Electronic Comment Filing System

Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Connect America Fund ) WC Docket No. 10-90 ) A National Broadband Plan for Our Future ) GN Docket No. 09-51 ) Establishing Just and Reasonable Rates ) WC Docket No. 07-135 for Local Exchange Carriers ) ) High Cost Universal Service Support ) WC Docket 05-337 ) Developing a Unified Intercarrier ) CC Docket No. 01-92 Compensation Regime ) ) Federal-State Joint Board on ) CC Docket No. 96-45 Universal Service ) ) Lifeline and Link Up ) WC Docket No. 03-109 ) Universal Service Reform – Mobility Fund ) WT Docket No. 10-208 COMMENTS OF SUREWEST COMMUNICATIONS Paul J. Feldman, Esq. Christine Goepp, Esq. Fletcher, Heald and Hildreth PLC 1300 North 17th St., 11th Floor Arlington, Virginia 22209 (703) 812-0400 January 18, 2012 {00360836-1 } {00360836-1 }ii TABLE OF CONTENTS Page I. Introduction …………………………………………..………………………....... 2 II. Evaluation of Competitive Overlap Must Be Based on Detailed Data ….……2 A. Detailed and Reliable Data Matters Because Withdrawal of Support Will Affect Availability and Quality of Service ……………..2 B. The Data Collected by NTIA for the State Broadband Initiative Are Insufficiently Reliable and Granular to Justify Withdrawing High-Cost Support ..……………………………………….4 C. Improved Data Collection Methods Would Prevent Unintended Reductions in Support ……………………………………..6 III. Any Reductions in Support for Areas Partially Overlapped By an Unsubsidized Competitor Must Be Gradual and Based on Actual Costs ……………………………………………………………………….8 IV. Conclusion ………………………………………………………………………..11 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Connect America Fund ) WC Docket No. 10-90 ) A National Broadband Plan for Our Future ) GN Docket No. 09-51 ) Establishing Just and Reasonable Rates ) WC Docket No. 07-135 for Local Exchange Carriers ) ) High Cost Universal Service Support ) WC Docket 05-337 ) Developing a Unified Intercarrier ) CC Docket No. 01-92 Compensation Regime ) ) Federal-State Joint Board on ) CC Docket No. 96-45 Universal Service ) ) Lifeline and Link Up ) WC Docket No. 03-109 ) Universal Service Reform – Mobility Fund ) WT Docket No. 10-208 COMMENTS OF SUREWEST COMMUNICATIONS SureWest Communications, by its attorneys, hereby submits these Comments in response to the Commission’s Further Notice of Proposed Rulemaking (FCC 11-161, released November 18, 2011) in the above-captioned proceeding (“FNPRM”). Herein, SureWest shows that any analysis of the overlapping service areas of competing broadband service providers must be based on detailed and reliable data. SureWest also shows that support for rate-of-return providers in areas lacking unsupported competitors should be based on the provider’s actual costs, not on a model. Any phase-down of support in areas partially overlapped by unsupported competitors {00360836-1 } should occur over a nine year period, in keeping with other rate-of-return transition times. I. Introduction SureWest has consistently emphasized, throughout these proceedings, that policy changes in the administration of federal high cost support and intercarrier compensation (“ICC”) will have tangible, far-reaching effects in rural carriers’ service areas. The Commission’s decision to eliminate support to incumbent carriers in areas where there are unsupported carriers is likely to make it increasingly difficult for incumbent carriers to recover their legitimate costs and provide high quality service to their subscribers. Given these detrimental effects, the Commission should proceed only on the basis of sound, reliable data in measuring the presence of competitive provision of broadband service. Because the data the Commission proposed to rely upon is admittedly imprecise and unreliable, the Commission should examine alternative methods of obtaining broadband coverage data. Furthermore, any reduction in support in areas partially overlapped by unsupported competitors should be gradual, in order to maintain stability in ILEC networks that are critical to the provision of broadband service and carrier of last resort obligations. II. Evaluation of Competitive Overlap Must Be Based on Detailed Data. A. Detailed and Reliable Data Matters Because Withdrawal of Support Will Affect Availability and Quality of Service. As the record in this proceeding makes clear, substantial reductions in high cost support will put many local exchange carriers at financial risk, with a corresponding risk to their customers of higher charges and reduced service quality and availability. {00360836-1 }2 Accordingly, the Commission should proceed carefully, methodically, and with a high degree of certainty in determining when and where to eliminate high cost support based on the presence of competitive provision of broadband. Because it is incumbent LECs with carrier of last resort (COLR) obligations that will be affected by the proposed reductions, the Commission has an obligation to ensure that service continues to be available to consumers in high-cost and rural areas, in keeping with the core Commission mandate to ensure that all American consumers have access to a robust wireline network at reasonable and affordable prices. This goal would be severely compromised by withdrawing support in situations