High Cost Program Competitive ETC Cap. October 2011 I Denver, CO

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1 High Cost Program Competitive ETC Cap October 2011 I Denver, CO

2 Overview What is the CETC Cap? How is the CETC Cap Calculated? IAS Nationwide Cap State-based Cap Disbursement with Both Caps Applied 2

3 High Cost Program What Is the CETC Cap?

which FCC views as a threat to sustainability of the Universal Service Fund.

emergency cap on the amount of HC support to CETCs.

4 What Is the CETC Cap? CETC cap is an FCC action taken to limit high-cost universal service support disbursements to CETCs. Reason for the Cap FCC concern over the rapid growth in CETC High Cost support, which FCC views as a threat to sustainability of the Universal Service Fund. Interim Solution FCC (released May 1, 2008) established an interim emergency cap on the amount of HC support to CETCs. Cap became effective August 1, Cap Exceptions Covered locations as described in FCC (Alaska Native regions; Tribal Lands). CETC may file cost data demonstrating that its costs meet the support threshold in the same manner as incumbent ETCs. 4

5 High Cost Program How Is the CETC Cap Calculated?

6 How Is the CETC Cap Calculated? FCC capped support for each state at the level of current period support that CETCs received in March 2008 annualized. Funding is shared among all CETCs within the state. CETC capped support is calculated in a two step process: 1. Calculate Interstate Access Support (IAS) Nationwide Cap 2. Calculate State-based Cap for all High Cost support components 6

7 How Is the CETC Cap Calculated? Nationwide IAS Cap USAC calculates the nationwide IAS cap factor. All CETC IAS calculated under identical support rules is reduced by the IAS cap factor. 7

8 How Is the CETC Cap Calculated? State-based Cap for All High Cost Components USAC calculates all high cost support for CETCs within a given state under identical support rules (uncapped). USAC calculates state reduction factor. USAC applies state-specific reduction factor to the all High Cost uncapped support amounts for each CETC. 8

9 High Cost Program IAS Nationwide Cap

10 IAS Nationwide Cap IAS is split into two separate capped dollar pools: One for ILECs One for CETCs Each cap is based on the March 2008 levels of IAS annualized. If the CETC IAS demand exceeds the March 2008 nationwide cap amount ($133 million annualized), an IAS reduction factor is applied to all CETCs IAS so that the current period disbursements remain at the March 2008 levels. 10

11 IAS Nationwide Cap Once the preliminary step of capping IAS on a nationwide basis is complete, capped IAS dollars are allocated to each state and added to other CETC support calculated under the identical support rule. When the statewide CETC cap is calculated, IAS may be subject to another reduction (nationwide and state-based factors). 11

12 IAS Nationwide Cap Example of IAS Nationwide Cap Each month, USAC calculates the nationwide IAS cap factor for CETCs using the nationwide uncapped support and the March 2008 Baseline support. This amount may change each month... which can affect the factor. 12

13 IAS Nationwide Cap Example of IAS Nationwide Cap: March IAS Baseline For State X Once USAC calculates the IAS cap factor, it is applied to the uncapped CETC IAS in each state nationwide. X = 13

14 High Cost Program State-based Cap

State-based Cap Support is calculated using a two-step approach:

under the identical support rule and sums these amounts by state

15 State-based Cap Support is calculated using a two-step approach: Step 1 USAC calculates the support each CETC would have received under the identical support rule and sums these amounts by state (with the exception of IAS that was already reduced in that nationwide IAS cap process). Step 2 USAC calculates the state reduction factor to reduce this amount to the March 2008 baseline amount. 15

existing (uncapped) rules and sums these amounts by state.

16 State-based Cap Example of State-based Cap: Calculation for State X USAC calculates the support each CETC would have received under existing (uncapped) rules and sums these amounts by state. State uncapped support (Sept.) Capped IAS as shown in Slide 13 Available state cap support 16

17 State-based Cap Example of State-based Cap: Calculation for State X USAC then calculates the state reduction factor. = Total state uncapped support divided by available state cap support gives you the State reduction factor. 17

18 High Cost Program Disbursement with Both Caps Applied

19 Disbursement with Both Caps Applied USAC applies state-specific reduction factor to the uncapped amount for each CETC in the state to arrive at the capped level of high-cost support. Where the state uncapped support is less than the available state capped support amount, no reduction will be required. 19

20 Disbursement with Both Caps Applied Example of Both Caps Applied: Calculation for State X IAS amount after IAS reduction factor has been applied to uncapped support (Column A x Column B) 20

21 Start USAC calculates the nationwide IAS cap factor. 1 Overview of Both Caps Applied Disbursement with Both Caps Applied IAS cap factor is applied to CETC IAS in each state nationwide. 2 USAC calculates support each CETC would have received under pre-existing rules by state (uncapped). 3 USAC calculates state reduction factor. 4 USAC applies state-specific reduction factor to the uncapped amount for each CETC. 5 Finish 21

22 Start 1 Disbursement with Both Caps Applied September 2008 Example Overview of Both Caps Applied IAS Nationwide cap calculated 5 Finish Statewide CETC support all components 22

ILEC Data Changes: LSS True-Ups ICLS True-Ups HCL Data Changes CETC Data Changes: Line Count Revisions Audit

23 Effect of Prior-Month Adjustments USAC conducts cap calculations for four separate years: 2008, 2009, 2010, and Data changes for current or prior periods will cause priorperiod adjustments. ILEC Data Changes: LSS True-Ups ICLS True-Ups HCL Data Changes CETC Data Changes: Line Count Revisions Audit Findings Waiver Orders Changes by one carriers for any given carrier may change support for all CETCs for any given year under the cap. 23

24 Thank You! To learn more, visit: Shane Ahn Senior Manager I High Cost Program

High Cost Program AN OVERVIEW

High Cost Program AN OVERVIEW November 2010 1 Overview Overview of High Cost Program High Cost Components Eligibility Criteria Resources Q & A 2 High Cost Support High Cost Support Ensures telecom rates