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ICC/USF: $20B at Stake at the FCC
Wednesday, 12 November 2008 11:20
Does Ivan want reform?Verizon and AT&T killed the proposal because they didn't want to give up the $B/year windfall built in. They thought that would slip through. Martin asked everyone what concessions would get the deal through, and the key answer was “make sure consumers come out whole.” The bells wouldn't accept that , so Copps and Adelstein refused to join Martin and pass the deal. Four of the five commissioners wrote they want to vote on Dec 15th, but insiders think it will wait for the Democrats to take over. Martin's proposal does reform a system rife with abuse and ripoffs, while not doing a good job for the poor and rural it supposedly serves. There are dozens of sensible changes built into the bill.

 

More delay probably is a mistake for the bells and the Democratic commissioners. The Bells will have to cut a deal with Copps, Adelstein and someone new of similar ideas, so there's every reason to do so right away. Tauke and Cicconi have won nearly every battle for years, but they just lost the election. Their refusal to negotiate makes sense if and only if they think whoever replaces Martin will be more amenable. That's unlikely, although I don't know if Tauke and Cicconi have made that clear to Ivan and Randall, who make the decision.

Copps and Adelstein also have a reason to deal. This one will inevitably hurt some parties that will spend $millions to fight it. King Solomon couldn't find a way to keep everyone happy, and companies like CenturyTel are preparing major campaigns. That kind of fight is not what the Democratics want, a good reason to get this settled while Martin is Chair.

For the record, I strongly support USF where it's needed. I strongly despise those taking advantage of the system. I don't believe in subsidizing Glen Post's private jet to play golf in Florida. (WSJ)

The small rurals – and the state commissioners who support them – also have powerful incentive to get this through. Martin cut a deal with them at the last minute that provided them hundreds of millions a year in extra subsidies. They would be paid for customers they no longer serve. 20% of their customers will drop landlines in a few years. Martin promised to change the rules and let the small rurals collect for unused lines. He also accepted an “inflation” increase likely to raise the subsidies 20-30% more than the costs actually go rise. It's only common sense to use the telecom cost index, which is generally flat to down. Instead, they will get increases based on the much more rapidly rising consumer price index. The small rurals should be on their hands and knees, begging their longtime allies Copps and Adelstein to get this done.

The eight big “rurals” are set to be clobbered, and their people are warning some face insolvency. Unfortunately, everyone including Kevin Martin knows they have been wildly oversubsidized for years. They've been telling Wall Street “our margins are twice as high as the Bells,” and that got back to the chairman. He came up with a compromise that sounds fair to everyone except the eight companies. They could get a guaranteed 11.25% percent return, but he doesn't see any reason to give them government money beyond that. Makes sense to me, but several of these companies have been borrowing so much money they are in trouble with 11.25%. They used the money to buy each other at inflated prices, and to return to investors far more then actually earned in profits.

They should have kept their mouths shut, but were busy driving up the value of their options. Wall Street knew what was going on. “They shovel the money in the front door from the government, then shovel it out the back to us,” a senior analyst explained to me.