summary of usf icc reform - part v icc reform
TRANSCRIPT
S f USF & ICCSummary of USF & ICC Reform Order & FNPRM
Part V – Intercarrier Compensation Reform & FNPRM Proposals
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ICC REFORM• Underlying PrinciplesUnderlying Principles
o Phase out of per minute ICC chargeso Migrate to bill and keepg po Promote the transition to IP networkso Provide a more predictable path for the industry and investors
o Eliminate hidden subsidies in current system
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ICC REFORM• FCC Conclusions on Bill & KeepFCC Conclusions on Bill & Keep
o Market based & less burdensome than alternativeso Consistent with cost causation principlesp po Consumer benefits through reduced rates and/or improved service quality
o Eliminates arbitrage & market distortionso Appropriate even if traffic is imbalancedo Legal authority under Section 251(b)(5)o Legal authority under Section 251(b)(5)
Only applies to “termination” Interstate and Intrastate switched access
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ICC REFORM• State Role in Bill & KeepState Role in Bill & Keep
o Oversee tariffing of intrastate rate reductionso Interconnection negotiation and arbitrationgo Determination of network edge for purposes of bill and keep
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ICC REFORM – ORDER (ROR)• Transition terminating switched access to billTransition terminating switched access to bill and keepo Cap all interstate switched access ratesp
Effective 12/29/11 Originating and terminating
– End Office Access Service– Tandem Switched Transport Access Service– Dedicated Transport Access– Other interstate switched access rate elements
C i C Li li bl» Carrier Common Line, as applicable» Information Surcharge
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ICC REFORM – ORDER (ROR)• Transition terminating switched access to billTransition terminating switched access to bill and keepo Cap intrastate switched access ratesp
Effective 12/29/11 Terminating only
– End Office Access Service– Tandem Switched Transport Access Service
Includes reciprocal compensation No adjustment required/allowed if intrastate is already lower than interstate
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ICC REFORM – ORDER (ROR)• Transition terminating switched access andTransition terminating switched access and reciprocal compensation to bill and keepo Step 1 (July 1, 2012) – 50% transition to interstatep (J y )
May maintain intrastate switched access rate structure; or Apply interstate rate structure for intrastate rates
– Immediately migrate to interstate rates– Apply a transitional rate equal to 50% of the difference
o Step 2 (July 1, 2013) – 100% transition to interstate
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ICC REFORM – ORDER (ROR)• Transition terminating switched access andTransition terminating switched access and reciprocal compensation to bill and keepo Step 3 (July 1, 2014) – 1/3 of difference between p (J y ) /interstate and $0.005
o Step 4 (July 1, 2015) – 2/3 of difference between interstate and $0 005interstate and $0.005
o Step 5 (July 1, 2016) –$0.005
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ICC REFORM – ORDER (ROR)• Transition terminating switched access andTransition terminating switched access and reciprocal compensation to bill and keepo Step 6 (July 1, 2017) – 1/3 of difference between p (J y ) /$0.005 and $0.0007
o Step 7 (July 1, 2018) – 2/3 of difference between $0 005 and $0 0007$0.005 and $0.0007
o Step 8 (July 1, 2019) – terminating switched end office access rates @ $0.0007
o Step 9 (July 1, 2020) – bill and keep Tariff filings to remove charges for Terminating End Office Access Charges
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Charges
ICC REFORM – ORDER (ROR)• Other IssuesOther Issues
o Reforms do not automatically replace existing contracts or interconnection agreements Left to “change of law”, renegotiation and termination clauses in agreements
o Originating Access left to FNPRM, beyond capg g y po Transport (originating and terminating) left to FNPRM, beyond cap
fo Other rate elements left to FNPRM, beyond cap
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ICC REFORM – ORDER (ROR)o Eligible Recoveryo g b e ecove y
Rate of Return Baseline2011 Interstate Switched Access Revenue Requirement*
+ 2011 Intrastate Switched Access Revenues+ 2011 Intrastate Switched Access Revenues+ 2011 Net Reciprocal Compensation Revenues‐ 5% annual reduction
o Recovered from 3 sources Intercarrier Compensation RevenuesA R Ch (ARC) Access Recovery Charge (ARC)
Connect America Fund (CAF)
* R i t b itt d t NECA f 2011 t iff fili
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* Revenue requirement submitted to NECA for 2011 tariff filing
ICC REFORM – ORDER (ROR)o Access Recovery Charge (ARC)o ccess ecove y C a ge ( C)
Residential & SLB = $0.50/year for up to 6 years for a max of $3.00
