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NECA pooling helps members manage cost recovery, cash flow and reporting obligations

By Bob Gnapp, Director – Member Training and Network Analysis

It's that time of year when members make decisions on whether or not to change their current tariff and/or pool participation. As the result of recent reforms, members must now also choose whether or not to tariff the new consumer broadband only line charge for this coming access year. 

This decision is perhaps more important than ever due to evolving telecommunications technologies, customer demands and regulatory change. While this changing environment is full of opportunities, it also presents new challenges and complexities. For example:

  • Companies have replaced large amounts of plant with newer technologies and begun restructuring their networks as part of the IP transition. At the same time, new cost structures and recovery mechanisms are being put in place along with new buildout obligations.

  • Recent regulatory changes such as the March 2016 USF RoR Reform Order have increased the potential for cash flow disruptions and heightened the demand for new rules compliance and reporting expertise.

Remaining in or reentering the NECA pools may give your company the best opportunity to thrive in this evolving telecommunications environment.

Cost recovery

In recent years, predicting future costs, demand and revenue has proven quite challenging for many members. With recent regulatory changes and buildout requirements, forecasting may become even more difficult. 

Outside the pools, errors in forecasting can adversely affect a company's ability to fully recover its costs. Inside the pool, these risks are shared among other pool members, minimizing the effects of inaccurate forecasting on any individual pool member. 

The pooling mechanism also helps members realize the authorized rate-of-return on interstate investment on a timely basis. Earning the authorized RoR for common line and traffic sensitive switched access involves relying on cash flows over long periods that are based on projections and are not finalized until support true-ups are processed. Pooling stabilizes cash flow during these long periods before true-ups. Traffic sensitive special access revenue and cost forecast misses can impact a company's full cost recovery significantly if not stabilized by the pooling of forecast variances among a large group of companies. 

Cash flow stability

Stable cash flow is paramount to any business. Cash flow disruptions from support true-ups as well as unforeseen events such as natural disasters, or loss of large customers due to competition, relocation or bankruptcies can occur. Fortunately, pooling protects members against these unexpected cash flow disruptions, again through risk sharing of forecast misses among a number of companies.

Pooling helps protect members by smoothing out cash flow timing differences between settlement net balances and USF payments. It also helps mitigate cash flow disruptions that may result from forecast errors affecting CAF BLS and CAF ICC support. Pooling of support provides stability and enables companies to recover costs and avoid exposure to under-or over- payments in support.

Reporting obligations

NECA prepares and helps facilitate the preparation of mandatory data collections and CAF true-ups and files that data on behalf of its pool members. Recent FCC rule changes have substantially increased the complexities of these mandatory data collections and filings. Companies that leave the pool must spend considerable time and/or third party expense to manage these data requests and true-ups on their own, in addition to bearing the risk of penalties or forfeiture of funds for missed or inaccurate filings.

These changes have also increased the burden of FCC rules compliance. Our regulatory experts closely monitor FCC activity with regard to access tariffs and rule changes. NECA staff members help keep you informed of how these complex matters affect you, and through analysis and reviews, help to assure your compliance. NECA also helps pool members with the provision of backup data documentation required for USAC and other audits.

We're here for members

NECA is dedicated to providing outstanding member service and communications as we work together through the transitions facing the industry. We are committed to helping you adapt to the new regulatory landscape and continuing to deliver the vital communications services needed to keep customers connected. 

Filed under January 2017, Tagged with NECA, Pooling

Senior Editor - Linda Zinner 
Editor - Rocky Marcelle     

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