and Data-Only Broadband Support Telecommunications Consulting Reform Impacts to High Cost Loop Support, Interstate Common Line Support and Data-Only Broadband Support * 5 Vincent H. Wiemer, CPA Principal

Critical Issues

“Glide Path” Budget Impact Some carriers may elect model support although it is less then current support However, in a two-step election process a carrier may elect but then withdraw However, para 69 contains an unusual and punitive provision If a “model loser” ends up withdrawing, the model loss will be deducted from the total RoR budget

High Cost Loop Support Algorithm calculates Local Loop costs Depreciation expense on subscriber CWF and basic exchange Circuit Equipment Maintenance, network and general support, network operations, corporate operations and operating tax expenses attributed to the local loop portion of the network Return on investment Calculates a Study Area Cost per Loop (SACPL) Study Areas with SACPL that is > 115% of the high cost threshold receive HCLS High cost threshold, still called the “National Average Cost per Loop” (NACPL), is frozen at $647.87 Will be recalculated after Model Electors leave

High Cost Loop Support Limits Limits on Individual Carrier Support Limits to eligible costs Corporate Operations Expense Limit Total Operations Expense Limit Capital Investment Allowance Reduced Rate-of-Return Support limit of $250 per line per month Limits on Total Fund FCC proposed Glide Path rules will decrease total funds to RoR carriers by taking transition funds from RoR budget Total RoR High Cost Budget capping mechanism 50% per line, 50% per rata

Application of HCLS Limits Total HCLS budget calculated Start with $2 billion budget or total demand for funds (if less) LESS: CAF ICC and Model Electors legacy & transition support amounts EQUALS: Available HCLS & CAF BLS Forecast HCLS calculated for all carriers Individual carrier limits applied

Application of HCLS Limits Target HCLS calculated Target HCLS = Forecast HCLS disbursements x (budget amount / total calculated amount for HCLS and CAF BLS mechanisms) Calculate reduction factor so disbursements do not exceed budget Per-line reduction = [½ (Calculated HCLS – Target HCLS)] / total eligible loops in HCLS mechanism Pro rata reduction: applied as necessary to get to Target HCLS

CAF Broadband Loop Support FCC did not want to create a “new” mechanism for data-only broadband support so they combined it with ICLS and gave it a new name Really two separate mechanisms Interstate Common Line Support Recovers interstate portion of common line costs Consumer Broadband-Only Support New mechanism to provide some support for data-only broadband

CAF BLS Limits Limits on Total Fund FCC proposed Glide Path rules could decrease total funds to RoR carriers Total RoR High Cost Budget cap Limits on Individual Carrier Support Limits to eligible expenses Corporate Operations Expense Limit Total Operations Expense Limit Capital Investment Allowance Support limit of $250 per line per month $42 consumer broadband-only support high cost threshold Limits applied in like manner as HCLS

Broadband-Only Support Calculation of Support Calculate CL investments and expenses using an interstate factor of 100% CL costs then divided by number of voice and voice+data line in study area Multiply by number of CBOL loops Equals CBOL loop cost to remove from SpA Subtract $42 per CBOL line per month (high cost threshold)

Attribution of CAF BLS CAF BLS must be attributed to various elements to allow “the reasonable opportunity to meet their revenue requirements” (para. 155) First, applied to interstate common line and broadband-only revenue requirements being trued up Second, applied to interstate common line RRQ for current year Third, applied to broadband-only RRQ for current year Unmet RRQ will be recovered through the consumer broadband-only rate

Deployment Obligations Requirement to use CAF BLS to deploy to unserved area 20% to 35% of 5-yr projected funds PROBLEM: These funds are already being used to recover CL RRQ and to support Broadband-only Loops If CAF BLS is also required to be used for deployment, carriers are denied the opportunity to recover CL costs and CBOLS is not supported

Issues Requiring Attention “Glide Path” transition payment impact on Rate of Return budget Operating expense limit statistical impact Calculation of deployment obligations Double obligation of CAF BLS funds

Questions? Vincent H. Wiemer, CPA Principal vince@alexicon.net (903)440-2034