MLB = $1 00/year for up to 6 years for a max of $6 00 MLB = $1.00/year for up to 6 years for a max of $6.00– SLC + ARC may not exceed $12.20
Local Rate + SLC + EAS + Surcharges + ARC ≤ $30.00R id ti l b h k f SLB & MLB– Residential, no benchmark for SLB & MLB
ARC is not mandatory, but will be imputed for CAF– Carriers that forego recovery in 1 year may not recover in f tfuture years
ARC may not be assessed on Lifeline customers ARC may be determined at the holding company level
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ICC REFORM – ORDER (ROR)o Connect America Fund (CAF) supporto Co ect e ca u d (C ) suppo t
Eligible Recovery‐ Intercarrier Compensation RevenuesA R Ch R‐ Access Recovery Charge Revenue
= CAF Support
Phases down over time as Eligible Recovery is reduced by 5% each year
Obligation to deploy broadband upon reasonable request as a condition of ICC CAF
CLECs not eligible for ICC CAF
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ICC REFORM - ORDER• Monitoring ComplianceMonitoring Compliance
o Annual filing of the following data ICC Rates Revenues Expenses Demand for the preceding fiscal year
• Waiver RequirementsSi il t USF R f i i to Similar to USF Reform waiver requirements Total Cost and Earnings Review, including non‐regulated Carriers face a “heavy burden”
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ICC REFORM - ORDER• VoIP Traffic – originates/terminates in IPVoIP Traffic originates/terminates in IP formato All VoIP to PSTN traffic under section 251(b)(5)o Toll VoIP to PSTN = Access
Originating and Terminating Rates may be tariffed (state or interstate), or; Interconnection agreement (preferable to tariffs)
– Subject to arbitration by the State PUC Traffic subject to VoIP access may be set as the % of VoIP customers in the statecustomers in the state
o All other VoIP to PSTN = Reciprocal Compensationo Blocking of VoIP traffic is precluded
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ICC REFORM - ORDER• CMRS‐LEC CompensationCMRS LEC Compensation
o Non‐access = Bill and Keep Interim transport rule for Rate of Return carriers
– CMRS chosen interconnection point within LEC territory– LEC responsibility stops at the meet point if CMRS chosen interconnection point is outside LEC territory
Existing interconnection agreements remain in effect
o IntraMTA rule applies to all traffic originated/ terminated within the same MTAterminated within the same MTA Not CLEC transiting traffic Reciprocal compensation applies
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IMPACTS ANALYSIS - ORDER
65 C C S d A• 65 Cost Company Study Areas• ≈ 310,000 Access Lines (2012)
$• ≈ $200M in 2012 USFo ≈ $25M in LSS$75M i 2012 IS SW R R i• ≈ $75M in 2012 IS SW Revenue Requirement
• ≈ $ 35M in 2012 ST SW Revenue
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IMPACTS ANALYSIS - ORDERICC Reform Impacts Implementation Total ImpactAnnual ImpactICC Reform Impacts Implementation Total Impact(65 Companies) Date 2012 2013 2014 2019 2012 ‐ 2019Intrastate Terminating ICC Reductions 7/1/2012 (2,699,636) (5,909,823) (10,032,373) (11,115,987) (74,174,663) Interstate Terminating ICC Reductions 7/1/2014 ‐ ‐ (1,032,675) (6,205,886) (26,483,645) Access Recovery Charge (ARC) 7/1/2012 1,105,135 3,255,082 5,285,975 9,082,028 51,759,559
d / /
Annual Impact
• CAF support declines in later years due to growth in ARC and
Connect America Fund 7/1/2012 14,492,777 31,192,639 32,274,589 24,489,310 217,829,632 Interstate TS Settlement Reductions 7/1/2012 (12,148,915) (26,107,633) (26,724,392) (27,531,745) (203,149,763) Total 749,362 2,430,264 (228,876) (11,282,280) (34,218,880)
CAF support declines in later years due to growth in ARC and reduction in Eligible Recovery.
• Interstate TS Settlement Reductions are the combination of the elimination of LSS and the 5% productivity factorelimination of LSS and the 5% productivity factor.
• Some impacts appear positive due to cost reductions > 5% productivity factor.
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IMPACTS ANALYSIS - ORDERICC Reform Impacts ‐ Average Implementation Total ImpactAnnual Impactp g p p(65 Companies) Date 2012 2013 2014 2019 2012 ‐ 2019Intrastate Terminating ICC Reductions 7/1/2012 (41,533) (90,920) (154,344) (171,015) (1,141,149) Interstate Terminating ICC Reductions 7/1/2014 ‐ ‐ (15,887) (95,475) (407,441) Access Recovery Charge (ARC) 7/1/2012 17,002 50,078 81,323 139,724 796,301 Connect America Fund 7/1/2012 222 966 479 887 496 532 376 759 3 351 225
p
• Impacts do not appear “crippling” and phase in over time
Connect America Fund 7/1/2012 222,966 479,887 496,532 376,759 3,351,225 Interstate TS Settlement Reductions 7/1/2012 (186,906) (401,656) (411,144) (423,565) (3,125,381) Total ICC Impacts 11,529 37,389 (3,521) (173,574) (526,444)
• Impacts do not appear crippling and phase in over time.• Opportunity to develop cost efficiencies and generate additional
revenue streams.G l ithi th i d t t b th t ICC f• General response within the industry seems to be that ICC reform is acceptable.
