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Looking Back on ICC and USF

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Looking Back on ICC and USF Powered By Docstoc
					Montana Telecommunications Association
            August 2, 2010



    Federal Regulatory
          Update
    In a Sea of Change
                    Ray Baum, Chairman
                Oregon Public Utility Commission
        NARUC Telecommunications Committee Chair
 State Chair, Federal-State Joint Board on Universal Service
            Regulatory Agenda
     Federal Broadband Plan
     USF/ICC Reform
     Universal Access to High Speed
      Broadband-Financing it all(ARRA)
     Smart-Grid
     Spectrum
     Net Neutrality/Reclassification of the
      Internet


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




5
              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
            Broadband Services
             The Federal Game Plan
     Include Internet Access
     Remove Digital Divide
     Include Carrier Financial Support (USF)
     Remove Carrier to Carrier Payments
      (access charges, reciprocal compensation)




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




10
            FUSF Estimated
         2010 Support Payments
      High-Cost – $4.4 B
      Support to local service providers
      Low-Income – $1.4 B
      Discounts on monthly service and installation
      Schools & Libraries – $2.4 B
      Discounts to eligible schools and libraries
      Rural Health Care – $.2 B
      Discounts to rural health care providers – changes
      pending
      Total 2010 Estimated Payments = $8.4 B
11
               FUSF Contribution
      1Q 2010 surcharge rate = 14.1%
      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
12
         Universal Service Fund
      High-Cost Fund comprises 62% of total
       USF
      Fund grew from $2.6B in 2001 to $4.4B in
       2008
      Wireless support distribution is skewed
       heavily toward a few states and is
       unrelated to need
      Does not explicitly support broadband
      Supports multiple providers in same area
      Contribution method based on voice
       revenues
13
              Annual Lifeline Payments

                                in Millions
     $1,600
     $1,400
     $1,200
     $1,000
      $800
      $600
      $400
      $200
        $0
              2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010



14
     Intercarrier Compensation




                 Simply Put…
15
     What, Me Worry?




     Is it really a Problem?
16
      Intercarrier Compensation
     and Universal Service Reform




              I’m Back...
17
                      Yes!
     August 6, 2008 letter to the FCC requesting a
      Unified Intercarrier Compensation Regime




18
       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?

19
                                                Terminating Compensation
                                          6.0
     Average Rates in Cents per Minute


                                                                  Small ILEC Intrastate ( 5.1)


                                          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

20
                              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

21
     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

22
                                               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.

23
         What’s New


           The FCC’s
     National Broadband Plan



24
           USF and ICC Reform
               Under NBP
     2010–2011 Stage 1
      Improve Universal Service Fund (USF)
       performance and accountability
      Create the Connect America Fund (CAF)
      Create the Mobility Fund
      Design new USF funds in a tax-efficient
       manner



25
           USF and ICC Reform
               Under NBP
     2012–2016 Stage 2
      Begin CAF disbursements
      Broaden the universal service
       contribution base
      Begin transition of reducing per minute
       rates for intercarrier compensation




26
           USF and ICC Reform
               Under NBP
     2017–2020 Stage 3
      Manage USF size to remain close to
       current (in 2010 dollars - $8.7B)
      Eliminate legacy High-Cost program –
       support broadband availability through the
       CAF
      Reduce ICC rates - phase out per-minute
       rates for the origination and termination of
       telecommunications traffic
27
                The Plan Details
     Connect America Fund
      Support broadband and high quality voice
       Networks
      Fund only areas where there is no private
       sector business case
       • Unserved Areas
       • Provide ongoing support to sustain services
         previously supported by USF
      One subsidized network in a given geographic
       area
       • Market based mechanism to choose the provider
       • Look for lowest cost provider
       • Recipient must be accountable and subject to
         enforceable timelines for achieving universal access
28
                 The Plan Details
     Connect America Fund (continued)

       • Support based on forward looking cost less
         revenue
       • Define support level on geographic units
       • Eligibility is company and technology agnostic
       • Recipients subject to specific service quality and
         reporting requirement
      The Mobile Fund
       • Provide one-time support for deployment of 3G
         networks
       • Bring all states to minimal level of 3G availability


