Looking Back on ICC and USF by axe17204

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									  Oregon Connections Conference
        October 30, 2009


Federal Regulatory Update
   In a Sea of Change

                Ray Baum, Commissioner
               Oregon Public Utility Commission
        NARUC Telecommunications Committee Chair
State Chair, Federal-State Joint Board on Universal Service
     Regulatory Agenda

Consumer Protections/Privacy/Cyber-
Security
Universal Access to High Speed
Broadband-Financing it all
Smart-Grid
Net Neutrality
Spectrum
Broadband Deployment Plan
                                      2
         The Customer
  Multiple Communication Devices


Wired phone
Mobile phone
Home computer
Portable laptop
PDA/Smartphone




                                   3
           The Customer
Multiple Communication Applications

Voice
Texting
Video/TV
Data
Internet
Pictures
Gaming



                                      4
             The Customer
          Consumer Expectations




All in One Device


Mobile Everything
             The Customer
            Multiple Providers
Incumbent and competitive exchange carriers
Wireless and WISP carriers
Cable companies
VoIP providers
Municipalities
Satellite
Internet service providers
Other (power lines, Microsoft, Google)

                Who Wins?
                                              6
              The Customer
    Multiple Network Protocols for
Transmission, Switching and Signaling

  Analog
  Digital
  IP
  Spectrum
  Satellite
  Microwave

   Converging technologies – any limits?

                                           7
Universal Access To Affordable Services

              The Game Plan

  Include Internet Access
  Remove Digital Divide
  Include Carrier Financial Support (USF)
  Remove Carrier to Carrier Payments
  (access charges)


                                            8
 Regulated Monopoly Environment

Implicit subsidies for the local network
  $8 billion in Access
  $4.5 billion in High Cost Fund
  $12 billion in Subscriber Line Charges
Provider of last resort obligations/costs
Terminating rate disparity (costly arbitrage)
Different regulations for like traffic


                                                9
 Undecided Critical Legal Issues

ISP Core Remand Decision (DC circuit court)
  Issue: level of compensation for originating dial-up
  internet access set by FCC at $0.0007
  FCC responded to Court ISP Order 11/05/08
  FCC response appealed by Core 12/23/08
  Currently in oral argument at court




                                                         10
 Undecided Critical Legal Issues

Qwest II Remand Order (10th circuit court)
  Issue: USF high-cost support mechanism for non-
  rural carriers
  Court invalidated FCC universal support mechanism
  FCC released NOI 4/09
     Support based on cost or rate benchmark?
     Relationship to more comprehensive USF reform?
     Relationship of proposed modifications to FCC
     broadband policies?



                                                      11
First Up – Federal Universal Service Fund
The Key to Long Term Broadband Deployment




                                            12
    FUSF 2008 Support Payments

High-Cost – $4,487 M
Support to local service providers
Low-Income – $839 M
Discounts on monthly service and installation
Schools & Libraries – $1,908 M
Discounts to eligible schools and libraries
Rural Health Care – $33 M
Discounts to rural health care providers
          Total 2008 Payments = $7,267 M

                                                13
           FUSF Contribution

3Q 2009 surcharge rate = 12.9%
Applied to Carrier’s interstate and international
end user telecommunications revenues
Proposals seek to change Contribution method
  Expand to all consumers regardless of jurisdiction
  Based on telephone numbers and/or connections




                                                       14
                       Universal Service Fund
   High-Cost Fund comprises 62% of total FUSF
   Fund grew from $2.6B in 2001 to $4.4B in 2008
             $5.0

             $4.0
                                                         CETCs
$ Billions




             $3.0

             $2.0                     ILECs

             $1.0

             $0.0
               2001   2002   2003   2004   2005   2006   2007    2008


                                                                        15
    CETC Payments Across States
Support distribution is skewed and unrelated to need
  Top 10 states receive almost half of CETC support
  (excludes Alaska & Puerto Rico)
    Examples:
       Mississippi: $147 M       Louisiana: $68 M
       Kansas: $83 M             Wisconsin: $55 M
                       = $353 M
  Other rural states receive less than 10% of that amount
    Examples:
        South Carolina: $0          Utah: $0.3 M
        New Hampshire: $0.2 M Tennessee: $1.6 M
                       = $2.1 M

