A Melded Universal Service Support (USS) Mechanism
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A Melded Universal Service Support (USS) Mechanism

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A melded universal service support uss mechanism

A Melded Universal Service Support (USS) Mechanism

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

This proposal is one permutation of a method with many possible variations. While we believe the general idea has merit, there are details which could be implemented in different ways. As such, this proposal is not a recommendation. It is intended to stimulate discussion.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

Assumptions for Purposes of Illustration:1. Same threshold (135%) as non-rural carriers.

2. No existing competitor at the start of process. When a competitor enters, it is an ETC.

3. All states will designate more than one ETC in every area.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

4. Focus on support for the connection to the network.

5. Incumbent’s embedded cost may exceed the Model’s estimated cost.

6. The Incumbent will provide accurate geocodes for all customers if they wish to receive support.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

  • Run the Model:

  • calculate each cluster’s cost as a proportion of the national average cost so as to allocate embedded cost.

  • identify clusters in excess of the national support threshold.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

  • At first, mechanism based almost entirely on embedded cost:

  • Identify a small percentage (say 5 %) of the customer base, as being “subject to competition.”

  • Support for these customers based on the Model.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

Initial support will be based on 95% of excess embedded cost and 5% of excess forward looking cost where the excess cost customers are identified by the Model.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

What happens when a competitive ETC enters the area?The Model has identified the high cost customers. The second ETC will receive support if it serves a high cost customer.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

  • The portable support will be the incremental cost to serve:

  • If customer is won from incumbent, Model is run without this customer.

  • If customer was previously unserved, Model is run with the new customer.

  • The incremental cost is the difference between Model runs.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

When the incumbent’s embedded cost exceeds the Model cost, the portable support would be increased by the proportion:

embedded cost

Model cost.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

As a competitor increases market share, the percentage of the area that is “subject to competition” would be increased in stages, say to 10%, then 20%, and so on.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

When a competitor(s) had won 50% of the customers, all costs would be determined by the Model. The incumbent would receive the excess Model cost less the incremental cost, which would go to the competitor. If at some point, the competitor is named the incumbent, these roles would reverse.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

“hold harmless”

We would expect a transition mechanism for the incumbent - perhaps annual support would not drop by more than 5% of the first year’s support level for the first five years, or 20% over the next five years.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

  • How does this mechanism fit FCC goals?

  • It is based on long-term incremental cost.

  • It provides portable support that is the same for incumbent or competitor.

  • It is technology neutral.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

  • How does this mechanism address other concerns?

  • Eliminates arbitrage because the gain/loss of a low cost customer will not effect USS.

  • Provides transition to forward-looking cost based on competition.

  • Motivates investment in high cost areas.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

It is also backward compatible to the territories of non-rural carriers.

RUS Presentation to the Rural Task Force - March 23, 2000


A melded universal service support uss mechanism

  • Possible Drawbacks?

  • Depends on Model maintenance and would benefit from improvements.

  • Requires Geocodes.

  • No direct incentive to invest in highest cost areas.

RUS Presentation to the Rural Task Force - March 23, 2000


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