IOWA COMMUNICATIONS ALLIANCE & IOWA INSTITUTE FOR COOPERATIVES 2015 DIRECTORS TRAINING CONFERENCE Recent Regulatory Developments Burnie E. Snoddy West Des Moines, IA

RULES OF ENGAGEMENT  If you have a question ASK!!  Ask while it is on your mind and we are on that topic.  If I talk too much in acronyms or use terms that are not clear, SPEAK UP!  I would much rather talk with you than too you!!!

TELECOM INDUSTRY THINGS TO KNOW ABOUT FOR 2016

TOPICS OF THE DAY!  CAF ICC  CARRIER ACCESS BILLING ◦ DISPUTES  COPPER RETIREMENTS  LONG DISTANCE or EXPANDED LOCAL CALLING  LOCAL NUMBER PORTABILITY  IUB – RULE CHANGES

TOPICS OF THE DAY!  TARIFF ISSUES  SPECIAL ACCESS ◦ DARK FIBER LEASE/SALE/CONTRACT  IP TRANSITION ◦ VOIP  WHO IS CHECKING ◦ USAC ◦ NECA

INTERCARRIER COMPENSATION  INTERSTATE OR FEDERAL ACCESS REFORM ◦ THE RESULTS ARE NOW REALITY ◦ CURRENTLY WE ARE STILL ONLY TALKING ABOUT TERMINATING INTRASTATE ◦ SOME ICC HAS BEEN MOVED TO USF ◦ SOME REVENUE HAVE BEEN MOVED FROM USF TO END USER

UNIVERSAL SERVICE  INTERSTATE  A-CAM  OTHER MODELS  RATE FLOOR  NTCA PETITION  SWITCHED  BROADBAND

UNIVERSAL SERVICE  INTRASTATE  IOWA UTILITIES BOARD  NOTHING IN THE IMMEDIATE PLAN

 NEW ETC REPORTING REQUIREMENTS ◦ REPORTED FOR BOTH VOICE AND BROADBAND ( SEPARATELY ) ON FORM 481 ◦ ETC REPORTING WAS FULLY IMPLEMENTED IN 2014  FIVE YEAR SERVICE QUALITY IMPROVEMENT PLAN - §54.313(A)(1)  OUTAGE REPORTING - §54.313(A)(2)  UNFILLED REQUESTS FOR SERVICE - §54.313(A)(3)  COMPLAINTS PER 1,000 CONNECTIONS - §54.313(A)(4)  COMPLIANCE CERTIFICATION STATEMENTS - §54.313(A)(5), (A)(6), AND (A)(10)  NETWORK PERFORMANCE TEST - §54.313(A)(11) UNIVERSAL SERVICE

 NEW ETC REPORTING REQUIREMENTS (cont)  CURRENT PRICE OFFERINGS - §54.313(A)(7)  COMPANY IDENTIFICATION - §54.313(A)(8)  TRIBAL OUTREACH - §54.313(A)(9)  ANNUAL FINANCIAL REPORT - § (F)(2)  AREAS WITH NO TERRESTRIAL BACKHAUL - § (G)  ADDITIONAL VOICE RATE DATA - § (H)

COMPLIANCE CERTIFICATION STATEMENTS  REQUIREMENTS ◦ Certify compliance with service quality standards and consumer protection rules ◦ Certify the ability to function in emergency situations  Iowa: 199 IAC 22.6(5)  Maintain a minimum of two (2) hours of battery reserve  Access to a mobile power unit with enough capacity to carry the load which can be delivered on reasonably short notice and which can be readily connected  An auxiliary power unit shall be permanently installed in all toll centers and at all exchanges exceeding 4,000 access lines

COMPLIANCE CERTIFICATION STATEMENTS  Requirements (continued)  Certification that the pricing of the company’s voice services is no more than two (2) standard deviations above the national average urban rate for voice service.  Beginning July 1, 2014: Certification that the ETC is taking reasonable steps to provide broadband service at actual speeds of at least 4Mps/1Mbps, with latency suitable for real-time applications, including VoIP, and usage capacity that is reasonably comparable to comparable offerings in urban areas as determined in an annual survey, and that requests for such service are met within a reasonable amount of time.

