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USF Reform NARUC Panel Presentation. Dale Lehman Director, Executive MBA in Information and Communication Technology Alaska Pacific University dlehman@alaskapacific.edu. A Budgeting Problem. Current high cost fund (HCF) ($4.096B)

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usf reform naruc panel presentation

USF ReformNARUC Panel Presentation

Dale Lehman

Director, Executive MBA in Information and Communication Technology

Alaska Pacific University

dlehman@alaskapacific.edu

a budgeting problem
A Budgeting Problem
  • Current high cost fund (HCF) ($4.096B)
  • Projected increases in CETC funding (conservative estimate: +$1.5B)
  • AT&T Broadband “pilot” (+$1B/year)
  • Eliminating Rural/Nonrural distinction (at wire center level: +$3B)
  • Funding at sub-wire center level (conservative estimate: +$15B)
  • ILEC “inefficiencies” (-$1B) are not credible
essential reforms and diversions
Essential Reforms and Diversions
  • These are all interesting issues, but most are not essential and threaten to divert the Joint Board (and FCC) from needed reforms
  • Necessary reforms: decide whether to support 1 or 2 network technologies; fix wireless CETC support; fix funding mechanism
  • The other issues are more complex than usually portrayed and require further analysis
one technology or two
One Technology or Two?
  • If One, it should be the most efficient
  • Reverse auctions cannot determine this
  • RFP specifications will determine “the winner”
  • Stranded investment an issue, except in “greenfield” applications
  • Evidence from other nations supports these conclusions
  • If Two, reverse auctions may play a role
nonrural carriers and de averaged support calculations
Nonrural Carriers and De-averaged Support Calculations
  • Price cap carriers differ from rate-of-return regulated (RoRR) carriers
  • Symmetry between regulatory commitment and carrier commitment: both are required for incentive regulation to work
  • RoRR guarantees an “opportunity” to earn a competitive return
  • Evidence required; appropriate intervention could involve USF, but there are alternatives
  • Acquired exchanges raise similar issues
  • Broadband makes things different
adding broadband as a supported service
Adding Broadband as a Supported Service
  • Price cap carriers have no obligation to undertake “uneconomic” investments
  • However, incentive regulation plans sometimes involve infrastructure investments
  • Many States have done so; will “early adopters” need to be compensated?
  • Plan renewals with investment requirements should be voluntary (fallback to RoRR otherwise)
  • More study needed on why broadband adoption lags in rural areas (is it availability or adoption? What is the best policy intervention?)
  • “universal” broadband speed is likely to be slower than what economic development requires
the wireless cetc mechanism is broken
The Wireless CETC Mechanism is Broken
  • ETC designation and the Identical Support Rule produce absurd results
  • Funding is tied to handsets (multiple) and addresses (no service guarantee, people move, etc.)
  • ILECs receive funding based on total costs; CETCs are funded based on per-line costs of a different carrier/technology
ratio of cetc ilec lines in relation to ilec cost by study area 2q 2004 and 2q 2007
Ratio of CETC/ILEC lines, in relation to ILEC cost, by study area, 2Q 2004 and 2Q 2007
  • 13 study areas had ratio > 1 in 2004; 88 in 2007
  • CETC study areas increased by 24%, CETC lines increased by 89%, while ILEC lines decreased by 8%
mta a case study
MTA: a case study
  • 4 wireless CETCs; total CETC lines > total ILEC lines
  • Coverage area has not markedly changed
  • Competitive neutrality between wireless carriers is what is being funded
ideas about a mobility fund
Ideas about a Mobility Fund
  • Decide what needs to be supported: construction of towers in under-served areas? (operation of service is more questionable)
  • Attach appropriate conditions to support: cost-based collocation and roaming?
  • Reverse auctions, cost models, and cost reporting are alternative methods for determining and awarding support
conclusions
Conclusions
  • Broadband, deaveraging, and mobility are all important, but complexities require more analysis
  • They should not divert the Joint Board’s attention from the essential reforms
  • These are: deciding whether to support one network technology or two; fixing the wireless CETC funding mechanism; and, fixing the contribution mechanism