FCC Provides More Universal Service Funds to Rate-of-Return ILECs

January 3, 2019 | by Andrew Regitsky

FCC Provides More Universal Service Funds to Rate-of-Return ILECs

The FCC is off to a good start in 2019.  It used its December 12, 2018 meeting to issue a Report and Order in Docket 10-90 to provide more funding for rural rate-of-return (ROR) ILECs in exchange for these companies increasing their broadband deployment.  Hopefully, this will bring faster and more ubiquitous broadband to Americans living in rural areas more quickly.

In exchange for more funding from the Connect America Fund (CAF), the agency will require ILECs to expand the availability of their broadband service to enable downloads of at least 25/3 Mbps service, compared to the current 10/1 Mbps standard. 

The Commission will offer up to $67 million a year in additional support for carriers receiving funding through the CAF’s Alternative Connect America Cost Model (ACAM).  The agency believes this can increase by 100,000 the number of rural homes and businesses with access to 25/3 Mbps service.

Carriers will receive support of up to $200 per location.  In return, as noted, the Commission will increase their 25/3 Mbps deployment obligations. 

Specifically, under the current rules, carriers receiving A-CAM must deploy 25/3 Mbps service to the number of eligible locations equal to at least 25 percent, 50 percent, or 75 percent of the number of fully funded locations, depending on the density of the population in the carrier’s service territory.  Under the new rules, the 25/3 Mbps service requirement applies to 50 percent of fully funded locations for low-density carriers, 65 percent of fully funded locations for medium density carriers, and 85 percent of fully funded locations for high-density carriers.

The term of the revised offer will be ten years, beginning January 1, 2019, and running until December 31, 2028.  Effectively, this revised term extends A-CAM by two years for carriers that elect this revised offer.  These carriers will be obligated to meet the deployment milestones to which they previously agreed with respect to 10/1 Mbps service.  In addition, they will be required to meet similar milestones to deploy 25/3 Mbps service to the required number of eligible locations on a ten-year schedule beginning January 1, 2019.

ILECs currently receiving support through legacy universal service mechanisms will have the opportunity to voluntarily move to model-based support through a new ACAM offer, which should reduce their regulatory burdens.  In return, these carriers would be required to provide 25/3 Mbps service to all homes and businesses whose costs are fully funded through the ACAM cost model.

The Commission will increase the $1.4 billion annual budget for ILECs that continue to get support from legacy mechanisms by initiating an annual inflation adjustment, eliminating 2018 cuts, and setting a guaranteed floor of minimum support for each carrier.  In return, these ILECs would also be required to expand deployment of 25/3 Mbps service.

The Commission orders a reduction in the maximum per-line subsidy for legacy ILECs from the current $250 to $200 by July of 2021.  It also eliminates a capital expenditures allowance rule, which failed to incentivize investment by companies where it had been lacking or to rein in significant waste.

In addition to the Report and Order, the Commission issues a Further Notice of Proposed Rulemaking (FNPRM) that seeks industry comments on:

How to implement an auction mechanism for legacy rate-of-return areas that are overlapped or almost entirely overlapped by an unsubsidized provider.

How to address budgetary impacts resulting from carriers transitioning from voice or voice and broadband lines to broadband-only lines.

Comments are due 30 days after the FNPRM appears in the Federal Register.

FCC Chairman Ajit Pai is thrilled by the actions of his agency.  He issued the following statement:

Today, we take a major step toward closing the digital divide. The trees are thick: We’re substantially reforming the high-cost universal service support program for some of the country’s smallest rural carriers, and the program’s rules are complicated to say the least. But the forest is easy to see: We’re helping to ensure that rural Americans can participate in the digital economy...So what is the bottom line? As a result of today’s Order, many more rural Americans will have access to high-speed broadband service that will enable them to fully participate in the digital economy— entrepreneurship, telemedicine, precision agriculture, online education, and more.

The lone Democrat on the Commission, Jessica Rosenworcel, was in rare agreement with her Republican colleagues. 

Among other things, this effort included a new method for small carriers serving rural communities to secure support through a model-based system. Today, the FCC updates the support offered to those carriers dependent on this system. It also provides a new model-based offer for carriers that rely on the legacy support system that predates our Connect America Fund reforms. It updates the agency’s budget for universal service policy as well as broadband deployment obligations for some carriers. Finally, it asks about additional changes that may need to be made to universal service support systems to ensure it is updated for future broadband demand. This is a smart collection of updates to a cherished program built on the sound principle of connecting us all. It has my full support.

The next step for the Commission is to ensure that the broadband maps supplied by the industry reflect actual broadband deployment rather than an overly optimistic view to keep the FCC happy.  That will not be an easy task.