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Universal Service and USF Reform:Establishing a Rational and Efficient System
Presentation to NASUCA Mid-Year Meeting
San Antonio, TX
June 28, 2011
Presentation to NASUCA Mid-Year Meeting
San Antonio, TX
June 28, 2011
2
CenturyLink: Network Map and Service Territory
CenturyLink CLEC Service Area
Qwest POPS
CenturyLink IP / MPLS Core
CenturyLink Fiber Network
Qwest
CenturyLink
Qwest Fiber Network
Upon Merger Close, Served Approximately: 17 Million Access Lines >5 Million Broadband Customers >600,000 Video Subscribers w/ growing facilities
base In 37 States
Upon Merger Close, Served Approximately: 17 Million Access Lines >5 Million Broadband Customers >600,000 Video Subscribers w/ growing facilities
base In 37 States
CenturyLink in Texas
3
286,000 access lines106 exchanges6 operating companies22.9 HH per square mile average densityLargest exchanges served:
KilleenPorterHumbleSan Marcos
Small, rural exchanges (HH density/square mile)
74 exchanges below 2047 exchanges below 1023 exchanges below 5
4
Population Density Matters
ILECs bear expensive COLR obligations to service all customers; a burden unique only this class of provider, and very important in areas of low population density
CenturyLink serves vast tracts of rural America; in addition to urban centers like Denver, Las Vegas, Seattle, Phoenix, and Minneapolis
Line Density (loops/sq. mile): Service Area (sq. miles):
AT&T 101 AT&T 602,391 Verizon 155 Verizon 229,569 CenturyLink 29 CenturyLink 699,521
Much of CenturyLink’s service area has fewer than 10 households per square mile
Competitors routinely avoid serving low density areas If COLR, ICC & USF reform is not handled properly, there is a real
risk of leaving rural areas behind
Historically COLR Costs Have Been Buried
Petroleum, INMonthly Cost:
$100
Franklin, INMonthly Cost:
$28
Indy Metr
o
Preble, INMonthly Cost:
$73
Salamonia, INMonthly Cost:
$104
When the entire territory (study area) in a state is averaged, it is assumed that revenues earned in low-cost Franklin can be used to offset the cost incurred in serving high-cost Petroleum.
Migrating USF distributions from a study area basis can better align funding with costs – and (generally) away from competition.
Legacy EQ receives $0 High Cost funding (except IAS access replacement) under the study area system; a wire-center system would fund the higher cost exchanges.
*Costs for voice network. Principle holds true for broadband.
6
Wire Center Boundary
Service Locations
Central Office
Sweet Springs, Missouri Investment OverviewDistance and Density Drive Costs
Wire Center
Total Lines Served
1,077
122 sq. mi.
Investment per Line
$6,610
City Center
Lines Served
138 per sq. mi.
Investment per Line
$2,650
Outside City Center
Lines Served
2.4 per sq. mi.
Investment per Line
$17,960
Population Density Example: ILECs Serve Higher Cost Areas
Network deployed deeper into rural markets
Deployment not a choice: subject to state and federal obligations
Continuing service obligations lead to ongoing capital expense requirements
Cost of service far exceeds viable business case parameters
Brookneal, Virginia2,600 Access Lines
Rural Broadband Will Need Support
Broadband has become a necessary component for business, education, health, and in the lives of consumers
Market forces are working for most consumers:large-scale broadband network development, broadband devices,
software development, and application development.
However, consumers in the most rural portions are not servedUniversal service funding will be required if national public policy
to serve “all” remains in placeMust avoid unfunded mandates and minimize investment risk
during transition
Principle:Competition in the cities must not deprive the rural areas of
needed universal service support
9
Universal Service: 5 Fundamental Questions
#1 Determine what “it” is- Define broadband service, speeds, other parameters
#2 Determine the areas that need universal service support- Target to high cost areas; given rate comparability policies
#3 Determine the cost of achieving universal service- Calculate the total cost of qualifying high-cost areas less expected
customer contributions
#4 Determine rules for vendors to implement universal service policy
- Provide requirements for those who receive funds and deliver on the promise of universal service
#5 Determine how to fund the Universal Service Fund- Apply surcharge applicable to all providers to establish a broad,
competitively neutral contribution mechanism
The government
buys jet fighters,
computers, light bulbs,
etc. It should “buy”
universal service
similarly.