In just under a year since the Federal Communications Commission (FCC) issued the USF/ICC Transformation Order setting forth major reforms to its telecommunications funding and compensation systems, the multi-year reform process continued amidst judicial and regulatory challenges. This post examines how these reforms evolved over the last year through modifications to the Order clarifying various legal, technical, and logistical issues.

A year ago, the FCC expanded its Universal Service Fund (USF) programs, which promote universal availability of communications services, in order to provide funding for broadband in addition to voice service. It did so by transitioning certain USF programs to the new Connect America Fund (CAF), which provides funding to connect rural Americans to mobile and fixed broadband.

It also overhauled the intercarrier compensation (ICC) system, which regulates compensation between telecommunications companies for carriage of telecommunications traffic, through reforms to curtail arbitrage practices and by adopting new pricing arrangements. The FCC adopted a new national “bill-and-keep” framework, in which each network agrees to terminate calls from other networks at no charge for all local telecommunications traffic.

In the wake of the USF/ICC Transformation Order, the Commission faced judicial challenges:

  • Numerous stakeholders brought judicial appeals challenging various aspects of both the USF and ICC reforms in the Order.  Those appeals are currently pending before the U.S. Court of Appeals for the Tenth Circuit.
  • The FCC moved to hold in abeyance the appeals pending resolution of petitions for reconsideration filed with the FCC following the Order’s release, but the Tenth Circuit denied the motion on July 11, 2012 ― citing the FCC’s failure to provide a timetable for resolving those petitions.
  • The Tenth Circuit is moving forward with the appeals, as set forth in the schedule released in its Amended First Briefing Order dated August 8, 2012, the Second Briefing Order dated September 4, 2012, and the Third Briefing Order dated September 21, 2012.
  • Pursuant to the Briefing Orders, the Petitioners filed an Uncited Joint Preliminary Brief on Sept. 24, 2012 containing no argumentation.

Following legal and regulatory challenges, such as petitions to reconsider, the FCC modified the USF/ICC Transformation Order, clarified a number of issues arising out of it, and marked its progress:

  • The Commission upheld the 2008 InterCall Order by denying pending petitions for reconsideration. The InterCall Order clarified that audio bridging services are equivalent to toll teleconferencing services, and providers of such services must contribute directly to the USF based on their end-user revenues from these services. (2008 InterCall Order Upheld)
  • The FCC released a Second Order on Reconsideration modifying and clarifying rules related to topics that were the subject of petitions for reconsideration. Price-cap carriers that choose to accept CAF incremental support will be required to deploy broadband to a certain number of unserved locations, but carriers are allowed to be credited for deploying broadband to carrier-certified unserved locations even though such locations are identified as served on the National Broadband Map. With regard to ICC, local exchange carriers will be permitted to tariff for originating intrastate toll VoIP traffic at intrastate rates until June 30, 2014. (USF/ICC Transformation Second Order on Reconsideration)
  • The Commission released a Third Order on Reconsideration, addressing many of the outstanding issues on which numerous rural associations requested clarification or reconsideration, including certain aspects of USF reporting obligations, support adjustments for carriers with artificially low local rates, and issues related to support for carriers serving Alaska. The most substantive change adopted is to move the annual USF reporting requirements from April 1st to July 1st of each year. (USF/ICC Transformation Third Order on Reconsideration)
  • The FCC’s Wireline Competition Bureau issued an order clarifying the transition of ICC rates and the calculation of recovery adopted in the USF/ICC Transformation Order. (Wireline Competition Bureau Order)
  • The Wireline Competition Bureau clarified certain rules relating to the initial phase of the CAF in order to assist the price cap carriers that shortly would be making their election to accept additional funding to spur broadband deployment. (The Connect America Fund Phase I Clarification Order)
  • The Wireline Competition Bureau estimates that the reforms in the USF/ICC Transformation Order have already generated approximately $42.75 million in savings to the Universal Service Fund thus far in 2012. (Lifeline Program Savings Public Notice)