Decision Day Awaits Rate-Of-Return Carriers: A-CAM II Or Cost-Based USF
May 2, 2019 – Many rate-of-return local exchange carriers having a very important decision to make in the next 45 days: move to Alternative Connect America Cost Model (A-CAM) support or continue to receive cost-based universal service fund support.
Before deciding, these carriers will primarily compare how much annual support they will receive under each regulatory regime, along with the respective buildout obligations. On May 2, 2019, the FCC’s Wireline Competition Bureau officially released A-CAM II support offers and associated broadband buildout requirements,[1] 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.[2]
Carriers have until June 17, 2019 to indicate, on a state-by-state basis, whether they elect to transition to receiving model-based support.
A-CAM II Support
The FCC has officially extended a new cost model offer – dubbed A-CAM II – to those rate-of-return carriers that did not previously elect model support or universal service support pursuant to the Alaska Plan.[3] The new model support offer is similar to the original A-CAM offer but with several “critical adjustments, ” such as making it available to rate-of-return carriers that were excluded from the first A-CAM because they have deployed 10/1 Mbps broadband service to more than 90% of eligible locations. Carriers that will receive more annual support under the model than they currently receive are eligible, as are carriers whose offer will include no fully funded locations.[4]
Support Details
A-CAM II support amounts are based on a monthly funding threshold of $52.50 and a per location funding cap of $200. The $200 per location cap will not be reduced if a high percentage of carriers accept, and funding this new model offer will not affect the budget for rate-of-return carriers that remain on legacy cost-based support. A-CAM II includes a Tribal Broadband Factor – eligible locations in Tribal lands are subject to a funding threshold of $39.38 and a funding cap of $213.12. Also, A-CAM II will provide support in census blocks where a carrier or its affiliates have deployed fiber-to-the-premises or cable facilities.
Eligible Areas, No Challenge Process
To determine eligible census blocks, A-CAM will rely on broadband coverage data from the most recent FCC Form 477 (December 2017) to identify and exclude areas where an unsubsidized competitor presumably offers service. In other words, there will be no process to challenge the presence of unsubsidized competitors. Yes, you heard that correctly – there will be no challenge process.
A-CAM II Buildout Obligations
Support under A-CAM II will last for 10 years, beginning January 1, 2019. As for build-out obligations, A-CAM II recipients will be required to offer 25/3 Mbps or higher broadband service to at least the number of locations fully funded by the model by the end of the support term.[5] Further, carriers electing A-CAM II support must offer at least 4/1 Mbps to a defined number of locations that are not fully funded by the end of the support term. Specifically, rate-of-return carriers with a density of more than 10 housing units per square mile will be required to offer at least 4/1 Mbps to 50% of all capped locations; and carriers with a density of 10 or fewer housing units per square mile will be required to offer at least 4/1 Mbps to 25% of all capped locations.[6] A carrier’s remaining capped locations will be subject to the reasonable request standard. Additionally, carriers accepting A-CAM II also are required to maintain their existing voice and broadband service as of December 31, 2018.
Rate-of-Return carriers have known this was coming since December 2018, and already have had a look at preliminary A-CAM II data. Nevertheless, rate-of-return carriers will want to closely examine the official final data contained in four reports that make up A-CAM II Report 15:
Report 15.1 shows the state-level offer of model-based support for each carrier that is eligible to elect A-CAM II support, including the amount of annual support that would be provided over the 10-year term beginning January 1, 2019, and the total number of funded locations in census blocks that are eligible for support.
Report 15.2 shows the specific broadband obligations for each carrier, and its calculated density based on its submitted study area boundaries, land area, and census housing unit data. Report 15.2 shows both the number of “fully funded” locations and the number of “capped” locations. It also shows the specific number of locations where each carrier will be required to offer 25/3 Mbps broadband service; 4 /1 Mbps service, and the number of remaining locations subject to the reasonable request standard.
Report 15.3 shows A-CAM II support amounts, total eligible locations, and fully funded and capped locations by Tribal and non-Tribal component.
Report 15.4 lists census blocks in each carrier’s study area that are eligible for funding.
“Legacy” Cost-Based Universal Service Support
Those rate-of-return carriers that decline A-CAM II support offers and instead remain on cost-based universal service support, which comes with heftier broadband buildout requirements. In the December 2018 Rural Broadband Order, the FCC increased the “legacy” USF budget. Specifically, the USF budget for rate-of-return carriers subject to cost-based USF support will be based on 2018 uncapped support claims – roughly $1.42 billion – and subject to an annual inflationary factor to incrementally increase the budget each year (like the other USF support programs).[7] The budget increase came with a new obligation to deploy 25/3 Mbps broadband service – carriers previously had requirements to provide service with speeds of at least 10/1 Mbps.
Rate-of-return carriers receiving legacy USF support must use funding to deploy 25/3 Mbps service to a certain number of locations. A carrier’s deployment obligation is based, in part, on its total five-year forecasted Connect America Fund-Broadband Loop (CAF BLS) Support. These revised obligations are calculated based on the same methodology adopted in the 2016 Rate-of-Return Reform Order, but have been updated to reflect the increased budget for support as well as the increased 25/3 Mbps speed requirement. To determine a carriers buildout obligation, its CAF BLS forecast is multiplied by an appropriate percentage based on a carrier’s Form 477 reported deployment of 25/3 Mbps broadband service within its study area. Each cost-based rate-of-return carrier may choose to have its deployment obligations determined by one of two methods:
(1) The carrier’s Connect America Fund-Broadband Loop Support (CAF-BLS) amount divided by the average cost of providing 25/3 Mbps service, based on the weighted average cost per loop of carriers that have deployed 25/3 Mbps service to 95 percent or more of the locations in their study area, or 150 percent of the weighted average cost per loop of companies with similar density and level of deployment, whichever is greater, or
(2) The carrier’s CAF-BLS amount divided by the A-CAM II calculation of the cost per location of providing 25/3 Mbps service in the unserved census blocks in the carrier’s study area.
The Wireline Competition Bureau has released a spreadsheet detailing the deployment obligations under each method for each study area, as well as an explanation of the information used in the calculations. Instructions on how each carrier must make its selection between the two methods will be published in the near future by the Universal Service Administrative Company.[8]
Additional information on calculating a carrier’s 25/3 Mbps deployment obligation can be found in the Revised CAF-BLS Obligations Public Notice. Also, the Wireline Competition Bureau has released a spreadsheet detailing the deployment obligations under each method for each study area, as well as an explanation of the information used in the calculations. Instructions on how each carrier must make its selection between the two methods will be published in the near future by the Universal Service Administrative Company. The revised deployment obligations must be fulfilled over a five-year period, starting January 1, 2019 and ending December 31, 2023.
A-CAM II Decision Letters 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 are due on or before June 17, 2019, and 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.
After submitting an election letter, carriers will receive an e-mail confirming that their letters have been received and reviewed for completeness. Carriers should contact the Bureau no later than 4 p.m. ET on June 17, 2019 if they do not receive a confirmation after submitting an election letter.
*****
[1] 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).
[2] 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).
[3] 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, Further Notice Of Proposed Rulemaking, And Order On Reconsideration, FCC 18-176, ¶ 31 (rel. Dec. 13, 2018).
[4] As explained by the FCC, this means that “a carrier may elect the [A-CAM II] offer even if it would be required to deploy only 4/1 Mbps or on reasonable request.” FCC 18-176 at ¶ 43.
[5] FCC 18-176 at ¶ 64.
[6] FCC 18-176 at ¶ 65.
[7] FCC 18-176 at ¶ 79.
[8] DA 19-373 at p. 2.