where there is only partial broadband coverage by competitive LECs, leaving the ILEC to provide unsupported service to areas that are demonstrably not fully viable from a business case standpoint. Clearly this could result in reduced availability and quality of service over time for consumers in more remote or hard-to-reach areas, who need it most. Recognizing this danger, the Commission determined that USF support only be withdrawn in areas where unsupported competitors serve “100 percent of the residential and business locations.” See FNPRM at ¶ 1061. The FNPRM, however, sets out an overlap calculation methodology that, by its own admission, falls well short of determining whether there is in fact 100 percent competitive overlap in a given area. Ironically, in the Report and Order portion of FCC 11-161 (the “CAF Order”), the Commission enacted highly detailed information reporting requirements on carriers as a condition of obtaining support. The same level of detail and reliability is thus appropriate where the Commission proposes to use information to withdraw support. If the Commission is going to phase out support from {00360836-1 }3 incumbents where there is “100 percent” overlap with unsupported competitors, then that should mean a real and reliable 100 percent overlap. The means to reliably determine CLECs’ actual extent of coverage are available on an address-by-address basis, as described below, and they, rather than unreliable proxies or vague and biased information, must be used in this process. B. The Data Collected by NTIA for the State Broadband Initiative Are Insufficiently Reliable and Granular to Justify Withdrawing High-Cost Support. At paragraph 1061 of the FNPRM, the Commission seeks comments on using the data provided through the State Broadband Initiative (SBI) to evaluate overlapping provision of broadband service. It is clear, however that several weaknesses in the data provided through the SBI could lead to the unintended consequence of stranding consumers by withdrawing support even in areas where competitive broadband service is in fact not available. First, significant overstating of speed and the area of deployment by CLECs is likely and should be accounted for. The SBI data is largely based on self-reporting by carriers and is beset by the difficulties that accompany any self-reported data. See Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, Seventh Broadband Progress Report and Order on Reconsideration, 26 FCC Rcd 8008, ¶¶ 9-13 (2011). Specifically, carriers have incentives to overstate the geographic extent and speed of their services for USF, sales, investment, and other reasons, thus leading to inaccurate overlap calculations. A provider’s self- assessment of the {00360836-1 }4 “availability” of service that requires a build-out in response to a customer request may be particularly susceptible to optimistic reporting. Services which require facilities to be engineered and installed, such as those using DS3 access facilities or requiring fiber to be built out to a customer’s location, are unlikely to be able to be provided within ten days of a request. In that case, competitive broadband service is not really available to the customer. If a customer cannot actually receive such service within a reasonable amount of time from requesting it, any claimed “availability” is simply non-existent. In addition, reported broadband service speeds are theoretical “up to” speeds that may not in actuality meet the Commission’s 4 Mbps/1 Mbps broadband threshold in any given area. Furthermore, speeds are reported for entire service areas rather than on a per address or even on a census block basis. Thus, the data may not reveal census blocks that are not served at broadband threshold speeds. Reliance upon this data is likely to result in removing support from areas that do not in fact receive competitive broadband service. Even more problematic is the SBI practice of assuming a census block to be “served” if even one location in that block has service or potentially could have service. Clearly, this assumption, put into practice, could result in the cessation of support in census blocks were the vast majority of residences are not served. This approach to smaller census blocks clearly fails to meet the requirement to demonstrate 100 percent overlap in coverage area.1 1 These problems above apply with equal force to determinations under the proposed 75% competitive overlap reduction. {00360836-1 }5 C. Improved Data Collection Methods Would Prevent Unintended Reductions in Support. It is possible to collect reliable and detailed data on broadband coverage. Most providers have up-to-date broadband coverage information readily available on an address-by-address basis for their entire service area, so that customers requesting service can ascertain availability—and speeds offered —simply by calling the provider or entering an address on the provider’s website. Providers must have the same internal capabilities in order to evaluate requests for service. This address-by-address database is presumptively reliable, because it is an essential part of the provider’s ability to offer service to the customer—the lifeblood of its business. Accordingly, this data can and should