FCC Officially Creates the “Connect America Fund”

At its October 27, 2011 meeting, the FCC voted unanimously to comprehensively reform its Universal Service Fund and intercarrier compensation systems and create a new Connect America Fund with an annual budget of no more than $4.5 billion; down significantly from the $8 billion that currently flows through the USF.

Here is how the CAF annual budget is expected to be distributed:

  1. Rate of Return Carriers: $2,000,000,000

  2. Price Cap Carriers: $1,800,000,000

  3. Mobility Fund: $500,000,000

  4. Remote Areas: $100,000,000

One time funds:

  1. Price Cap Carriers:  $300,000,000

  2. Mobility Fund:  $300,000,000

  3. Trial Mobility Fund: $50,000,000

Although the full report has not yet been published by the FCC, the executive summary provides some highlights:

Universal Service Reform

  1. All eligible telecommunications carriers (ETCs) must continue to offer voice services, but now they must also offer broadband

  2. In a two-Phase approach to Price-Cap Territories – the CAF will provide additional funding  ($300 M) to price cap carriers to extend broadband (4Mbps/1Mbps) starting in early 2012 and freeze all existing legacy high-cost support.  In Phase 2 – the CAF will use competitive bidding process as well as a forward-looking broadband cost model to support deployment of networks providing both voice and broadband – with commitments to build out within 5 years.  Details of of the Phase 2 models and bidding process are expected  to be adopted by December 2012.

  3. Rate of Return carriers must offer broadband of 4Mbps/1Mbps to receive CAP support, but only to those customers that request the service.  Additionally, support will be capped at $250/month with a gradual phase down over a 3 year period starting July 1, 2012.

  4. Establishes a Mobility Fund dedicated to ensuring the availability of mobile broadband and voice networks in areas where private sector business case is lacking.  There are two phases.  Phase I provides $300M in one time support to accelerate network deployments.  This will be distributed via a reverse auction which will occur in 3Q12.  Winners must deploy 4G networks within 3 years or 3G networks within 2 years.  In Phase II, $500 million will be provided annual for ongoing support for these networks.

  5. Establish a Remote Area Fund of $100M annually to support broadband from satellite or unlicensed wireless providers.

Intercarrier Compensation (ICC)

  1. Adopts a national bill-and-keep framework and abandons the calling-party-network-pays model.  This will be transitioned over a 6-year period for price-cap carriers and over 9-years for rate-of-return carriers.

  2. Allows carriers to seek partial recovery from all of the end user customers, with a maximum annual increase of $0.50 and places a ceiling for consumers whose total monthly rate is at or above $30.

The order also address the reassessment of existing subscriber line charges (SLCs), the treatment of VoIP traffic, arbitrage practices and IP-IP Interconnection.

The devil will be in the details of the expected 500+ page report.  Although the Commissioners felt confident that consumer rates should stay flat or decline – I remain doubtful of this claim.  That lost income will have to come from somewhere.

We will update once the report is published.

#broadband #regulatory


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