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Commission Document Attachment

DOC-326703A5

ORAL STATEMENT OF

COMMISSIONER AJIT PAI

APPROVING IN PART AND DISSENTING IN PART

Re:
Connect America Fund, WC Docket No. 10-90, Establishing Just and Reasonable Rates for
Local Exchange Carriers
, WC Docket No. 07-135, Developing a Unified Intercarrier
Compensation Regime
, CC Docket No. 01-92, Universal Service Reform – Mobility Fund, WT
Docket No. 10-208, ETC Annual Reports and Certifications, WC Docket No. 14-58.
In the Universal Service Transformation Order, the Commission performed the Heraclean task of
reorienting the Universal Service Fund away from supporting telephone service and toward supporting
broadband service. But no commissioner is the child of Zeus, so it is unsurprising that the Commission
made some mistakes and left some labors unfinished. So here we are, reconsidering the Transformation
Order
for the seventh time. I welcome the continued collaboration with my colleagues, but I fear that
some of today’s decisions just set us up for reconsiderations eight, nine, and beyond. In particular, I
strongly disagree with the Commission’s decision to substantially increase many rural Americans’ phone
bills. I accordingly approve in part and dissent in part.
To start with the positive, today’s order strikes the quantile regression analysis (QRA)
benchmarks from our books. As Chairman Wheeler likes to say, this is a big deal. I applaud him for
tackling this challenge, even though the benchmarks had been unanimously adopted in the
Transformation Order.
This has been a long and hard struggle. When I first questioned whether the QRA benchmarks
were good policy in 2012, many, including some in this building, told me that eliminating them was a
hopeless cause and incremental change was all that could be accomplished. But as the QRA benchmarks’
impact became more apparent, the tide turned. A unanimous vote for adopting the benchmarks turned
into a unanimous vote to repeal them.
As we recognize today, whatever the intended purpose of the QRA benchmarks, in practice they
chilled the investment climate and impeded the deployment of broadband to rural Americans. Even the
U.S. Department of Agriculture’s Rural Utilities Service told us that carriers had stopped taking out loans
to deploy broadband because of them. The QRA benchmarks introduced substantial uncertainty into the
marketplace. Carriers had no idea what support they would be receiving from one year to the next.
That’s a big problem. Investing in rural America is not a one- or two-year decision but a ten- or twenty-
year commitment. Therefore, our policies must reflect the unique challenges that rural carriers face when
building their networks. Just as important, the QRA benchmarks were not designed to save the Fund a
dollar, so keeping them on our books just meant further hardships for rural America with no federal
benefit.
I am also pleased that my colleagues agreed with my suggestion to propose a stand-alone
broadband funding mechanism for rate-of-return carriers serving the highest-cost reaches of our country.
Through a quirk of regulatory history, our rules offer universal service support to such carriers to build
out broadband, but only when they bundle their broadband services with traditional telephone lines. That
system has increasingly come under strain as consumers flee landlines in favor of wireless and over-the-
top alternatives. Indeed, it has put some carriers to the Hobson’s choice of offering stand-alone
broadband—which urban consumers have and rural consumers want—and losing universal service
support, or denying consumers that option, only to have them drop service altogether. The net result is
that rural carriers hold back investment because they are unsure if they can deploy the services that
consumers are demanding.
A stand-alone broadband mechanism should correct this vestige of our outdated rules. It would
give consumers the real option of choosing whether they want to purchase broadband and telephone