CURRENT PRICE OFFERINGS  Requirements: ◦ COMPANY’S PRICE OFFERINGS (RATE FLOOR)  ETCS TO REPORT  VOICE PRICE OFFERINGS  BROADBAND PRICE OFFERINGS  ETCS SHOULD REPORT RATES IN EFFECT AS OF JANUARY 1 OF THE REPORTING YEAR  NOW THERE ARE PROVISIONS FOR A MID- YEAR UPDATE

COMPANY IDENTIFICATION  Requirements ◦ REPORT THE RECIPIENT’S HOLDING COMPANY, OPERATING COMPANIES, AFFILIATES, AND ANY BRANDING (A “DBA” OR BRAND DESIGNATION) AS WELL AS UNIVERSAL SERVICE IDENTIFIER BY SUCH ENTITY BY STUDY AREA CODES. ◦ OWNERSHIP OF MORE THAN 10%

ANNUAL FINANCIAL REPORT  Requirement ◦ Submission of a full and complete annual report of the company’s financial condition and operations as of the preceding fiscal year, which is audited and certified by an independent CPA in a form satisfactory to the FCC, and accompanied by a report of such audit. The annual report shall include:  Balance sheets  Income statement with revenue itemized by sources, including non- regulated revenue  Statement of cash flows  Necessary notes to clarify the financial statements

 Requirement (Cont) ◦ IN LIEU OF THIS ANNUAL REPORT, ANY ETC THAT FILES ANNUAL FINANCIAL REPORTS WITH THE RUS, MAY INSTEAD FILE A COPY OF ITS REPORT FILED WITH THE RUS ◦ OTHERS MAY FILE A REPORT SIMILAR TO THE RUS OPERATING REPORT ANNUAL FINANCIAL REPORT

RECORD RETENTION  ETCS AUTHORIZED TO RECEIVE UNIVERSAL SERVICE HIGH-COST SUPPORT ARE SUBJECT TO RANDOM COMPLIANCE AUDITS AND OTHER INVESTIGATIONS TO ENSURE COMPLIANCE  ALL ETCS SHALL RETAIN ALL RECORDS REQUIRED TO DEMONSTRATE TO AUDITORS THAT THE SUPPORT RECEIVED WAS CONSISTENT WITH THE UNIVERSAL HIGH-COST PROGRAM RULES FOR AT LEAST TEN (10) YEARS FROM THE RECEIPT OF FUNDING

 Recommendations: ◦ THE ITEMS THAT WERE BEING MAINTAINED FOR SEVEN (7) YEARS SHOULD NOW BE MAINTAINED FOR TEN (10) YEARS. ◦ NO SPECIFIC GUIDANCE FROM FCC AS TO WHAT SHOULD BE MAINTAINED. ◦ IF IN DOUBT, DON’T THROW IT OUT! RECORD RETENTION

NON-COMPLIANCE  LATE FILINGS – LOSS OF HCLS AND CAF SUPPORT FOR EQUAL NUMBER OF QUARTERS FILING IS LATE  FAILURE TO FULFILL PUBLIC INTEREST OBLIGATIONS MAY ALSO RESULT IN LOST SUPPORT  EXAMPLES INCLUDE: ◦ FAILURE TO MEET DEPLOYMENT MILESTONES ◦ NOT PROVIDE BROADBAND AT THE SPEEDS REQUIRED BY THE ORDER ◦ PROVIDE SERVICE AT REASONABLY COMPARABLE RATES

 ORIGINATING INTRASTATE ACCESS RATES  CAF REDUCTION WHERE THERE IS COMPETITIVE OVERLAP  KEEP OR CUT THE NECA 11.25% ROR  FINAL DECISIONS ON DATA ETC REPORTING  USF CONTRIBUTION PROCEEDING OUTCOME ◦ WHO SHOULD PAY AND HOW? ◦ WHAT SHOULD BE THE SIZE OF THE FUND? ISSUES AWAITING RESOLUTION

