FCC Removes Local Rate Floor Requirement Placed on Rural Independent Telephone Companies

Thoughtware Alert Published: May 01, 2019
Telecommunications Industry Thoughtware

The Federal Communications Commission (FCC) issued a Report and Order on April 15 removing the local rate floor originally put in place to ensure federal CAF-ICC and high-cost loop support (HCLS) wouldn’t subsidize local service rates. The FCC commissioners and the majority of the public concluded the current $18 rate floor level no longer justifies that concern and, in fact, further increases to local rates work against rural subscribership and the stability of federal high-cost support.

The FCC had three options it could act on before July 1, 2019. It could continue forbearance of its rules that kept the local residential rate floor at $18; increase the rate floor to $26.98 based on this year’s Urban Rate Survey; or end the rate floor altogether. It chose the third option.

This order removes the rate floor but still requires reporting of local rates that are lower than—or may be lowered from—the current level of $18 the FCC allowed in forbearance of the much higher urban rate floor calculation. The revised rule:

§54.313(h) In their annual reporting due by July 1, 2019 and July 1, 2020, all incumbent local exchange carrier recipients of high-cost support must report all of their rates for residential local service for all portions of their service area, as well as state regulated fees, to the extent the sum of those rates and fees are below $18, and the number of lines for each rate specified. Carriers shall report lines and rates in effect as of June 1. For purposes of this subsection, state regulated fees shall be limited to state subscriber line charges, state universal service fees and mandatory extended area service charges.

Will the removal of the rate floor result in widespread or one-off local rate reductions?

Maybe, but we just don’t have enough information yet on how companies will proceed under this new environment. The rate floor’s elimination doesn’t mean companies will lower rates immediately—or at all. If residential rates are above the rate ceiling, lowering them would cause companies to reinstate the ARC charges offsetting some of the “benefits” to customers. It also may deepen the effect of lost revenues to the company. The ARC is billed but passed back up to the Universal Service Administrative Company, unlike local residential rates, which are entirely the company’s revenues. Developing targeted “save” plans to retain selected residential customer segments during local line loss and expansion of Consumer Broadband-Only Loop lines could result in rural support losses for some companies.

Will some companies actually raise their rates?

Companies choosing to raise their local rates to stop charging their subscribers the residential ARC surcharge are still limited by FCC’s rules related to the ARC charge calculation. Rates must be in place by January 1 to be effective July 1. While companies may make these decisions based more on local conditions than specific decision dates, some regulations still remain.

Effect on RLECs

Not all rural local exchange carriers (RLEC) were affected by the rate floor or by this order removing it. A-CAM carriers, by definition, no longer receive federal HCLS and therefore continue to have full local rate freedom. Likewise, legacy rate-of-return carriers not receiving federal HCLS aren’t affected, and many continue to have local rates below the rising local rate floor. Both types of carriers are still subject to the ARC and should keep that in mind when considering local rate changes.

For more information, contact Bob or your trusted BKD advisor.

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