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The FCC’s USF/ICC Reform proceeding continues to generate a steady stream of ex parte meetings between FCC staff and interested parties.  This is understandable.  The redistribution of  $4 to $5 billion annually in Universal Service Fund/Connect American Fund (“USF/CAF”) support (“Support”) and major changes in intercarrier carrier compensation (“ICC”) are at stake.

On August 3, 2011, the FCC released a Public Notice requesting comment on a number of matters, including three in-depth “plans” proposed by (1) State Members of the Federal-State Universal Service Joint Board (“State Plan”), (2) the proposals put forward by the Rural Associations (“RLEC Plan”), and (3) the “America’s Broadband Connectivity Plan” filed on July 29, 2011, by six Price Cap Local Exchange Carriers (the “Price Cap LECs”), including Verizon and AT&T (“ABC Plan”).  Comments on issues raised in the Public Notice are currently due on August 24, 2011.

The Joint Letter.  As the ABC Plan was filed, the six Price Cap LECs and the Rural Associations submitted a “Joint Letter” that reflects a series of compromises on major USF and ICC reform proposals; sets separate tracks for ICC/USF reform implementation for Price Cap LECs and Rural Rate of Return Carriers (“RLECs”), respectively; and emphasizes that the proposals in the Joint Letter should be viewed by the FCC as an integrated package. The Public Notice also elicits input on the Joint Letter.

USF Reform.  The prominent compromises in the Joint Letter include agreement that VoIP services that originate or terminate on the PSTN shall be subject to originating and terminating access charges; a reduction in the RLECs regulated interstate rate of return to 10% for purposes of calculating CAF/USF support (“Support”); a “budget” of $4.5 billion per year for Support beginning in 2012 and ending in 2017, plus $300M annually for the new Mobility Fund.  Support for RLECs would be $2.0B per year, including potential increases of $50M per year to compensate for access restructuring, to promote broadband buildout and to recover existing investment in broadband-capable plant. The Price Cap LECs would receive $2.2B annually in Support.  If needed, AT&T and Verizon would forego Support in their service areas for two years to meet all other Support and ICC restructuring obligations.  In the fifth year, the FCC would reassess the program.

ICC Reform.  The access restructuring proposal consists of two paths toward a uniform ICC rate of $0.0007.  For the Price Cap LECs, the reductions would be phased in over 5-years; for RLECs the phase-in period would extend for 8 years.  These glide paths are subject to the caveat that  “[t]o the extent . . . sufficient funding is not expected for any reason to be available to provide the necessary levels of high-cost support and/or intercarrier compensation restructuring for carriers in any given year, any and all reductions in intercarrier compensation rates shall be deferred until such sufficient funding is confirmed to be available.”

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The Public Notice reflects the FCC’s commitment to making an informed decision.  While many parties do not support elements of the Joint Letter, its submission reflects emerging areas of consensus on highly contentious issues, providing important reference points as the FCC staff crafts its decision.