TR Daily FCC Reconsiders, Clarifies 2016 Order on Model-Based RoR Support
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Friday, February 16, 2018

FCC Reconsiders, Clarifies 2016 Order on Model-Based RoR Support

In a unanimous action, the FCC has revised rules adopted in its 2016 rate-of-return (RoR) reform order addressing the method for determining the cost of consumer broadband-only loops (CBOLs) and imputation of the access recovery charge (ARC) on CBOLs.

In the second order on reconsideration adopted yesterday and released today in Wireline Competition dockets 10-90 and 14-58 and Common Carrier docket 01-92, the FCC also clarified matters relating to reductions in Connect America Fund (CAF) broadband loop support (BLS) resulting from competitive overlap.

The 2016 order adopted “a voluntary path under which rate-of-return carriers may elect model-based support for a term of 10 years in exchange for meeting defined build-out obligations” (TR Daily, March 30, 2016). It established CBOL as a stand-alone broadband service eligible for universal service support and directed carriers to “shift CBOL costs from the Special Access category to a new CBOL category. The goal was to avoid including such CBOL costs in the determination of just and reasonable rates for special access services and to develop the support mechanism and tariff rates for CBOL service,” the FCC recalled in today’s order.

“Reasoning that CBOL costs were similar to common line costs, the Commission decided to use common line costs as a surrogate for identifying the CBOL costs to be shifted from the Special Access category to the CBOL category for each CBOL. This process is referred to as the ‘surrogate method.’ The surrogate method included the broadest definition of loop costs feasible based on the Commission’s then-current cost accounting rules. It also was intended to identify those costs in an expansive manner, to segregate the broadband-only loop investment and expenses from other special access costs currently included in the Special Access category, and to preclude cross-subsidization. The Commission recognized, however, that it might be appropriate to revisit the surrogate method in the future if it was not working as intended,” today’s order adds.

That possibility was realized when, “[i]n the course of implementing the new rules and carrier introduction of the new CBOL service, it became apparent that, in certain limited situations, the surrogate cost methodology over-allocated costs out of the Special Access category, thereby reducing the revenue requirement and resulting special access services rates more than intended; indeed, in the worst case scenario, rates would have been reduced to zero. Concluding that it would be unreasonable to apply the surrogate method in such circumstances, the Wireline Competition Bureau (Bureau) granted a limited waiver of sections 69.311 and 69.416 of the Commission’s rules in cases where use of the surrogate cost method would result in such unintended rate reductions. The Bureau granted a similar limited waiver of the rules concerning use of the surrogate cost method for the 2017 annual access charge tariff filing, and any later tariff filings related to the development of the CBOL revenue requirement,” it says.

Today’s order replaces “the surrogate cost method for determining the cost of CBOLs with rules employing existing separations and cost allocation procedures.”

NTCA had requested reconsideration of the surrogate method for estimating CBOL costs.

NTCA also sought reconsideration of the 2016 order’s requirement that rate-of-return carriers impute an amount equal to the ARC to their CBOL services when calculating CAF intercarrier compensation support. It proposed that the FCC “grandfather” any stand-alone broadband connections in place as of Sept. 30, 2011, from the ARC imputation requirement.

Today’s order revised the requirement, effective for five years, “to address NTCA’s concern that, under the existing rule, a carrier’s CAF ICC support is reduced because of the imputation of an amount on CBOLs that was not part of the balance struck in the USF/ICC Transformation Order.”

“We agree with NTCA that our focus on reconsideration should be on the goal of balancing end-user and universal service support adopted in the USF/ICC Transformation Order. The ARC imputation for CBOLs was intended to ensure that new support for CBOLs would not unduly increase CAF ICC. Although the ARC imputation achieves that goal, we agree with NTCA that, as implemented, the ARC imputation may unduly penalize rate-of-return carriers that offered stand-alone broadband connections before the Rate-of-Return Reform Order. As such, we believe adjusting the ARC imputation calculation is appropriate. At the same time, however, we are mindful of the concerns raised by NTCA regarding the need to ensure that any exemption that we create ‘be properly targeted and limit potential adverse impacts on carriers that do not qualify for such an exemption,” it continues.

“We limit the ARC imputation amount so that the total ARC revenues and imputation for the current tariff period will not exceed a pre-Rate-of-Return Reform Order baseline as a result of CBOL imputation. Specifically, we set the baseline as the ARC revenues from the most recent tariff period prior to the effective date of the CBOL imputation rule (tariff year 2015-16). Under this approach, a rate-of-return carrier’s CAF ICC support will be reduced by the ARC imputation on CBOLs only if a carrier’s maximum assessable ARCs and imputed CBOL ARCs falls short of the baseline amount,” the order says.

The change in the imputation requirement will take effect on July 1, the effective date for upcoming annual access tariff filings, the order says.

It notes that it rejects “the grandfathering approach suggested by NTCA. That approach raises unnecessarily complicated administrative issues with respect to the determination and verification of the number of stand-alone broadband lines in service on September 30, 2011. We also question whether a simple frozen number of lines is the best approach since some turnover would be expected over time.”

The order also clarifies “the [support] reduction amounts associated with the second disaggregation method.” While a table in the 2016 order indicated “a precise reduction ratio for each competitive ratio that was listed, it did not clearly reflect the intent of the Commission with respect to the reduction ratios that should apply to competitive ratios in between the specified competitive ratios.” A table in today’s order clarifies the ratios.

Finally, the order clarifies that the transition schedule for support reductions applies “where the CAF BLS subject to competitive overlap is 25 percent or more of total CAF BLS.” The 2016 order indicated the schedule would be used when the competitive overlap was more than 25%, in contrast to situations where the competitive overlap was less than 25%, but did not indicate the treatment for areas where the competitive overlap was exactly 25%. —Lynn Stanton, [email protected]

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