BloostonLaw Telecom Update
Published by the Law Offices of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP
[Portions reproduced here with the firm's permission.]
| Vol. 13, No. 12|| March 24, 2010 |
Enforcement of Red Flags Rule Effective June 1
The Federal Trade Commission (FTC), at the request of Members of Congress, delayed until June 1 enforcement of its Red Flags Rule to give creditors and financial institutions more time to review FTC guidance and develop and implement written Identity Theft Prevention Programs. The June 1 deadline applies to entities under the jurisdiction of the FTC and does not affect the Address Discrepancy or Card Issuer Rules. Under the new rules, all businesses that maintain a creditor-debtor relationship with customers, including virtually all telecommunications carriers (but other companies as well), must adopt written procedures designed to detect the relevant warning signs of identity theft, and implement an appropriate response.
The Red Flags compliance program was in place as of Nov. 1, 2008. But the FTC will not enforce the rules until June 1, 2010, meaning only that a business will not be subject to enforcement action by the FTC if it delays implementing the program until June 1, 2010. The FTC announcement does not affect other federal agencies’ enforcement of the original Nov. 1, 2008, compliance deadline for institutions subject to their oversight. Other liabilities may be incurred if a violation occurs in the meantime. The requirements are not just binding on telcos and wireless carriers that are serving the public on a common carrier basis. They also apply to any “creditor” (which includes entities that defer payment for goods or services) that has “covered accounts” (accounts used mostly for personal, family or household purposes). This also may affect private user clients, as well as many telecom carriers’ non-regulated affiliates and subsidiaries. BloostonLaw has prepared a Red Flag Compliance Manual to help your company achieve compliance with the Red Flags Rule. Please contact: Gerry Duffy (202-828-5528) or Mary Sisak (202-828-5554) with any questions or to request the manual.
INSIDE THIS ISSUE
- “Connect America Fund” details spelled out in NBP.
- FCC seeks comment on harmonizing TCPA rules with those of FTC.
- Comments sought on NPSTC and Broadband Task Force report.
- FCC modifies LSS rules.
- Free Press seeks access to Form 477 data.
“Connect America Fund” Details Spelled Out In NBP
In its National Broadband Plan (NBP) delivered to Congress last week, the FCC recommends phasing out the universal service high-cost fund by shifting up to $15.5 billion over the next 10 years to support broadband service. The Commission also recommends phasing out the intercarrier compensation system and eliminating per-minute charges over the next decade. Both proposals would radically change the landscape for rural telcos, and may not necessarily be beneficial.
The FCC proposes to accomplish this Universal Service Fund (USF) reform in three stages:
Stage 1 (2010-2011): (a.) create a “Connect America Fund” (CAF) to support broadband and a “Mobility Fund” to expand the reach of 3G wireless networks in a tax-efficient manner; (b.) adopt a framework for long-term intercarrier compensation reform that creates a glide path to eliminating per-minute charges while providing an opportunity for adequate cost recovery, and establishing interim solutions to address arbitrage; (c.) examine middle mile costs and pricing.
Stage 2 (2012-2016): Begin making disbursements from the CAF; begin staged transition of reducing per-minute rates; and broaden the universal service contribution base.
Stage 3 (2017-2020): Eliminate high-cost fund, and hence, all support for voice-only networks, with all federal funding going to broadband; continue reducing intercarrier compensation rates by phasing out per-minute rates for the origination and termination of telecommunications traffic.
The Connect America Fund (CAF). Under the FCC’s plan, the CAF would replace all of the “legacy” high-cost fund programs. In general, the CAF should adhere to the following:
1. The CAF should only provide funding in geographic areas where there is no private sector business case to provide broadband and high-quality voice-grade service. CAF support levels should be based on what is necessary to induce a private firm to serve an area. Support should be based on the net gap (i.e., forward looking costs less revenues). Those costs would include both capital expenditures and any ongoing costs, including middle-mile costs, required to provide high-speed broadband service that meets the National Broadband Availability Target (actual download speeds of at least 4 Mbps and actual upload speeds of at least 1 Mbps). Revenues should include all revenues earned from broadband-capable network infrastructure, including voice, data and video revenues, and take into account the impact of other regulatory reforms that may impact revenue flows, such as ICC, and funding from other sources, such as Recovery Act grants. The FCC should evaluate eligibility and define support levels on the basis of neutral geographic units such as U.S. Census-based geographic areas, not the geographic units associated with any particular industry segment.
