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Get Your FCC Groove On!

USF/ICC Transformation Order: “Modification Order”

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Thematerialappearinginthispresentationisforinformationalpurposesonlyandisnotlegaloraccountingadvice.Communicationofthisinformationisnotintendedtocreate,andreceiptdoesnotconstitute,alegalrelationship,including,butnotlimitedto,anaccountant‐clientrelationship.Althoughthesematerialsmayhavebeenpreparedbyprofessionals,theyshouldnotbeusedasasubstituteforprofessionalservices.Iflegal,accounting,orotherprofessionaladviceisrequired,theservicesofaprofessionalshouldbesought.

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“MODIFICATION ORDER”

• Adopted4/23/2014• Released6/10/2014• MultipleComponents

o ReportandOrdero DeclaratoryRulingo Ordero MemorandumOpinionandOrdero 7th OrderonReconsiderationo FurtherNoticeofProposedRulemaking(FNPRM)

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“MODIFICATION ORDER”

• ReportandOrdero ConnectAmericaFundPhaseIICompetitiveBiddingProcess

o ProviderEligibilityRequirementso TransitionfromCurrentMechanismstoPhaseIIo EliminationofSupportforCompetitiveOverlapo RuleAmendments

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“MODIFICATION ORDER”

• DeclaratoryRulingo DefinitionofaReasonableRequestforBroadbando RoR Carrierhasnoobligationtoextendbroadbandwherethereisanunsubsidizedcompetitor

o “ModificationOrder”doesnotchangeexistingsupportforRoR carriersorimpactexistingbroadbandinextremelyhighcostareas

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“MODIFICATION ORDER”

• Ordero DelaysimplementationofsupportreductionsforlocalratesbelowtheLocalRateFloor

o Waiveroffilingfeesforstudyareawaiversbelowtheexchangelevel

• MemorandumOpinionandOrdero ACSApplicationforReview(Denied)o NCTAApplicationforReview(Dismissed)

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“MODIFICATION ORDER”

• 7th OrderonReconsiderationo ReinstatesSafetyNetAdditiveforcertaincarriersfor2010and2011costs

o BroadbandPublicInterestConditions(Speed,Latency,Usage)

o EliminationoftheQuantile RegressionAnalysis(QRA)

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemakingo PublicInterestObligationso FlexibilityinMeetingDeploymentObligationso EligibilityofAreasforCAFPhaseIISupporto ETCDesignationo TransitiontoCAFPhaseIIo RuralBroadbandExperiments&Model‐BasedSupport

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemakingo PhaseIICompetitiveBiddingProcesso MobilityFundPhaseIIo PhaseDownofIdenticalSupporto ReformsforRateofReturnStudyAreas

BroadbandCAF Optionaltransitiontomodel‐basedsupportandpricecaps Supportformiddlemilecosts

o AccountabilityandOversight

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“MODIFICATION ORDER”

• EffectiveDateso Everythingeffective30daysafterpublicationintheFederalRegister,except; RulesrequiringPRAapproval– immediatelyfollowingpublicationofOMBapprovalinFederalRegister

Waiverofrulesections– uponreleaseofwaiverspursuanttoFCCrules

EliminationofQRA– 1st ofthemonthfollowingpublicationofasummaryofthisorderintheFederalRegister

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“MODIFICATION ORDER”

• CommentDateso Comments– 30daysafterdateofpublicationintheFederalRegister(July31st?)

o ReplyComments– 60daysafterdateofpublicationintheFederalRegister(August30th?)

o MossAdamswillbeassistingclientcompaniesinthepreparationandfilingofcomments

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“MODIFICATION ORDER”

• MajorIssuesImpactingRoR Carrierso LocalRateFloor

LocalRateFloorof$20.46remainsineffectandlineswithratesbelowthefloormustbereporttoUSACannually

ReductionsinHCLSarephasedinandcappedat$2.00peryear

– July2,2014– January2,2015:$14.00– January2,2015– July2,2016:$16.00– July2,2016– July2,2017:Lesserof$18.00&RateSurvey

» RateSurveybasedon2014rates,calculatedin2015– July2,2017– July2,2018:Lesserof$20.00&RateSurvey

» RateSurveybasedon2014rates,calculatedin2016 LocalRateFloordoesnotapplytoLifelinerates

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“MODIFICATION ORDER”

• MajorIssuesImpactingRoR Carrierso DefinitionofReasonableRequestforBroadband

Incrementalcostofdeployingbroadbandshouldnotexceedrevenuesfromupgradedline

– Broadbandservicerevenue– FederalUniversalServiceFunding(ICLS&HCLS)– StateUniversalServiceFunding

IncrementalcostmaynotcausetotalHighCostSupporttoexceed$250/line/month

Existinghighcostsupportmaynotexceed$250/line/month

Noobligationtoextend/upgradebroadbandtocensusblockswithanunsubsidizedcompetitor

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“MODIFICATION ORDER”

• MajorIssuesImpactingRoR Carrierso SafetyNetAdditive(SNA)

ReinstatedforcarriersthatwouldhavequalifiedbasedonincreaseinTPIS(14%ormore)in2010or2011

