In an Order in Docket 10-90 (“Order”) released on December 14th, the FCC determined that Pineville Telephone Company (Pineville) in North Carolina is subject to a 100 percent overlap by an unsubsidized competitor offering competing voice and broadband services. Therefore, pursuant to the Commission’s rules, universal service support payments for Pineville will be frozen and phased out over a two-year period, beginning January 2016.   

For proponents of increased competition as a way to limit universal service dollars, this is extremely disappointing since, on July 29, 2015, the Commission published a preliminary list of 15 rate-of-return carrier study areas subject to a 100 percent overlap by an unsubsidized competitor or combination of unsubsidized competitors. Here was the original list:

Return Study Areas Subject to a 100 Percent Overlap by an Unsubsidized Competitor or Combination or Unsubsidized Competitors

Study Area Code          State           Study Area          Competitive Provider(s)

100020                                 ME             Pine Tree Tel             Time Warner

160135                                 NJ               Warwick                    Service Electric Cable   

170175                                 PA              Ironton Tel                Service Electric, RCN

210330                                 FL               Smart City                Orlando Tel, others

230494                                 NC              Pineville                    Time Warner

310737                                 MI               Winn                           CMSInter.Net

310777                                 MI               Ace Tel                       COLI, Cheery Capital

320790                                 IN               Monon Tel                Comcast, Transworld

330896                                WI              Lakefield                    Mercury, Time Warner

411791                                KS              La Harpe                    JMZ, Cox

452200                                AZ              Fort Mojave              Transworld, Suddenlink

462178                                CO              Agate Mutual           Kellin

532373                                OR              Gervais                      McMinnville, WaveDiv.

532386                                OR              Mt. Angel                  McMinnville, WaveDiv.

532396                                OR              St. Paul Coop          McMinnville, DataVis

This list of companies arose from the FCC’s 2011 Cost America Fund Order. In that Order, the Commission adopted a rule to eliminate high-cost universal service support in ILEC study areas where an unsubsidized competitor or a combination of unsubsidized competitors offers voice and broadband services throughout an entire study area. The Commission defined an unsubsidized competitor as “a facilities-based provider of residential fixed voice and broadband service that does not receive high-cost support.”

The Commission sought comment on a proposed methodology for determining whether a study area is 100 percent overlapped by an unsubsidized competitor and directed its Wireline Competition Bureau to publish a finalized methodology for determining areas of overlap and a list of companies for which there is a 100 percent overlap. 

The methodology was based on FCC Form 477 which lists carrier facilities deployment on a census block data. Once the Commission determined the actual study areas, it published the list of study areas in which an ILEC competitor is providing unsubsidized services. That is the preliminary list shown above.

Earlier this year, The Commission requested industry comments on this preliminary determination from both ILECs and unsubsidized competitors. Specifically the Bureau asked competitors to address whether they offer, to all locations within the census blocks reported on Form 477 and which overlap the incumbent’s study area, the following: (1) fixed voice service at rates under the 2015 reasonable comparability benchmark of $47.48 and (2) fixed broadband service at an actual downstream speed of at least 10 Mbps and an actual upload speed of at least 1 Mbps; with latency suitable for real time applications, including Voice over Internet Protocol; with usage capacity that is reasonably comparable to offerings in urban areas; and at rates that are reasonably comparable to those in urban areas.  According to the Commission:

[W]e would treat a declaration by a competitor that it is offering service as specified above throughout the blocks reported on Form 477 and within the study area as persuasive evidence that we would consider in our final determination. We also stated that, absent such a submission from a competitor, we would not be in a position to make a final 100 percent overlap determination for the affected rate-of-return carrier because we would not know whether all locations in the study area in fact are served. In addition, [we] invited rate-of-return carriers identified on the preliminary list of 100 percent overlapped study areas to submit evidence that an unsubsidized competitor does not offer service to all locations in the census blocks identified in the Public Notice. Seven of the 19 competitors and 12 of the 15 ILECs listed in the table above filed comments in response (Order, at para. 4).

Based on the information it received in response to the preliminary determination, the Commission determined that only Pineville Telephone Company faces 100 percent overlapping competition.  Competitors did not submit sufficient evidence to find any of the other study areas to be 100 percent overlapped.  

Why is this incredibly disappointing for those of us concerned about rising universal service costs? Just ask FCC Commissioner Michael O’Rielly:

After hovering around the 16% mark throughout 2014 and 17% this year, the USF contribution factor tacked onto a portion of everyone’s telecom bills jumps past 18% to kick off 2016. And with an unrestrained expansion of Lifeline plus an expansion of USF fees to broadband consumers at the top of many wish lists, who knows how much deeper Americans will have to dig into their pockets by next December? The entire situation is clearly unsustainable (Statement by Commissioner O’Rielly released December 11, 2015). 

2016 is clearly going to be the year in which the Commission will have to make several crucial USF decisions.  Will it keep the same contribution methodology? Will broadband providers be required to contribute to the fund?  Will Lifeline be expanded? As Commissioner O’Rielly notes, the status quo cannot continue much longer.

By Andy Regitsky, CCMI