Impact of Non-Rural Rules on Rural ILECs

Rural Task Force – Jan. 13, 2000

Bob Schoonmaker-VP

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Purpose of Analysis

Assume that inputs to model and methodology adopted for non-rural companies was applied to both rural and non-rural ILECs

Analyze impacts on both rural and non-rural ILECs Identify concerns with non-rural methodology if

applied to rural companies as well

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Data sources for Analysis

Non-rural ILECs– Data supplied by USTA based on data for non-rurals

received from FCC staff

Rural ILECs– Data supplied by AT&T based on AT&T runs of SYN

model for rural study areas

Data from both sources was transmitted as SYN output file for each company/study area

Total data - 9 CD’s, over 4 gigabytes

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Known Data “anomalies”

Neither rural or non-rural data included LNP costs as data inputs - FCC did adopt LNP cost

Non-rural data contained Gallatin River, IL study area which is a rural company

Rural data not included for:– Alaska study areas (24)– Guam– Virgin Islands– Micronesia– Numerous “mismatches” between model study areas and

USAC study areas (over 50)

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Unknown Data Issues

NECA letter to FCC of December 23, 1999– NECA calculated non-rural high cost support of $391

million vs. FCC calculated $437 million– Appears to be program error using incorrect “default”

value of special access lines

Verification of individual rural study area information

FCC issued public notice January, 2000 correcting model and non-rural results.

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Known Impact of Data Anomalies

Impact on non-rural only calculations of– No LNP cost in non-rural data– Gallatin River, IL in non-rural data

National USF cost per month– FCC - $23.84– GVNW - $23.52

Annual Support non-rural only (model only)– FCC - $252.1 million– GVNW - $262.5 million

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Analysis Results - National Loop Cost National Loop Cost - Non-Rural Only

– Non-Rural $23.52

National Loop Cost - Combined Rural and Non-Rural

– Combined $26.09– Non-Rural Companies - $23.52– Rural Companies - $59.36

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Analysis Results - # of States

# of States receiving support - Non-Rural Only– Currently - 20– Non-Rural Only - 7

# of States receiving support - Combined Rural and Non-Rural

– Currently - 52– Non-Rural Companies - 15– Rural Companies - 15

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Analysis of Results - USF Support(excluding Hold Harmless)

Non-Rural Companies Only– Current Support - $207.4 million– FCC Method Support - $262.5 million

Combined Non-Rural and Rural Companies– All Companies

Current Support - $1,760.7 million FCC Method Support - $692.0 million Change $(1,068.7) million

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Analysis of Results - USF Support(excluding Hold Harmless)

Combined Non-Rural and Rural Companies– Non-Rural Companies

Current Support - $207.4 million FCC Method Support - $241.1 million Change - $33.7 million

– Rural Companies Current Support - $1,553.3 million FCC Method Support - $450.9 million Change -$(1,068.7) million

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Analysis of Results - USF Support(excluding Hold Harmless)

Impact on Non-Rural Companies-FCC Method– Support with Non-Rural Only - $262.5 million– Support with Combined companies - $241.1 million– Change - $(21.4) million

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Alternative Values - Lower Support Level

Support Level Total Support # of States

135% $692.0 million 16

125% $1,070.2 million 17

120% $1,382.2 million 21

115% $1,847.5 million 24

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Alternative - Study Area Support Higher Support Level

Support Level Total Support # of States

135% $3,382.3 million 44

150% $2,787.4 million 43

175% $2,140.9 million 43

200% $1,728.3 million 42

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Summary

Application of FCC methods and model inputs to rural companies has major negative impacts

Single biggest impact is likely the decision to base support on statewide average cost rather than study area average cost

Personal opinion - Use of FCC methods and model inputs for rural companies does not provide sufficient, predictable support for those companies