Rate-of-Return Carriers Plan to Seek Waivers of Rule Limiting USF Reimbursements
Several rate-of-return carriers said Monday they would file for requests for waivers of new rules in the USF/intercarrier compensation order limiting reimbursable capital and operating costs. The form letters, sent by five carriers, all blamed “a flaw” in the quantile regression analysis caps “that penalizes companies who have been diligent to bring advanced services to rural areas.” The five new waiver requests would more than double the existing number of waiver requests Wireline Bureau Deputy Chief Carol Mattey said the FCC had received as of last week (CD April 12 p1).
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The companies are represented by Colorado-based Telcom Consulting Associates, which represents rural LECs throughout the country. “As a general rule, the whole use of the QRA caps, we don’t believe is correct,” said Kevin Kelly, TCA’s regulatory director. “What it’s going to produce in reality is a certain percentage of companies that are always going to be over the caps.” Because the caps will be dynamic in nature and change every year, it will be impossible for companies to efficiently predict how much investment they can make in their networks, he said.
The carriers said that the proposed regression methodology would lead to major funding losses in 2013. Tri-County Telephone Association in Kansas said it projects “a funding loss of approximately 221% of our net income” (http://xrl.us/bm365h). Mosaic Telecom in Wisconsin said it would lose approximately 177 percent of its net income (http://xrl.us/bm37gc); Peoples Telecommunications in Kansas projected a 96 percent loss (http://xrl.us/bm37fs); Heart of Iowa projected a 91 percent funding loss (http://xrl.us/bm37oy). The Kanokla Telephone Association, a cooperative in Kansas and Oklahoma, projected a funding loss of “28% of our regulated revenues” (http://xrl.us/bm37o4).
When the carriers applied for loans from the Rural Utilities Service to complete needed network upgrades, they demonstrated their ability to repay the loans by “relying on existing rules established in the Communications Act,” they said. Should the FCC adopt its proposed caps, “good cause would exist for waiving implementation,” they said.
Each telco said the waiver process would be burdensome for a company of their size, but they would have “no other option but to pursue it in light of the magnitude of the anticipated loss in federal universal service funding, which will seriously impact our ability to repay our RUS loans.” The letters also referenced filings from the creator of the quantum regression analysis as well as economists in other bureaus, arguing the record “clearly demonstrates that the proposed QRA caps are fundamentally flawed,” and it would be “in the public interest to waive this rule.”
The North Central Telephone Cooperative also notified the FCC Monday that it intends to seek a waiver of the rules limiting reimbursable capital, as well as rules eliminating payment of the Safety Net Additive for investments it made in 2010 (http://xrl.us/bm375g). NCTC, which provides telecom services in rural areas of Tennessee and Kentucky, said the SNA change alone would lead to a $3 million loss over five years.
In March, two FCC economists said the proposed quantile regression methodology setting an upper limit on reimbursable capital expenses was fundamentally sound, but tweaks would make the methodology “more compelling” (CD March 13 p9). Several commenters have since seized on the economists’ reports to argue that the flaws were serious enough to scrap the methodology altogether (CD March 20 p7).