Federal Communications Commission
Universal Service and InterCarrier Compensation Rulemaking
Prepared by TEXALTEL
Compensation Related Issues
Access Stimulation – in which carriers artificially inflate their traffic volumes to increase ICC
payments. A competitive carrier or rate of return ILEC must file lower rates if: (1) a LEC has
a revenue sharing agreement and (2) the LEC either has (a) a three-to-one ratio of
terminating to originating traffic in any month or (b) experiences more than a 100 percent
increase in traffic volume in any month measured against the same month during the previous
year.1 IXCs may file complaints if their records indicate the LEC has exceeded either of the
traffic measurements, and then the burden is on the LEC to show it has not met the access
stimulation definition.2 It is estimated that the cost of access stimulation is $2.3 billion in the last
5 years.3 Revenue sharing is defined: “has an access revenue sharing agreement,
whether express, implied, written or oral, that, over the course of the agreement, would directly
or indirectly result in a net payment to the other party (including affiliates) to the agreement, in
which payment by the rate-of-return LEC or competitive LEC is based on the billing or collection
of access charges from interexchange carriers or wireless carriers. When determining whether
there is a net payment under this rule, all payments, discounts, credits, services, features,
functions, and other items of value, regardless of form, provided by the rate-of-return LEC or
competitive LEC to the other party to the agreement shall be taken into account.”4 Revenue
sharing may include payments characterized as marketing fees or other similar payments that
result in a net payment to the access stimulator. However, this rule does not encompass
typical, widely available, retail discounts offered by LECs through, for example, bundled service
offerings.5 If a LEC’s circumstances change because it terminates the access revenue sharing
agreement(s), it may file a tariff to revise its rates under the rules applicable when access
stimulation is not occurring.6 As part of that tariff filing, an officer of the LEC must certify that it
has terminated the revenue sharing agreement(s).7 If a LEC, however, subsequently reactivates
the same telephone numbers in connection with a new access revenue sharing agreement, we
will presumptively treat that action to be furtive concealment resulting in the loss of deemed
lawful status for the LEC’s tariff, as discussed below in conjunction with the discussion of
section 204(a)(3) of the Act.8 This will prevent a LEC from entering into a series of access
revenue sharing agreements to avoid the 45-day filing requirement, while benefiting from the
advertising of those telephone numbers used under previous agreements.9
A CLEC that engages in traffic stimulation must file the access rates of the lowest Price
Cap provider in the state within 45 days of meeting the definition.10
Phantom traffic – calls for which identifying information is missing or masked in ways
that frustrate intercarrier billing. The FCC requires that carriers and providers of
1
ICC/USF Order, paragraph 33, 658, 667
ICC/USF Order, paragraph 659
3
ICC/USF Order, paragraph 664
4
ICC/USF Order, paragraph 669
5
ICC/USF Order, paragraph 670
6
See Bluegrass Section XV Comments at 19.
7
IDD/USF Order, paragraph 671
8
See infra para. Error! Reference source not found.. As described therein, a carrier may be required to make
refunds if its tariff does not have deemed lawful status.
9
ICC/USF Order, paragraph 685
2
10
ISS/USF Order, paragraph 690
Appendix Broadband Page 1
interconnected VOIP provide calling party information and requires intermediate carriers to
pass this signaling information unaltered.11 Providers must pass the number of the calling party,
or the billing number. Providers must populate the CN field in the SS7 stream unless the CPN
field is populated. MF signaling must pass either the calling number or the billing number.
VOIP providers must pass the calling party number, but no standard is specified and it is up to
the providers to deal with evolving standards and to make it work. 12
Intercarrier compensation – The decision is to move to Bill and Keep for local,
wireless and for terminating switched access – both interstate and intrastate. The Order
expends a lot of ink discussing why Bill and Keep is a good idea, why the FCC has
reversed its position from prior orders, and why the FCC has legal authority to make this
change. I give them high marks for guts on this. To begin to regulate access (both
interstate and intrastate) as 251 (b)(5) (local) traffic is a huge change in the public policy
landscape. To declare that local compensation is zero is also very gutsy in view of FTA
provisions regarding compensation for terminating other providers’ traffic. No doubt
these two bold changes will be debated in the various courts for many years. It is
fascinating to see the many provisions of FTA that have been relied on to support state
regulation, and various compensation rates, turned into a credible and cohesive
interpretation that the FCC has authority to turn the playground upside down. For
example, the FCC notes that FTA section 251(g), which requires that ILECs continue to
provide switched access and other services, states “During the period beginning on such
date of enactment and until such restrictions and obligations are so superseded, such
restrictions and obligations shall be enforceable in the same manner as regulations of
the Commission.” The FCC points out that this provision, which preserved access, is its
authority to end access charge payments. The FCC states, dozens of times, that it is
not ending compensation to carriers for terminating other providers’ traffic, it is just
requiring that those costs be paid by each provider’s end users, not by other providers
(via access or recip comp).
