FCC Docket 10-90 - Rural ILECs Defend Current Authorized Rate-of-Return

By Andrew Regitsky, President, Regitsky & Associates

Industry reply comments were filed on August 27, 2013 regarding the Commission’s proposal to prescribe a new authorized rate-of-return (ROR) for the hundreds of small rural ILECs that are still regulated using the antiquated ROR methodology. The reply comments were in response to the Commission’s May 16, 2013 Public Notice which stated that a Commission preliminary analysis indicated that the current authorized ROR of 11.25 percent should be reduced to no more than 9 percent and probably should be in the range of 7.39 to 8.72 percent. Almost all reply comments (12 out of 14) came from rural ILECs, their trade associations and consultants. Not surprisingly, they trashed the Commission’s proposal.

For example, the state associations for states with large rural areas claimed that if their authorized ROR was reduced, they would be unable to deliver broadband services to customers. Moreover, the Commission’s analysis failed to account for the revenues lost as rural ILECs reduced intrastate access rates to mirror interstate rates as part of the restructuring of inter-carrier compensation rates.

It is becoming clear that as terminating access rates continue to decrease, with the next scheduled decrease on July 1, 2014, rural ILECs are going to actively oppose the FCC’s restructuring plan. If  NARUC wins its appeal of the FCC's Order (with oral argument scheduled for November), that will solve their problems since state commissions would presumably regain control over intrastate access charges and protect the revenues of their rural carriers. However, if NARUC loses, they would have to work stealthily to protect rural ILEC revenues possibly by attacking individual parts of the FCC’s plan. For example, they could claim that the Access Recovery Charge (ARC) is insufficient for rural ILECs, or they could argue that rural ILECs must recover all transport costs accrued when they move traffic to a terminating carrier’s network edge. While these are just some examples, you can bet that the best state commission minds are working on a whole bunch of ways to protect rural revenues, and that could slow the march to bill-and-keep.

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