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Cable Ops Get USF Reform Face Time in D.C.

Some of the National Cable & Telecommunications Associations' smaller cable operators have some big problems with the telco-backed Universal Service Fund/intercarrier compensation (ICC) reform plan the FCC is currently considering, and they were letting Washington hear about it this week, saying the disparate treatment of cable ops in the plan could impact them in a big way.

Telecom companies pay into the USF fund to subsidize service where it is uneconomical to reach, while the ICC is the mechanism by which carriers compensate each other for terminating traffic on their networks. The FCC is teeing up its recommended reforms for fall, according to industry watchers.

Representatives from some of those smaller systems held meetings Tuesday with FCC commissioners and on the Hill to argue that they should get equal treatment when it comes to the subsidies going to broadband, rather than give a right of first refusal to incumbent local exchange carriers, as the telco's ABC (America's Broadband Connectivity) plan proposes. The operators in town to press their case were Tom Simmons, SVP, public policy, Midcontinent Communications; Dave Rozelle, EVP, Suddenlink; Dick Sjoberg of Sjoberg's Inc.; and Tom Larsen, VP of legal and public affairs at Mediacom.

In a briefing with reporters Wednesday, Sept. 14, they said they thought the FCC had gotten that message, and was on the same page about looking forward to broadband rather than locking in a system geared to legacy phone carriers.

Cable operators and telcos and the FCC are in general agreement that the fund, which subsidizes phone service, must be migrated to broadband and better managed to prevent fraud and waste; but how it is done, and who gets the money, and how much, wound up dividing the two industries.

The operators said their lobbying team was working on improving the ABC plan up to the last minute, which was why NCTA did not offer an alternate plan in its comments on ABC, but rather urged the FCC to modify it to be technologically neutral.

Among their key issues are reasonable, enforceable caps on the fund, ensuring that billions in subsidies still tied to an old system are not one of the legacies of the legacy carriers through a right of first refusal, and that when it comes to intercarrier compensation, cable's VOiP termination of voice traffic is not at a lesser rate than telco termination.

NCTA EVP and policy point man James Assey, who was also at the briefing, said they were not there to throw dirt on the ABC plan, and that 75% of its was "to the good." Particularly, he said to move the subsidies to more of a procurement model that shifted the subsidies from areas where it has been demonstrated service can be provided without subsidies to truly unserved areas. "That is the right principle," he said, but the other 25% matters. He called it a "historic opportunity" to modernize the system. "It is really important that we get this right," which means respecting competitive neutrality, which means that cable ops can get a "fair shake."

The issue of unserved vs. served is a continuing problem for cable ops, including with the broadband stimulus funding and USDA broadband loan and stimulus programs. The operators do not want the USF reform moment to pass without addressing the overbuild problem.

The operators said the FCC should not give ILECS right of first refusal for broadband funds based on where they have been providing phone service. They told their Washington audience that cable operators have been in the forefront of broadband build-out and service; were providing faster speeds than telcos in many rural areas; were the carrier of preferred, if not last, resort, with customers; and should not be treated as second-class citizens when it comes to determining who can provide the best and most cost-efficient service to unserved areas.

The operators said the FCCs' Wireline Bureau asked if cable operators would be willing to apply for eligible telecommunications carrier status. Mediacom's Larsen said he thought the answer would be "yes." He said the dialog the commission seems to be having is whether to keep the right of first refusal on the assumption that cable companies would not be applying for ETC status, or get rid of it and then "take the bet" that cable companies will become ETCs. He suggested the FCC's money was better put on the later. "We want the opportunity to compete for that money and expand our networks, he said.

Asked about the carrier of last resort (COLR) obligations that go with being an ETC -- state obligations on reliable service, nondiscriminatory rates, exit approval, interconnection -- Larsen said the chairman's office asked how the commission would manage all those obligations in individual states. Larsen said that was a phone concept for a broadband plan. Rozelle of Suddenlink said that he made the point that carrier of last resort "is looking at a time and responsibility that doesn't exist anymore."