be provided to state administrators or to the FCC for use in determination of competitive overlap. SureWest suggests that in providing detailed data to be used to evaluate competitive overlap, that the burden on providers would be reduced if providers were required to produce that data to only one regulator, rather than having to provide it to multiple regulators in multiple formats. Thus, address-by-address data on areas in a particular state should be provided annually to the appropriate regulatory agency for that state, and that state agency should provide the data to the appropriate federal regulator, be that the NTIA or the FCC. In such a scenario, the state’s provision of detailed coverage area data should supplant the need for providers to additionally file FCC Form 477 reports. Alternatively, the Commission could rely solely on an enhanced Form 477 to collect broadband coverage area data. An enhanced Form 477 could, for example, {00360836-1 }6 require providers to file data on an address-by-address basis, with Commission resources used to calculate overlapping service areas.2 At the very least, an enhanced Form 477 could require reporting of coverage information on a census block rather than census tract basis. In doing so, the Commission could require providers to report the precise percentage of geographic coverage of each census block served. The current distortion created by the 1 percent subscribership threshold for considering an area to be “served” would be eliminated. See Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, Seventh Broadband Progress Report and Order on Reconsideration, 26 FCC Rcd 8008, ¶¶ 22-31 (2011). This would mitigate the effects of a provider overstating its coverage area, and thus would prevent nominal service to one portion of a census block from cutting off support for the remainder. Finally, any data collection method should contain additional measures to ensure reliability, such as random auditing and third party verification, to identify persistent or major reporting problems. Such backstops would not only correct the data used to 2 In paragraphs 1070 and 1071 of the FNPRM, the Commission proposes that the Wireline Competition Bureau will publish lists of companies for which it finds there is a 100 percent, or a 75 percent, overlap with unsupported competitive providers of broadband service. For the 75 percent overlap list, the Commission proposes a 45 day period for comments on the accuracy of the findings. SureWest asserts that there should also be a period of public comment on the 100 percent list, as the consequence for an incumbent and its subscribers for being on that list is even greater than being on the 75 percent list: total withdrawal of federal high cost support. Furthermore, SureWest suggests that a 120 day comment period would be necessary for both lists, given the complexity of analyzing the geographic overlap of provider coverage areas. {00360836-1 }7 target federal funding, they would provide additional transparency that could act as a disincentive to carriers to overstate availability and speed to consumers. III. Any Reductions in Support for Areas Partially Overlapped By an Unsubsidized Competitor Must Be Gradual and Based on Actual Costs. The CAF Order purports to reflect a balancing of needs and interests: in setting rate-of-return carriers on a “path toward incentive-based regulation,” the Commission states that “. . . we are careful to implement these changes in a gradual manner so that our efforts do not jeopardize service to consumers or investments made consistent with existing rules.” CAF Order at ¶ 285. The Order further reassures that “we provide rate- of-return carriers the predictability of remaining under the legacy universal service system in the near-term, while giving notice that we intend to transition to more incentive-based regulation in the near future.” Id. at ¶ 286. Unfortunately, the Order contains a major exception to this guiding principle. Where an ILEC’s study area is determined to have 100% overlap with competitive carriers, support is summarily cut off over three years. This rule is apparently designed to protect consumers—despite drastic flash cuts to their ILEC—because service would in theory still be available through a competitor. (In fact, the competitor might not serve their address, as discussed above, and in any event would not have COLR obligations to serve them.) But it does not take into account at all the financial ability of the regulated company to adjust to zero support in the allotted time or the impact of the cuts on its debt obligations or “investments made consistent with existing rules.” For these carriers, support cuts will not be measured or gradual as the overall reform framework {00360836-1 }8 anticipates; rather, they will be sudden and complete, threatening the ability of the carrier to provide high quality service to customers. NCTA’s proposal for near-term cuts for carriers with partially-overlapping competitive areas are equally inconsistent with the Commission’s stated goals for transitioning rate-of-return carriers. It is in essence an end run around gradual changes in support and the Commission’s phased approach from rate-of-return to “a path toward incentive-based