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A Rural LEC’s Perspective on Universal Service

A Rural LEC’s Perspective on Universal Service. Rural Task Force Meeting March 5, 1999 Tucson, AZ. Bob DeBroux, Director - Federal Affairs. TDS Telecom Snapshot. 550,000 lines in 28 states 106 local exchange companies 5,091 access lines per company on average

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A Rural LEC’s Perspective on Universal Service

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  1. A Rural LEC’s Perspectiveon Universal Service Rural Task Force Meeting March 5, 1999 Tucson, AZ Bob DeBroux, Director - Federal Affairs TDS TELECOM

  2. TDS TELECOM

  3. TDS TELECOM

  4. TDS Telecom Snapshot • 550,000 lines in 28 states • 106 local exchange companies • 5,091 access lines per company on average • Largest = Tennessee Telephone in Knoxville with 57,404 • Smallest = Meriden New Hampshire with 529 access lines • Average lines per mi2 = 13.8 • Average RBOC lines per mi2 = 132.25 • Highest density company = Concord, Knoxville TN (508.8 lines mi2) • Lowest density company = Arizona Tel (.6 lines mi2) • 100% of access lines served by digital switches TDS TELECOM

  5. What is the Point? • Adjust Universal Service mechanisms to allow for competition? • Implicit to explicit? portable? • Fix Proxy models for high cost areas served by rural companies? • Justify a particular fund size? • putting a thumb on the scale TDS TELECOM

  6. Goal of Universal Service • Consumers in all regions of the Nation should have access to comparable services at comparable rates • Rural vs. urban • High cost vs. low cost • Support should be • Specific, predictable and sufficient • Competitively neutral (FCC addition) • must not compromise consumer goals TDS TELECOM

  7. Goal of a Universal Service Fund • Ensure rate and service comparability • Mechanism that supports the difference between cost and price, where necessary • Provides for evolving level of service • Allow for efficient competition • Doesn’t favor one technology or carrier • Assures that universal service definition will be provided • Uses society’s resources efficiently TDS TELECOM

  8. Why Use a Proxy Model? • Promote efficient competition? • or entice inefficient competitors? • Disaggregate universal service costs? • target high cost areas • reduce implicit funding of high cost areas from low cost areas because not sustainable & entices inefficient competition • Determine funding levels? • or justify predetermined levels? • Original proxy results rejected because too high TDS TELECOM

  9. Can a Proxy Work? • Is a proxy workable, given rural company variability? • Can models replicate market dynamics? • Does a proxy promote efficient competition? • Why is a least-cost, forward-looking, hyper-efficient monopoly network the right model for universal service costing? • Doesn’t represent any carrier’s costs TDS TELECOM

  10. Can a Proxy Work? • How can it be reconciled with an evolving definition of universal service? • How does the proxy network evolve? • Same criticisms seem to arise version after version • Doesn’t work in high cost, low density areas • Can’t accurately locate customers in rural areas • Grossly underestimates expenses TDS TELECOM

  11. Rural Variability and the Act TDS TELECOM

  12. How are Proxies Being Fixed? • Are proxy variables being converted to actuals to make them work • Designs network based on actual in-place host, remote, stand-alone switches • Customer locations based on geo-coded data • True-up to actual study area line counts (Hatfield) • Utilizes actual subscriber calls and usage • More and more user adjustable inputs • Inputs and benchmarks which produce the wrong political result won’t be tolerated TDS TELECOM

  13. How are the Proxies Being Used? • Being tinkered with to produce a politically acceptable fund size? • Q: When is a proxy not a proxy? • A: When benchmarks and inputs are manipulated to determine fund size? • To disaggregate fund distribution • As is being attempted in Washington state • Are they even good enough for this? TDS TELECOM

  14. FCC Synthesis Model - HCPM • Platform order - October 1998 • Inputs to be decided later • Model changing weekly • Reconsideration petitions filed • Model not put out for public comment • FCC model fails to meet many of it’s own criteria TDS TELECOM

  15. Rural LEC Proxy Concerns • Fails goal of targeting support to high cost, rural areas • Model appears to fail in low density areas • Assumes similar density companies have the same cost structure • Customer location data inaccurate (loop length) • Typically produces higher results than actual for both support and costs • Promotes “inefficient” competition TDS TELECOM

  16. Economic Concerns With Proxies • Models do not adequately capture critical rural cost drivers • Cost drivers are different for different rural companies • Costs of equipment, transportation, and placement • Historical network design conditions • High trunking cost in remote areas • Violates least-cost, efficient network principle • Mixes new network design with existing wire center locations TDS TELECOM

  17. Proxy vs. Actual Costs TDS TELECOM

  18. Annual Loop Investment Per Line - Study Area Level TDS TELECOM

  19. Annual Loop Investment Per Line - Exchange Level TDS TELECOM

  20. Annual Switch Investment Per Line - Study Area Level TDS TELECOM

  21. Annual Switch Investment Per Line - Exchange Level TDS TELECOM

  22. Annual Operating Expense Per Line TDS TELECOM

  23. Access Lines - Study Area Level TDS TELECOM

  24. Access Lines - Exchange Level TDS TELECOM

  25. Access Lines - Exchange Level TDS TELECOM

  26. Average Loop Length - Study Area Level TDS TELECOM

  27. Average Loop Length - Exchange Level TDS TELECOM

  28. Average Loop Length - Exchange Level TDS TELECOM

  29. Percentage Change in Loop Length - Exchange Level TDS TELECOM

  30. Percentage Change in Loop Length - Exchange Level TDS TELECOM

  31. Lines in Density Zones • Approximately 50% of rural lines fall within lowest two density zones • Testing shows that geo-coding fails miserably within the lowest two density zones TDS TELECOM

  32. Average Loop Length - TDS Arizona TDS TELECOM

  33. Average Loop Length - TDS Arizona Exchange Level TDS TELECOM

  34. Annual Loop Investment Per Line Comparison - TDS Arizona TDS TELECOM

  35. Annual Switch Investment Per Line Comparison - TDS Arizona TDS TELECOM

  36. Access Line Comparison - TDS Arizona TDS TELECOM

  37. Access Line Comparison - TDS Arizona Exchange Level TDS TELECOM

  38. Yogi Berra on Proxy Models “ Fifty percent of the [proxy] game is ninety percent mental” “It’s tough to make predictions, especially about the future” TDS TELECOM

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