After years of debate, the FCC has adopted Universal Service reform for the high-cost USF program for the nation’s smaller rural rate-of-return carriers, with the goal of spurring broadband deployment to rural areas where broadband is not currently available. The FCC estimates that about 20% of homes served by ROR carriers do not have broadband available to them.
Universal Service reform came in the form of a 250-page order adopted last week but not released publicly until late yesterday.
Universal Service Reform Overview
As expected, Universal Service reform calls for rural carriers to have the option of transitioning to a program that covers some of their deployment costs based on a cost model. Alternatively, carriers can continue to be reimbursed for some of their costs on a basis similar to the one in place today that is based on embedded costs. Unlike in the past, however, carriers will be able to collect funding for lines that are only delivering broadband service. Until now, lines were only covered if they were used to deliver voice service (sometimes in combination with broadband.)
The total cost of the program is capped at approximately $2 billion annually and the duration of the program is 10 years. Also as expected, the order calls for reducing the rate of return rural carriers earn from the current 11.25% to 9.75% over a period of years.
New details about Universal Service reform not previewed previously involve broadband deployment deadlines and formulas for determining the broadband speeds that carriers will be required to deploy and how extensively the carriers will be required to deploy service at those speeds.
Additionally the order calls for a reverse auction for unserved locations to which carriers do not expect to be able to bring broadband at the FCC-calculated level of support – an approach that the FCC already plans to use for unserved rural areas in price cap carrier territories. The reverse auction would award funding to the carrier offering to provide service for the lowest level of support – and incumbents would be able to bid in the auction.
Not addressed in the order was whether or not there will be a mobility fund or what it will look like – although it appears from the budget data that a mobility fund could still be envisioned. The order also does not discuss any reforms to how the USF is funded, apparently leaving in place the current system that requires carriers offering long-distance voice service to fund the program as a percentage of voice revenues.
The traditional voice-focused USF program covered some broadband deployment costs but did not require carriers to deploy broadband – and as the FCC notes in the order: “[A]lthough many rate-of-return carriers have aggressively deployed broadband service within their study areas, that progress has not been evenly distributed. Indeed, while some carriers have deployed 10/1 Mbps service to 99 -100 percent of the census blocks within their study areas, other carriers have not deployed to any.”
The order aims to address the deployment gap by requiring carriers choosing model-based support to meet specific deadlines for broadband deployment – including building out service to 40% of all locations that require speeds of at least 10 Mbps downstream and 1 Mpbs upstream by the end of the fourth year of the program and an additional 10% each year after.
Broadband Speed Requirements
In determining the broadband speeds that carriers must deploy and how extensively the carriers must deploy them, the FCC appears to be attempting to balance deployment costs with budgetary constraints, with the goal of making speeds of at least 4 Mbps downstream and 1 Mbps upstream available to virtually everyone.
In determining where carriers must offer specific broadband speeds, the FCC makes a distinction between locations that are fully funded based on the cost formula and locations that are not fully funded because the model-based support level exceeds a cap of $200 per month.
Requirements call for carriers with a state-level density of more than 10 locations per square mile to offer at least 25/3 Mbps service to at least 75% of fully funded locations. Carriers with a state-level density of 10 or fewer but more than five housing units per square mile will have to offer 25/3 Mbps service or faster to at least 50% of fully funded locations. And carriers with five housing units per square mile or fewer will be required to offer 25/3 Mbps service or higher to at least 25% of fully funded locations.
Carriers will have the full 10 years to bring service to locations requiring 25/3 Mbps speeds or higher, without interim deadlines.
Carriers electing model-based support also will be required to offer service at speeds of at least 4/1 Mbps to some locations that are not fully funded. Carriers with a state-level density of more than 10 housing units per square mile will have to offer 4/1 Mbps service or higher to 50% of all capped locations by the end of the 10-year term. Carriers with a state-level density of 10 or fewer housing units will be required to offer service at 4/1 Mbps or higher to 25% of all capped locations within the same timeframe.
“Our goal is to ensure that all consumers have an opportunity to receive service within a reasonable timeframe,” the FCC writes.
Carriers will have 90 days from the time the FCC issues details about model-based support levels to decide whether to transition to the model-based approach.
Notice of Proposed Rulemaking
The new USF order also includes a notice of proposed rulemaking that suggests various measures aimed at preventing rural carriers from using USF funds or customer revenues toward inappropriate expenses such as artwork or corporate jets. The NPRM also seeks input on measures to increase broadband deployment on Tribal lands.
The FCC plans a webinar for Monday April 4th to outline the order.