Small Carrier Trends for 2017

CCG LogoFollowing are the most important trends for small carriers to keep an eye on in the new year.

Now or Never for Big Broadband Funding. There is a huge tug-of-war going on right now behind the scenes for how the new administration ought to meet its goal to spend a trillion dollars on infrastructure. Nowhere is this battle more apparent than with broadband. On the one hand there are bills being proposed in Congress that would hand out broadband grants in much the same manner as was done during the stimulus a few years back. On the other extreme is the idea that this spending should be done only through public / private partnerships, and thus infrastructure spending will be prodded through tax incentives and perhaps even a National Infrastructure Bank.

The direct grant approach could promote the construction of a lot of new fiber by small carriers and communities. As I’ve written before, tax incentives are not likely to promote much investment in rural fiber. And private money is still going to want to chase only those projects with demonstrated low risks – and rural fiber does not meet that requirement. It will probably be clear by the end of the first quarter which of these approaches we might actually see, but my money is on the tax incentive path.

Rural Copper Will Come Tumbling Down. Verizon and AT&T are going to leap on the opportunity of a weakened FCC and will be tearing down rural copper as fast as they can. There has been a leak from inside AT&T that discussed reducing staff by tens of thousands in the coming year and that is only going to be possible by eliminating swaths of copper networks. Both companies will offer much more expensive wireless options to replace the copper. This will open up opportunities for those able to compete in the areas losing copper.

Big Carriers Will Get More Aggressive. The talk at the federal level is all about reducing regulation. In real life that is going to translate into the big telcos and cable companies being emboldened to use their resource advantages to try to squash competition. This could mean price wars with small fiber-overbuilders or a slew of new laws being passed to make it hard or impossible for municipalities and other fiber start-ups to compete with them.

Broadband Price Increases Begin. While the FCC has promised that Title II regulation was not going to be used to regulate prices, the big ISPs saw the FCC looking hard at practices like data caps and zero-rating. As Title II regulation is reversed, or the FCC weakened, I think we will see the big ISPs feeling free to start raising data rates in the same manner they used to raise cable TV rates. Some of this will be direct rate increases, but you can expect to see indirect revenues coming from ancillary fees that look like they might be taxes or from data overage plans for data caps. This may open upm the possibility for data rate increases for small carriers.

No Assurance of Future Subsidies. Subsidies for telephone companies have been drastically pared over the last decade. But there is still significant funding from access charges, the Universal Service Fund and other forms of subsidy that I think are now at risk. I expect a major reexamination of the whole concept of Universal Service and that could mean anything from a total re-write on how the funds are spent or even the elimination of USF, something a number of members of Congress have always supported. If you rely on subsidies, this is the year to create a plan for living without them.

Speed, Speed, Speed. Customer demand for speed and total utilized bandwidth is still growing at a torrential pace and is not likely to slow down. Carriers should have plans for eliminating bottlenecks in your network to make sure you can deliver what customers want. And you should be considering across-the-board speed increases if your current data product speeds are below market expectations.

Lifeline Accountability

USAC LogoUSAC, the group that administers the Universal Service Funds, has started testing a program that is designed to stop people from requesting multiple subsidies from the Lifeline program.

The lifeline program provides a discount of $9.95 from telephone bills for low-income consumers. A consumer is eligible for Lifeline if they a earn less than 135% of the federal poverty level or if somebody in the household participates in any of a number of assistance programs such as Medicaid, Food Stamps, Section 8 housing, low income home-energy assistance, Head Start and various tribal and state programs.

The way this works is that the telephone company providing the service gives the discount to the consumer and then collects the funds from USAC out of the Universal Service Fund.

A consumer can elect to get the discount from either a home telephone or a cellular phone account, but cannot collect from both. Apparently there is a lot of concern in Washington that people are collecting the discounts for both a landline and a cell phone, because the FCC has instructed USAC to put together a program to make certain that people don’t collect multiple benefits.

And so USAC is currently implementing the National Lifeline Accountability Database (NLAD). Carriers who participate in the lifeline program are required to input data about each lifeline customer including the last four digits of their social security number or their tribal ID and their date of birth. The carrier also has to provide the full address for each customer and this address will then be verified by USAC using the USPS database of valid addresses. Expect big problems in this area because rural addresses are often very erratic in the USPS databases.

