ࡱ> w(z. ?L/ 0|DArialaw RoOL0Ov 0( 0,"DTahomaw RoOL0Ov 0( 0," DWingdingsRoOL0Ov 0( 0,0DTimes New Roman0Ov 0( 0,@DVerdanaw Roman0Ov 0( 0," b .  @n?" dd@  @@`` xpH  BFL FG 2-Bh ,,,,  "$(*,.02 &><@468:   !#%')+-/13579;=?A 0e0e A@A5%8c8c     ?1d0u0@Ty2 NP'p<'p@A)BCD|E?@8 1H" ʚ;\8ʚ;g4KdKdv 0Rppp@ <4!d!d` 0LO<4dddd` 0LO<4BdBd` 0LOg45d5dv 0p p___PPT10DTimes New Romanx: 0DTahomaew Romanx: 0  ___PPT9ld? ,O =K^ `2008 MTIA Annual Conference August 12, 2008 Stephen G. Kraskin SKraskin@Independent-tel.comJ1P0P0 D= The necessary, but limited regulatory and policy discussion>> The  Change or Die message did not mean that we should disregard regulatory foundation. Fundamental Issue remains: deployment and provision of service in high cost to serve areas where customer revenues will not recover costs (+ Regulatory As Tool, Not A Business Plan ,,( Change or Die message intended to focus on the fact that generating USF and switched access revenues is not a sound long term strategy Preferred Course: use the regulatory mechanisms as a tool to deploy and move to a revenue driven business (Video provision example  would you trade USF for decent programming costs?)  BC:  All The World s A Stage&   In Front Of The Curtain On Stage We Work To Maintain what we have (USF and Access) Behind The Curtain Back Stage We Deal With Reality And Prepare For Change,BIG ISSUES LISTToday s Policy Debate: UNIVERSAL SERVICE and INTERCARRIER COMPENSATION Tomorrow s Policy Debate: BROADBAND DEPLOYMENT and NETWORK NEUTRALITY 42-1Intercarrier and USF Compensation Granular Issues22(BILL & KEEP UNIFY ACCESS/PREEMPT STATES INCLUDE RECIPROCAL COMPENSATION SEPARATE RATES FOR RURAL EMBEDDED OR FORWARD LOOKING COST CAPACITY BASED CHARGES INTERCONNECTION RULES USF REPLACE ACCESS REVENUE ABOVE BENCHMARK USF  Who Pays  What do they pay for  Why? Who Cares / Who Listens / Why??? How do we get them to listen? Substance and Politics_P_(The Fundamental Principle Is Still Valid)) P Why should the costs of rural carrier networks be borne by anyone other than rural customers through the charges for service they pay? The Original Public Policy Tool/Trade-off  Bell System Was Not Required To Serve; Universal Service achieved in regulated environment. How was it done? Load rates on users who gained the most (originally business and long distance users) from the ability to  reach out and touch someone. (You have to be old enough to remember the Bell System reach out ads. ) Everyone Benefits  Everyone Pays A Fair Share L(PP*`"Applying The Fundamental Principle## How Was It Maintained? Technological Evolution and Maintaining Universal Service Are Not New Ideas Access Charges + USF Applicable to evolving digital switching and competitive long distance, but how do we apply this to packet switching and broadband usage? J Z M Understanding The Opposition$ Squeezed On Two Fronts 1. Contributing Carriers want to save costs: Long Distance carriers smelled money in the form of savings  they saw a way to use the Act to avoid paying access costs by labeling them  subsidy. 2. Competitors want a piece of the pie  Nothing in the Act said that a competitive ETC should have access to the network cost recovery mechanisms of rate of return regulated incumbent rural LECs, but that s how the Act was implemented. zPPPP*%And How The Opposition Works(> Cass County and the  godfather allegations XIT and the wrongful insinuation of  game-playing planted in the press on the day of a Joint Board meeting. And bad press for other USF recipients  wireless carriers tying bottom line growth projections to USF receipts in Securities Filings; school and library scandals; rural health care scandals. And, most recently  Iowa  conference bridges   access pumping XP,PPmPPPWith Substantive Attacks . . .  x Growth of Fund + Allegations of Abuse Leads To Multiple Attacks And New Political Alliances Everyone Wants USF  wireless, CLEC, and even VoIP But, no one wants to pay for it. TP^#!And Political Attacks Long Distance says revenue base is diminishing  consumer support (AARP) Wireless claims  too much tax and consumer support (Tracfone effort   Keep USF Fair VoIP claims they should be free   don t tax the internet XNew Challenges $Barton Legislation Auctions AuditsJLosing An Asset And An Opportunity? Chairman Martin Understood the Issues "KI2 Controlling Fund growth Maintaining network support mechanisms through USF and intercarrier compensation Improving Contribution Mechanism F2}PyJWe Couldn t Have Said It Better . . .