RECOMMENDATIONS  BOARDS MAY WANT TO CONSIDER APPOINTING THE MANAGER AS AN OFFICER TO ALLOW EASIER CERTIFICATION OF REGULATORY FILINGS  BUDGETING FOR BOTH CAPITAL EXPENDITURES AND REGULAR OPERATIONS  DOING MORE WITH LESS – CONTAIN/REDUCE EXPENSES ◦ SHARE SERVICES WHERE POSSIBLE (E.G. SWITCHING, EMPLOYEES)

RECOMMENDATIONS  ASSESS CONDITION OF CURRENT FACILITIES ◦ AM I STILL ON COPPER OR HAVE I UPGRADED TO FIBER? ◦ IMPROVE RELIABILITY AND LATENCY. ◦ UNABLE TO CURRENTLY PROVIDE 10MBPS/1MBPS, CAN I AFFORD TO INVEST? F ◦ AILURE TO OBTAIN 4MBPS/1MBPS WILL COULD RESULT IN THE REDUCTION OF SUPPORT.  PLAN FOR EVER INCREASING DEMAND FOR BANDWIDTH FROM CUSTOMERS AND THE POTENTIAL FOR THE FCC TO INCREASE THE REQUIREMENT FROM THE CURRENT 4MBPS/1MBPS

CARRIER ACCESS BILLING (CABS)  IXCS WITHHOLDING REVENUE ◦ POINT OF INTERCONNECTION ◦ INTRAMTA ISSUE ◦ PVU VOIP ◦ USAGE OR VOLUME

 NOTICES OF NETWORK CHANGES INVOLVING THE RETIREMENT OF COPPER ◦ RETAIL ◦ WHOLESALE (CARRIER) ◦ CERTIFICATION TO FCC  DEEMED APPROVED AFTER 180 DAYS ◦ TIMING OF NOTICE  90 DAYS ◦ NOTICE OF PROPOSED RULE MAKING  WILL ADD SIGNIFICANT ADDITION REQUIREMENTS COPPER RETIREMENTS

LONG DISTANCE  HOW SHOULD YOU PURCHASE LONG DISTANCE FOR RESALE  WITH ACCESS ?  WITHOUT ACCESS?  HYBRID?  VOIP OR TDM ?  EXTENDED AREA CALLING (EAS)  STATEWIDE OPTIONAL LOCAL CALLING?

LONG DISTANCE  CALL TERMINATION ISSUES ◦ LEAST COST ROUTING TO RURAL AREAS ◦ CALL BLOCKING ◦ POOR TRANSMISSION QUALITY ◦ CALL COMPLETION ◦ CONGRESS IS INVOLVED ◦ FCC ISSUED ORDER, BUT NO ENFORCEMENT ◦ NARUC INVOLVED ◦ IOWA UTILITIES BOARD DOCKETS

 WHILE LNP HAS BEEN WITH US FOR A WHILE WE MAY SEE SOME CHANGES IN THE COMING YEAR  ICONNECTIV IS SCHEDULED TO REPLACE NEUSTAR AS THE LNP PROGRAM MANAGER  THE FCC IS WORKING TO IMPLEMENT THE TRANSITION, BUT IT MAY HAVE SOME ROUGH TRANSITIONS AND COMPANIES WILL NEED BE AWARE OF THE PROCESS TO PROTECT CUSTOMERS LOCAL NUMBER PORTABILITY

IOWA UTILITIES BOARD  POSSIBLE RULEMAKINGS IN 2016: ◦ ETC REPORTING TO REFLECT THE CHANGES IN THE FCC’S TRANSFORMATION ORDER (CHAPTER 39 HAS BEEN ISSUED) ◦ QUALITY OF SERVICE RULES ◦ REMOVAL OF REFERENCES TO RATE REGULATION ◦ SLAMMING AND CRAMMING ◦ CUSTOMER RELATIONS AND BILLING AND ACCESS TO PRICING SHEETS ◦ DISCONTINUANCE OF SERVICE ◦ CYBER SECURITY