Transition to Bill-and-keep: For Price Cap carries, all interstate and
intrastate access rate elements are capped as of the effective date of the rules in
this order. For rate of return carriers, all interstate rate elements are capped, and
terminating intrastate rates are capped.13 Then there is a two year process (50% on
July 1, 2012 and the remainder on July 1, 2013) to move intrastate rates to
interstate levels (already there in Texas). Then on July 1, 2014 is the first of 3 annual
steps to move terminating end office access and reciprocal compensation rates to
$.0007 for Price Cap companies and to $.005 for Rate of Return ILECs. On July 1, 2017
access end office switching and recip rates become Bill and Keep for Price cap
companies, and the end office charge for tandem and switching is reduced to $.0007
for termination within the tandem serving area where the terminating company owns the
tandem. For rate of return ILECs the termination rate begins a 3 annual step reduction
from $.005 to $.0007. On July 1, 2018 the tandem and end office termination rate for
price cap ILECs becomes bill and keep for termination within the tandem serving area
where the terminating carrier owns the tandem. Here is the time line as stated by the
FCC:
Intercarrier Compensation Reform Timeline
11
ICC/USF Order, paragraph 33, bullet 2
ICC/USF Order, paragraph 720
13
ICC/USF Order, paragraph 798
12
Appendix Broadband Page 2
Effective
Date
Effective Date
of the rules
July 1, 2012
July 1, 2013
July 1, 2014
July 1, 2015
July 1, 2016
July 1, 2017
For Price Cap Carriers and CLECs
that benchmark access rates to
price cap carriers14
All intercarrier switched access rate
elements, including interstate and
intrastate originating and terminating
rates and reciprocal compensation
rates are capped.
Intrastate terminating switched end
office16 and transport rates,17
originating and terminating dedicated
transport,18 and reciprocal
compensation rates, if above the
carrier’s interstate access rate, are
reduced by 50 percent of the
differential between the rate and the
carrier’s interstate access rate.
Intrastate terminating switched end
office and transport rates and
reciprocal compensation, if above the
carrier’s interstate access rate, are
reduced to parity with interstate access
rate.
Terminating switched end office and
reciprocal compensation rates are
reduced by one-third of the differential
between end office rates and $0.0007.*
Terminating switched end office and
reciprocal compensation rates are
reduced by an additional one-third of
the original differential to $0.0007.*
Terminating switched end office and
reciprocal compensation rates are
reduced to $0.0007.*
Terminating switched end office and
reciprocal compensation rates are
reduced to bill-and-keep. Terminating
For Rate-of-Return Carriers and
CLECs that benchmark access
rates to rate-of-return carriers15
All interstate switched access rate
elements, including all originating and
terminating rates and reciprocal
compensation rates are capped.
Intrastate terminating rates are also
capped.
Intrastate terminating switched end
office19 and transport rates,20
originating and terminating dedicated
transport,21 and reciprocal
compensation rates, if above the
carrier’s interstate access rate, are
reduced by 50 percent of the
differential between the rate and the
carrier’s interstate access rate.
Intrastate terminating switched end
office and transport rates and
reciprocal compensation, if above the
carrier’s interstate access rate, are
reduced to parity with interstate
access rate.
Terminating switched end office and
reciprocal compensation rates are
reduced by one-third of the differential
between end office rates and $0.005. 
Terminating switched end office and
reciprocal compensation rates are
reduced by an additional one-third of
the original differential to $0.005.*
Terminating switched end office and
reciprocal compensation rates are
reduced to $0.005.*
Terminating end office and reciprocal
compensation rates are reduced by
one-third of the differential between its
14
ABC Plan, Attach. 1 at 11. We note that CMRS providers are subject to mandatory detariffing. Nonetheless,
CMRS providers are included in the transition to the extent their reciprocal compensation rates are inconsistent with
the reforms we adopt here.
15
Joint Letter at 3 & n.1. We note that carriers remain free to make elections regarding participation in the NECA
pool and tariffing processes during the transition. See 47 C.F.R. § 69.601 et seq. At the same time, we decline to
adopt the Rural Associations’ proposal to require carriers that withdraw from NECA association tariffs for switched
access elements to continue to contribute to the pool as if they had remained part of the NECA pool. See Letter
from Michael R. Romano, Senior Vice President – Policy, NTCA, to Marlene H. Dortch, Secretary, FCC, WC
Docket Nos.10-90, 07-135, 05-337, 03-109, GN Docket No. 09-51, CC Docket Nos. 01-92, 96-45, Attach. at 25
(filed Oct. 17, 2011). Such a requirement would frustrate efficiencies generated by our reforms and could
unnecessarily burden carriers with costs that are no longer necessary.
