www.gvnw.com better thinking. better results. where does my recovery come from? presented by: bob...
TRANSCRIPT
www.gvnw.com
Better Thinking.Better Results.
Where does my Recovery Come from?
Presented by:
Bob Schoonmaker
MTIA/ATA Annual MeetingAugust 9, 2011
1
Win, Lose, or Draw: Strategic Options for
Rural Carriers
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Overview• Review various elements of:
–RAG proposal/Consensus proposal–NPRM
• Discuss some implications and strategies
• General considerations
2
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Lower Rate of Return• Joint Plan proposal is for 10% rate of
return• Better than the 8.5% proposed by the
State Joint Board members• Impacts vary between companies
depending on mix of rate base and expenses
3
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Rate of Return-Implications• Interstate revenue requirement
reductions typically in 5% to 10% range• May have implications for future state
proceedings• Will typically reduce earnings levels
4
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Corp. Ops. Expense Limit• Current formula for HCL only• RAG proposal would extend it to all
elements of interstate • Formula – three step based on access
lines – adjusted for inflation
5
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Corp. Ops. Expense• Currently only impacts about 60 study
areas• Number of study areas likely to increase
in the future as access lines decrease
6
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Corp. Ops. Expense-Strategies• Monitor company position in
relationship to limits• Possibly more careful accounting to
correctly apply costs to other accounts
7
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Limits on Loop Gross Adds• RAG proposal component• Attempt to meet FCC staff concerns
about perceived “gold-plating”• Applies to loop plant only
8
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Basic Formula• Current investment – Loop plant
investment adjusted to current $’s• Multiply by ratio of loop depreciation
reserve to loop plant in service=Future allowable investment
• Allocate over five years – If investment for next year < allocated amount, all is included in USF calculation
9
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Other elements• Allowed 5% of existing loop plant in service for
maintenance related replacements, minor extensions
• Waivers for unusual situations• If loop plant is less than $4 million, all can be
replaced in one year• Greenfield plant adds in addition to formula• Exceptions for ARRA projects
10
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Gross Adds Limit-Strategies• If implemented:
– Familiarity with formula– Review depreciation rates for appropriate
levels– Plan projects over time to stay within limits– Careful accounting for “greenfield” additions
11
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CAF for ROR• Broadband Rev. Req.
– % BB take rate * Interstate CCL Req.– Middle Mile costs– DSL Rev. Req.– Loop cost shifted from state Rev. Req.– Less Benchmark * DSL lines
• LSS Support• Transitioned ICLS Support• Grandfathered HCL Support
12
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CAF for ROR details• BB Take rate
–DSL lines + naked DSL lines divided by–Access lines + naked DSL lines
• Middle mile costs–Cost for ISP to connect to Internet
backbone
13
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CAF for ROR details• Loop costs shifted from state
–Twelve year transition–BB take rate greater than 25%
• Transitioned ICLS – voice related–CCL * 1-BB take rate less–SLC * 1-BB take rate
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CAF for ROR details• Grandfathered HCL
– HCL based on current formulas less– Loop costs shifted from state
• Benchmark * DSL Lines– Benchmark has a variable component and a
fixed increasing component– Designed partly to meet budget constraints
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CAF for ROR - Strategies• BB Take Rate very important
– Shifts Rev Req from state to interstate– Impacts ICLS and HCL phase outs– No “hard cap” on CAF
• Broadband pricing• Customer education• Marketing Efforts
16
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Shift of Loop costs to Interstate• Very important over long term• 12 year transition• Reduces revenue requirement burden on
state as BB take rate increases• One company – eight years – 2/3
reduction in intrastate rev. req. with 75% BB take rate
17
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ICC Reform-Interstate• Interstate rates
– no greater than current adjusted for 10% return for two years
–Term local switching to $0.005 in two more years
–Term local switching to $0.0007 in three more years
18
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ICC Reform - Intrastate• Intrastate rates
– Match interstate transport rate structure-1st yr.– Term reduced to interstate in 2 years – Term switching reduced to $0.005 in two more
years– Term switching reduced to $0.0007 in three
more years
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RM - Interstate• Orig Switched Rev Req less billed for
originating• Term Switch Rev Req less billed for
terminating• (Possibly partial SLC increase offset)
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RM - Intrastate• Base Year billed terminating * % change
in interstate rev req.• Less billed for terminating• Less reduction for benchmark increases
(possibly split with interstate)• Less intrastate earnings over 10%
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RM – Benchmark Components• Components
–R1 rate–Mandatory R1 EAS charges–Federal SLC – R1–State SLC – R1–State USF surcharges – R1
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Benchmark - Strategies• Separate touch call rate – combine it
with local service• Possibly combine feature/custom
calling rates with local service• If rates are low – consider modest
increases
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RM – Benchmark Adjustments• Benchmark is $25• If components > $25 then no
adjustment• If components < $25, then $0.75
increase for six years ($4.50 max) or until benchmark is reached. (SLC increase or imputed)
24
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RM - Other• RM continues indefinitely (until future
change)• RM is revenue req. based for interstate
and pseudo rev. req. based for intrastate
• Provides a level of protection for lost minutes
25
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Support in competitive areas• RAG plan calls for competitor to initiate
proceeding at state PSC to prove level of competition.