&&"  Universal service is not about competition. It is about providing service to those in areas where competition and market forces alone will not result in the services available in more urban areas of the country. Federal-State Joint Board on Universal Service En Banc Meeting Washington, DC, February 20, 2007 Chairman s Opening Remarks(V~& MAY 1 JOINT BOARD RECOMMENDATION!!( The Chairman s presentation to the Joint Board led to the May 1 2007 Joint Board recommendation and the May 1 2008 FCC Order to: 1. Recognize that the inordinate growth of the USF is largely due to the application of the identical support rule and the designation of multiple carriers in the same area; 2. Temporarily cap the funding available to competitive ETCs at annualized March 31, 2008; 3. Joint Board Recognized that permanent caps are already applicable to incumbent LEC funding which offsets the need for additional temporary caps in incumbents; 4. FCC commits to further action before end of year. H1PP<Pb Interim Cap Clears Way for Comprehensive Reform 22(vWorth quoting (because we all could have said it): Universal service support for carriers serving rural, high-cost areas is based on a formula that looks at a carrier s costs and revenues, both from end users and from intercarrier compensation. Many rural carriers currently collect a significant percentage of their revenues from intercarrier compensation in the form of interstate and intrastate access charges. If intercarrier compensation revenues are decreased, demand on the Fund increases as offsetting support payments go up. May 2, 2008 FCC Press ReleaseX3P P3 Directions To Solutions?"$2 The Federal-State Joint Board on Universal Service (Joint Board) releases the following statement: The Joint Board is taking a fresh look at high-cost universal service support. The Joint Board has tentatively agreed that: 1. Support mechanisms for the future will focus on: a. Voice b. Broadband c. Mobility 2. In addition to the principles set forth in the statute, support mechanisms for the future will be guided by the following principles: a. Cost control b. Accountability c. State participation d. Infrastructure build out in unserved areas 3. The equal support rule will not be part of future support mechanisms. FEDERAL-STATE JOINT BOARD ON UNIVERSAL SERVICE STATEMENT ON LONG TERM, COMPREHENSIVE HIGH-COST UNIVERSAL SERVICE REFORM WC Docket No. 05-337 CC Docket No. 96-45 September 6, 2007"3P}  !Strategy: Substance and Politics""(Recognize declining switched access Move access recovery to USF/RM Cannot resolve USF without resolving access  we will be trapped Proactively provide reasonable mechanism for rural rate of return carriers  Substance (Propose access (federal and state) transition and charge reductions over 5-7 year period Use known and measurable as interim model with cost showing fail-safe for needed investment. Access goes down, USF up during transition (as FCC indicated in release) Consider accelerated depreciation, VoIP proposal for interstate (Verizon and ATT), traffic factor change to move cost requirementZ  Substance (Propose development of new model during transition period to ensure broadband universal service Propose Expanded Use of Targeted USF, disaggregation with regulatory trade offs Lead the way on the  scrutiny, code of conduct "ZZ /Match Substance With Politics A Unified Message(0 Provide an effective and responsive unified telecom policy voice whenever possible on behalf of rural consumers and their communities to ensure that all Americans have access to affordable telecommunications services  regardless of where they live. 6 " d 2Match Substance With Politics Advance The Message3 Advance a favorable rural telecom agenda through pro-active and responsive education, targeted advocacy and messaging. Pro-actively educate policy makers in a manner that ensures favorable policies for rural telecom consumers. 