16
See App. A, 47 C.F.R. § 51.903(d).
17
See App. A, 47 C.F.R. § 51.903(i).
18
See App. A, 47 C.F.R. § 51.903(c).
19
See App. A, 47 C.F.R. § 51.903(d).
20
See App. A, 47 C.F.R. § 51.903(i).
21
See App. A, 47 C.F.R. § 51.903(c).

Transport rates remain unchanged from the previous step.
Appendix Broadband Page 3
July 1, 2018
switched end office and transport are
reduced to $0.0007 for all terminating
traffic within the tandem serving area
when the terminating carrier owns the
serving tandem switch.
Terminating switched end office and
transport are reduced to bill-and-keep
for all terminating traffic within the
tandem serving area when the
terminating carrier owns the serving
tandem switch.
July 1, 2019
July 1, 2020
end office rates ($0.005) and
$0.0007.*
Terminating switched end office and
reciprocal compensation rates are
reduced by an additional one-third of
the differential between its end office
rates as of July 1, 2016 and $0.0007.*
Terminating switched end office and
reciprocal compensation rates are
reduced to $0.0007. *
Terminating switched end office and
reciprocal compensation rates are
reduced to bill-and-keep.*
Misc. compensation issues:
CLECs are allowed 15 days from the effective date of reduced ILEC tariffs to file their
reduced rates. The benchmark rules for CLECs are unchanged except for those engaging in
revenue sharing (see phantom traffic above).
The FCC leaves to the states to determine the points on a network at which a carrier
must deliver terminating traffic to avail itself of bill-and-keep.22 A LEC may include traffic
grooming requirements in its tariffs. These traffic grooming requirements specify when a long
distance carrier must purchase dedicated DS1 or DS3 trunks to deliver traffic rather than pay
per-minute transport charges, a determination based on the amount of traffic going to a
particular end office. 23
Originating access should move to bill-and-keep, but no specifics are mandated.24 The
FCC declines to apply Bill and Keep to originating access.25
VOIP compensation - default charges for “toll” VoIP-PSTN traffic will be equal to
interstate rates applicable to non-VoIP traffic, and default charges for other VoIP-PSTN traffic
will be the applicable reciprocal compensation rates.26
CMRS-LEC Compensation - We adopt bill-and-keep as the default methodology for all
non-access CMRS-LEC traffic. A call is considered to be originated by a CMRS provider for
purposes of the intraMTA rule only if the calling party initiating the call has done so through a
CMRS provider. Finally, we affirm that all traffic routed to or from a CMRS provider that, at the
beginning of a call, originates and terminates within the same MTA, is subject to reciprocal
compensation, without exception.27
ILEC Lost revenue recovery: For Price Cap ILECs participating in the 2000 CALLS
reforms, 90% of FY2011 interstate and intrastate access revenues for the rates subject to
reform and net recip comp revenues are the baseline for recovery. This base is reduced by
10% for each subsequent year. The difference between the baseline and access revenues plus
net recip revenues (I assume this means recip revenues less recip payouts) is the amount
“eligible for recovery”. Access MOUs for this calculation may be reduced by 10% each year to
22
ICC/USF Order, paragraph 776
ICC/USF Order, paragraph 754
24
ICC/USF Order, paragraph 817
25
ICC/USF Order, paragraph 777
26
ICC/USF Order paragraph 40
27
ICC/USF Order, paragraph 41
23
Appendix Broadband Page 4
reflect historical declines in access MOU. For Price Cap ILECs not participating in the 2000
CALLS reforms, the 10% reductions begin in year 6.
Rate of Return ILECs – The baseline for recovery is the 2011 interstate switched access
revenue requirement plus FY2011 intrastate terminating switched access revenues plus
FY2011 net reciprocal compensation revenue. “Eligible for Recovery” is the difference between
the Baseline (subject to 5% annual reductions) and revenues from reformed ICC in that year,
based on actual MOUs.
ILECs may recover amounts “eligible for recovery” via a monthly fixed Access Recovery
Charge (ARC). ARC may not increase by more than $.50 per year on consumers (residence)
and single line business28, and may not be applied to lifeline customers.29 ARC on consumer
and single line business is also limited to a weighted share of the amount eligible for recovery
based on the carrier’s residential and business lines. The ARC may not be applied on a
consumer already paying $30 or more local rate plus SLC30. The ARC is calculated separately
from the SLC, but may be included with the SLC as a single line item on customer bills. ARC
may not be applied to multi line business where the SLC plus ARC would exceed $12.20 per
line. The present SLC cap is $9.20.31 RBOC SLCs are typically in the $6 range. Total ARC is
limited to 5 annual increases.
