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Wednesday, April 10, 2013

No free phones? O-PPOE, take me away!

Hear that howling?  It's cell phone providers, upset by the FCC's latest proposal on free phones.  If this proposal were dated April 1 instead of April 9, I would have suspected an April Fool's joke.  I've said before that applicants should be paying for their own phones.  I'm just shocked to hear the FCC say it.  After all, they released a Clarification Order just to carve out a loophole for free cell phones.  Of course, that loophole did blow up in their face.  [My apologies to those of you riled by the heinous mixed metaphors in those last two sentences.]

I like the new proposal: no free ineligible stuff crammed into a bundle.  You want to get a phone with your cell phone service, you have to remove the cost of the phone from your funding request.  As I've pointed out, in some cases the cost of the phone is equal to the cost of the two-year contract, so you're left with an eligible cost of $0.

I would be jumping up and down, but there is a cynical voice in the back of my head saying that the FCC just published this proposal so that cell phone providers would howl, and point out that they pay a lot into the fund.  They could point out that the cost of free handsets is not cost-allocated out when they calculate their contribution to the USF.  Also, they could follow the lead of the Web hosting companies, and get their clients to spamment the FCC.  So I'm holding my celebration until this proposal becomes a rule.

The FCC also seeks comment on ways to reduce the administrative burden on applicants who will now have to cost-allocate out the ineligible handset cost.  Cost allocation is difficult with some equipment, like a videoconferencing endpoint, where you can't buy the eligible CODEC without the ineligible microphone, but with cell phones, it's dead easy.  Here are three easy ways off the top of my head to determine the cost of your cell phone:
  1. Tell your cell phone carrier that you want a new phone without extending your contract.  You can probably do this online, and you'll see the cost of the phone.
  2. Use state contract pricing.  State contracts generally acknowledge that free cell phones are bad public contracting.
  3. Go online and find someone selling an unlocked version of the phone you want.  Walmart has a nice selection, as does Amazon.
The administrative burden of determining the cost of a cell phone is trivial.
Interestingly, the FCC has anticipated the next loophole that service providers will try to use to provide free handsets: ancillary use.  But there's no need to worry, because, as I've said before, free cell phones fail miserably in trying to satisfy the conditions for ancillary use:
  1. "Insubstantial component": Nope.  As I've already said, in some cases, the total of the monthly payments on a two-year contract is close to the cost of the phone.  And in most cases, the cost of the phone is around 50% of the cost of the two-year contract.
  2. A separate price cannot be determined: No again.  Give me the model of phone you want, and I'll give you the price in 2 minutes.  I gave you three ways to do it a couple of paragraphs back.
  3. "Most cost-effective means of obtaining the eligible functionality without regard to the value of the ineligible functionality": And one more "no."  Plans that don't include the option to get a free phone are cheaper than plans that do.  They're just harder to find (unless you can use state contract).
Sorry, no ancillary use.
But the FCC didn't address the loophole that providers will be able to shove handsets through: On-Premise Priority One Equipment (O-PPOE).  Let's see how they fare against the "Tennessee Test."  Here are the requirements laid out by USAC.
  1. Same service provider:  Yup.
  2. Maintenance by service provider: Sure.  Cell phones have a warranty, and VoIP providers replace broken phones.
  3. No transfer of ownership: VoIP providers already do this.  Cell phone providers don't want to take back old cell phones (because of the cost of disposing of all the hazardous waste in a cell phone), but maybe they could be persuaded.
  4. Limited initial capital costs: Initial capital costs = $0.  Moving on.
  5. Cannot be used for any other purpose:  It's a phone.  Just a phone.
  6. Local network not dependent on O-PPOE:  Absolutely.  Unplug a VoIP phone, and everything but that phone works fine.  And cell phones are completely independent.
  7. Must allow sharing:  The idea of a router in a school building being shared is in most cases ludicrous, so maybe a phone is no more ludicrous.  The requirement is only that sharing be contractually and technically possible, not that sharing be practical, and certainly not that sharing actually has to occur.  So as long as I could let other people use my phone, we're good.
  8. Limited to WAN components: Yup, the phones have nothing to do with the local area network.
  9. Essential to Priority One service:  Uh-huh.  Disconnect the phone, no more service.
  10. Specific demarcation: In this case, the air in between your mouth and the phone.
  11. Continuous:  Another sticky one for VoIP providers.  The provider would have to do the cabling and provide switches.  In that case, there will probably be an initial capital cost.  But we'll keep it to less than 67% of the total cost for the first year.  For cell phone providers, no problem.
  12. Economically justifiable: No redundant components or unreasonable functional utility here.
  13. Must be telecom or Internet Access: Well, technically VoIP doesn't meet this criterion: the FCC hasn't decided whether VoIP is telecom or IA, so it's technically neither, but since the distinction is going away, maybe USAC will be revising this requirement.
So service providers will need to ignore reality to pass items 7, VoIP providers will have to do some work to pass item 11, and cell phone providers will have to take back old phones to pass item 3.  But I wouldn't put it past them.

But what they're more likely to do is bypass the Tennessee Test.  See, USAC says, "In the case of such a single basic termination component at the applicant's site, the requirement to meet all conditions as provided in this document does not apply."  Service providers can claim that a handset a basic termination component of their phone service.  Of course it isn't, but since "basic termination component" hasn't been defined, it's a wide-open loophole.

I hope that cell phone and VoIP providers get right on this, because after seeing that the FCC plans to close the free cell phone loophole, I have hope that once the O-PPOE loophole is stretched to such a ridiculous extent, the FCC will slam it shut.

Yes, the E-Rate Quixote has found a new windmill: O-PPOE should be out of the program.  My stance is that all equipment installed as part of a Priority One service should be forced to pass the Ancillary Use test.  That way, the FCC doesn't have to define "basic termination component" and we can get rid of the ridiculous list above.  I mean really, a loophole with 13 requirements?  So you order a T-1 line, it comes with a CSU/DSU, fine.  You order cable Internet access, if your cable company gives everyone a cable modem free (they usually do), then fine.  If your cable company chooses to charge $2/month for the cable modem, then suck it up and pay the whole $2 yourself.  If you want your cable company to give you a router/firewall, and that costs $10/month, then you have to shoulder that cost, too.

What should have just been a celebration has turned into another line of ranting.  Even I didn't see that coming.

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