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  • Writer's pictureTeresa Mastrangelo

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.


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