Vilsack Questions USF Support Predictability; Six Companies Petition for Full FCC Review

U.S. Agriculture Secretary Tom Vilsack thinks the new FCC rules on high-cost loop support make the USF less predictable, and that the Wireline Bureau’s waiver process uses the wrong standard, he told FCC Chairman Julius Genachowski last week. The commission has received several petitions for review of the Wireline Bureau’s HCLS Benchmarks Order setting out a regression methodology for determining reimbursable support on capital expenditures. Six companies have filed waiver requests of the various rules adopted in last fall’s USF/intercarrier compensation order, an FCC spokesman said.

The standard for relief when granting waivers of the new USF rules should be tied to a default on an obligation to government, not to the loss of voice service, Vilsack told Genachowski Tuesday, said an ex parte letter by Rural Utilities Service Administrator Jonathan Adelstein, who was in attendance (http://xrl.us/bm93p7). The three met along with aides “for a discussion about the importance of broadband to the rural quality of life,” the filing said. USDA has an “institutional interest” in the FCC reform efforts, which “can have a direct impact on the ability of existing RUS borrowers to repay their outstanding loans and complete the construction of wireline broadband systems” and backhaul for 4G deployment, the filing said. Vilsack discussed the need for “certainty and predictability” for consumers and lenders, noting that the new regression analysis model “can affect long term revenues and USF predictability."

Petitioner Accipiter Communications said the bureau’s methodology suffers from “fundamental flaws which lead to irrational results,” so unpredictable that it “effectively prohibits companies from making reasonable and rational investment decisions” (http://xrl.us/bm93vp). The study area boundaries and census data the commission is using are inaccurate, and “inaccuracies in the inputs will flow through and create errors or inaccuracies in the outputs,” Accipiter said. It argued the bureau’s interim solution -- allows carriers to individually update data and then subjects that data to flawed formulas -- is “no solution at all.” A “formula with flawed coefficients cannot produce correct results merely through the correction of independent variables,” the company said.

The order fails to achieve the “predictability” required for universal service support, Accipiter said, arguing it’s impossible to predict support levels for 2014 because carriers don’t know in advance what its capital expenditure and operating expense limits will be in the future. “A carrier thus has no way to make even vaguely accurate predictions regarding the level of support it will receive, and thus has no reasonable ability to make prudent investment decisions,” Accipiter wrote. “The Bureau’s passing observation that concerns that support amounts will fluctuate and lack predictability are ’speculative and unpersuasive’ is vague, arbitrary, capricious and reflects no serious appreciation of the actual problem.”

Central Texas Telephone Cooperative said the FCC never provided it and others the opportunity to comment on a proposed regression model “remotely resembling the revised regression model adopted in the Bureau Order,” which is “in essence a brand new regression model” (http://xrl.us/bm93y4). Central Texas was “illegally kept in the dark,” counter to the requirements of the Administrative Procedure Act, it said in arguing for commission-level review. The telco also took issue with the bureau’s choice of “road miles” as a proxy for loop length because it’s “mathematically flawed and based on an erroneous factual assumption since the road miles proxy for longer loops is actually behaving like a proxy for shorter loops,” and will lead to decreased funding; the bureau’s decision to “penalize carriers with a higher depreciated plant to total plant ratio”; and the use of the number of road crossings as an indicator of scale, and resulting higher costs. Central Texas said it would lose close to $1 million in high-cost support through the end of 2013 if the bureau’s revisions go into effect.

East Ascension Telephone Co. (EATEL) said the bureau failed to employ statistically reliable techniques, used unreliable independent variables and calculated the depend variables to reduce reimbursement of loop costs “prudently incurred” (http://xrl.us/bm93zn). The order’s errors affect all rate-of-return LECs, but disproportionately impacted EATEL, which will bear close to 20 percent of the $65 million in total HCLS reductions, it said. “A reduction of this kind would undoubtedly cause significant operational issues for the company, resulting in grave consequences for EATEL customers and employees."

Silver Star Telephone Co., a small ILEC in rural Wyoming and Idaho, said it has about 2.3 customers per square mile. It said the bureau relied on faulty data and created a model that “lacks transparency, is not plausible, and ... does not reflect reality” (http://xrl.us/bm93z7). The regression model will create a “race to the bottom” that will reduce carriers’ ability and incentive to invest in modern broadband networks, Silver Star said, arguing “the consecutive application of the model across time reduces high cost loop receipts to near zero."

The National Telecommunications Cooperative Association, OPASTCO, the National Exchange Carrier Association and the Western Telecommunications Alliance also filed for commission-level review last week, accusing the bureau of acting in a “nearly random manner” (CD May 29 p7). Applications for review of the HCLS order are due by June 22, according to a public notice Thursday, which also sets comment deadlines on the applications for review already received (http://xrl.us/bm9yut).