                                                            16
   FCC Cap on CETC Payments
FCC interim cap effective August 1, 2008
Cap is state-specific, at March 2008 payment
level - $1.329 Billion
Two exceptions to cap
  Any CETC filing cost data “demonstrating that
  its costs meet the support threshold in the
  same manner as” the ILEC
  CETCs serving tribal lands or Alaska Native
  regions

                                                  17
   State-Federal Joint Board USF
           Proposal 2007

Eliminate identical support rule
Maintain current high-cost funding level ($4.5b)
Cap CETC funding (interim adoption in 2008)
Declare Broadband a Supported Service
Establish POLR, Wireless voice and Broadband
funds-Focus wireless and BB on infrastructure
build-outs
FCC did not adopt proposal

                                                   18
     Martin 2008 Reform Proposal

Cap fund
Support conditioned on offering broadband (except
Alaska and Hawaii)
Reverse auctions in study areas unserved by
broadband (except Alaska and Hawaii)
Lifeline/Linkup broadband pilot program
Eliminate identical support rule (CETC own cost)
Number based contribution
Proposal went nowhere
                                                    19
Another Key - Intercarrier Compensation




                  Simply Put……
                                          20
 What, Me Worry?




Is it really a Problem?
                          21
                 Yes!
August 6, 2008 letter to the FCC requesting a
 Unified Intercarrier Compensation Regime




                                                22
Multiple Providers Multiple Technologies

  Wireless to wireless calls terminate for free
     Largest share of phone numbers
     End user pays
     Charge each other for “roaming”
  VOIP to VOIP voice calls terminate for free
  IP/PSTN calls – who pays or not?
  VoIP and wireless are eroding access charges
  What is a terminating minute really worth?



                                                  23
                                                 Terminating Compensation
                                     6.0                    Small ILEC Intrastate ( 5.1)
Average Rates in Cents per Minute




                                     5.0

                                                                                 CLEC Interstate (0.6)
                                     4.0            Large ILEC                             CLEC Intrastate (3.0)
                                                    Intrastate (2.5)

                                     3.0       Small ILEC
                                               Interstate (1.8)

                                                                                                       Recip Comp           CMRS – ILEC
                                           Large ILEC                                                  Voice (0.2)          InterMTA ( 0.6)
                                     2.0
                                           Interstate
                                            (0.6)                                                                  Recip Comp         CMRS – ILEC
                                                                                                                   ISP ( 0.1)         IntraMTA (0.2)
                                     1.0


                                     0.0
                                             LONG DISTANCE CALLS                                   LOCAL CALLS                  WIRELESS CALLS

                                    High (¢/min): 1.5       8.9        9.9   34.9   6.8 35.9               0.3       0.1          8.9     0.3
                                    Low (¢/min): 0.5        0.3        0.4    0.7   0.2  0.4               0.0       0.0          0.2     0.0
                                                                                                                                                       24
                               Dialing for Dollars
                                                                  Companies Absorb
                                   Rate Increases                   (Other revenues/DSL/Video/
                USF                (SLC/local rates/State USF)   Backhaul/Competitive Line Losses)
                $0                              $0                              $0
                                         $10          $1
       $2.22B        $500M          $9                    $2         $2.0B           $500M
                                    $8                     $3
        $2.0B          $1.0B
                                      $7                  $4            $1.5B        $1.0B
               $1.5B                       $6        $5




         5¢                                                                           $20

.005¢             2¢                                   Federal
                           ICC/                       Benchmark             $35               $25

.01¢             .2¢
                          Access               (Residential Local Rate
                         Charges                plus other mandatory
         .1¢                                           charges)                       $30

                                                                                                     25
             Federal Benchmark Mechanism
Eligible
for USF
   $5
            Federal SLC

                                                                Residential
             State SLC                                  $5
                                                               SLC Increase

             State USF                                          Federal SLC

                             $30     Benchmark                   State SLC
                                       Target
                                                                 State USF
                                         $25           $20
           Local Rate**
                                                               Local Rate**




           - - - - - - - - - Residential Revenues Per Line - - - - - - - - -

  ** Includes Mandatory EAS
                                                                               26
   Missoula Plan Proposal 2006
Address compensation issues (3 tracks)
Revenue neutral
Establish Phantom Traffic rules
Support among RBOC, ILEC, RLEC, CLEC and
Wireless carriers
Require state adoption for RLEC inclusion
5 year transition