regulation.” CAF Order at ¶ 13. Rather, it would impose, ex post facto, cost model support on the existing operations of rate-of-return carriers. In fact, the proposal appears to specifically target carriers for whom sudden adjustment would be most crippling, by making it a prerequisite that there be a large differential between current support amounts and amounts under a cost model. Therefore, if the Commission moves forward with this measure, nine years would an appropriate phase-down period. As a premise, the Commission must be mindful of the fact that the wireline network operated by ILECs is a critical component of the nation’s wireline and broadband network. In part, this is because the ILEC wireline network is often relied upon by other providers of telephone and broadband service, in order to reach their customers. For example CLECs, and over-the-top video and VOIP providers, often interconnect with the ILEC network to directly access their subscribers. Similarly, fixed and mobile broadband providers often rely on portions of the ILEC network for backhaul delivery of traffic. The quality of the ILEC network is thus critical to the ability of other competitors to provide the best possible service to their customers. Thus, the Commission cannot fulfill its goal of universal access to robust broadband services without well maintained, high quality ILEC networks. In addition, ILECs {00360836-1 }9 invested in these networks based on the rules and regulations in effect at the time. Recovery of those network costs placed under those rules are still needed and cannot simply be ignored. In light of the above, it is critical that if ILECs are to have support reduced due to the presence of unsubsidized competition, that reduction in support must be gradual. The Commission itself acknowledged in the NPRM in this proceeding, “the benefits of measured transitions that enable stakeholders to adapt to changing circumstances and minimize disruption.” Connect America Fund A National Broadband Plan for Our Future Establishing Just and Reasonable Rates for Local Exchange Carriers High-Cost Universal Service Support Federal-State Joint Board on Universal Service Lifeline and Link-Up, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 26 FCC Rcd 4554, 4561 (2011). While the Commission was stating this principle as applied to the enactment of its overall policies, the need to prevent regulatory disruption is even more important when applied directly to a particular provider. Most ROR carriers rely on federal support, and an unduly rapid loss of significant support could jeopardize their ability to operate and maintain their facilities. Under these circumstances, SureWest suggests that if federal support is to be reduced in areas partially overlapped by unsupported competitors, then that reduction should occur over a minimum period of nine years. That nine-year period would be consistent with the ICC reform transition period that the FCC recently enacted for ROR carriers. See CAF Order at Figure 9, para. 801. {00360836-1 }10 Additionally, a cost model analysis is not appropriate for a rate-of-return carrier, at least until the transition is complete. First, while the use of a cost model may be appropriate for large price cap carriers, it is not appropriate for rate-of-return carriers, which are typically small, and thus lack the economies of scale and scope of the price cap carriers. In addition, use of a cost model is similarly inappropriate for ROR carriers like SureWest Telephone, which has only two wire centers, and thus there is little chance for discrepancies between the model and real costs to average out. At paragraph 1076, the Commission seeks comments on how support to a provider should be allocated between areas with and without competitive overlap. A straight per-line pro rata allocation is likely to understate the actual costs of providing service in higher-cost areas. Support levels for carriers with less than 100 percent overlap should reflect the actual operating costs of the provider to serve customers in non-competitive areas. This includes not just the costs of facilities in the non- competitive areas, but also demonstrable proportions of joint and common costs of central office equipment, servers, and other system-wide costs necessary to provide the service to the non-competitive areas. IV. Conclusion Given the proposal to withdraw federal high cost support in areas where there are unsupported competitors, any analysis of the overlap of competing broadband service areas must be based on detailed and reliable data. If the Commission elects to reduce support in areas partially overlapped by unsupported competitors, then a nine year phase-down for rate-of-return study areas is necessary to maintain stability and {00360836-1 }11 {00360836-1 }12 service of essential ROR networks during the transition period. Finally, in allocating costs between supported and competitive areas, the actual cost of providing service should be used, rather than a cost model. Respectfully submitted, SUREWEST COMMUNICATIONS By: /s/ Paul J. Feldman Paul J. Feldman Christine Goepp Its Attorneys FLETCHER, HEALD & HILDRETH, PLC 1300 North 17th St. 11th Floor Arlington, Virginia 22209 (703) 812-0400 January 18, 2012