Joint Board Recommendation USF Reform NARUC Winter Meeting February 2008 Ray Baum Commissioner Oregon Public Utility Commission State Chair USJB.

Joint BoardRecommendation

USF Reform

NARUC Winter Meeting February 2008

Ray BaumCommissioner

Oregon Public Utility CommissionState Chair USJB

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Growth in High Cost Fund threatens sustainability and burdens telecom consumers Total fund grew from $2.6B in 2001 to over $4B in 2007

Over $1B of growth due to increased payments to CETCs

What’s the Problem?

ILECs

CETCs

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2001 2002 2003 2004 2005 2006 2007

$ b

illio

ns

3

Other rural states receive less than 10% of that amount

• Examples:

– Idaho: $0 Utah: $0.3m

– Missouri: $0.1m Tennessee: $1.5m

= $1.9 million

What’s the Problem? (continued)

CETC support distribution is skewed heavily toward a few states and is unrelated to need Top ten states (exclusive of Alaska & Puerto Rico)

receive almost 45% of CETC support• Examples:

– Mississippi: $140m Wisconsin: $51m

– Kansas: $55m Washington: $44m

= $290 million

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Broadband services are not explicitly supported despite need in many unserved areas

What’s the Problem? (continued)

Current mechanism encourages duplicative networks/subsidizes competition, while many rural areas remain without wireless service

CETC support is based on costs of incumbents

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Background

3.Public Notice - Comments on reverse auctions, use of GIS technology, disaggregation of support and support for broadband, etc.

May 2007 Recommended Decision –

1.Emergency/interim cap--Limits growth in high cost support to competitive eligible telecommunications carriers (CETCs) to 2006 level

2.Committed to comprehensive high-cost USF reform by November 2007

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Background (continued)

January 29 NPRM – FCC seeks comment on Recommended Decision

Sept. 2007 Public Notice

1. Support for voice, broadband and mobility

2. Comprehensive reform: cost control, accountability, state participation, and infrastructure build-out in unserved areas

November 2007 Recommended Decision – Board’s long-term reform proposal released

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Objectives

Avoid increasing financial burden on consumers

Universal availability of broadband and mobility services

Universal availability of wireline voice services at affordable and comparable rates

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Objectives (continued)

Strengthen state-federal partnership

Increase effectiveness of funding; avoid duplicative support and eliminate subsidization of competition

Eliminate equal support rule and explore alternative distribution mechanisms, e.g. competitive bidding

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Key Elements of Proposal

Separate distribution mechanisms, funding allocations, and caps for each fund

Cap total high-cost funding near current level ($4.5 B)

Transition to three new funds

Provider of Last Resort (POLR)MobilityBroadband

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Key Elements of Proposal (continued)

Explicit support for broadband and mobility services

Distribute support to only one provider per fund in given area

Target funds to extend mobile and broadband infrastructure into unserved areas

Eliminate equal support rule for CETCs

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POLR Fund

Recommend FCC develop new unified POLR mechanism to apply to all ILECs

High cost support for wireline providers of last resort (initially ILECs)

Sum of all existing ILEC support mechanisms

Board unable to reach consensus on specific changes to legacy mechanisms

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POLR Fund (continued)

“Rural” and “non-rural” company distinctions

Some costs are not recognized, e.g. transport

Cost averaging across wide areas vs. wire centers

Non-regulated revenues not reflected

Drawbacks of current ILEC support mechanisms

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Mobility Fund - Purpose

Primary purpose

Expand availability of wireless voice services to unserved areas, focus on populated unserved rural areas and public safety concerns

Secondary purpose

FCC to seek additional comment on whether to expand availability to underserved areas where service is not reliable

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Mobility Fund – Support Type

Funding should decrease as build-out occurs

Primary support type

One-time, project-specific grants for construction of new wireless facilities

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Mobility Fund - Distribution

FCC determines allocations to each state (unserved population, highway miles, etc.)

USAC processes and audits funds

State cannot exceed allocation

States develop and publish maps of unserved areas

States award support based on federal standards and accountability safeguards; options (RFPs, reverse auctions, etc.)

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Mobility Fund - Recipients

Eligible Recipients

Eligibility rules specific to fund to be established

Only one carrier supported for wireless services per geographic area/project

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Broadband Fund - Purpose

Primary purpose

Expand availability of broadband internet services to unserved areas

Secondary purpose

Enhance broadband services in areas with substandard service

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Secondary support type

Ongoing support for expenses in areas where subsidy is required for continuing operations

Broadband Fund – Support Type

Primary support type

One-time, project-specific grants for construction of new broadband facilities

Funding should decrease as build-out occurs

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Broadband Fund - Distribution

FCC determines allocations to each state (based on number of residents without broadband, etc.)

State cannot exceed allocation

States develop and publish maps of unserved areas/stimulate demand

States award support based on federal standards and accountability safeguards; options (RFPs, reverse auctions, etc.)

USAC processes and audits funds

Focus on high-cost areas of non-rural carriers

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Broadband Fund - Recipients

Eligible Recipients

Eligibility rules specific to fund to be established

Only one carrier supported for broadband services per geographic area (includes ILECs, cable, satellite, wireless broad, etc.)

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Funding Levels - Caps

Total cap of $4.5 billion (approx. 2007 level) Excludes any new support ordered in response to

Tenth Circuit Remand in Qwest II

Mobility Fund cap = $1 B (Jt. Board’s May 2007 decision recommendation)

POLR Fund cap = $3.2 B (2007 ILEC level)

Collection of funds targeted to constant $4.5 B annual total; not based on variable forecasts of support as currently

Broadband Fund (initial) = $0.3 B

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High Cost Fund Changes

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

In B

illio

ns

POLR Mobility Broadband

Proposed Levels

$1.0

$3.2

$0.3

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

In B

illio

ns

ILECs CETCs

Current Levels

$1.3

$3.2

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More on Funding

State Matching Funds

For broadband and mobility funds

Base funding level; supplemental funding available if state provides matching funds

Broadband Funding

Available support can accumulate from year-to-year if unspent

Will grow as other funds decrease

RUS monies also available for broadband expansion in RLEC areas

Avoid duplication of funding

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Issues for Further Comment

Compliance with federal law

MoreIssues Allocation of funds among states

Identification of unserved areas

Definition of broadband

Impacts on Lifeline/LinkUp

Implementation, transition and review

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FCC Actions

FCC released RD for comment on January 29, along with two other NPRMs

Elimination of identical support rule; support to CETCs based on own costs

Reverse auctions to determine support

No FCC order on interim cap to date

Approximately 50% wireless support capped at June 2007 levels via merger/sale conditions (Alltel, AT&T/Dobson); Verizon/RCC (pending)

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FCC Actions (continued)

Reply comments due 60 days after publication

Comments due 30 days after publication in Federal Register

Will any action be

taken before

elections?

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