The FCC's proposal to eliminate the exemption for service providers of mainly international services to contribute to the Universal Service Fund (USF) is facing a protest from a group of submarine cable providers, including Level 3 Communications (NYSE: LVLT), Southern Cross, OPT French Polynesia and PPC-1.
In its Notice of Proposed Rulemaking (NPRM), the FCC said that eliminating these exemptions would require international submarine cable operators that have cable connections into the U.S. make a quarterly contribution to the USF.
However, the coalition of submarine cable operators argues in their filing, submitted by Kent Bressie of Wilshire & Grannis, that unlike retail service providers, submarine cable operators can't pass through costs to end-users, a number of which "are located outside of the US and take the position that they have already negotiated the economic bases of their Indefeasible Rights of Use (IRUs) and leases in long-term agreements."
The coalition goes on to say that the proposed rule would not only drive revenue losses, but also force them to renegotiate hundreds of IRU and lease agreements with a number of their content and application providers, financial companies and other end-users of their bandwidth.
Another concern is the competitive dynamics of the submarine cable market. With a number of existing and new cable systems connecting the U.S. in operation, the group thinks that some operators might try to get around the rules, leaving those that put the USF fees into their capacity prices at a disadvantage.
Competition in the U.S. cable market will continue to rise as new cable systems such as Seaborn Networks' Seabras-1 submarine cable, which will provide a direct route between the Unites States and Brazil, goes live in 2014.
Other interested parties have until August 6 to comment on the FCC's NPRM.
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