This presentation was given by Douglas Meredith, Director of Economics and Policy at John Staurulakis, Inc. to the Utah Broadband Advisory Council on December 14, 2011.

1. USF – ICC Reform:
First Look at the Future
Utah Broadband Advisory Council
December 14, 2011
Douglas Meredith
Director – Economics and Policy
John Staurulakis, Inc.
1

2. FCC Report and Order and
Further Notice of Proposed Rulemaking
• Order released Nov 18th
• Effective date for most items in Order is December 29, 2011
• Two Further Notice comment cycles begin in January and
February
• Order is subject to appeal and reconsideration
• Deadline for reconsideration is Dec 29th
• Order is appealed in the following U.S. Courts of Appeal: 1st, 2nd,
3rd, 4th, 5th, 6th, 8th, 10th and D.C.
• These will be consolidated by lottery and more are expected since
the appeal window is still open
2

3. Comprehensive Reforms
• USF
• Make programs more efficient
• Target support to specific areas
• Transition support to broadband
• Create a mobility fund
• ICC
• Eliminate loopholes and arbitrage opportunities
• Establish a bill-and-keep rate structure
• Begin with Terminating Switched Access Service
• Transition all LEC traffic to bill-and-keep over time 3

4. Major Changes
• FCC Order represents major change to three industry
groups
• Incumbent local exchange carriers
• Price Cap
• Rate of Return
• Wireless providers of voice and broadband
• Competitive local exchange carriers
• Changes include USF and ICC revenues
• Changes will alter company behavior
• Changes do not touch USF School and Library programs
such as e-rate
• Utah total committed School and Library funds for Jul 2009-Jun 4
2010 was $24.1M

5. Budget
• FCC is putting a cap on the amount of federal support for USF
and ICC reform
• Current
• USF is $4.2B
• ICC approximately $1B for rate of return carriers
• Proposed
• USF and about 1/3 of ICC reform $4.5B
• Unclear whether there will be sufficient support to promote
the deployment of broadband in rural areas served by price-
cap carriers and continue the development of broadband in
areas served by rate-of-return carriers.
5

6. Slice the $4.5B Pie
Admin, 0.1 Satellite, 0.1
Mobility,
0.5
Price Cap, 1.8
Rate of Return,
2.0
6
Note: Amounts inclusive of ICC recovery mechanism funds

7. Expanded Obligations
• All USF recipients must offer voice telephony service and
broadband service
• Broadband is 4/1 now and moving to 6/1.5
• VoIP qualifies as a voice telephony service
• Price Cap carriers must use support in areas where there is no
unsupported competitor offering broadband
• Rate-of-return Carriers must provide broadband to end-user
customers upon reasonable request
7

8. Federal High-Cost USF by Utah
Study Area
Monthly Amount of Federal High Cost Universal Service Support by Program
State UT
Monthly High Monthly Safety Monthly Safety Monthly Local Monthly Monthly Total
Study Area Cost Loop Net Additive Valve Switching Interstate CL High Cost
ALL WEST COMM-UT $ 47,295 $ 15,972 $ - $ 24,636 $ 101,190 $ 189,093
BEAR LAKE COMM $ 15,119 $ - $ - $ 8,725 $ 15,050 $ 38,894
BEEHIVE TEL CO - UT $ 102,688 $ 4,348 $ - $ 18,112 $ 154,198 $ 279,346
CENTRAL UTAH TEL INC $ 24,466 $ - $ - $ 24,245 $ 61,315 $ 110,026
CITIZENS-FRONTIER-UT $ - $ - $ - $ 88,972 $ - $ 152,105
DIRECT COMMUNICATIONS CEDAR VALLEY, LLC $ 98,782 $ 3,674 $ - $ 26,328 $ 77,833 $ 206,617
EMRY DBA EMRY TELCOM $ 4,502 $ - $ - $ 2,411 $ 123,395 $ 130,308
GUNNISON TEL CO $ - $ - $ - $ 9,781 $ 14,692 $ 24,473
MANTI TEL CO $ - $ - $ - $ 7,643 $ 24,727 $ 32,370
NAVAJO-UT-FRONTIER $ - $ - $ - $ 1,346 $ - $ 10,001
QWEST CORP-UT $ - $ - $ - $ - $ - $ 84,403
SKYLINE TELECOM $ 8,631 $ - $ 1,144 $ 10,094 $ 27,940 $ 47,809
SMITH BAGLEY, INC. - CL $ - $ - $ - $ 1,959 $ - $ 11,466
SOUTH CENTRAL UTAH $ 34,020 $ - $ - $ 75,671 $ 104,263 $ 213,954
SPRINT SPECTRUM, LP $ - $ - $ - $ - $ - $ -
UBTA-UBET COMM INC. $ 107,752 $ - $ - $ 30,946 $ 273,532 $ 412,230
State Total $ 443,255 $ 23,994 $ 1,144 $ 330,869 $ 978,135 $ 1,943,095
8
Source: 4Q2011 Projections by USAC