In targeting funding to the areas where there is no private sector business case to offer broadband service, the FCC should consider the role of state high-cost funds in supporting universal service and other Tribal, state, regional and local initiatives to support broadband. A number of states have established state-level programs through their respective public utility commissions to subsidize broadband connections, while other states have implemented other forms of grants and loans to support broadband investment. As the country shifts its efforts to universalize both broadband and voice, the FCC should encourage states to provide funding to support broadband and to modify any laws that might limit such support.
2. There should be at most one subsidized provider of broadband per geographic area. Areas with extremely low population density are typically unprofitable for even a single operator to serve and often face a significant broadband availability gap. Subsidizing duplicate, competing networks in such areas where there is no sustainable business case would impose significant burdens on the USF and, ultimately, on the consumers who contribute to the USF.
3. The eligibility criteria for obtaining support from CAF should be company- and technology-agnostic so long as the service provided meets the specifications set by the FCC. Support should be available to both incumbent and competitive telephone companies (whether classified today as "rural" or "non-rural"), fixed and mobile wireless providers, satellite providers and other broadband providers, consistent with statutory requirements. Any broadband provider that can meet or exceed the specifications set by the FCC should be eligible to receive support.
4. The FCC should identify ways to drive funding to efficient levels, including market-based mechanisms where appropriate, to determine the firms that will receive CAF support and the amount of support they will receive. If enough carriers compete for support in a given area and the mechanism is properly designed, the market should help identify the provider that will serve the area at the lowest cost.
5. Recipients of CAF support must be accountable for its use and subject to enforceable timelines for achieving universal access. USF requires ongoing adjustment and re-evaluation to focus on performance-based outcomes. The recipients of funding should be subject to a broadband provider-of-last-resort obligation. The FCC should establish timelines for extending broadband to unserved areas. It should define operational requirements and make verification of broadband availability a condition for funding. The subsidized providers should be subject to specific service quality and reporting requirements, including obligations to report on service availability and pricing. Recipients of funding should offer service at rates reasonably comparable to urban rates. The FCC should exercise all its relevant enforcement powers if recipients of support fail to meet FCC specifications.
Phasing Out the High Cost Fund
In Stage One, the FCC should identify near-term opportunities to shift funding from existing programs to advance the universalization of broadband. These targeted changes are designed to create a pathway to a more efficient and targeted funding mechanism for government support for broadband investment, while creating greater certainty and stability for private sector investment.
While these shifts could move as much as $15.5 billion (present value in 2010 dollars) into new broadband programs, they are not risk-free. Shifting identified funds to support broadband could have transitional impacts that will need to be carefully considered. To the extent the FCC does not realize the full amount of savings described below, it will need to identify additional opportunities for savings in Stage Two in order to achieve the National Broadband Availability Target, unless Congress chooses to provide additional public funding for broadband to mitigate some of these risks.
First, the FCC should issue an order to implement the voluntary commitments of Sprint and Verizon Wireless to reduce the High-Cost funding they receive as competitive ETCs to zero over a five-year period as a condition of earlier merger decisions. Sprint and Verizon Wireless received roughly $530 million in annual competitive ETC funding at the time of their respective transactions with Clearwire and Alltel in 2008. Their recaptured competitive ETC funding should be used to implement the recommendations set forth in this plan. This represents up to $3.9 billion (present value in 2010 dollars) over a decade.
Second, the FCC should require rate-of-return carriers to move to incentive regulation. As USF migrates from supporting voice telephone service to supporting broadband platforms that can support voice as well as other applications, and as recipients of support increasingly face competition in some portion of their service areas, how USF compensates carriers needs to change as well.
Rate-of-return regulation was implemented in the 1960s, when there was a single provider of voice services in a given geographic area that had a legal obligation to serve all customers in the area and when the network only provided voice service. Rate-of-return regulation was not designed to promote efficiency or innovation; indeed, when the FCC adopted price-cap regulation in 1990, it recognized that "rate of return does not provide sufficient incentives for broad innovations in the way firms do business." In an increasingly competitive marketplace with unsubsidized competitors operating in a portion of incumbents’ territories, permitting carriers to be made whole through USF support lessens their incentives to become more efficient and offer innovative new services to retain and attract customers.
