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Rural Carriers “Hopeful” That Rate-of Return Order Will Meet Community Broadband Needs

Randy Sukow Mar 31, 2016

The association representing rural telcos, NTCA, The Rural Broadband Association, is not ready to say whether the FCC’s new order modernizing the universal service high-cost program for rate-of-return (ROR) carriers is a net positive for rural broadband subscribers. After years of debate and compromise, the Commission released the 237-page order with little fanfare late yesterday.

“Today’s order represents a watershed moment in reforming the USF programs upon which these carriers rely.  We are in the process of reviewing the order now, but we are hopeful that it contains thoughtful, targeted updates that respond to consumer demand for broadband and build upon the already unparalleled work of smaller carriers in leading the broadband charge to date in rural America,” according to a statement by NTCA CEO Shirley Bloomfield.

The big-picture summary of the order includes many previously reported features. ROR carriers will have two options to apply for support. A “legacy” approach allows them to draw from a “Connect America Fund Broadband Loop” mechanism, which replaces the “Interstate Common Line” mechanism for ROR voice support.  During a gradual transition period, the FCC will reduce the rate of return from the current 11.25 percent to 9.75 percent.

Otherwise, carriers can opt for a cost-model approach, similar to the mechanism price cap carriers currently use to determine USF support levels. Telcos that choose the cost model must provide broadband service at 10 Mbps downstream and 1 Mbps upstream to all subscribers except for certain high-population areas where it must offer a minimum 25 Mbps downstream and 3 Mbps upstream.

“In the end, the success or failure of this reform should not and cannot be measured merely by whether networks are built in rural areas,” Bloomfield said. “Rather, under the law, success can and must be defined only by whether consumers and businesses in the most rural parts of America have sustainable access to services that are reasonably comparable in price and quality to those available in urban areas.  That is the only yardstick that ultimately matters.”

FCC Chairman Tom Wheeler worked closely with Commissioners Mignon Clyburn and Michael O’Rielly to negotiate the order.  “These reforms will help to ensure that federal universal service funds are spent wisely, for their intended purpose, and take concrete steps to bring broadband to those rural Americans who remain unserved today,” Wheeler said after the order’s release.

O’Rielly, the Republican minority member of the threesome, called the order “a package of reforms designed to resolve the standalone broadband issue while at the same time fixing existing problems with the current system, providing flexibility for carriers, and including appropriate transitions.”

The five commissioners all voted for the order although Commissioner Ajit Pai was “dissenting in part.” He favored the order’s provision of standalone broadband services for rural carriers and the option for ROR telcos to move to a cost model. However, he said that the overall order was more complex than it needed to be. For example, he reviewed the intricate process the rules require for calculating standalone broadband support. “Those 11 steps are hardly straightforward calculations—and hardly something a rural telephone company can do without hiring yet another accounting consultant,” he said.

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