Connect America Fund / Intercarrier Compensation Clarification Order Released

Kelley Drye Client Advisory

On Friday, February 3, 2012, the Federal Communications Commission’s (“FCC’s” or Commission’s”) Wireline Competition Bureau and Wireless Telecommunications Bureau (“the Bureaus”) jointly released an order revising and clarifying certain aspects of the sweeping universal service and intercarrier compensation reform order adopted last November. Some of the rulings are in response to requests for clarification filed after the order was released. The clarification order will be effective thirty days after it is published in the Federal Register, which is likely to occur quickly. However, as a practical matter, the clarifications are effective immediately in light of the rules being clarified already having taken effect.

Universal Service and the Connect America Fund

The Bureaus first clarified the rule reducing support for incumbent carriers receiving high-cost support that charged local rates below a nationwide rate benchmark by stating that the reduction does not apply to frozen CAF Phase I support to the extent that it replaced Interstate Access Support and Interstate Common Line Support.

Further, many carriers that currently receive high-cost support have complained that the reporting requirements from the November order were unclear and required reports as of April 1, 2012 in violation of the Paperwork Reduction Act (“PRA”) even though they have not yet been approved by the Office of Management and Budget. The Bureaus recognized this, modified the reporting requirements accordingly, and clarified other issues. The Bureaus clarified reporting obligations for this year and beyond for eligible telecommunications carriers (“ETCs”) with respect to progress reports, outage reports, reports regarding engagements with Tribal governments, ownership information, financial reports, and use of Rural Utilities Service reports. More specifically, the Bureaus clarified that:

  • ETCs designated by the FCC are required to file a progress report on their existing five-year build out plans on April 1, 2012 (rather than October 1, 2012). ETCs designated by a state commission must continue to comply with state reporting regarding service improvement plans. All ETCs must file a new five-year build out plan on April 1, 2013 to account for the new broadband obligations and then file annual progress reports beginning on April 1, 2014.
  • ETCs designated by the FCC are required to file information regarding outages, unfulfilled service requests and complaints, etc. in 2011 by April 1, 2012 (rather than October 1, 2012). ETCs designated by a state commission should file this information with the FCC if the state commission requires them to collect it (the Bureau will provide a timeframe for submission). All ETCs must file this information beginning on April 1, 2013 and annually thereafter, and break out information for voice and broadband service separately.
  • High-cost support recipients must file information demonstrating that they have engaged with Tribal governments in their supported areas by April 1, 2013 and annually thereafter.
  • High-cost support recipients must file ownership information by a date to be set by the Bureau for 2012 (after PRA approval) and then on April 1, 2013 and annually thereafter.
  • The Bureau will give privately held rate-of-return carriers sufficient time after PRA approval to file required financial information if PRA approval is not received by April 1, 2012. Otherwise, April 1, 2012 remains the deadline.
  • Section 54.313(f)(2) of the rules is modified to allow privately held rate-of-return carriers that receive loans from the Rural Utilities Service (“RUS”) to file their RUS reports in lieu of an audited financial statement.

The Bureaus clarified that competitive ETCs’ (“CETCs”) baselines for the phase down of CETC support are commensurate with adjustments to the support provided to incumbents serving the same areas. Further, the clarification order eliminates several incumbent requirements designed to complement the identical support rule, which was eliminated in the order. The Bureaus (1) eliminated the disaggregation rule Section 54.315, which permits incumbents to target the high-cost universal service support they receive to specific areas within their study areas based on the relative costs of serving those areas; and (2) eliminated requirements for quarterly line count filings necessary only to calculate support for CETCs under the identical support rule.

In addition, the clarification order eliminates the rule requiring USAC annually to file a proposed formula for calculating local switching support (“LSS”) in the next year because LSS calculations will not be required on a going forward basis.

Finally, the Bureaus clarified that an applicant for Mobility Fund Phase I support must have obtained requisite FCC approvals for access to the spectrum necessary to meet obligations related to mobility support prior to submitting an application to participate in a Mobility Fund auction.

Intercarrier Compensation

The Bureaus corrected the rules to confirm that a rate-of-return carrier’s transitional Eligible Recovery (to compensate for reduced ICC rates) will be determined by reducing its 2011 baseline by a five percent adjustment factor before (the rule had mistakenly said after) subtracting its ICC recovery opportunity” (minutes of use times the transition rate plus any necessary true-ups) for that year.

The Bureaus also explained that the forthcoming forms for the rate-of-return Eligible Recovery report will be made as consistent as possible with that for the price cap carriers’ Access Recovery Charge (“ARC”) justification to reduce burdens, but that a single format will not be used as previously anticipated.

With regard to the treatment of VoIP traffic, the order clarified that the prospective VoIP-PSTN framework (adopting a default compensation equal to the interstate rate for toll” traffic) applies to the interstate rate structure, including both per-minute and flat-rated charges, not just the rate levels. Further, to identify which calls originate and/or terminate in IP format, the Bureaus reiterated it was not mandating a particular method but clarified that carriers can use a default percentage in their intrastate tariff, or traffic studies or other reasonable and auditable metrics, to determine the percentage of traffic subject to the VoIP-PSTN framework. Finally, where current interstate access rates exceed intrastate access rates, carriers may not, in their intrastate tariff, include a rate for toll VoIP-PSTN traffic that is higher than its otherwise applicable intrastate access rate.

The Bureaus clarified portions of the November order with respect to access stimulation. First, the November order did not overturn or supersede any of the Commission’s previous decisions on the issue, including the Qwest v. Farmers and Northern Valley decisions. Further, the Bureaus clarified that the net payment of consideration of any kind, whether fixed fee or otherwise, to another party to generate switched access traffic will be considered to be based upon the billing or collection of access charges” for purposes of applying the definition of a revenue sharing agreement.

Finally, the Bureaus clarified that the new interim default rural transport rule for transport costs between CMRS providers and rural, rate-of-return regulated LECs did not intend to affect the existing rules governing points of interconnection (“POIs”) between such providers. As noted in the November order, the previous POI rules applicable to price cap carriers was not modified.

Please be advised that attorneys in Kelley Drye &Warren’s Communications practice group are experienced in universal service and intercarrier compensation matters. For more information regarding this client advisory, please contact your usual Kelley Drye attorney or any member of the Communications practice group. For more information on the Communications practice group, please click here.