Conversion to price-cap regulation would be revenue neutral in the initial year of implementation, assuming that amounts per line for access replacement funding known as Interstate Common Line Support (ICLS) would be frozen (consistent with existing FCC precedent). Over time, however, freezing ICLS would limit growth in the legacy High-Cost program on an interim basis, while the FCC develops a new methodology for providing appropriate levels of CAF support to sustain service in areas that already have broadband. This step could yield up to $1.8 billion (present value in 2010 dollars) in savings over a decade.
The amount of interim savings achieved by freezing ICLS support during the CAF transition is dependent on the timing of the conversion to price caps and carrier behavior before the conversion. There is some chance that rate-of-return carriers could accelerate their investment before conversion to price caps to lock in higher support per line. Depending on the details of implementation, such a spike in investment activity could result in further broadband deployment that would narrow the broadband availability gap, but could increase the overall size of the fund.
Third, the FCC should redirect access replacement funding known as Interstate Access Support (IAS) toward broadband deployment. Incumbent carriers received roughly $457 million in IAS in 2009. When the FCC created IAS in 2000, it said it would revisit this funding mechanism in five years "to ensure that such funding is sufficient, yet not excessive." That re-examination never occurred. Now, in order to advance the deployment of broadband platforms that can deliver high-quality voice service as well as other applications and services, the FCC should take immediate steps to eliminate this legacy program and re-target its dollars toward broadband. This could yield up to $4 billion (present value in 2010 dollars) in savings over a decade.
Freezing ICLS and refocusing IAS could have distributional consequences for existing recipients; individual companies would not necessarily receive the same amount of funding from the CAF as they might otherwise receive under the legacy programs. As the FCC considers this policy shift, it should take into account the impact of potential changes in free cash flows on providers’ ability to continue to provide voice service and on future broadband network deployment strategies.
Fourth, the FCC should phase out the remaining legacy High-Cost support for competitive ETCs. In 2008, the FCC adopted on an interim basis an overall competitive ETC cap of approximately $1.4 billion, pending comprehensive USF reform. As the FCC reforms USF to support broadband, it is time to eliminate ongoing competitive ETC support for voice service in the legacy High-Cost program.
In some areas today, the USF supports more than a dozen competitive ETCs that provide voice service, and in many instances, companies receive support for multiple handsets on a single family plan. Given the national imperative to advance broadband, subsidizing this many competitive ETCs for voice service is clearly inefficient. The FCC should establish a schedule to reduce competitive ETC support to zero over five years, which will be completed in Stage Two. In order to accelerate the phase-down of legacy support, the FCC could immediately adopt a rule that any wireless family plan should be treated as a single line for purposes of universal service funding. As competitive ETC support levels are reduced, this funding should be redirected toward broadband. This could yield up to $5.8 billion (present value in 2010 dollars) in savings over a decade.
Depending on the details and timing of implementation, these actions collectively will free up to $15.5 billion (present value in 2010 dollars) in funding from the legacy High-Cost program between now and 2020. In addition to funding the CAF, the savings identified should be used to implement a number of USF and ICC recommendations in this plan. Approximately $4 billion (present value in 2010 dollars) will go to a combination of activities including the new Mobility Fund, potential revenue replacement resulting from intercarrier compensation reform, expanding USF support for health care institutions up to the existing cap, enabling E-rate funding to maintain its purchasing power over time, and conducting pilots for a broadband Lifeline program. The remaining amount, up to $11.5 billion (present value in 2010 dollars), can be expressly targeted to supporting broadband through the CAF so that no one is left behind.
BloostonLaw contacts: Hal Mordkofsky, Ben Dickens, Gerry Duffy, John Prendergast, and Mary Sisak.
FCC SEEKS COMMENT ON HARMONIZING TCPA RULES WITH THOSE OF FTC: The FCC has asked for comment on proposed revisions to its rules under the Telephone Consumer Protection Act (TCPA) that would harmonize those rules with the Federal Trade Commission's (FTC's) recently amended Telemarketing Sales Rule. The Commission seeks comment on whether these proposed revisions would benefit consumers and industry by creating greater symmetry between the two agencies' regulations, and by extending the FTC's standards to regulated entities that are not currently subject to the FTC's rules. Comments in this CG Docket No. 02-278 proceeding are due May 21, and replies are due June 21. BloostonLaw contacts: Ben Dickens, Gerry Duffy, and Mary Sisak.