9. USF Changes
• Make programs more efficient
• Adjust rate-of-return programs and place limits on
support for past and future investments and expenses
• Increase end-user rates for voice service
• Eliminate identical support rule for CLEC support
• Target support to specific areas
• Support for incumbent carriers is limited to areas where
there is no unsupported competitor offering broadband
• Rate-of-return limited exception = 100 percent coverage of
carrier’s study area
• Begin to use auctions as an allocation mechanism
9
for wireless and price-cap carriers

10. USF Changes (cont.)
• Transition support to broadband
• Provide support for broadband capable networks
• Require that broadband services be provided by
USF recipients
• Create a mobility fund
• Establish a separate fund for mobile providers
• Build-out, and
• Ongoing operations
10

11. Broadband Coverage
(excluding wireless (3/0.7))
11

12. Broadband Coverage
(including wireless (3/0.7))
12

13. USF Conclusions
• Timeline
• Most reforms begin in 2012 (Jan or July)
• All is subject to appeal and further orders
• Current rate-of-return carriers will have reduced cost recovery
options in high-cost areas
• This will reduce the deployment of infrastructure
• Price-cap carriers must commit to statewide deployment or
have areas move to an competitive auction for low-bid
support
• CLECs may receive support through auctions
• Wireless providers will have dedicated support for build-out
and ongoing operations 13

14. ICC REFORMS
14
Monumental Changes

15. FCC Abandons Access Policy
• We reject the notion that only the calling party benefits from a
call and therefore should bear the entire cost of originating,
transporting, and terminating a call. As a result, we now
abandon the calling-party-network-pays model that
dominated ICC regimes of the last century.
15

16. Comprehensive Reforms
• Uniform Access Rate Structure
• Bill and keep as the “ultimate end state for all
telecommunications traffic exchanged with a LEC”
• Begin with terminating charges
• Follow-up with originating and transport charges
• State terminating switched access rates to equal interstate rates
by 2013
• Reduce termination (and some carriers’ transport price cap) to
bill and keep
• Six years for price cap
• Nine years for rate of return (July 2020)
16

17. Alternate Cost Recovery
• After assessing an end-user charge, a portion of
remaining costs may be recovered through a new USF
program (CAF)
• End-user charges
• $0.50 per residential and single business line
• Price cap five years
• Rate of return six years
• $1.00 per line for multi-line businesses for 6 years
• Subject to federal charges cap of $12.20
• FCC to assess federal SLC levels in Further Notice
• CAF support
• Systematic reductions to eligible support
17
• Eliminated for price-cap carriers in < 10 years

18. Other Traffic Issues
• Certain types of VoIP traffic will be subject to long distance
charges
• Wireless to Wireline Charges
• Intra-MTA areas will have no charges assessed
• Doesn’t cover transport charges
• FCC wants to promote IP-to-IP Interconnection
18

19. Summary
• FCC
• Move to broadband services
• Provide incentives for IP interconnection and VoIP
• Encourage wireless deployment
• Encourage consolidation of smaller carriers
• Industry Response
• Less infrastructure deployment in some rural areas
• Increased local service rates will lead to more churn and wireless
services as customers value mobility of service
• Long distance services may drop in price
• Customer Response
• Depends on services that are purchased 19

20. QUESTIONS / DISCUSSION
Douglas Meredith
dm@jsi.net
801-294-4576
www.jsitel.com
20