RLEC USF/ICC Reforms

1. RLEC USF/ICC Reforms USF “Transformation” • New CapEx and OpEx Caps • Corporate Operations expense cap extended to ICLS • New Rate Floor • Flash-cut elimination of safety net additive • Unsubsidized Competitor Overlap • $250/line/month cap • FNPRM – (a) extend/expand new limits; (b) RoR ICC “Transformation” • Longer-Term Transition and RM for Some Rate Elements • Ultimate Destination is Unclear, other than Zero • IntraMTA/VoIP Flash-Cuts and Implementation Challenges

2. RLEC USF/ICC Reform Impacts • Initial FCC Estimates of Year 1 Impacts: • 10% of RLECs lose >20% of USF support • 20% lose >10% to 20% of USF support • 24% lose up to 10% of USF support • 34% see no change to USF support • 12% see increased USF support • Initial Industry estimates of Year 1 Impacts: • Approx. 80 carriers would lose more than $10/line/mo, some much more • Approx. 7.5% to 10% reduction on avg. • Neither estimate took into account: (1) all USF changes (e.g., rate floors and unsubsidized competition theory); (2) greater effect of changes in subsequent years; (3) ICC reductions; or (4) any FNPRM proposals • Picture may have improved somewhat as “regression analysis” has changed, but extent of impacts even in the short-term remains unclear • Lack of transparency/predictability/accuracy in regression caps frustrate efforts to estimate effects and any reasonable planning exercise • Longer-term effects of ICC rulings, ARC increases, and RM wind-down? • Timing and potential effects of FNPRM action remain complete unknown