As you might imagine, many carriers don’t ask for things like the date of birth when somebody gets telephone service, so they are now scrambling to get the needed information from their customers.

States are being added to the NLAD in groups. The first group of states now entering data includes Arkansas, Maryland, Louisiana, Oklahoma and Washington. Already some states have opted out of the NLAD database including Puerto Rico, Oregon, Texas, California and Vermont. Those states are going to have to come up with some version of this database of their own or else carriers in those states will lose Lifeline funding.

There is no fee to use the database, but use of it is mandatory if a carrier wants to collect from the Lifeline fund. The real cost is in the effort of each carrier to implement and keep this database current – another unfunded mandate.

I suppose that this process will turn up some cheaters and they will be asked to pare back to just one Lifeline subsidy. But one has to wonder how many customers might have been given the discount by multiple carriers without even knowing that this is not allowed? And one might suspect that there are somewhat shady carriers who are collecting the payments from the Lifeline fund without giving the discount to a customer, or possibly even having a customer. I would not be surprised to find some carriers collecting Lifeline for customers who died years ago.

I hope the FCC publishes the result of what they find through this database. As much as I hate waste and fraud, one has to wonder of the cost of implementing this kind of red-tape process is worth it compared to any savings that will be achieved through eliminating duplicate payments. These kind of processes end up becoming permanent new requirements for carriers and make it just that much harder to do business.

It’s Still a Regulated World

It seems like every few weeks I have a conversation with a carrier and in the course of conversation I find out that they are not in compliance with some regulation or another. It seems like a lot of companies that sell VoIP services, in particular, think that somehow that makes them immune from regulation.

But regulation has not gone away. If you bill an end-user customer for a voice, data or video product then there are regulations that you have to comply with. If you are an ISP for other entities, even if those entities are large, you are subject to some regulation. The only category of carrier that might not be subject to regulation is what I call a carrier’s carrier, and who only serves other carriers as customers. And in some states even they are subject to regulation.

It matters that you follow the rules. It seems like regulators at both the state and the federal level are getting surly about offenders and there some big fines being handed down to carriers who ignore regulation. I think the cost of compliance is cheaper than the cost of getting caught.

Here is a sample of the kinds of federal regulations that we see carriers ignoring. There are other state requirements that are also being ignored:

  • CALEA. There are significant obligations to be read to immediately give access of your customer’s voice and data records to law enforcement. You must have a manual filed that describes the processes.
  • CPNI / Privacy. You must have a manual and processes describing how you will protect your customers’ privacy.
  • Red Flag. You must have a manual and processes in place to demonstrate how you will protect your customers from identity theft.
  • Net Neutrality. There is very specific information about your company, your products, your network and your technology that you must inform customers about.
  • 21st Century Communications Video Accessibility Act. You must file a plan on how you will help disabled customers get access to voice, video and data products.
  • Universal Service Contributions. We find carriers that should be contributing to the USF fund who are not. The fines for getting caught for this can be huge.

I told my readers that I wasn’t going to write too many blog entries that are direct sales pitches for CCG services. I will admit that many of my blogs hint at the services we offer, but the main intentions of these blogs is to discuss issues for carriers that I think they will find to be useful. But in many cases CCG is able to help clients with a lot of the topics discussed in my blog.

CCG has three regulatory products that make it easy for anybody to stay in compliance with the rules. We have many clients who use CCG as their regulatory arm and many have said that it’s far cheaper to use us than to do it themselves. Here are the three products you ought to consider if you want to hand make sure that you are in compliance with the regulatory side of the business.

Regulatory Assessment. We will do a one-time assessment of your business and tell you every regulation that we think applies to you. Why guess if you are in compliance. For a modest fee we will make a list.

Regulatory Compliance Monitoring Service. In this service we develop a calendar for your company and we remind you of every regulatory deadline you must meet during the year.

Regulatory Compliance Filing Service. If you want it, we can create all of the needed paperwork and manuals, fill out the quarterly and annual forms and file everything for you. We think we have some of the best prices in the market for this kind of work.

If you want help to get into regulatory compliance or stay incompliance, give Terri Firestein of CCG a call at (301) 788-6889. We can help you take regulatory worries off your plate.

Regulatory Alert: Cap on USF Fee Charged to End Users

Seal of the United States Federal Communicatio...

