The Federal Communications Commission (FCC) has released a Report and Order, Third Order on Reconsideration, and Notice of Proposed Rulemaking that continue the FCC’s efforts to reform the high-cost universal service fund (USF) support mechanism rules that apply to rate-of-return carriers. [1]

In the Report and Order, the FCC has decided to increase funding for the Alternative Connect America Cost Model (A-CAM), so that all locations with costs above $52.50 per location will be funded up to a per-location funding cap of $146.10. That decision, the FCC estimates, will lead to a significant increase in locations receiving 25/3 and 10/1 Mbps broadband service, while also resulting in approximately $36.5 million more support per year for the 10-year A-CAM term. In the accompanying NPRM, the FCC is seeking comment on increasing the per-location funding cap to $200.

In the 2016 Rate-of-Return Reform Order, the FCC adopted rules allowing certain rate-of-return carriers to voluntarily receive model-based USF support derived from the A-CAM over a ten-year period, in exchange for meeting broadband buildout requirements

In the 2016 Rate-of-Return Reform Order, the FCC adopted rules allowing certain rate-of-return carriers to voluntarily receive model-based USF support derived from the A-CAM over a ten-year period, in exchange for meeting broadband buildout requirements. [2] As adopted, the A-CAM was set to provide support to all locations in a rate-of-return study area where average deployment costs are above a $52.50 funding benchmark, with support being capped at $200 per-location. [3] A-CAM eligible carriers received offers of support in August 2016, [4] but the total amount of support and transition payments for carriers that chose to move to the model exceeded the A-CAM’s 10-year budget by more than $160 million annually, forcing the FCC to make revised offers of support. The A-CAM funding cap was reduced to $146.10 per location, and because the revised amounts still exceeded the budget, support offers and associated deployment obligations were further reduced by varying percentages based on locations in a carrier’s study area lacking broadband service at speeds of at least 10/1 Mbps. [5] A total of 191 rate-of-return carriers received 228 revised offers of A-CAM support, [6] and 182 carriers accepted 217 offers in 39 states. [7] The FCC then sought comment on whether to allocate additional funding for the A-CAM, resulting in extensive advocacy by A-CAM carriers calling for additional funding of $200 per month, per location. [8]

The FCC will offer additional support up to $146.10 per-location to all carriers that accepted the revised offers of A-CAM support

The FCC has directed the Wireline Competition Bureau to offer additional support up to $146.10 per-location to all carriers that accepted revised offers of A-CAM support. [9] In other words, all locations with costs above $52.50 per location will be funded up to a per-location funding cap of $146.10. Deployment obligations will be adjusted to these funding constraints. The FCC estimates that its decision to raise the A-CAM per-location cap to a uniform $146.10 for all current A-CAM recipients could increase by more than 17,700 the number of locations that will receive 25/3 Mbps broadband service over the course of the 10-year support term, with another 14,000 locations receiving 10/1 Mbps.

To put these changes in motion, the FCC has directed the Wireline Competition Bureau to release a public notice announcing the revised model-based support amounts and corresponding deployment obligations, and providing A-CAM carriers with 45 days to confirm that they accept their revised offers. A carrier’s acceptance of its offer will be irrevocable. If all eligible carriers accept the new offer, it will result in approximately $36.5 million more support per year for the 10-year A-CAM term.

The FCC has directed USAC to use funding from the high-cost reserve account to cover support that would have been disbursed in 2017 at the $146.10 per-location cap support amounts. The FCC has further directed USAC to collect additional funds going forward to cover the increase in A-CAM support for the remainder of the support term. According to the FCC, this increase in A-CAM support does not impact legacy high-cost USF support. In the Notice of Proposed Rulemaking accompanying the Report and Order, the FCC is seeking comment on increasing the per-location funding cap to $200, along with increasing the overall high-cost USF budget for rate-of-return carriers.

While A-CAM rate-of-return carriers made a hard push for raising the per-location funding cap to $200, the FCC’s decision to offer additional support up to $146.10 per-location to all carriers that accepted revised offers of model-based support is still good news. Any additional support helps. Look for A-CAM carriers to continue advocating for a $200 cap in comments responding to the NPRM.

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[1] Connect America Fund, WC Docket No. 10-90, ETC Annual Reports and Certifications, WC Docket No. 14-58, Establishing Just and Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135, Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Report and Order, Third Order On Reconsideration, and Notice Of Proposed Rulemaking, FCC 18-29 (rel. Mar. 23, 2018) (Report and Order).

[2] 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, ¶¶ 17-79 (2016) (Rate-of-Return Reform Order).

[3] Support is provided in areas where costs are above a specified benchmark, referred to as the “funding benchmark.”

[4] Wireline Competition Bureau Announces Support Amounts Offered to Rate-of-Return Carriers to Expand Rural Broadband, WC Docket No. 10-90, Public Notice, DA 16-869 (2016).

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

[6] Wireline Competition Bureau Authorizes 35 Rate-Of-Return Companies To Receive More Than $51 Million Annually In Alternative Connect America Cost Model Support And Announces Offers Of Revised A-Cam Support Amounts To 191 Rate-Of-Return Companies To Expand Rural Broadband, WC Docket No. 10-90, Public Notice, DA 16-1422 (2016) (A-CAM Revised Offer PN). There was one exception to the FCC’s revised A-CAM offers. There were no revised offers for 35 carriers that received offers of model-based support that were less than the amounts of legacy USF support they received in 2015. Instead, the FCC locked these carriers into their original offers of A-CAM support, the $200 per location funding cap, and their original deployment obligations. These 35 “glide path carriers” accepted 45 offers of support. A-CAM Revised Offer Order at ¶ 7.

[7] Wireline Competition Bureau Authorizes 182 Rate-Of-Return Companies To Receive $454 Million Annually In Alternative Connect America Cost Model Support To Expand Rural Broadband, WC Docket No. 10-90, DA 17-99 (Jan. 24, 2017) (A-CAM 2nd Authorization PN).

[8] See Letter From Michigan A-CAM Companies to Marlene Dortch, FCC Secretary, WC Docket No. 10-90 (Dec. 7, 2017); Letter From Mississippi A-CAM Companies to Marlene Dortch, FCC Secretary, WC Docket No. 10-90 (Dec. 7, 2017). Other letters were submitted by A-CAM companies in Ohio, Pennsylvania, Alabama, Virginia, Colorado, Wisconsin, Oklahoma, and Minnesota.

[9] Report and Order at p 66.

[10] As of November 1, 2017, USAC estimated it would have $129 million left in the high-cost cash account at the end of 2017 that is not necessary for support payments to existing programs.