                                            27
               Missoula Plan Proposal 2006
                                             TRACK 1    TRACK 2       TRACK 3
1. Transition: Target Intercarrier Rates ($/Access Minute)
  Termination Rates                          $ 0.0005   $ 0.0080 $        0.0171
  Origination Rates                          $ 0.0045   $ 0.0095 $        0.0171
2. Transition: Rebalanced End User Rates ($/ Month/ Line)
  Interstate SLC Cap Increases               $   3.50   $      2.25   $     2.25
3. Transition: Restructure Mechanisms ($ Millions)
  Restructure Mechanism                                 $1,500
Additional Items: Transition
  Early Adopter Fund                                        $200
  Lifeline Increases                                        $225

  High-Cost Fund/USF Mechanism Adjustments                  $300

  Sub-Total : RM Plus Additional Items*                 $2,225

                                                                              28
                                             Missoula Plan Proposal 2006
                                    6.0
Average Rates in Cents per Minute




                                    5.0


                                    4.0

                                                                                                                           LD Intrastate
                                    3.0                                                                                                        Wireless
                                                                                                                   LD Interstate     Local 1
                                                                                       LD Intrastate

                                    2.0                                       LD Interstate             Wireless
                                                                                                Local
                                                   LD Intrastate

                                    1.0   LD Interstate            Wireless
                                                          Local


                                    0.0
                                           Track 1 ILECs (0.05)               Track 2 ILECs (0.80) 3           Track 3 ILECs (1.71)2

                            1. Compensation for EAS traffic remains under existing arrangements.
                            2. Reciprocal compensation rates for 251(b)(5) traffic capped at interstate access rate levels. Access traffic capped at
                               interstate access rate levels.
                            3. Assumes end office switching rate of 0.05 (same as Track 1 rate) and 0.75 for common transport and tandem switching.

                                                                                                                                                          29
           Martin Proposal 2008

10 year transition to zero (or lower then $0.007) (except
Alaska and Hawaii)
FCC-set rate methodology for state rate-making
IP/PSTN ultimately subject to final uniform rate
Addresses phantom traffic (call record rules)
FSLC cap increases for interstate recovery
Maximum end user charges required for new USF support
Total price cap company review required for new USF
support




                                                            30
         Martin Proposal 2008
Highly controversial
   Taking (financial jeopardy)
   Preemptive
   Presumptive (100% broadband)
One-time rate of return election
Carve-out added for RLECs in final version
Supported by RBOCs
Generated “Best Offer” responses
   Windstream
Proposal Dead but parts might survive


                                             31
The Election
  is Over
Change has
  arrived



               32
                      The Legacy




                          Ted Stevens
                      Former Alaska Senator
    Kevin Martin                                  Joe Barton
Former FCC Chairman                           Texas Congressman




                                                               33
   The Future Now




President for the Internet Age
       Web-side Chats?
                                 34
Internet Key Driver of Jobs
   and Economic Growth

           Protect Internet openness
           Improve digital infrastructure
           Broadband to every community
           Address end user penetration
           Guard market dynamics




                                        35
Congress Weighs In




                     36
  Rep. Boucher - Chair Subcommittee on
Communications, Technology and the Internet

  Judicial background
  Congressional Internet Caucus
  Internet & intellectual property
  Introduced legislation
     Reform USF
     Fair use of digital media

 “…. in the 21st Century, access to broadband telecommunications will be a
 defining feature of economic success for our communities"



                                                                             37
Senator Rockefeller – Chairman Commerce,
  Science and Transportation Committee
 FCC process review
 Expand broadband
 infrastructure through tax
 incentives & grants
 Develop broadband policy for
 next generation networks to
 deliver 100 megabit capacity to
 all Americans
 Access to high-speed broadband
 in all U.S. schools (E-Rate)

                                           38
   Rep. Waxman – Chairman
Energy and Commerce Committee


              Oversight & reform
              Champion of diverse media
              Network Neutrality
              FUSF distribution audit
              Reasonable roaming terms
              Government transparency




                                          39
 Internet Access Stimulus Funding

7.2 billion economic stimulus (timely,
targeted, temporary, lead to jobs)
$350 million for broadband mapping
Funding - RUS $2.5B / NTIA $4.7B
Extend Universal Service to broadband
Reach rural/urban underserved communities
Connect libraries and schools (expand E-Rate)
National Broadband Map by February 2011