Seal of the United States Federal Communications Commission. (Photo credit: Wikipedia)

In a footnote to WC Docket No. 13-76, adopted and released March 26, 2013, In the Matter of July 2, 2013 Annual Access Charge Tariff Filings (establishes procedures for the 2013 filing of annual access charge tariffs and Tariff Review Plans) the FCC reminds carriers of the requirement to apply FCC rule 47 C.F.R. §54.712 where applicable.

The footnote references 47 C.F.R. §54.712 :

Contributor recovery of universal service costs from end users.

(a) Federal universal service contribution costs may be recovered through interstate telecommunications-related charges to end users. If a contributor chooses to recover its federal universal service contribution costs through a line item on a customer’s bill the amount of the federal universal service line-item charge may not exceed the interstate telecommunications portion of that customer’s bill times the relevant contribution factor.

We believe that some contributors to federal USF that want to recover their contribution costs through a line item on a customer’s bill are going to have a problem complying with this Rule. We can think of two circumstances that may place a carrier in violation of this Rule:

  1. If a carrier has tariffed a Subscriber Line Charge (SLC) in their FCC interstate access tariff and bills it to their end users monthly that revenue is considered Interstate revenue. Carriers should ensure that the amount they are charging customers as a USF contribution recovery fee does not exceed the tariffed SLC charge times the current USF contribution factor (17%). The current 17% relevant contribution factor is higher than it was in past years so carriers should look at this again as the contribution factor changes.

For example, if your SLC charge is $4.00, then the most you could charge for a USF fee to end users based upon that amount is $4.00 X 17% = $0.68. So do the math and compare your USF recovery fee to 17% of your SLC charge. If the USF recovery fee exceeds that amount you have a problem, which will be discussed below.

  1. Some CLECs opt to not tariff or bill its end users a SLC charge. Until recently, USAC required that these CLECs to impute a SLC charge for USF 499 reporting purposes and to report the revenue as 100% interstate revenue.

However, recently the FCC informed USAC that they could no longer require CLECs to impute the SLC and report it as interstate revenue. This means that CLECs that do not have a SLC charge in their access tariff, and who do not expressly charge a SLC on the bill do not have any customer revenue that can be explicitly assigned to the interstate jurisdiction absent measuring interstate long distance usage. In such a case, the CLEC can’t bill a USF recovery fee to a customer who doesn’t make any interstate long distance calls. And they can only charge a USF recovery fee up to 17% of whatever a customer does spend for interstate long distance calling.

This creates a dilemma for carriers who find themselves in either of the two circumstances mentioned above. How does one bill the USF fee to customers since every one of them has a different amount of Interstate usage?

One thing that is important to remember is that the FCC does not mandate that a carrier bill its end-user customers a USF contribution recovery fee. It is optional for a carrier to recover its USF contribution from its end users. In other words, a carrier may treat its USF contribution as an expense.

We believe this footnote was included in the March Order for a reason, that the FCC suspects there are carriers who are violating the rule. So you can expect USAC to be auditing contribution recovery fee calculations in the near future.

So, if you are in violation of this rule, what are possible solutions for getting back into compliance?

  1. Decide to not bill the USF surcharge to your customers and pay USAC out of your own pocket (not recommended).
  2. If you tariff and bill a SLC charge today you can increase it to make it large enough to cover the USF contribution (assuming your SLC is not capped).
  3. If you don’t tariff and bill a SLC consider putting one in your access tariff. This would require breaking it out on the end user bill as a separate line item. However, note that by doing this you would be increasing the amount of your USF contribution paid to USAC if you are a contributor. Or, if you are not a contributor today it could make you into one.
  4. Increase your local rates by an amount that would cover the USF contribution. This is probably the best solution, except for possible competitive consequences. However, if you discontinue the USF fee and raise rates by the same amount you will not be increasing the customers’ bills overall.
  5. Pass the USF fee onto only those customers who have enough interstate long distance usage to cover the USF fee. The trouble with this idea is that it is hard to do correctly and it also means you would be charging the largest USF fee to those who make the most long distance. That is probably not a great idea from a competitive perspective.

We recommend you review the USF fee you are billing customers and ensure it passes the FCC “test”. If you need help to do this review please contact Terri Firestein at (301) 788-6889.