Pai Calls for More Predictability in USF Funding

In his first trip home as FCC commissioner, Ajit Pai criticized what he called an unstable and unpredictable universal service model that discourages long-term investments in rural broadband networks. “Our rules of the road can’t change every year or two, and Washington’s funding formulas for carriers shouldn’t redistribute money annually in an arbitrary or haphazard manner,” he told a rural broadband roundtable in Oswego, Kan., according to a copy of his prepared remarks (http://xrl.us/bnooja). Pai called for a “transparent system for distributing funds, one that companies can understand to plan their investments and that government watchdogs can follow to guard against waste, fraud, and abuse.” Pai, who grew up in a rural part of southeastern Kansas, spoke of his experience dealing with a rural communications landscape very different from the one in cities. “When rural issues cross my desk at the Commission, they aren’t just abstractions to me,” the text said.

"When regulators make it difficult for broadband service providers like CenturyLink to deploy broadband, rural America loses,” he said. Pai was referring to the “overall regulatory environment” that creates uncertainty over where the commission is going in regards to broadband regulation, he told us afterward. He cited his dissent from the Section 706 broadband competition report (CD Aug 22 p1), and from the special access order that suspended pricing flexibility pending the receipt of more data (CD Aug 22 Bulletin). Both of those actions indicate a commission that wants a more hands-on regulatory approach, but “we have to provide a clear signal to the private marketplace that we are going to take a light regulatory touch with respect to fiber,” Pai told us. “Because otherwise, the extension of the legacy regulations from the monopoly copper era, that’s simply going to deter providers from making these high-value investments that they need to make in order for rural broadband deployment to happen."

Pai questioned the quantile regression model adopted by the commission to limit reimbursable capital and operating expenses. The commission has acknowledged inaccuracies in some of the study area maps the model is based on, he said. “To the extent that we can correct those inaccuracies and get better data, it would seem to me that that would be the ideal thing to do before fully applying the model."

"It remains to be seen” if the quantile regression model is workable, Pai told us. “The proof is in the pudding, so to speak. If we can get more accurate data with respect to study area maps and some of the other things; if we can make tweaks to the variables that take into better account the realities that these companies are facing in terms of capital expenditures and operating expenditures, the model could be made better. Whether or not that’s the ideal solution I can’t say, but at least we should focus on trying to make it better, if we can."

Pai wants the commission to resolve the several applications for review of a Wireline Bureau order setting methods for USF benchmarks “sooner rather than later,” he said. “We should take seriously some of the objections that have been made, and not plow ahead despite the fact that there are acknowledged inaccuracies in the model. If a model’s going to work, then it has to be based on sound data and it has to be relatively simple and predictable."

NTCA President Shirley Bloomfield hopes Pai’s speech indicates he'll support the association’s and others’ challenges to the quantile regression methodology (CD May 29 p7), she said. Pai reached out to NTCA shortly after he became a commissioner, and made it “very clear” that “he carries that rural mantle pretty proudly,” she said. From both a business and philosophical mindset, he was “very receptive to the entire idea that you can’t make these investments unless you know where the support is going, and what your revenue streams are going to look like,” she said. Bloomfield said she hopes that with two new commissioners who did not vote on the original USF/intercarrier compensation order that approved the regression methodology, there will be some “independent thinking and perspective and some fresh eyes, in terms of how do we really do the things that need to be done."

Pai also spoke excitedly of his trip to Kansas City, where he saw firsthand Google’s fiber project and subsequently called for more broadband-friendly rights-of-way management policies (CD Sept 6 p10). Pai was struck by Google’s close cooperation with the municipal government to ensure an inspector was on site whenever Google was deploying fiber. “One of the biggest cost elements in fiber deployment is getting regulatory approval when you're digging up a road, or something of that sort,” Pai told us. Working closely with the local government “yielded tremendous benefits in terms of efficiency and cost savings and time savings alike,” he said. The FCC should be “working cooperatively” with local and state governments to come up with guidelines and best practices for fiber deployment, Pai said, to “make sure that we have a little more predictability, uniformity and efficiency in the system. We can be a helpful partner.”