29
              USF Reform Details
      Shift up to $15.5B from the High Cost
       Support fund over next decade (disburses at
       $4.6B annually) to target BB support
       • Reduce Sprint & Verizon competitive ETC
         disbursements to zero over 5 years (currently
         $550M/Yr) - $3.9B
       • Require ROR carriers to move to incentive
         regulation - $1.8B
       • Redirect Interstate Access Support to broadband
         (currently $475M/Yr) - $4.0B
       • Phase out legacy High Cost Support to competitive
         ETC - $5.8B
30
                      ICC Reform Details
      Adopt framework for intercarrier
       compensation reform
       • Intrastate access rates to interstate rate levels in
          equal increments over 2 to 4 years *
       • Eliminate all access per-minute charges by 2020
       • Gradual increases to subscriber line charges
       • Allow some carriers USF support
       • Interim rules to reduce arbitrage
       • Adopt rules to reduce access stimulation (traffic
          pumping)
       • Address treatment of VoIP for purposes of ICC
       * pre-empt States
31
     Reclassification of Broadband
      What is the internet?
      Should the internet be regulated as a
       common carrier?
      Can the internet be divided into a separate
       transmission/connectivity service and
       separate information service?
      How important is this decision to the
       future of Broadband deployment?



32
             Internet Connectivity
              Service Regulation?
      Title I
       • Light-handed regulatory approach
       • Ancillary Authority – Legal tools to implement
        parts of NBP including USF Reform
       • Comcast Court Decision – Questions the FCC’s
        legal authority to regulate the internet
       • No evidence of systemic failure
       • Industry Supporters: Cable, RBOCs, Wireless


33
             Internet Connectivity
              Service Regulation?
      Title II
       • Total Reclassification
       • All broadband service providers common
        carriers
       • Legal basis is uncertain – need record of
        evidence to support a change in regulation
       • Create regulatory uncertainty
       • Industry supporters: some Consumer Advocacy
        Groups/Commissioner Copps
34
              Internet Connectivity
               Service Regulation?
      Third-Way
      • Title II “lite” plus Forbearance
      • Maintain Sections 201, 202, 208, 222, 254 and
        255
      • Supported by three FCC Commissioners
      • Change legal rationale but not policy
      • Industry Supporters: Internet
        Companies(Google), many Consumer
        Advocacy Groups

35
     Congress Weighs In




36
            Boucher USF Reform
      Declares Broadband USF Covered Service
      • USF recipients must offer broadband service
         Within 5 years
         Minimum speed set by FCC
         Through own facilities, resale or satellite
         Waiver provided if cost is 3X national average
       • FCC develop new cost model
         Includes voice and broadband
         Calculates high-cost support


37
           Boucher USF Reform
      Reduce or Eliminate Incumbent High-cost
       Support
      • In areas where 75% of HH received voice &
        broadband from non-USF recipient competitor
      • May demonstrate per-line support required in
        non-competitive area to achieve comparable
        rates for covered services
      • Non-incumbent in competitive area must meet
        carrier of last resort requirements


38
              Boucher USF Reform
      Implement Wireless competitive bidding
       • Funding based on number of wireless providers,
         bidding, and prior support
      Ensure fund size does not unreasonably
       increase
      Prohibit high-cost support reductions to
       Tribal Lands
      Addresses Other Issues
       •   Contribution mechanism
       •   Performance & Audits
       •   ICC Reform
       •   Traffic Pumping and Identification
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
      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 Combo
       • Broadband infrastructure in Rural Areas
       • ≤$1.2B Last Mile/≤$400M Remote, ≤$800M
         Non-Remote
       • ≤$800 Middle Mile
      $325M National Reserve
      $2.2B for 2010 Funds Grant/Loan Combo
       • Last Mile/Middle Mile
      Second window of grants for satellite
       services
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
      $1.2B first round of funding awarded 82
       grants
      $2.6B remaining for second round
       • $2.35B Infrastructure – middle mile
      • ≥$150M for Public Computer Center
      • ≥$100M for Sustainable Broadband Adoption

42
              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

43
               Other Concerns
      Consumer information and disclosure (NOI)
      Forbearance used to alter regulation(COLR)
      Public Safety Communications
      FCC Reform
      Special Access
      Interconnection
      Pole attachments
      Smart Grid
      Cyber-Security

44
     The Crystal Ball




45
           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


46
     "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


47
         What Could Happen This
             Year or Next?
      Nothing in 2010
      FCC Reclassifies Broadband Connectivity
       as a Common Carrier under the “Third
       Way”-Ignites World War III in the Courts
      Congress holds hearings – passes
       legislation on USF/ICC Reform and
       Reclassification (Not Likely before 2012)


48
       Is Comprehensive
     Universal Service and
           Intercarrier
     Compensation Reform
     possible this year or in
        2011………Or…..
49
     … Is the Interim Cap
       as good(or bad) as it gets?




50

				
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