                                                40
           RUS Funding

$2.4B for 2009 Funds Loan, Grant, Loan/Grant
Combination
Broadband infrastructure
In Rural Areas
≤$1.2B Last Mile/≤$400M Remote, ≤$800M
Non-Remote
≤$800 Middle Mile
$325M National Reserve


                                               41
           NTIA Funding
$4.7B total must be awarded by 9/30/2010
  ≤$350M for data collection/mapping
  ≥$200M for public computer capacity
  ≥$250M for sustainable adoption
$1.6B current round of funding
  ≤$1.2 broadband infrastructure
  ≤$50M for public computer capacity
  ≤$150M for sustainable adoption
  ≤$200M as national reserve
$2.7B remaining for next round?
                                           42
      Diverse Communications

Rethink consolidations
  Telecom
  Mass media
Diverse ownership of traditional media
  TV
  Newspaper
  Radio
Diverse ownership of future media outlets



                                            43
           FCC Reform
New Chairman
Change decision making
Address influence of special interests
Pursuing transparency
Being pushed by key industry players
  ILECs
  Cable
  Media companies
Pushed by public interest groups that support
key industry players

                                                44
           Other Priorities

Telemedicine
  Endorse legislation - Fostering
  Independence through Technology Act (FITT)
  Fund electronic health information systems,
  including electronic health records – ARRA $19.2B
Computers in classrooms
  Support/expand E-Rate program
Consumer Protection - Wireless
Universal Service Fund Reform

                                                      45
Julius Genachowski
  FCC Chairman

       Harvard Law School w/Obama
       Former FCC Chief Counsel
       Clerk to two Supreme Court
       justices
       Venture capitalist media & e-
       commerce
       Open technology & platforms
       Internet driven


                                       46
   Technology & Innovation
Next generation networks
Government has a roll
Non-dominate player participation
User control of indecent content
Open network architecture
Smart grid technology
Cyber-security/Privacy




                                    47
     Technology & Innovation

FCC Wireless Competition (NOI)
  Framework and data sources to use
  Include device and infrastructure
  Vertical relationships between “upstream” and
  “downstream”
FCC Wireless Innovation and Investment (NOI)
  Appropriate evaluation metrics
  Where and how key innovations are happening
  Relationship between innovation and investment
  Policies or processes that promote or hinder

                                                   48
           Network Neutrality

FCC Notice of Proposed Rulemaking
Six Open Internet Principles
Subject to Reasonable Network Management
  Access to Content
  Access to Applications/Services
  Connect Devices to the Network
  Access to Competition
  Nondiscrimination
  Transparency


                                           49
    Internet Access Long Term

Address digital divide
Maximize spectrum
Target to most efficient technology
Speed required for next generation applications
Issue National Broadband Plan February 2010
Reform of USF/ICC-The Key to Deployment in
unserved areas of Rural America



                                                  50
           Other Concerns

Consumer information and disclosure (NOI)
Roaming (wireless for broadband, open network)
Forbearance used to alter regulation
Public Safety Communications
Gateway/Router locations/Internet access
backhaul
FCC Reform
Special Access
Interconnection


                                                 51
Intercarrier Compensation and
       Universal Service




       I’ll Be Back…..
                                52
The Crystal Ball




                   53
      Some Pretty Bad Predictions
        By Robert Strohmeyer, PC World

   "I think there is a world market for maybe five
                       computers."
           Thomas Watson - president of IBM
                        1943

"Television won't be able to hold on to any market it
  captures after the first six months. People will soon
   get tired of staring at a plywood box every night.“
       Darryl Zanuck - executive 20th Century Fox
                        1946


                                                          54
  "There is no reason anyone would want a
            computer in their home."
Ken Olsen - founder of Digital Equipment Corp.
                     1977

           "Apple is already dead."
     Nathan Myhrvold - former Microsoft
          chief technology officer
                     1997

 "Two years from now, spam will be solved."
       Bill Gates - founder of Microsoft
                     2004

                                                 55
          ICC/USF Options
 What could happen this year or next?
Nothing in 2009

Address February 2010 in Broadband Plan
(Through issuing an NPRM)

Congress holds hearings – offers own plan
this year or next (Not Likely)


                                            56
    Is Comprehensive
  Universal Service and
Intercarrier Compensation
 Reform possible this year
  or in 2010………Or…..
                             57
… Is the Interim Cap
 as good as it gets?




                       58

								
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