Rate of Return ILECs may implement ARCs with 6 annual increases of no more than
$.50 per month for residence and single line business for a max of $3 per month in the 6th year,
and $1.00 per month per year for multiline customers with a max of $6.00 in the 6th year.
CLECs may recover reduced revenues through end user charges.32 There is no
recovery of lost ICC revenues from USF for CLECs.33
If an ILEC is unable to recover all of the amounts “eligible for recovery” from ARCs, they
may recover them from the CAF. For Price Cap ILECs, any such recovery is to phase out
over 3 years beginning in 2017. For rate of return ILECs, ICC-replacement CAF support will
phase down as Eligible Recovery decreases over time.34
Misc issues: Carriers may continue to tariff access rates pursuant to the rate caps specified.
Carriers may enter into negotiated agreements that differ from the rates specified by the FCC.
During the transition, traffic that historically has been addressed through interconnection
agreements will continue to be so addressed.35 This order does not abrogate existing contracts
or agreements or require a “fresh look” but the order states that it is a “change of law” and
contractual change of law provisions are applicable.36 In Texas, existing ICAs will have expired
before the phase downs begin, so this is probably not an issue.
The Commission re-affirms its T-Mobile order that CMRS providers have an obligation to
negotiate interconnection agreements with ILECs,37 but 251(c) requirements are not imposed on
CMRS providers. CMRS providers may fulfill their interconnection requirements with indirect
interconnection.38
28
ICC/USF Order, paragraph 852, bullet 4
ICC/USF Order, paragraph 852
30
ICC/USF Order, paragraph 852, bullet 2
31
ICC/USF Order, paragraph 852, bullet 3
32
ICC/USF Order, paragraph 852, last bullet
33
ICC/USF Order, paragraph 853, 2nd bullet
34
ICC/USF Order, paragraph 853
35
ICC/USF Order, paragraph 812
36
ICC/USF Order, paragraph 815
29
37
38
ICC/USF Order, paragraph 832
ICC/USF Order, paragraph 840
Appendix Broadband Page 5
The Commission mentions “cooperative federalism” – a term by which it sets the policy
and goals and the states carry them out. Some states have less gentle terms for a process that
they believe usurps their authority.
IP – to IP Interconnection – Seeks comments regarding IP – IP Interconnection39
Non-payment Disputes. Several parties have requested that the Commission address
alleged self-help by long distance carriers who they claim are not paying invoices sent for
interstate switched access services.40 As the Commission has previously stated, “[w]e do not
endorse such withholding of payment outside the context of any applicable tariffed dispute
resolution provisions.”41 We otherwise decline to address this issue in this Order, but caution
parties of their payment obligations under tariffs and contracts to which they are a party. 42
CAF stimulus package. (Credit to Frank G. Louthan, IV, and U.S. Research)
With over 83% of the estimated 18 million underserved population residing in price-cap
carrier territories, the Connect America Fund (CAF) will provide $300 million in one-time funding
in early 2012 to the price-cap carriers for an immediate broadband build-out. The $300 million
was expected; however, we believe Frontier, Windstream, and to a certain extent CenturyLink
will be the prime recipients of these funds, and will be required to build out to one home for
every $775 of this allotment received. This equates to approximately 387,000 additional homes
in 2012 and 2013 assuming it is all spent. If we assume a modest 35% penetration (since the
local exchange carrier [LEC] will be the only broadband provider, higher levels would not be
unrealistic), then these carriers stand to add about 136,000 new customers. In general, the
focus on the 18 million and funneling support to unsubsidized areas like these tends to imply the
price-cap and mid-sized carriers like the ones we cover stand to benefit the most from the order.
From a simple standpoint, just having certainty to the rules is a positive, and with the potential
for more support (assuming it is applied to profitable projects), these carriers should be seen as
better investments.
Phase II for the CAF is expected to begin in 2013, and will involve competitive bidding in
areas where the ILEC declines to provide service. Phase II is less clear to us at this point, and
we do expect some more arguing over the next round of mostly smaller issues and details to be
decided. The CAF will provide up to $1.8 billion annually to support those areas in which there is
currently no unsubsidized broadband provider. As expected, the minimum speed requirements
will be 4 Mbps down and 1 Mbps up, initially, moving up to 6 Mbps/1.5 Mbps in Phase II over
time. Additionally, the order addresses broad latency requirements, such that voice over Internet
protocol (VoIP) and other real-time applications will be possible. Speed and latency
requirements will be measured from the end-user to the nearest Internet access point, will be
reported annually, and will be subject to FCC/state government audit.