service from the same company. Removing this barrier will give carriers more assurance that legacy
regulations won’t prevent them from responding to consumer demand. This will increase broadband
deployment. And all of this will be done within the existing budget, something everyone with a phone
line can celebrate. For these reasons, I hope that we move forward quickly to adopt final rules
implementing a stand-alone broadband mechanism.
Unfortunately, I cannot support every aspect of the item. One particular problem is the
Commission’s reaffirmation of the “rate floor,” an unfortunate legacy of the Universal Service
Transformation Order
. Under that policy, the FCC sets a minimum price that telephone companies can
charge their customers for local telephone service—and penalizes those companies that do not comply
with this government mandate. And as a result of that policy, over one million rural Americans can
expect their local telephone rates to increase by up to 46 percent as the rate floor rises from $14.00 to
$20.46 per month.1
By design, the rate floor targets our farmers, our ranchers, our small-town entrepreneurs, and
other rural Americans for a significant rate hike. It “will harm access to service for some of the most
vulnerable consumers in rural America”2 and “will impose a disproportionate burden on older Americans,
who are much more likely to be living on fixed incomes.”3 In other words, the rate floor targets those
very Americans who are still waiting for the economic recovery to arrive.
But it won’t affect Washington, DC. Even though the local phone rate in the District of
Columbia is $14.10, it’s not subject to the rate floor.4 As a consequence, the FCC will be directing rural
Americans to pay 45 percent more for local phone service than those living in the nation’s capital do.
That’s not a problem for residents of northwest Washington, but I doubt it seems fair to residents of
northwest Montana.
Another result of the rate floor will be less broadband deployment. Line loss is an all-too-real
problem for rural telephone companies today—about one in seven households with copper dropped their
landline in 20125—and government-mandated price increases are only likely to send more consumers off
the network. That makes it harder for rural companies to plan for the future and invest in their networks.
That creates yet another disincentive to offer stand-alone broadband since those same companies may
have to compete with over-the-top providers not subject to the same government-mandated price
increases. In short, that moves us in the wrong direction.
So what justifies mandating higher prices and less broadband deployment for rural America? Not
the Communications Act. It requires that telephone rates in rural areas be “reasonably comparable to
rates” in urban areas and “affordable” to all consumers.6 And until the Universal Service Transformation

1 See Petition for Extension of Time by ERTA, ITTA, NECA, NTCA, USTelecom, and WTA, WC Docket No. 10-
90, at 5 (Mar. 11, 2014) (Rural Carrier Petition) (“[I]f the rate floor is raised as high $20, about 1.2 million
customers will incur sudden rate increases.”).
2 Letter from Jodie Griffin, Public Knowledge, Olivia Wein, National Consumer Law Center, Amalia Deloney,
Center for Media Justice, Todd O’Boyle, Common Cause, Edyael Casaperalta, Center for Rural Strategies, and the
Rural Broadband Policy Group, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al., at 1 (Apr. 15,
2014) (Public Knowledge et al. Ex Parte Letter).
3 Letter from David Certner, Legislative Counsel and Legislative Policy Director, AARP, to Marlene H. Dortch,
Secretary, FCC, at 2 (Apr. 15, 2014) (AARP Ex Parte Letter).
4 See Wireline Competition Bureau, 2014 Urban Rate Voice Survey Results, http://go.usa.gov/kRBY (Apr. 18,
2014).
5 See Statement of Commissioner Ajit Pai on the Release of the 2013 Local Telephone Competition Report (Nov.
26, 2013), available at http://go.usa.gov/kU4J.
6 47 U.S.C. § 254(b)(1), (3).
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Order, those principles had consistently been interpreted to mean that our universal service policies
should aim to reduce—not increase—the amount that rural consumers pay for telephone service.7 Which
is hardly surprising given that rates can hardly be made more “affordable” by increasing them.
Moreover, the rate floor assumes that what’s affordable in our country’s largest cities is the same
as what is affordable in the countryside.8 But that’s just not the case. Jobs pay more in the big cities.
And families living there often have more disposable income. To illustrate, compare Washington, DC,
where the monthly rate will remain $14.10, to Ouachita County, Arkansas, where we have mandated an
increase up to $20.46. In DC, the median household income is $64,627; in Ouachita County, it’s not even
half that, $32,032. So what does that mean? One year of phone service in DC will cost $169.20, or about
0.26 percent of the median family’s household income. But one year of phone service will cost the
median Ouachita County family $245.52, so that family will need to spend 0.77 percent of their annual
income on phone service, about three times as much as the family in Washington, DC. I cannot fathom
how mandating such a result serves the public interest.
Nor, as some have claimed, does the rate floor reduce excessive subsidies for basic phone service.
Recall that the rate floor was expressly designed to increase rural rates without reducing the subsidies that
carriers receive. So long as carriers raise their rates up to the rate floor, they receive the same subsidy.
Even with rural consumers paying more, there’s no savings to the Fund that could be used to decrease
everyone’s rates or deploy more broadband.9
So what justifies the rate floor policy? How should we respond to consumers like Tressa White
of Ouachita County, Arkansas, who wrote the Commission to complain that her local telephone company
is raising rates to meet our floor? She asked, what she will “be receiving because of this increase in my
monthly rate.”10 In a word, Tressa, nothing. As the AARP puts it, the rate floor “is a punitive burden on
those households that continue to purchase wireline telephone service, with the higher rates benefitting
only the local telephone company.”11 Or as the National Tribal Telecommunications Association wrote,
“asking . . . consumers to pay more for nothing in return is counterproductive to universal voice and
broadband service goals.”12 As far as I can tell, the purpose of the rate floor is to increase rural telephone
rates for the sake of having higher rural telephone rates.