COMMENTS SOUGHT ON NPSTC AND BROADBAND TASK FORCE REPORT: On August 14, 2009, the FCC’s Public Safety and Homeland Security Bureau sought comment on petitions for waiver filed by a number of states and localities seeking to deploy public safety systems in the 700 MHz broadband spectrum. On December 15, 2009, the Public Safety Spectrum Trust (PSST) filed a written ex parte in response, including a report compiled by the National Public Safety Telecommunications Council (NPSTC) Broadband Task Force (BBTF). The PSST stated that it was submitting these recommendations “to the FCC for the minimum requirements necessary to allow localities and regions to build out local systems as part of the 700 MHz nationwide, interoperable wireless broadband public safety network.” The Bureau now seeks comment on both the recommendations of the PSST and the BBTF Report, and in particular those elements of the BBTF Report that address the technical aspects of the operation and inter-operation of the regional networks the BBTF contemplates. In particular, the Bureau seeks comment from those entities that have filed waiver requests with the Commission seeking to deploy in the 700 MHz broadband spectrum. Should the FCC condition any waiver disposition on adherence to the standards recommended by the BBTF and the PSST? Are these recommendations sufficient to ensure later compatibility with a nationwide interoperable broadband network for public safety? Does the BBTF Report provide adequate architectural details, specificity, consistency and precision to serve as the basis for conditions on waivers? If not, what modifications would serve this purpose? Could these recommendations provide a basis for evolution to new technological standards? Could these recommendations serve as an appropriate foundation for the work of the proposed Emergency Response Interoperability Center (ER-IC)? Additionally the Bureau seeks comment on several specific aspects of the technical recommendations made by the BBTF and the PSST, including: (1) Recommendation 6.2 (Operations), and particularly those functions that the PSST suggests are “Requirements at Startup”; and (2) Recommendation 6.3 (Technical), and particularly those addressed as “Minimum Applications” and “Security” features. Comments in this WT Docket No. 06-150 and PS Docket No. 06-229 proceeding are due April 6, and replies are due April 16. BloostonLaw contacts: Hal Mordkofsky, John Prendergast, and Cary Mitchell.
FCC MODIFIES LSS RULES: The FCC has adopted a Report and Order, addressing an inequitable asymmetry in the current rules governing the receipt of universal service high-cost local switching support (LSS) by small incumbent local exchange carriers (LECs). Under the current rules, which were adopted by the Commission at a time when incumbent LEC lines had largely only increased over time, the amount of LSS that an incumbent LEC may receive decreases when its line counts increase above a particular threshold, but does not increase when its line counts decrease below that same threshold. Since the adoption of these rules, incumbent LEC lines have begun to decrease, and, as a result of the one-way rule, many small LECs that have lost lines receive less support than other LECs with a similar number of lines that face nearly identical circumstances. By modifying the rules to permit incumbent LECs that lose lines to receive additional LSS when they cross a threshold, the FCC will provide LSS to all small LECs on the same basis. The FCC emphasizes that nothing in this report and order is intended to address the long-term role of LSS in the Commission’s high-cost universal service policies, which the FCC is considering as part of comprehensive universal service reform. The FCC also dismissed the petition for reconsideration filed by the Coalition for Equity in Switching Support in the jurisdictional separations freeze proceeding. The issues raised in that petition are essentially the same as those raised in its petition for clarification. This decision and the Coalition Petition Order and LSS NPRM wholly address those issues, and therefore the FCC dismissed the petition for reconsideration as moot. BloostonLaw contacts: Ben Dickens, Gerry Duffy, and Mary Sisak.
FREE PRESS SEEKS ACCESS TO FORM 477 DATA: Free Press has filed a request to review data collected by the FCC in connection with its periodic inquiry into the deployment of advanced telecommunications capability to all Americans. In particular, it requests that “the public be granted the opportunity to examine and analyze the data collected by the FCC on Form 477.” Free Press states that its request is “limited to the data reflecting subscribership as of December 31, 2008.” Free Press further states that it “understand[s] that some of the companies that provided this information may believe their submissions are competitively sensitive,” and therefore requests “a protective order and ask[s] that the Commission institute appropriate procedures for the public to review the Form 477 data.” Free Press asserts that grant of its requests will allow it “to conduct a more comprehensive analysis of subscribership to high-speed Internet access services” that will “assist the Commission in making well-informed, data-driven policy choices.” Comments in this WC Docket No. 10-75 proceeding are due April 19, and replies are due May 5. BloostonLaw contacts: Ben Dickens, Gerry Duffy, and Mary Sisak.