We note that money from CAF will not be provided to assist any carriers with existing
build-out commitments. In particular, the order notes that CenturyLink and Frontier both have
existing build-out obligations as part of their recent acquisitions that will not be eligible for
additional funding. We note that with the ultimate goal of reaching 100% broadband availability,
both carriers still have plenty of opportunity to receive funds for the percentage of homes not
included in their prior commitment. The Connect America Fund will still rely heavily on the
individual state regulators in order to enforce certain ICC regulations and designate ETCs. The
CAF specifically avoided making any changes to the state’s carrier of last resort (COLR)
39
ICC/USF Order, paragraph 42, page 16
See, e.g., Pac-West Section XV Comments at 17-19 (carriers must dispute and pay for there to be a level playing
field for all carriers).
41
All American Telephone Co., et al. v. AT&T Corp., File EB-10-MD-003, Memorandum Opinion and Order, 26
FCC Rcd 723, 728 (2011).
42
ICC/USF Order, paragraph 700
40
Appendix Broadband Page 6
obligations, which means the incumbent carriers will still be held liable to provide service to all
homes in their territories.
Rate of return (RoR) carriers will be largely unaffected in the short term, retaining the $2
billion in annual high-cost fund support that they are to receive in 2011, despite only providing
service to 5% of the nation’s total access lines. However, beginning in 2012, these carriers will
have to begin to operate at higher efficiencies, in order to receive the same levels of support.
The rate of return currently set at 11.25% appears to be heading lower closer to 9%, although
no final decision has been made. Additionally, cost based carriers will see their support decline
at about 5% per year, as the commission moves all RoR to some form of incentive-based
regulation over the next few years. Ongoing support will be more specifically directed at
particular areas and no longer based on the regulatory status of the carrier, thus the need for
the rate of return or price-cap designation appears to be no longer necessary. One other very
interesting change that we believe is welcome is the move to base support at a more granular
wire-center level. This will allow the truly high-cost lines to receive support.
Ongoing mobility support from the Mobility Fund will begin at $50 million and expand
$100 million per year until it reaches $500 million annually, of which tribal lands will receive up
to a $100 million in consideration. The order freezes identical support rules, and will phase out
the existing support over a five-year period beginning on July 1, 2012. Between the existing
identical support funds and the new Mobility Fund, over $900 million per year will be made
available to mobile providers through 2015. We believe the order takes into consideration the
challenges that Alaskan carriers General Communications and Alaska Communications face in
operating in that state, but does not specifically exempt them. However, the barn door appears
wide open, and the order does say it will expedite waiver requests from Alaskan carriers should
the imposition of the rules place undue hardship on them. While the majority of our coverage
universe declined to comment on the impact this order would have on their business until the full
report came out, Alaska Communications (ACS) hinted at losing half of its $20 million of
wireless ETC revenue over a two-year period between 2012 and 2014. ACS hinted that this
potential lost revenue would impact the company’s ability to continue paying its $0.86 annual
dividend, which it would be reviewing in the future. The impact on ACS is not clear to us as it
may lose some funding in larger markets, but it is hard to tell at this juncture how much is
exposed. Many additional details are not clear, and exactly how multiple wireless carriers in the
state will be treated requires some further analysis and conversations with the company and
other industry contacts.
APPENDIX BROADBAND – An Analysis of the Rules
By Gary Mann
A.
BROADBAND
1.
Broadband is defined by the statute as high-speed, switched, broadband
telecommunications capability that enables users to originate and receive high-quality voice, data,
graphics, and video telecommunications using any technology.
2.
A fixed voice and broadband service is one that serves end users primarily at fixed
endpoints using stationary equipment, such as the modem that connects an end user's home router,
computer, or other Internet access device to the network. This term encompasses fixed wireless
broadband services (including services using unlicensed spectrum). The term does not include a
broadband service that serves end users primarily using mobile stations.
Appendix Broadband Page 7
3.
As a condition of receiving federal high-cost universal service support, all ETCs, whether
designated by a state commission or the FCC, will be required to offer service that is reasonably
comparable to similar services in urban areas at rates that are reasonably comparable to those services.
4.
High-cost support refers to all existing high-cost USF mechanisms, the Connect America
Fund (CAF), and the Mobility Fund Phase I. Funding recipients may use any wireline, wireless,
terrestrial, or satellite technology, or combination of technologies, to deliver service that satisfies this
requirement. The Universal Service Administrative Company (USAC) will administer the Connect
America Fund, including the Mobility Fund.