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ICC REFORM - FNPRM• Impacts of the Order appear acceptable but theImpacts of the Order appear acceptable, but the FNPRM asks some troubling questionso How should originating rates be transitioned to B&K?o What, if any, recovery is appropriate for originating access?
o Should there be a defined sunset date for the ARC?o Should there be a defined sunset date for the ARC?o How should eligible recovery be calculated after year 5?o Are SLCs set at the appropriate level or should they be eliminated?
o Should ICLS be eliminated?
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IMPACTS ANALYSIS - FNPRM• 65 Cost Company Study Areasp y y• ≈ 310,000 Access Lines (2012)• ≈ $200M in 2012 USF
o ≈ $85M in ICLSo ≈ $25M in LSS$75M i 2012 IS SW R R i• ≈ $75M in 2012 IS SW Revenue Requirement
• ≈ $ 35M in 2012 ST SW Revenue$ 26M i 2012 SLC R• ≈ $ 26M in 2012 SLC Revenue
• ≈ $1.1M in 2012 ARC Revenueo Grows to ≈ $9M during transition
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o Grows to ≈ $9M during transition
IMPACTS ANALYSIS - FNPRMICC Reform Impacts Implementation Total Impact(65 Companies) Date 2012 2013 2014 2019 2012 2019
Annual Impact(65 Companies) Date 2012 2013 2014 2019 2012 ‐ 2019Intrastate Terminating ICC Reductions 7/1/2012 (2,699,636) (5,909,823) (10,032,373) (11,115,987) (74,174,663) Intrastate Originating ICC Reductions 1/1/2013? ‐ (5,909,823) (10,032,373) (11,115,987) (71,475,028) Interstate Terminating ICC Reductions 7/1/2014 ‐ ‐ (1,032,675) (6,205,886) (26,483,645) Interstate Originating ICC Reductions 7/1/2014? (1,032,675) (6,205,886) (26,483,645) Access Recovery Charge (ARC) 7/1/2012 1,105,135 3,255,082 5,285,975 9,082,028 51,759,559 ARC Sunset (6 Years) 1/1/2019? ‐ ‐ ‐ (1,513,671) (1,513,671) Connect America Fund 7/1/2012 14,492,777 31,192,639 32,274,589 24,489,310 217,829,632 Interstate TS Settlement Reductions 7/1/2012 (12,148,915) (26,107,633) (26,724,392) (27,531,745) (203,149,763) Eligible Recovery (10% Reduction) 1/1/2019? ‐ ‐ ‐ (2,500,000) (2,500,000)Eligible Recovery (10% Reduction) 1/1/2019? (2,500,000) (2,500,000) SLC Elimination (6 Years) 1/1/2019? ‐ ‐ ‐ (4,333,333) (4,333,333) ICLS Elimination (6 Years) 1/1/2019? ‐ ‐ ‐ (14,166,667) (14,166,667) Total 749,362 (3,479,559) (11,293,924) (51,117,823) (154,691,224)
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IMPACTS ANALYSIS - FNPRMICC Reform Impacts ‐ Average Implementation Total Impact(65 Companies) Date 2012 2013 2014 2019 2012 ‐ 2019
Annual Impact(65 Companies) Date 2012 2013 2014 2019 2012 ‐ 2019Intrastate Terminating ICC Reductions 7/1/2012 (41,533) (90,920) (154,344) (171,015) (1,141,149) Intrastate Originating ICC Reductions 1/1/2013? ‐ (90,920) (154,344) (171,015) (1,099,616) Interstate Terminating ICC Reductions 7/1/2014 ‐ ‐ (15,887) (95,475) (407,441) Interstate Originating ICC Reductions 7/1/2014? ‐ ‐ (15,887) (95,475) (407,441)
/ /Access Recovery Charge (ARC) 7/1/2012 17,002 50,078 81,323 139,724 796,301 ARC Sunset (6 Years) 1/1/2019? ‐ ‐ ‐ (23,287) (23,287) Connect America Fund 7/1/2012 222,966 479,887 496,532 376,759 3,351,225 Interstate TS Settlement Reductions 7/1/2012 (186,906) (401,656) (411,144) (423,565) (3,125,381) Eligible Recovery (10% Reduction) 1/1/2019? ‐ ‐ ‐ (38,462) (38,462) g y ( ) ( ) ( )SLC Elimination (6 Years) 1/1/2019? ‐ ‐ ‐ (66,667) (66,667) ICLS Elimination (6 Years) 1/1/2019? ‐ ‐ ‐ (217,949) (217,949) Total ICC Impacts 11,529 (53,532) (173,753) (786,428) (2,379,865)
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ICC REFORM - FNPRM
• Recommendationso Understand the revenues that you receive from each of these ICC sources
o Analyze the potential impacts on your company if there is significant change as a result of the FNPRMthere is significant change as a result of the FNPRM
o Consider filing comments with the FCC – they need to understand the implications of their proposals
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