According to a recent news release, Federal Communications Commission (“FCC”) Chairman Ajit Pai has circulated an Order that will allocate over $500 million to promote rural broadband deployment. While the news release offers only general information on a few aspects of the item, presumably the FCC will use broadband reserve funds to address the current shortfall in high-cost universal service fund (“USF”) support. Rate-of-return carriers subject to revised cost-based rules have been urging the FCC to take this action for the past year because the funding gap has forced rural carriers to roll back broadband deployment plans and has resulted in higher prices and slower broadband speeds in rural America.

The shortfall is a consequence of the FCC’s budget control mechanism that polices the rate-of-return portion of the universal service high-cost fund by reducing carriers’ disbursements when total support is forecasted to exceed $2 billion in a given year. [1] Rate-of-return USF disbursements are further restricted by the FCC’s limitation on operating expenses that are eligible for support and the capital investment allowance mechanism that limits the extent to which USF support may be used for future capital investment. The insufficient budget has produced regulatory uncertainty and negatively affects short-term and long-term investment plans, all of which undermine the high-cost USF program.

In a July 2017 ex parte, NTCA-The Rural Broadband Association estimated the USF shortfall at $173 million annually. NTCA has advocated for use of high-cost USF reserve funds to help ease the stranglehold caused by the insufficient budget.

When the FCC adopted the high-cost budget in 2011, it directed the Universal Service Administrative Company to create a Connect America Fund (“CAF”) reserve account to store excess USF contributions in the event actual contributions exceeded demand. The FCC eliminated the CAF reserve account in March 2016, and directed USAC to credit excess contributions to the high-cost account and use the funds to reduce high-cost demand in any quarter it otherwise exceeds $1.125 billion. [2] In November 2017, the FCC directed USAC to continue retaining any excess cash in the high-cost account at the end of 2017.

The FCC has previously authorized use of excess funds from the high-cost account for various rural broadband initiatives, including funding the creation of the Alternative Connect America Cost Model (A-CAM). The FCC first set aside $150 million annually ($1.5 billion over the 10-year term) in existing high-cost reserve funds to create the A-CAM, and then increased that amount by an additional $50 million annually. [3]

Chairman Pai’s proposed Order will allocate over $500 million to promote rural broadband deployment. The news release does not indicate whether this is $500 million annually, or whether the $500 million is a total amount to be spread out over a term of years. Based on the limited data on existing reserve funds, it’s likely that the additional $500 million will be spent over a number of years. Also, it's unclear if the additional funding will go only to rate-of-return carriers subject to the FCC's revised cost-based USF rules, or whether some will be used for the A-CAM. We won't know until the Order is released, But, we do know that it should have a positive impact on rural broadband deployment.

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[1] See Connect America Fund, WC Docket No. 10-90, ETC Annual Reports and Certifications, WC Docket No. 14-58, Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Report and Order, Order and Order On Reconsideration, and Further Notice Of Proposed Rulemaking, FCC 16-33 (rel. Mar. 30, 2016) (Rate-of-Return Reform Order). The FCC established a defined budget for the high-cost component of the USF for the first time in the 2011 USF/ICC Transformation Order.

[2] Rate-of-Return Reform Order at n. 130.

[3] Connect America Fund, WC Docket No. 10-90, Report And Order And Further Notice Of Proposed Rulemaking, FCC 16-178, ¶ 7 (2016).