One of the biggest challenges facing the team drafting the National Broadband Plan was figuring out how to adapt existing regulatory models to the realities of today’s competitive broadband marketplace. Two specific areas where the plan’s recommendations thread that needle are pole attachment rates and high-cost universal service reform; and it does so by recommending steps that begin to reduce artificial distortions produced by government subsidies and the cost of important inputs to deploying and operating expensive networks.
OK, I recognize pole attachments are not the usual glamorous telecom issue. But as an input into deploying and operating broadband networks, it is critical: today costing broadband providers hundreds of millions of dollars each year.
Congress first recognized the importance of reasonably priced pole attachments back in 1978, when it established the cost-based rate formula for cable pole attachments. Utilities have resisted these rules ever since, but the Commission and the courts have consistently reaffirmed them. In the 1996 Act, Congress adjusted rates for competitive phone carriers but the rate formula it adopted is still much higher than the rates produced by the cable formula.
Today, there is broad agreement that having different rate formulas is ineffective and moving to a uniform rate for all broadband providers is better policy. But the level of that uniform rate continues to be a point of dispute. When the Commission sought comment on this issue in 2007, NCTA suggested that low attachment rates for everyone would better promote broadband investment:
The best way for the Commission to make progress on all of its goals – broadband investment, facilities-based competition, and regulatory parity – is to reduce the rate for attachments by telecommunications carriers. Just as taxing cable broadband customers by raising the attachment rates paid by cable operators could have significant negative effects on investment and competition, reducing the rate for telecommunications attachments could have significant positive effects.
We are pleased that the Plan reached the same conclusion (page 110):
To support the goal of broadband deployment, rates for pole attachments should be as low and as close to uniform as possible. The rate formula for cable providers articulated in Section 224(d) has been in place for 31 years and is “just and reasonable” and fully compensatory for utilities. Through a rulemaking, the FCC should revisit its application of the telecommunications carrier rate formula to yield rates as close as possible to the cable rate in a way that is consistent with the Act.
We applaud the Plan’s recognition of the benefits that can be realized by using the cable rate formula as the basis for a uniform broadband attachment regime. We look forward to working with the Commission to make this vision a reality.
High-Cost Universal Service Reform
Another byproduct of the 1996 Act is a Congressional directive that the FCC create an explicit universal service support program to ensure that consumers in high-cost areas would be able to receive landline telephone service at reasonable prices. As a result, the Commission established a number of different funding mechanisms, each with its own set of complex rules.
But as technology has developed and competition increased, the Commission has made remarkably few changes to these high-cost support mechanisms. As a result, the overall size of the high-cost support program has increased substantially, as does the contribution burden imposed on American consumers. In 2000, the contribution factor was under 6 percent of interstate telecommunications revenues; when it reached 10 percent, in 2005, there was general agreement that the program was on an unsustainable path; but for the second quarter of 2010, the factor will exceed 15 percent. This is a disturbing and expensive trend.
Late last year, NCTA submitted a petition proposing modest steps to put the high-cost program on a more sustainable path. We identified two keys:
- reducing or eliminating support in rural areas where cable operators and other facilities-based providers are offering service without any subsidy; and
- calculating the subsidy in noncompetitive areas at the minimum level necessary to attract private investment, recognizing the significant revenue opportunities that broadband networks offer as compared to voice-only networks.
These sorts of changes could free up funding for the Commission to support the deployment of broadband networks in unserved areas without increasing the contribution burden on American consumers.
The Broadband team has incorporated these principles into its proposed USF reform strategy. The Plan recommends creation of a new Connect America Fund (CAF) that would support broadband deployment in areas that have not attracted private investment. CAF would use market-based mechanisms to attract initial investment (but no more) and funding would come from reducing, and eventually eliminating, the broken high-cost support mechanisms. This would enable the Commission to achieve the goal of universal broadband availability without significant increases in the size of the USF program.
Implementation of these recommendations will be a complex, long-term project for the FCC. The Plan proposes a 10-year plan for achieving its objectives, but notes that “no one can accurately foresee every potential market dynamic between now and 2020 . . . The precise timing to achieve universal availability will depend on multiple variables, many of which are beyond the control of regulators.”
That is true, of course, but the Plan goes on to explain that “the fact that the FCC may need to make mid-course corrections along the way does not change the overarching national policy imperative ─ the need for a connected, high-performance America. For the nation to achieve this goal, the steps outlined in this plan must be taken promptly.”
We couldn’t agree more. We stand ready to work with the Commission on these critically important issues.