Status Update on the Connect America Fund and Intercarrier Compensation Reform: Playing for the Long Run

[#1]

Serious policymaking in Washington requires stamina.  What you win today can be undone tomorrow; lost ground can be regained.  Having stamina is one of the charactertistics that distinguishes the major players like AT&T, Verizon, and Comcast from newcomers.  The need for stamina is why smaller players must band together if they are to succeed.

The Commission too plays for the long run.  Right now, it is focused on ensuring that the ground it gained with the initial Connect America Fund (CAF) decision is not lost as it moves to the arduous task of implementing its new policies.  In the past 90 days, the Commission staff have held countless meetings with interested parties on many detailed matters, fielded numerous petitions for clarification, reconsideration, or waiver, and issued multiple orders to address concerns. 

Among the key pending issues is the determination of the proper rate -- either intrastate or interstate -- for originating VOIP-PSTN traffic.  The FCC’s decision in the CAF Order appears to require use of the interstate rate, but many local exchange carriers object.  In fact, the advocacy on both sides on the issue is very intense, and the dispute has split the once unified incumbent ABC Coalition.  (You can get a sense of the dispute by reading the original reconsideration petition from Windstream and Frontier and a recent filing by Verizon.)  The FCC cannot let this dispute go on much longer, and you should expect a decision soon.

From discussions with FCC staff, it is clear their diligence will continue on other matters.  The Commission is likely to issue another reconsideration decision in the next month or so, addressing many of the others issues raised by parties.  In addition, the FCC is about to make decisions on Phase I supplemental funding for price cap carriers, and it has begun work on the cost model for Phase II support.  The Commission also is on track to hold the reverse auction for Phase I mobility funding.

The Commission is not only implementing the initial decision, for the past two months, it has been receiving comments on a host of other important universal service and intercarrier compensation issues.  Among the most important universal service issues are those surrounding CAF support for rate of return carriers, particularly the Commission’s proposed caps on capital and operating expenditures and decreased rate of return.  Because these proposed changes would greatly affect their support, over the past weeks, the rural carriers have been urging the Commission to postpone any new decision until the carriers have had a chance to implement the just adopted rules and the impact of these changes can be assessed.   

As for the comments on proposed additional changes to the intercarrier compensation rules, there appears to be a lack of consensus on the proposals, including whether to reduce originating switched access rates, regulate transit rates, and require IP to IP interconnection.  Unless this situation changes, the Commission will be challenged to reach a decision on these issues later this year.

And, while all this follow on activity is occurring, everyone is watching what will happen in the courts. While many aspects of the CAF Order will be reviewed by the 10th Circuit judges, perhaps the most immediate issue is whether the FCC can cap and reduce intrastate switched access rates.  State regulators and others have appealed this part of the decision, and the first phase for reducing these rates is less than four months away.  We should anticipate a motion to stay this action relatively soon.  As for how the court will rule, it is a real close call, with good arguments on both sides.  Should the FCC lose, it will greatly affect the balance of its new regime.

So, now is not the time to let fatigue set in.  We’re just in the middle stages of a very long process.