3. Developments That May
Impact the CHCF-A
Changes of rules and regulations at the federal and state level are expected to affect the CHCF-A program in coming years. The following are developments that should be monitored for their potential impacts.
3.1. Federal High Cost Fund
On October 27, 2011, the FCC approved the creation of Connect America Fund (CAF) to help extend high speed internet to unserved Americans. This major policy decision also intends to comprehensively reform its Universal Service Fund and intercarrier compensation systems because the FCC believes "these systems have been widely viewed as broken, and long overdue for reform."30 One of the goals of this reform among other things is the commitment to fiscal responsibility of the newly created CAF. A firm annual budget set at current levels-$4.5 billion-will prevent growth in the Fund and help protect consumers from increased contribution fees. Programs that provide subsidies where they are not needed are eliminated, and compensation for corporate overhead expenses is reduced. Market-based mechanisms, including competitive bidding, will be used to distribute money more efficiently.31 Additionally, the FCC adopts reforms to: (1) establish a framework to limit reimbursements for excessive capital and operating expenses, which will be implemented no later than July 1, 2012, after an additional opportunity for public comment; (2) encourage efficiencies by extending existing corporate operations expense limits to the existing high-cost loop support and interstate common line support mechanisms, effective January 1, 2012; (3) ensure fairness by reducing high-cost loop support for carriers that maintain artificially low end-user voice rates, with a three-step phase-in beginning July 1, 2012; (4) phase out the Safety Net Additive component of high-cost loop support over time; (5) address Local Switching Support as part of comprehensive ICC reform; (6) phase out over three years support in study areas that overlap completely with an unsubsidized facilities-based terrestrial competitor that provides voice and fixed broadband service, beginning July 1, 2012; and (7) cap per-line support at $250 per month, with a gradual phasedown to that cap over a three-year period commencing July 1, 2012.32
We believe Federal proceedings have the potential to affect state programs. The largest and most immediate potential effect will be an increase of draws from the CHCF-A by small ILECs. This will cause an added financial burden to the California ratepayers, if CHCF-A rules stay unchanged.33
The Commission has noticed that the CHCF-A carriers have more heavily invested in plant modernization, including switching to broadband capable fiber optic networks, than their counterpart carriers that did not receive the support funds. The FCC reforms are of particular interest to California because under the current rules, any reduction in federal high cost support translates into an increase in support from the CHCF-A. The state's subsidy mechanisms should be addressed now, as the potential effects of federal funding mechanism changes could result in a substantial impact to the CHCF-A program.
On April 21, 2010 the FCC issued a Notice of Inquiry and Notice of Proposed Rulemaking through which FCC sought comments on, among other things, how to cap and cut inefficient funding in the high cost mechanisms and to shift savings toward broadband communications. The FCC has determined that current high cost programs are less than "economically efficient" in providing support. We believe this Federal action will most likely affect state programs. The largest and most immediate potential effect will be an increase of draws from the CHCF-A by small ILECs. This will cause an added financial burden to the California ratepayers, if CHCF-A rules stay unchanged.34
3.2. National Broadband Plan
In early 2009, Congress directed the FCC to develop a National Broadband Plan35 that would ensure every American with "access to broadband capability." The FCC initiated the process of developing this plan with a Notice of Inquiry in April 2009. The Notice identifies a need for significant changes to the current high cost program, among which it recommends:
cut inefficient funding of ...voice service[through high cost mechanisms] and refocus universal service funding to directly support modern communications networks that will provide broadband as well as voice services.36
The FCC contends "the intent [of revisions in high cost support mechanisms]... is to eliminate the indirect funds of broadband-capable networks today through our legacy high-cost programs which is occurring without transparency or accountability for the use of funds to extend broadband service."37
The Commission has noticed that the CHCF-A carriers have more heavily invested in plant modernization, including switching to broadband capable fiber optic networks, than their counterpart carriers that did not receive the support funds. These proceedings are of particular interest to California because under the current rules, any reduction in federal high cost support translates into an increase in support from the CHCF-A. The state's subsidy mechanisms should be addressed now, as the potential effects of federal funding mechanism changes could result in a substantial impact to the CHCF-A program.
30 The FCC News Release October 27, 2011. http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db1027/DOC-310695A1.pdf
31 Ibid.
32 Ibid., at 2-7.
33 FCC, FCC 10-58 http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-10-58A1.pdf.
34 FCC, FCC 10-58 http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-10-58A1.pdf.
36 FCC, Connecting America: The National Broadband Plan, 147-48 (rel.
Mar. 16, 2010) (National Broadband Plan).
37 FCC 10-58, In the Matter of Connect America Fund A National Broadband Plan for Our Future High-Cost Universal Service Support, at 22-23.
