Irregulators: Frozen Separations Factors Cause Malformed Rates

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An informal group of former FCC officials, State Attorney General’s Office experts and lawyers, and telecommunications consultants, have taken the FCC to task over its recent Order that extends the freeze of jurisdictional cost separations factors. The Irregulators, as this group calls itself, have filed a Petition for Review in the US Appeals Court in Washington DC.

They feel strongly that the Freeze Order is fatally flawed. Its assertion that Part 36 “does not apply” to price cap carriers is “contrary to the evidence, does not deserve…deference and is incorrect as a matter of law. The states are still required to apply Part 36 outcomes to price-cap carriers for ratemaking and other regulatory matters.”

The Irregulators further claim in their petition that “Extending the freeze was arbitrary, capricious and an abuse of discretion. Maintaining the freeze harms consumers, small cell and ‘5G’ wireless deployment and continued broadband growth will magnify current misallocations.” They maintain that the “FCC should have completely ended the freeze…requiring ALL CARRIERS (emphasis added) to update their separations allocations using truly representative data.”

The crux of their argument is that the freeze “over-allocates costs to intrastate, which means higher intrastate retail consumer prices for basic local services, and an under-allocation of costs to interstate. Malformed rates enable ILECs to undermine competition by putting price squeezes on potential and actual competitors.”

While the Irregulators make several valid points, we are still in favor of allowing small, rural ILECs the option of continuing to use frozen separations factors, rather than bearing the costs and headaches of developing new allocations.  For larger carriers in more competitive markets, updated factors would seem to make sense.

A compromise should be in order here.