TARIFF ISSUES  ICA ACCESS TARIFF #1 ◦ INTRASTATE TERMINATING IS NOW EQUAL TO INTERSTATE RATES AND WILL FOLLOW THE INTERSTATE PHASE DOWN OF RATES ◦ INTRASTATE TERMINATING VOIP IS CONSIDERED INTERSTATE, BUT REALLY IS A MUTE POINT, EXCEPT FOR NECA REPORTING PURPOSES ◦ INTRASTATE ORIGINATING REMAINS UNCHANGED FOR THE TIME BEING  MOST COMPANIES FOLLOW THE NECA INTERSTATE ORIGINATING RATES

MODEL LOCAL TARIFF  WORK IS IN PROGRESS TO CLEAN UP THE CATALOG MODEL TO FIT WITH NEW RULES ◦ MOST COMPANIES HAVE TRANSITIONED TO A PRICE CATALOG MODEL

THE TRANSITION TO AN IP OR BROADBAND NETWORK? BROADBAND

HIGH BANDWIDTH SPECIAL ACCESS  THE FUTURE  BROADBAND  ETHERNET  IP TRANSITION/VOIP  DARK FIBER  CAPACITY!!!!

 WIRELESS DEPLOYMENT OF 3G OR 4G NETWORK ◦ WILL REQUIRE MORE BANDWIDTH TO CELL TOWERS ◦ WIRELINE COMPANIES COMPETITIVE PRICING ◦ REVENUE OPPORTUNITY FOR RURAL COMPANIES THIS DEMAND WILL GROW USING ETHERNET TECHNOLOGY  NOW DS1(1.5mb)  INTERIM (MULTIPLE DS1s OR DS3s)  FUTURE (10MB TO 1+GB OR MORE)  DARK FIBER??? WIRELESS BACKHAUL

USAC AUDITS  USAC IS CONDUCTING AUDITS ◦ MOST IN THIS YEAR ARE  LIFELINE  A FEW CONTRIBUTOR AUDITS  A FEW HIGH COST ◦ CONDUCTED BY CONTRACT STAFFING  MORE INFORMED AND PROFESIONAL  STRICT INTERPRETATION OF RULES

NECA REVIEWS  NECA REVIEWS ARE FOCUSING ON SPECIAL ACCESS ◦ IT IS THE ONLY RATE OF RETURN SEGMENT LEFT ◦ SPECIAL ACCESS HAS LONG BEEN NEGLECTED FOR ACCURATE BILLING & REPORTING ◦ NECA IS STRESSING TRAINING FOR ASR AND BILLING

CONGRESS  HOUSE PASSES FCC REFORM BILL ◦ THE HOUSE ENERGY AND COMMERCE COMMITTEE ISSUED A PRESS RELEASE ON NOVEMBER 16, 2015, ANNOUNCING THE HOUSE APPROVED LEGISLATION TO INCREASE TRANSPARENCY, EFFICIENCY AND ACCOUNTABILITY AT THE FCC. THE BILL REQUIRES THE FCC TO MAKE CERTAIN CHANGES TO ITS RULES WITHIN ONE YEAR, PUBLISH CERTAIN DOCUMENTS ON THE FCC WEBSITE, CREATE A SEARCHABLE ONLINE DATABASE FOR CONSUMER COMPLAINTS, AND GRANTS A TEMPORARY WAIVER OF THE ANTI-DEFICIENCY ACT UNTIL THE END OF 2020 FOR THE FCC’S UNIVERSAL SERVICE FUND. ◦ NOT LIKELY TO BECOME LAW

IS THERE A TOPIC I DID NOT COVER YOU HAVE QUESTIONS ABOUT? NOW IS YOUR CHANCE TO ADD YOUR TOPIC OF CONCERN! DID I MISS SOMETHING?

FINAL THOUGHTS  Keep your eye on regulatory changes that may affect you companies revenue and financial viability  Get involved in the legislative process, this is how large companies get things they want.  Stay in touch with your legislators, both Federal and Iowa  Think about your potential to influence from other perspectives

Thank You! BURNIE E. SNODDY Senior Telecommunications Consultant Kiesling Associates LLP Main number: Direct Line: