FCC Waives Budget Control Mechanism For Rate-Of-Return Carriers

June 3, 2021 – The Federal Communications Commission (FCC) has issued an Order which waives application of the budget control mechanism for rate-of-return carriers that receive High Cost Loop Support (HCLS) and Connect America Fund Broadband Loop Support (CAF BLS).[1] The waiver effectively sets the budget control adjustment factor to 0 percent for July 1, 2021, through June 30, 2022 (the 2021-2022 tariff year).

There is a “budget” of $2 billion per year for total high-cost universal service support for legacy rate-of-return carriers. In the event total support is forecasted to exceed the $2 billion budget in a given year, the budget control mechanism kicks in to produce support reductions on a going forward basis to forecasted HCLS and CAF BLS disbursements. This ensures the rate-of-return budget only increases to match the rate of inflation.

In May, the Universal Service Administrative Company (USAC) published budget control mechanism data showing an 8.5814 percent the budget control adjustment factor for July 1, 2021, through June 30, 2022. For comparison purposes, the prior budget control adjustment factor was only 3 percent.

For the 2021-2022 tariff year, the forecasted total amount of HCLS and CAF BLS is $1.296 billion, while the budget for the two support mechanisms is $1.185 billion. The forecasted amount exceeds the budget by $111 million.

The ratio of the budget and total forecasted amount is .9141854 (91%). This results in a budget control adjustment factor of .0858146 (8.5814%). A spreadsheet showing the (what would have been) projected reductions for each rate-of-return carrier is available on USAC’s budget control mechanism website.

Waiver

On its own motion, the FCC has waived application of the budget control mechanism for the 2021-2022 tariff year “given unique cash flow challenges related to the pandemic.” The FCC noted that the 8.6 percent adjustment factor, which is over twice as high as the prior adjustment factor, is problematic for rate-of-return carriers that are continuing to deal with financial issues related to the coronavirus pandemic:

These circumstances could pose significant burdens on legacy carriers, by subjecting them to insufficient cash flow at a time when they are facing increased expenses. To ensure that these small companies are not subject to financial strain, we find it is in the public interest to waive the application of our rules. The last year of the COVID-19 pandemic has put all Americans under strain and demonstrated the importance of broadband. Telecommunications companies, including legacy companies serving some of the most rural areas of the country, may be subject to increased costs to provide safe working conditions, maintain existing services, and meet the demands of new customers. Granting a waiver here is also consistent with relief the Commission provided in other contexts in acknowledgment of the unprecedented challenges raised by the pandemic to carriers and consumers.[2]

Tariff Revisions

Waiver of the budget control mechanism will likely cause some rate-of-return carrier’s to reduce their rates for Consumer Broadband-Only Loop (CBOL) services that would otherwise be charged beginning July 1, 2021. It’s also annual tariff filing season (tariffs filed on 15-days’ notice are due June 16, 2021, while tariffs filed on 7-days’ notice are due June 24, 2021). Rate-of-return carriers can account for the impact of the budget control mechanism waiver either in their annual tariff filings or in revised tariff filings with an effective date no later than 45 days after adoption of the Order.[3]

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[1] Connect America Fund, WC Docket No. 10-90, Order, FCC 21-67 (June 3, 2021), https://docs.fcc.gov/public/attachments/FCC-21-67A1.pdf.

[2] Order at ¶ 7.

[3] Order at ¶ 11.