7 See, e.g., 47 C.F.R. § 54.316 (2011) (requiring states to certify that state-set rates in rural areas were no higher than
two standard deviations above the average urban rate).
8 As Arctic Slope points out, “a broad brush policy that ignores the totality of disparity between urban and rural
America and instead focuses on one aspect of disparity is poorly conceived. For instance, in ASTAC’s serving area,
gasoline can exceed $10 a gallon, staples like milk $18 per gallon and electricity is $.29 per kilowatt hour, almost
three times the national average of $.1029 per kilowatt hour. . . . For those who choose to live and work in rural
America, there is no comprehensive comparability to urban areas where there is greater median income, better
health care options, transportation and electrical grid infrastructure, faster and inexpensive broadband and advanced
wireless communications.” Letter from Steve Merriam, CEO, Arctic Slope Telephone Association Cooperative,
Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-337, at 1 (Apr. 16, 2014).
9 To be fair, not all carriers may be able to increase their rates to keep pace with the ever-rising rate floor the
Commission adopts today. As the rural carriers ably documented in seeking an extension of time to comply with
this year’s rate floor, many states cap yearly rate increases, which may make strict compliance with the rate-floor
mandate impossible. See Rural Carrier Petition at 3 n.12. But it is a strange thing to tout the monetary penalties we
impose on carriers that do not comply with our mandate because states do not permit them to increase their rates as
high or as quickly as the FCC would like.
10 Tressa White Comments, WC Docket No. 10-90 (Apr. 21, 2014).
11 AARP Ex Parte Letter at 3.
12 National Tribal Telecommunications Association Comments at 6 (Mar. 31, 2014).
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I am not alone in thinking this policy makes no sense. Over the past few weeks, we’ve seen an
outpouring of concern from all quarters about the continued implementation of the rate floor. Telephone
companies like Pioneer in Kansas, Copper Valley in Alaska, and Frontier in West Virginia oppose the rate
floor and the burden it will place on their customers.13 The independent carrier associations in Colorado,
Idaho, Nevada, Oregon, and Washington have called for a “moratorium” and a “re-examination of the
public policy issues surrounding the urban rate floor concept.”14 A group of rural telecom associations
has called on the FCC to “revisit the fundamental operation of the rate floor.”15 Public Knowledge, the
National Consumer Law Center, the Center for Media Justice, Common Cause, the Center for Rural
Strategies, and the Rural Broadband Policy Group have asked us to “hit the pause button, step back and
examine whether the proposed rate floor changes and implementation plan serve the underlying reasons
for creating a rate floor in the first place.”16
Nor is this a partisan issue. Senator Mark Pryor of Arkansas has urged us to reconsider the rate
floor, as has his colleague Senator John Boozman.17 Alaska Senators Mark Begich and Lisa Murkowski
and Congressman Don Young jointly have asked the FCC to freeze the rate floor and reexamine the
underlying policy.18 And Senator Jerry Moran of Kansas has reminded us that the rate floor “only makes
phone service less affordable in rural areas, where incomes are lower and families have fewer
telecommunications options.”19
Rural Americans aren’t asking for free phones or free service. They’re just asking the
government not to mandate a 46 percent increase in their monthly bill. And when so many voices make
such a reasonable request, it’s very disappointing that the Commission’s answer today is no. If we are
trying to keep rural America in mind in everything that we do, our response should be different.
Yet the Commission moves forward, deciding today the rate floor will go into effect, albeit later
than originally proposed. At least the delay is a good thing. By pushing back the first phase of the
increase to January 1, 2015, the Commission has opened up a six-month window for us to reexamine this
policy before it hits rural America.