B.
BROADBAND PERFORMANCE REQUIREMENTS
1. Performance requirements must be reasonably comparable” to that available in urban areas.
2. The Benchmarks have three core characteristics.
a. Speed
The FCC adopted an initial minimum broadband speed benchmark for
CAF recipients of 4 Mbps downstream and 1 Mbps upstream over the broadband
provider’s network as a reasonable benchmark for the availability of advanced
telecommunications capability.
i. The best data currently available to determine whether broadband is available
from an unsubsidized competitor at speeds at or above the 4 Mbps/1 Mbps speed
threshold will likely be data on broadband availability at 3 Mbps downstream and
768 kbps upstream. Such data is collected for the National Broadband Map
through FCC Form 477. It is therefore be used as a proxy for the availability of 4
Mbps/1 Mbps broadband.
b. Latency
The FCC requires ETCs to offer sufficiently low latency to enable use of
real-time applications, such as VoIP. The FCC’s broadband measurement test results
show that most terrestrial wireline technologies could reliably provide latency of less than
100 milliseconds.
c. Capacity
The FCC declined to adopt specific minimum capacity requirements, but
stated that a 250 GB monthly data limit is reasonably comparable to major current urban
broadband offerings. TheWireline Competition Bureau and Wireless
Telecommunications Bureau will monitor urban broadband offerings and adjust
minimum usage requirements over time.
i. For the Mobility Fund Phase I, the FCC also declined to adopt a specific
minimum capacity requirement. However, it emphasized that any usage limits
must be reasonably comparable to any usage limits for comparable mobile
broadband offerings in urban areas.
C.
BROADBAND BUILDOUT OBLIGATIONS
1. CAF recipients are obligated to build out broadband within their service area, subject to certain
limitations. But, providers of fixed broadband do not have to spend the funds to serve customers
in areas already served by an unsubsidized competitor. An unsubsidized competitor is a
facilities-based provider of residential terrestrial fixed voice and broadband service.
2. Community Anchor Institutions are typically schools, libraries, medical and healthcare providers,
public safety entities, community colleges and other institutions of higher education located in or
near small towns.
a.
The FCC expects ETCs to offer broadband at greater speeds to community anchor
institutions in rural and high cost areas, although it did not set requirements at this time.
Community anchor institutions generally require more bandwidth than residential
customers. Accordingly, the FCC expects ETCs to provide higher bandwidth offerings
Appendix Broadband Page 8
to community anchor institutions at rates reasonably comparable to similar offerings in
urban areas.
b.
The FCC also expects ETCs to include community anchor institutions in network
planning for the deployment of CAF-T supported networks.
3. Price Cap cost of service - The Wireline Competition Bureau will develop a forward-looking
cost model to estimate the cost of serving locations, including community anchor locations, in
price cap territories.
4. Temporary Waivers - Other than for the Phase I Mobility Fund, if a CAF recipient can
demonstrate that support is insufficient to enable 1 Mbps upstream for all locations, then
temporary waivers of the upstream requirement for some locations will be available.
5. Terrestrial fixed Broadband Service serves end users primarily at fixed endpoints using
stationary equipment, such as the modem that connects an end user’s home router, computer or
other Internet access device to the network. It includes fixed wireless broadband services
(including those offered over unlicensed spectrum).
a. Areas without Terrestrial Backhaul. Satellite backhaul may limit the performance of
broadband networks as compared to terrestrial backhaul,. Thus, the broadband public
interest obligation for carriers providing fixed broadband that are compelled to use
satellite backhaul facilities is relaxed (as for some providers in Alaska).
b. Carriers seeking relaxed public interest obligations because they lack the ability to obtain
terrestrial backhaul—either fiber, microwave, or other technology—and are therefore
compelled to rely exclusively on satellite backhaul in their study area, must certify
annually that no terrestrial backhaul options exist, and that they are unable to satisfy the
broadband public interest obligations adopted above due to the limited functionality of
the available satellite backhaul facilities.
c. Any such funding recipients must offer broadband service speeds of at least 1 Mbps
downstream and 256 kbps upstream within the supported area served by satellite middlemile facilities.
d. Latency and capacity requirements discussed above will not apply to this subset of
providers.
e.
Capacity in Gigabytes (GB) per month. ETCs whose support is predicated on offering of
a fixed broadband service, other than recipients of the Phase I Mobility Funds, must meet
usage at levels comparable to residential terrestrial fixed broadband service in urban
areas.
f.