• No specific procedure about how costs would be allocated within an exchange
• Still on the FCC staff and cable TV list of items
26
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Broadband Provisioning• Speed requirements and issues
–Upload vs. download–Specific speeds
• Serving “all” Americans–Cost limitations–Technology limitations in rural areas
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Broadband Provisioning-Proposals• ABC Plan – speed – 4 Mbps down, .768
Mbps up• ABC Plan – Cost restriction on serving
“all” in order to meet budget – remainder served through satellite
• NPRM – speed 4 down, 1 up• NPRM - $3,000 HCL loop cost limit
28
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Broadband Provisioning-Strategies• Engineer for minimum of 4 Mbps down,
.768 Mbps up• Market will likely want much more• Document costs to meet very remote
customers – look for technology alternatives
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Other items in NPRM• Limits on other operating expenses• Reverse auctions• Combine LSS with HCL• Phase out corp. op. expense completely• Change support percentages• Eliminate Safety Net additive
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Other items in NPRM• Eliminate parent trap rule• Limit per line on HCL recovery• Price cap instead of ROR• Increased accountability items
– File audited financials with FCC– File SEC and RUS reports with FCC– Report ICC revenues and expenses to FCC
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Summary• Still a lot of work to do• FCC and Congressional contacts need to
continue• Need to start planning for potential changes• Final order will likely be different to some
extent from proposal
32
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Definition of Broadband• “Broadband” will be a supported
service• What will “broadband” be defined as?• How to avoid Title I vs. Title II issues• Net neutrality order includes definition
which was determined to be Title I
33
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Net Neutrality Definition• (a) Broadband Internet access service. A mass-market
retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service. This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.
34
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Definition Implications• Need to distinguish between Title I
definition and limit to the transmission component which can be a Title II “telecommunications service”
• Rural CAF plan assumes “middle mile” costs will be part of USF and CAF.
35
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Fund Size Constraint• Very clear that constraining CAF to the amount
of existing high cost support is high priority to FCC
• Fund reductions:– CLEC phase-out– Wireless acquisition phase-outs– Interstate Access Support-phase out– Rural component reductions– Competitive Areas
36
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Fund Increases• Broadband support to lessen rural-rural
divide• Mobility (and satellite) fund• Broadband speed increases• Increase broadband coverage• Lifeline-Linkup increases• Access restructure mechanism
37
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Fund Size Implications• Limitations imposed by competing
interests• Difficulty of pricing out the future• Technology limitations• Conflicts between industry segments• Policy/political implications• Bias against wireline voice technology
38
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Transition to IP Networks• “Inevitable” technology change – more
efficient• Accelerate in next several years• Major changes
– Interoffice networks and interconnection–Last mile and telephone instruments–Numbering/addressing issues
39
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IP Transition-Implications• Switching needs, conversions, timetable• Interoffice trunking changes
–Transition network connections–Tandem switching changes
• Last mile–Customer instrument or NID changes
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