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Inside Telecom: FCC Approves USF/ICC Reform Order

The FCC has been trying to reform the Universal Service Fund (USF) and Intercarrier Compensation (ICC) for many years. On October 27, 2011, the FCC unanimously approved an Order to begin meeting this goal. Here are some of the key items included in this Order:

1. A firm and comprehensive budget will be established for the high-cost programs within USF. The annual funding target is set at no more than $4.5 billion over the next six years, the same level as Fiscal Year 2011
2. All eligible telecommunications carriers (ETCs) offering voice services will now be required to also offer broadband services
3. A Connect America Fund (CAF) will be established which will ultimately replace all existing high-cost support mechanisms. The CAF will rely on incentive-based, market-driven policies, including competitive bidding, to distribute universal service funds as efficiently and effectively as possible
4. Broadband is defined as 4 Mbps downstream and 1 Mbps upstream
5. Numerous USF Reforms will be adopted for items such as capital and operating expenses, corporate operations expense, Safety Net Additive, Local Switching Support, per-line support and others
6. A Further Notice of Proposed Rule Making (FNPRM) will seek comment if the rate-of-return level should be reduced from its current 11.25%
7. Rate-of-return carriers will receive approximately $2 billion per year in high-cost universal service support through 2017 which is similar to existing support
8. A Mobility Fund will be created to ensure availability of mobile broadband networks.  Phase I will provide up to $300 million in one-time support, through nation-wide reverse auctions, to deploy networks for mobile voice and broadband services in unserved areas. Phase II will provide up to $500 million per year in ongoing support
9. The identical support rule will be eliminated. Identical support will be frozen as of year-end 2011 and phased down over a five-year period beginning July 1, 2012
10. Companies engaged in the practice of access stimulation will be required to re-file their interstate switched access tariffs at lower rates
11. Rules will be adopted to address phantom traffic
12. For ICC Reform, the FCC adopts a uniform national bill-and-keep framework as the ultimate end state for all telecommunications traffic exchanged with a Local Exchange Carrier (LEC)
13. Initial ICC reform will focus on reducing terminating switched access rates
14. Most ICC rates will be capped as of the effective date of the Order
15. LECs will be required to bring intrastate and interstate terminating end office rates to parity, within two steps, by July 2013
16. Rate-of-return carriers will be required to further reduce their terminating rates to bill-and-keep within nine years
17. A recovery mechanism will be adopted to mitigate the effect of reduced intercarrier revenues
18. Some recovery for reduced intercarrier revenues will come from end user customers as incumbent telephone companies will be permitted to charge a limited monthly Access Recovery Charge (ARC) on wireline telephone service
19. A ceiling will be adopted to prevent telephone companies from assessing any ARC for any consumer whose total monthly rate for local telephone service, inclusive of various rate-related fees, is at or above $30
20. Voice over Internet Protocol (VoIP) originated traffic will be billed at interstate access rates (possibly through the use of a factor since this traffic is unable to be determined).  Today, this traffic follows standard jurisdiction rules

It is uncertain when the Order will be published. Many additional details will be clearer once the Order is available. Then is when the work will begin to determine the changes that will be required and the specific details behind these changes.

For further information, the FCC’s Executive Summary of the Order can be found here:

http://www.fcc.gov/document/connect-america-fund-commission-meeting-item-executive-summary