Directs USAC to continue forecasting a quarterly amount of high-cost demand at no less than one quarter of $4.5 billion until further Commission action, such as addressing the issues raised in the Notice of Proposed Rulemaking. 

Third Order on Reconsideration

The Commission also addresses petitions for reconsideration of the 2016 RoR Reform Order.

  • Reconsiders implementation of the budget control mechanism affecting claims from July 2017 to June 2018 by fully funding legacy rate-of-return carrier claims during that period, which the FCC estimates to be about $180 million during this budget year. 

  • Reconsiders how the OpEx limitation is calculated to include an inflation adjustment factor based on GDP–CPI. The Order directs NECA to calculate each carrier’s OpEx limitation for the following calendar year by multiplying the inflation adjustment factor used in the rural growth factor, as described in its annual High Cost Loop Support filing, by the carrier’s OpEx limitation for the current year. 

  • Amends section 54.1308(a)(4) to include CBOLs in the calculation of each carrier’s corporate operations expense limitation.

  • Clarifies when any entity that is not a RoR carrier (including a price cap carrier, CLEC, IXC or non-carrier entity) acquires exchanges from a RoR carrier, section 54.902(c) applies. It also clarified the term “exchanges” in section 54.902 does not apply to entire study areas, but instead to areas smaller than a complete study area. It declined to amend the parent trap rule in section 54.305. 

  • Addresses requests from NTCA and WTA on streamlining waivers by:  

    • Clarifying the Commission did not adopt a streamlined waiver process in the 2016 RoR Reform Order

    • Clarifying in assessing whether good cause exists to grant a request for waiver of the CIA, the Commission is likely to view as highly relevant cost estimate information certified by an engineer licensed in the state where the construction will take place.  

    • Denying WTA’s request to address the situation of material/labor shortages and corresponding price increases, finding the situations for which WTA requests streamlined waivers must each be considered individually. 

    • Dismissing as moot NTCA’s request regarding the budgetary impact in cases where a carrier that initially elected to receive model support in 2016 subsequently declined the revised offer. 

Notice of Proposed Rulemaking

The FCC seeks comment on, among other items:

  • Revising the high-cost budget for RoR carriers, the appropriate level of support, when to revisit the budget (e.g., in six years), and either:

    • establishing a separate budget dedicated to HCLS and CAF BLS; or

    • continuing to calculate the amount of support available for HCLS and CAF BLS by subtracting A-CAM, Alaska Plan and CAF ICC support from a single RoR budget. 
  • Extending a new A-CAM model offer to carriers willing to accept lower support amounts than the legacy support funding they currently receive in exchange for increased certainty of funding through the A-CAM, and adjustments to the model that may make participation more favorable to carriers that declined the A-CAM, including the addition of a tribal broadband factor.

  • Whether to direct USAC to forecast total high-cost demand at no less than one quarter of the annual high-cost budget, regardless of actual quarterly demand to minimize volatility in contributions. 

  • Using additional budget headroom to offer A-CAM carriers the fully funded amount, using a per-location funding cap of $200. If all eligible carriers accept, the result is expected to be about $66.6 million more support per year for the 10-year A-CAM term.

  • Offering an opportunity for current legacy carriers to elect model-based support. 

  • Two proposed changes to the budget control mechanism:  

    1. Using only a pro rata reduction applied as necessary to achieve the target amount, and no longer include a per-line reduction.  

    2. Establishing a minimum threshold of annual support for legacy providers not subject to a budget cap.

Comment and reply cycle

Comments are due 30 days after publication in the Federal Register; replies are due 60 days after FR publication. 

Filed under March 2018 , Tagged with FCC, Spring 2018, USF Reform

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