13 See Pioneer Communications Reply at 4 (Mar. 31, 2014); Letter from David Dengel, CEO, Copper Valley
Telephone Cooperative, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-337, at 1–2 (Apr.
16, 2014); Frontier Communications Reply at 2 (Mar. 31, 2014).
14 See Comments of the Colorado Telecommunications Association, Idaho Telecom Alliance, Nevada
Telecommunications Association, Oregon Telecommunications Association, and Washington Independent
Telecommunications Association at 3 (Mar. 31, 2014).
15 See Reply Comments by NTCA – the Rural Broadband Association, the National Exchange Carrier Association,
Inc., the Eastern Rural Telecom Association, and WTA – Advocates for Rural Broadband at 4.
16 Letter from Jodie Griffin, Public Knowledge, Olivia Wein, National Consumer Law Center, Amalia Deloney,
Center for Media Justice, Todd O’Boyle, Common Cause, Edyael Casaperalta, Center for Rural Strategies, and the
Rural Broadband Policy Group, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al., at 1 (Apr. 15,
2014).
17 Letter from the Honorable John Boozman, U.S. Senator, to the Honorable Tom Wheeler, Chairman, FCC (Apr. 3,
2014); Letter from Mark Pryor, U.S. Senator, to the Honorable Tom Wheeler, Chairman, FCC (Mar. 26, 2014).
18 Letter from the Honorable Mark Begich, U.S. Senator, Lisa Murkowski, U.S. Senator, and Don Young, U.S.
Representative, to the Honorable Tom Wheeler, Chairman, FCC, at 3 (Apr. 21, 2014).
19 Letter from the Honorable Jerry Moran, U.S. Senator, to the Honorable Tom Wheeler, Chairman, FCC (Apr. 22,
2014).
4

That’s especially important because the Commission only released the rate-floor data and
methodology last Friday, just five days ago.20 With six more months, we can respond to the request of
our state counterparts—those with actual authority over local telephone rates—to let the public study and
comment on the data and methodology before the rate floor takes effect.21 That would be consistent with
our past practice.22 It also would give time to the Universal Service Administrative Company to collect
data on the actual number of consumers that will be hit by the rate floor (information the order expects
will be collected this July).
So as the tide turned with the QRA benchmarks, I still hold out hope that it can be turned here.
Just as tinkering around the edges wasn’t good enough to save the QRA benchmarks, I don’t believe that
phasing in a big price hike for rural Americans will make this issue go away. I, for one, intend to keep
making my voice heard.
Our decision with respect to the rate floor is all the more disappointing because today the
Commission missed a chance to substantially reduce excessive subsidies in a manner that actually would
have saved consumers money. Specifically, this item recognizes that wireless providers are deploying
mobile broadband far more quickly, and far more extensively, than the Commission anticipated in the
Transformation Order. Accordingly, the Commission does not need all the funding it has collected for
the Mobility Fund Phase II in order to extend mobile broadband service to otherwise unserved areas
including tribal lands. I therefore proposed that we return up to $400 million a year to American
consumers over the next five years. Rather than take this approach, however, the order proposes to keep
the majority of the Mobility Fund Phase II intact—not because it’s needed for deployment or even for
maintaining service but instead because that’s how much regional wireless providers are getting, even
when they are using that money to compete with private investment and duplicate each other’s service
areas.
In sum, my proposals, taken together, would have cut unnecessary subsidies, protected rural
Americans from substantial price increases, and lowered all consumers’ phone bills. Unfortunately,
today’s item does the opposite. It leaves excessive subsidies untouched, raises rural Americans’ phone
rates by up to 46%, and doesn’t return any money to American consumers. As a result, I must
respectfully dissent in part from today’s item.

20 See Wireline Competition Bureau, 2014 Urban Rate Voice Survey Methodology, http://go.usa.gov/kRZJ (Apr. 18,
2014); Wireline Competition Bureau, 2014 Urban Rate Voice Survey Results, http://go.usa.gov/kRBY (Apr. 18,
2014).
21 Petition of NARUC, WC Docket No. 10-90, at 7 (Apr. 15, 2014).
22 As NARUC points out, until April 21, “unlike prior surveys, there [was] no public access to the underlying
data/methodology.” Petition of NARUC, WC Docket No. 10-90, at 7 (Apr. 15, 2014).
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