May 7, 2019 – Rate-of-return local exchange carriers have a very important decision to make in the next 41 days: move to Alternative Connect America Cost Model (A-CAM) II support or continue to receive legacy, cost-based universal service fund support. They have until June 17, 2019 to decide.

Even rate-of-return carriers that will receive less annual support under A-CAM II are considering the move. If they so choose, these “glide path” carriers will shift to A-CAM II under a transition process.[1] Specifically, in addition to model-based support, these carriers will receive transition support, which is based on the difference between a carrier’s A-CAM II support and 2018 legacy support claims. The number of years for which each glide path carrier will receive additional transition support is also based on the difference between A-CAM II legacy support.

The A-CAM II will use the same three-tiered transition process that was used for A-CAM I.[3]

Tier 1: 10% or Less – One Year Transition

If the difference between A-CAM II model-based support and 2018 legacy support is 10% or less, the carrier will have a one-year transition. In addition to model-based support, a carrier will receive 50 percent of that difference in year one, and then will receive model support in years two through ten.

Tier 2: > 10% But Not More Than 25% - Four Year Transition

If the difference between A-CAM II model-based support and 2018 legacy support is greater than 10% but not more than 25%, then the transition period will be up to four years. In addition to model-based support, a carrier will receive an additional transition payment for up to four years, and then will receive model support in years five through ten. The transition payments will be phased-down twenty percent per year, provided that each phase-down amount is at least five percent of the total legacy amount. If twenty percent of the difference between model support and legacy support is less than five percent of the total legacy amount, the carrier would transition to model support in less than five years.[4] For example, if legacy support were $100 and model support were $80, 20% of the difference ($20) is only $4, which is less than 5% of legacy support ($5), so in this case the carrier would receive $95 in year one, $90 in year two, $85 in year three and model support ($80) in year four.[5]

Tier 3: > 25% - Nine Year Transition

If the difference between A-CAM II model-based support and 2018 legacy support is greater than 25%, then the transition will occur over the full-term of the plan, with no extra transition support only in the final year of the term. In other words, a carrier will receive an additional transition payment for up to nine years, and then will receive only model support in year ten. The transition payments will be phased-down ten percent per year, provided that each phase-down amount is at least five percent of the total legacy amount. If ten percent of the difference between model support and legacy support is less than five percent of the total legacy amount, the carrier would transition to model support in less than ten years.

On May 2, 2019, the FCC’s Wireline Competition Bureau officially released A-CAM II support offers and associated broadband buildout requirements,[6] and it also released information about revised mandatory broadband deployment obligations that will apply to rate-of-return carriers that decline A-CAM II support offers and instead remain on cost-based universal service support.[7] Rate-of-Return carriers that will receive less annual support under A-CAM II can use the data released in A-CAM II Report 15 to determine their transition tier.

A-CAM II decision letters are due June 17, 2019. To elect A-CAM II for a state or states, a carrier must submit a letter signed by an officer of the company confirming its decision and committing to satisfy its broadband deployment obligations. Election letters should be sent to the Wireline Competition Bureau at ConnectAmerica@fcc.gov. If a carrier fails to submit an election letter by the deadline, it will be deemed to have declined the A-CAM II offer and will continue to receive cost-based universal service support.

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[1] Connect America Fund et al., WC Docket No. 10-90 et al., Report And Order, Further Notice Of Proposed Rulemaking, And Order On Reconsideration, FCC 18-176, ¶¶ 60-63 (Dec. 13, 2018) (2018 Rural Broadband Order).

[2] “For carriers electing the new model offer, we adopt 2018 claims as the base year for calculating transitional support. This is the most recent year for which complete data will be available when the new model offers are likely to be released.” 2018 Rural Broadband Order at ¶ 63.

[3] See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, Order and Order On Reconsideration, and Further Notice Of Proposed Rulemaking, FCC 16-33, ¶¶ 72-76 (rel. Mar. 30, 2016) (2016 Rate-of-Return Reform Order).

[4] 2016 Rate-of-Return Reform Order at ¶ 74.

[5] 2016 Rate-of-Return Reform Order at footnote 150.

[6] Wireline Competition Bureau Announces Alternative Connect America Cost Model II Support Amounts Offered To Rate-Of-Return Carriers To Expand Rural Broadband, WC Docket No. 10-90, Public Notice, DA 19-372 (May 2, 2019).

[7] Wireline Competition Bureau Announces Posting Of Information Regarding Revised Deployment Obligations For Incumbent Rate-Of-Return Carriers, WC Docket No. 10-90, Public Notice, DA 19-373 (May 2, 2019).