With regard to USF changes, the Order adds broadband as a supported service for local providers, and seeks to continue this year's $4.5 billion targeted for USF high-cost programs for six more years, as a budget target. The Commission expects rate-of-return (RoR) carriers will receive approximately $2 billion per year in total high-cost universal service support through 2017.  The Order creates and migrates current support to the Connect America Fund (CAF). The CAF will have separate components for price cap RoR and wireless carriers, and in non-served remote areas. However, the mechanics behind how RoR carriers will receive CAF support are not final, and so the FCC will seek comment in the FNPRM sections of the Order.

 

Under the Order, RoR carriers migrating from legacy USF support to CAF support must offer broadband service with actual speeds of at least 4 Mbps/1 Mbps, upon their customers' reasonable request. To address what the FCC feels is the chance that providers have used their USF support to artificially keep local rates low, the Order also sets an annual "urban local rate floor" to lessen support on a dollar-for-dollar basis for RoR carriers whose local rates are under the floor.

 

The Order adopts specific measures to reduce today's high-cost support and limit corporate operations expenses by revising the formulas that calculates the corporate operations cap and applies the corporate operations expense cap to Interstate Common Line Support (ICLS). Per-line support will be capped at $250 per month, with a gradual phase-down over a three-year period commencing July 1, 2012.

 

Safety Net Additive (SNA) support has been eliminated and companies that currently receive SNA will be subject to an additional test to determine if their SNA will be phased out or if they will continue to draw under the current rules. The Order also seeks comment in the FNPRM on how to limit reimbursement on capital and operating expenses.

 

One area of special concern is the phase-out of support for any carrier that has an unsubsidized competitive carrier, or combination of unsubsidized carriers, capable of providing broadband service throughout 100% of the study area. One of the questions here is that the Order proposes to use the National Broadband Map and FCC Form 477s to determine if 100% of the study area is served by unsubsidized competitors. The Order also seeks comments in the FNPRM on how CAF support should be impacted if the carrier has an unsubsidized carrier that offers broadband service in less than 100% of the study area.

 

The Order provides for a waiver mechanism under which a carrier may seek relief from some or all of the reforms if the carrier can demonstrate that the reduction in existing high-cost support would put consumers at risk of losing voice service, with no alternative terrestrial providers available to provide voice telephony. The waiver mechanism is not yet final.

 

Wireless providers will apply for CAF support through a new Mobility Fund, having two phases. The Order proposes $500 million be available annually for a reverse-auction process to be refined through comments in the FRPRM. This will follow an initial phase for the Fund in which a one-time release of up to $300 million is made to accelerate deployment of 3G and 4G wireless services.

 

The Identical Support Rule by which competitive carriers receive high cost support is set for elimination. It will be frozen as of year-end 2011, and phased out over a five-year period beginning on July 1, 2012.

 

There will be new reporting requirements for RoR carriers who receive USF that are not yet fully worked out. CAF procedures, base levels of support, and reporting are all subjects the FCC is seeking comment on in the FNPRM sections of the Order.

 

With regard to ICC changes, the Order establishes a national transition mechanism to bill-and-keep for both interstate and intrastate access. In particular, RoR carriers' rates for terminating switched end office and reciprocal compensation are reduced to $0.005 by July 1, 2016, to $0.0007 by July 1, 2019, and to bill-and-keep by July 1, 2020. The FCC will consider transitioning originating access to bill-and-keep at a later date.

 

A Transitional Recovery Mechanism will gradually allow increases in Subscriber Line Charges in conjunction with CAF payments during the phase-out of intrastate access rates. For RoR carriers, recovery through the CAF will be calculated based on carriers' fiscal year 2011 interstate switched access revenue requirement, intrastate access revenues, and net reciprocal compensation revenues. This will become the baseline, which will decline at 5% per year, while providing for true-ups to ensure CAF recovery in the event of faster than expected declines in demand.

 

Provisions of the Order also make changes in intercarrier compensation with competitors. Going forward, VoIP traffic will be exchanged at interstate rates. Wireless local traffic will be presumed bill-and-keep, but the Order adopts an interim transport rule for rural RoR carriers that limits their responsibility for the costs of transport involving non-access wireless traffic to transport to the wireless provider's chosen point of interconnect within the wireline service area, or at an agreed-upon meet-point outside of the landline service area.

 

The FCC Order also includes a Further Notice of Proposed Rulemaking, with comments and replies due in the first quarter of 2012. Issues include: determining proper measures of broadband service; potential interconnection requirements for broadband; how the CAF should be adjusted to remove costs associated with areas of overlap with unsubsidized competitors; the relationship of the benchmark rate to NECA's tariff rates, and what information would be required to implement this proposal; whether and how to change the 11.25% current NECA rate of return level; and a methodology for calculating individual company limits on reimbursement of capital and operating costs for RoR carriers.

 

The FNPRM seeks comment on how to transition all access rate elements to bill-and-keep, including originating switched access, dedicated transport, tandem switching and tandem transport in some circumstances, and other charges including dedicated transport signaling and signaling for tandem switching.

 

The FNPRM also asks about any recovery mechanism for originating access charges, and how it should implement bill-and-keep for switched access, reform of end user charges and CAF ICC support, including the long term elimination of the transitional recovery mechanism and monthly access recovery charge, modifying the ICC recovery baseline for RoR carriers for years six and beyond, the future of SLCs, how the costs of the local loop have been allocated between its use for regulated voice telephone service and its use for other services, such as broadband Internet access, video, or other nonregulated services.

 

Additionally, states will continue to designate which carriers within their jurisdiction will receive and continue to meet conditions for receiving universal service support. The Order also adopts specific rules to address access stimulation and phantom traffic issues.