6 " d -Match Substance With Politics Tell Our Story.iCapitalize on the promise of a viable a broadband future for all Americans through support for reliable, broadband-enabled networks. Position rural providers as leaders in deploying new and advanced services to meet the evolving needs of their customers. Pursue solutions-focused universal service reform initiatives that modernize the program for the future. *ii#1Winning The Regulatory Battles Will Not Be Enough22  Placing the customer on your broadband platform is the key. Broadband needed for all future opportunity for revenue growth. If the customer is on the competitor s broadband connection, the opportunity is lost regardless of whatever transpires on the regulatory front. (Batting 1000 on the regulatory front is not enough). LZL$ZA Difficult Dose Of Reality About The Viability Of The Traditional Landline Voice Business[[ 2-way voice migration to Broadband Access Line Loss - evolution of basic voice services available from both wireless providers and cable TV providers; generational shift is taking place leading to teenagers and young adults becoming less and less likely to use traditional landline. Migration of toll minutes to wireless and VoIP All this leads to significant loss of market share$P%bA Radical Recommendation From Last Year s Forum 21( To grow revenues and EBITDA, the RLEC must be dominant in broadband internet. To increase broadband penetration  consider pricing voice for what it is  a commodity, part of a bundle that packages voice with DSL. Consider sacrificing short term margins and pricing the voice plus broadband bundle near the price you currently charge for broadband.gZg&< To Dos That You Can Control ,((  To Do List: 1) Increase Broadband take rates  use of bundles 2) Consider vertical growth (new services, incremental margins) and horizontal growth (CLEC, potential initial use of UNE L or broadband wireless. 3) Critically evaluate all operating expenses and reduce costs. Collective efforts? 4) Evaluate your company s capital structure to make certain you are structured to focus on growth in the next years utilizing the financial tools that are available. 5) Utilize regulatory framework prudently for build-out of network to meet broadband needs (the segue to the regulatory issues) P2PPPPVPPPPPPXA Goal of 80% Penetration?( You said to get 80% take rate on broadband. How do you do that when customers don t have computers TV on demand  SkyAngel Content on demand  VUDU Identity Security - Lifelock Broadband Security  Ingrid Broadband Wireless Partners"fZZCloudy Crystal Ball Predictions Short Term: 1. FCC will impose total USF cap 2. FCC will implement or move further toward auctions 3. Nothing on Missoula access rate reductions; possible movement on Phantom Traffic. Long Term: More cost scrutiny related to USF and access/interconnection revenues. Long Term results for Rural Telecom Industry will depend on whether the grass roots political and community relations are restored while moving the customer base to broadband &  Back To the Future VP VThe Bottom-line Two to five years of deliberations, inertia, federal proceedings to establish new models and state proceeding attacks on access Status quo does not work in environment of lost access lines and declining access minutes. 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Kraskin . .%2 )KSKraskin@Independent    . . 2 )-. .2 )tel.com .-- 8]p-- @"Arial ^ww 0wf- 33.%2 Managing Change and '  #  . 33.(2 Benefiting From Change   ( #.@"ArialH Gww 0wf- 33.%2 yPlanning For Growth      . 33. 2 . 33.!2 New Opportunitiesn   .--"Systemf !-&TNPP &՜.+,0    nOn-screen ShowKraskin Lesse & Cossoni* %ArialTahoma WingdingsTimes New RomanVerdanaBlendsPowerPoint Presentation> The necessary, but limited regulatory and policy discussion, Regulatory As Tool, Not A Business Plan  All The Worlds A Stage BIG ISSUES LIST2Intercarrier and USF Compensation Granular Issues)The Fundamental Principle Is Still Valid#Applying The Fundamental PrincipleUnderstanding The OppositionAnd How The Opposition Works With Substantive Attacks . . . And Political AttacksNew Challenges KLosing An Asset And An Opportunity? Chairman Martin Understood the Issues &We Couldnt Have Said It Better . . .!MAY 1 JOINT BOARD RECOMMENDATION2Interim Cap Clears Way for Comprehensive ReformDirections To Solutions?"Strategy: Substance and Politics Substance Substance0Match Substance With Politics A Unified Message3Match Substance With Politics Advance The Message.Match Substance With Politics Tell Our Story2Winning The Regulatory Battles Will Not Be Enough[A Difficult Dose Of Reality About The Viability Of The Traditional Landline Voice Business2A Radical Recommendation From Last Years Forum To Dos That You Can Control A Goal of 80% Penetration? 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