Buildout obligations, which are dependent on the mechanism by which a carrier receives
funding, remain the same for this class of carriers. To the extent that new terrestrial
backhaul facilities are constructed, or existing facilities improve sufficiently to meet the
public interest obligations, the FCC requires funding recipients to satisfy the relevant
broadband public interest obligations in full within twelve months of the new backhaul
facilities becoming commercially
g. The FCC limits the definition to fixed, terrestrial providers because it believes these
limitations will disqualify few, if any, broadband providers that meet CAF speed,
capacity, or latency minimums for all locations within relevant areas of comparison,
while significantly easing administration of the definition.
i. For example, the record suggests that satellite providers are generally unable to
provide affordable voice and broadband service that meets the minimum capacity
requirements without the aid of a subsidy: Consumer satellite services have
limited capacity allowances today, and future satellite services appear unlikely to
Appendix Broadband Page 9
offer capacity reasonably comparable to urban offerings in the absence of
universal service support.
5.
4G mobile broadband services - Meeting minimum speed and capacity guarantees may
prove challenging over larger areas, particularly indoors. Because the performance offered by mobile
services varies by location, it may be difficult and costly for a CAF recipient, or the FCC, to evaluate
whether such a service meets performance requirements at all homes and businesses within a study area,
census block, or other required area.
a. The FCC declines to relax the technical performance requirements due to satellite
backhaul limitations for purposes of Mobility Fund Phase I, although it clarifies that
funds may be used to upgrade middle mile facilities.
D.
BROADBAND MEASURING AND REPORTING
1. Evolution of CAF broadband obligations - Technical capabilities and user needs will continue
to evolve. Therefore, surveys of urban broadband performance data will be collected. and
rural broadband offerings through the reporting data. The FCC will initiate a proceeding by
the end of 2014 to review rural performance requirements and ensure that CAF continues to
support broadband service reasonably comparable to service in urban areas.
2. Prior to that future proceeding, the FCC relies on its judgment to provide guidance to CAF
recipients to satisfy its expectation that they invest the public’s funds in robust, scalable
broadband networks. The National Broadband Plan estimates that by 2017, average
advertised speeds for residential broadband will be approximately 5.76 Mbps downstream.
Applying growth rates measured by Akamai, a projected average actual downstream speed by
2017 of 5.2 Mbps, and projects average actual peak downstream speed of 6.86 Mbps.
3. Broadband Network Tests - Recipients of funding shall test their broadband networks for
compliance for speed and latency metrics, and certify the results to the USAC annually.
States will assist in monitoring and compliance, therefore funding recipients shall also send a
copy of the annual broadband performance report to the relevant state commission.
Paragraph 111 and Figures 3 and 4 of the FCC’s Order provide explanations and diagrams for
the tests.
a. The Wireline Competition Bureau, the Wireless Telecommunications Bureau, and the
Office of Engineering and Technology will together to refine the specific
methodology for ETCs to measure performance of their broadband services. Such
methods shall be implemented in 2013.
E.
REASONABLY COMPARABLE RATES
1.
The FCC considers rural rates to be “reasonably comparable” to urban rates if rural rates
fall within a range of urban rates for a similar service. Since the FCC has never compared
broadband rates, it directed its staff to develop specific methods to define the reasonable range.
The staff must take into account that retail broadband service is not rate regulated, and retail
offerings are defined by price, speed, usage limits, as well as other elements.
2.
Annual Survey of Urban Broadband Rates - The FCC proposes to collect pricing data
through a revised FCC Form 477. It will rely on that data calculate a national average urban rate
for broadband. It does not currently have sufficient data to establish such a range for broadband
pricing, and is unaware of any adequate third-party sources of data for the relevant levels of
service to be compared.
Appendix Broadband Page 10
3.
Annual Survey of Recipient Broadband Rates - The FCC also requires funding
recipients to provide information regarding their pricing for service offerings, as described more
fully below.
a. ETCs shall submit a self-certification that the pricing of their voice services is no
more than two standard deviations above the national average urban rate for voice
service, which will be specified annually in a public notice issued by the Wireline
Competition Bureau. The certification requirement begins April 1, 2013, to cover 2012.
b. ETCs receiving only Mobility Fund Phase I support will self-certify annually that
they offer service in areas with support at rates that are within a reasonable range of rates
for similar service plans offered by mobile wireless providers in urban areas. ETCs
receiving any other support will submit a self-certification that the pricing of their
broadband service is within a specified reasonable range. That range will be established
and published for recipients of high-cost and CAF support, other than Mobility Fund
Phase I. The certification requirement begins April 1, 2013, to cover 2012.