Noreinstatementforcarriersthatwouldhavequalifiedbasedonlineloss

Supportisretroactiveto2012,with2012supportpaidin2014

Noadditionalsupportforcostsincurredin2012orbeyond SNAwillceasetoexistfollowing2017

– 5yearsofpayments:2013– 2017for2011qualification

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“MODIFICATION ORDER”

• MajorIssuesImpactingRoR Carrierso Quantile RegressionAnalysis(QRA)

Eliminatedeffectivethe1st ofthemonthfollowingpublicationintheFederalRegister

Redistributedsupportalsoeliminated NoimpactsonotherlimitationsonHighCostSupport

– $250/line/monthCap– CorporateOperationsExpenseLimitation– IndexedCaponTotalHCLS

FCCtofurther“considerotheroptionstoincreaseincentivesforefficientinvestmentofuniversalservicefunds”inFNPRM

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“MODIFICATION ORDER”

• OtherIssuesofNoteImpactingRoR Carrierso CompetitiveOverlap

FCCtoutilizestudyareaboundarydatacollection,FCCForm477dataandtheNationalBroadbandMaptodetermineareaswith100%overlap

o RuleAmendments AnnualReportstobefiledwithOfficeoftheSecretaryinnewlyopenedWCDocketNo.14‐58(previously10‐90)

HCLSandSNArulestobemovedfromPart36toPart54– Consolidatesalluniversalservicerules– NofilingfeesinPart54forwaiverrequests

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o PublicInterestObligations

Increasedownloadspeedto10Mbps?– Transitionovermultipleyears– Onlyrequireduponreasonablerequest

Increaseuploadspeedto2Mbps? ETCsmustofferaminimumof1serviceofferingthatmeetspublicinterestobligations

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RuralBroadbandExperiments

PerformancecriteriaforaRuralBroadbandExperimenttoberemovedfromapricecapterritory

o MobilityFundPhaseII Supportshiftedto4GLTEandawayfrom3G FocusonareasnotservedbyAT&TorVerizon4GLTE ReallocateMobilityFundingtoRemoteAreasFund

o PhaseDownofIdenticalSupport Ifsupportis>1%ofwirelessrevenue,maintainexistingsupportuntilMobilityFundPhaseIIsupportisannounced

Eliminatesupport<1%ofwirelessrevenueon12/31/14

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RateofReturnCarrierReform

ProportionalreductioninHCLSsupportforallrecipients– EliminateannualadjustmentofNACPLtomaintaincaponsupport

– Insteadreducereimbursementpercentages(65%/75%)forallcarriers

» Spreadsimpactsamongalleligiblecarriers» Maintainssupportforlowercostcompanies

– Potentiallyimplementedon1/1/2015

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RateofReturnCarrierReform

NewinvestmentsnoteligibleforHCLSandICLSinareasservedbyanunsubsidizedcompetitor

– Supportedbyauditofassetrecords(CPRs)– SafeHarbor– publishintenttoinvestinaspecifiedareaoncompanywebsitefor90daysforcompetitornotification

NewinvestmentstransferredtonewConnectAmericaFund– ExistinginvestmentsrecoveredthroughHCLSandICLSforremaininglife

– Requestscommentonrateofreturnreprescription

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RateofReturnCarrierReform

StandaloneBroadbandSupport– ProposedPrinciples

» Remainwithinexistingbudget» Distributesupportequitablyandefficiently» Basedonforward‐lookingcosts(notembedded)» EnsurenodoublerecoverybyremovingbroadbandInternetAccesscostsfromtheregulatedratebase

– NTCAProposal» Concernsofdoublerecoveryofcostsduetotimingdifferences» Concernwithproposedbroadband‐onlyrateof$26.00» Doesnotaddressareasservedbyunsubsidizedcompetitors

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RateofReturnCarrierReform

VoluntaryTransitiontoIncentiveRegulation– Transitiontomodelbasedsupport

» PhaseI– FreezeexistingHCLSandICLS» PhaseII– RateofReturnCostModel

– CostingandPricingofSpecialAccessServices» ConvertedtoPriceCapseitherunderowntarifforNECAPool

– AllowscarrierstoderegulatedBroadbandInternetAccess– Continuerateofreturntransitionofswitchedaccesstobillandkeep

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RateofReturnCarrierReform

MiddleMileSupport– ProposaltosupportmiddlemilecostsonTribalLandsupto$10Minonetimesupport

– Usedasamodelforrateofreturncarriers

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“MODIFICATION ORDER”

• FurtherNoticeofProposedRulemaking(FNPRM)o RateofReturnCarrierReform

AccountabilityandOversight– Reasonablecomparabilitycertificationforbroadbandrates

» Onlyonerateplanneedtomeetthebenchmark– Reductionsinsupportforlatefilingsandnon‐compliancewithserviceobligations

» Minimumsupportreductionforanylatefiling=7dayssupport» Onetimegraceperiodof3days

• Appliedattheholdingcompanylevel• Reversedupon2nd latefiling

» Proportionallossofsupportfornon‐compliancewithserviceobligations

• Submitaplanforcompliancepriortolossoffunding

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QUESTIONS?

Thankyou!

ChadDuval,PrincipalMossAdamsLLPChad.duval@mossadams.com209‐955‐6124