3. ETCs must also report pricing information for both voice and broadband offerings. They
must submit the price and capacity range (if any) for the broadband offering that meets the
relevant speed requirement in their annual reporting. In addition, beginning April 1, 2012, all
incumbent local exchange company recipients of high cost loops, frozen high-cost support, and
CAF also must report their flat rate for residential local service to USAC so that USAC can
calculate reductions in support levels for those carriers with R1 rates below the specified rate
floor, as established above. Carriers may not request confidential treatment for such pricing and
rate information.
Appendix Broadband Page 11
F.
Summary and Evolution of Technical Characteristics.
Component of
CAF
Price Cap CAF
(Phase I)
(Incremental
support)
Broadband Performance
Characteristics
 Speed of at least 4 Mbps
DOWN/1 Mbps UP to a
specified number of locations,
depending on level of
incremental support
 Latency sufficient for real-time
applications, including VoIP
Obligation
Extend broadband to areas lacking
768 kbps according to National
Broadband Map and carrier’s best
knowledge; can’t use for areas
already in capital improvements plan
or to fulfill merger commitments or
Recovery Act projects.
 Usage at levels comparable to
terrestrial residential fixed
broadband service in urban
areas
CAF in Price
Cap Areas
(Phase II)
 Speed of at least 4 Mbps/1
Mbps to all supported locations,
with at least 6 Mbps/1.5 Mbps
to a number of supported
locations to be specified by
model
Extend broadband to supported
locations; supported locations do not
include areas where there is an
unsubsidized competitor offering 4
Mbps/1 Mbps.
 Latency sufficient for real-time
applications, including VoIP
 Usage at levels comparable to
terrestrial residential fixed
broadband service in urban
areas
Areas with no
terrestrial
backhaul
 Speed of at least 1 Mbps/256
kbps in locations where
otherwise would be obligated to
provide 4 Mbps/1 Mbps
Mobility Fund,
Phase I
 3G (200 kbps/50 kbps minimum
at cell edge)
OR
4G (768 kbps/200 kbps
minimum at cell edge)
 Latency sufficient for real-time
applications
 Usage at levels comparable to
mobile 3G/4G offerings in
urban areas
Provide coverage of between 75 and
100 percent of road miles in unserved
census blocks.
OR
For Tribal Mobility Fund: Provide
coverage of between 75 and 100
percent of pops in unserved census
blocks within Tribal lands.
Figure 1
Appendix Broadband Page 12
Rural ILEC Subsidy issues
By Sheri Hicks
Rural ILECs comprise a very small percentage (approximately 5%) of the total
telecommunications industry so any USF impact on members is somewhat limited, with greater
impact possibly seen in the ICC regime. That said, however, the large increase in USF
contribution rates in recent years, and the Rural ILECs approximately $2 billion impact on that
increase, does affect carriers and consumers statewide.
The goal of the FCC’s Federal USF reform on Rural ILEC is stabilize the fund, to
equalize local rates across the state, to eliminate unnecessary subsidies that promote stagnation
rather than innovation, and to support and encourage broadband network buildout in rural areas.
However, the FCC tried to balance those goals with the extremely high cost nature of Rural
ILEC areas and their dependence on USF for solvency. With that in mind, the Order leaves
Rural ILECs largely intact for another year with no changes before 2012. However, in 2012, the
FCC intends to undertake a number of reforms including.
1. The FCC will establish a benchmark of what loop costs can be reimbursable from the
fund to remove Rural ILEC incentives to increase their loop costs to increase their
USF support and limit recovery of corporate operational expenses
2. High Cost Loop Support Reform – (Reporting Requirement).
a. The FCC intends to end high cost loop support to subsidize the incredibly low
local voice rates often seen in rural areas. Carriers (including Rural ILECs)
will be required to annually report local rates where the FCC will calculate an
average floor based on urban rates.
b. So that rural customers do not experience a shock at a triple rate increase, the
rate floor will be phased in over 3 years. NOTE: Should not affect low income
users – Lifeline & Linkup will continue to be available – reform of those two
programs are occurring in another docket.
3. Elimination of the Safety Net in 2012 - Separate from High Cost Support, the Safety
Net was used to encourage rural carriers to invest in their networks and was thus
calculated on a per line basis with the expected increase of 14% per year. Recently,
the 14% threshold has been met due to loss of lines to other technology and “cutting
the cord” rather than actual network investments. The payout for this fund increased
tenfold in the past 7 years and is expected to top $94 million in 2011.
4. Eliminate Local Switching Support or Roll into ICC reform in the CAF - Due to
increasingly cost efficient soft switches, the FCC deemed LSS was no longer
necessary and this will be eliminated and/or rolled into CAF.
5. Establishing a $250 per-line per month cap
6. Eliminating subsidies in areas where there is an unsubsidized carrier in 100% of the
area.
Appendix Broadband Page 13