CAF Broadband Support for Rural Carriers Could Vary Based on Density

Small rate-of-return communications service providers with less than 10 locations per square mile would have more time to build out high-speed broadband in comparison with service providers serving denser areas, according to USF reform recommendations made by telecom association ITTA, which represents mid-size service providers. ITTA representatives in a meeting with the FCC last week suggested the build-out requirements, which would apply if the FCC were to adopt a proposed speed target of 25 Mbps downstream and 3 Mbps upstream for the model-based Connect America Fund (CAF) program for ROR carriers. Carriers in denser areas would have to bring 25/3 Mbps service to 75% of all fully funded locations in a study area within 10 years, while carriers in less dense areas would only have to build to 50% of such locations during that timeframe.

ITTA recommendations have played a big role in shaping the FCC’s plans for transitioning today’s high-cost Universal Service Fund program, which traditionally was voice-focused, into a broadband-focused Connect America Fund program. Previously the ITTA recommended that ROR carriers have the option of remaining on today’s program or transitioning to a program similar to the one that already is being implemented for larger price cap carriers – and the FCC is moving ahead based on those recommendations. Today’s program pays part of a carrier’s costs of providing voice and broadband service to high-cost areas based on embedded costs, while the price cap program uses a model to determine a carrier’s support level.

At last week’s meeting, the ITTA recommended allocating costs between the old and new mechanisms based on gross plant. “We pointed out that the net plant approach assumes that maintenance expenses decline as assets depreciate,” wrote the ITTA in a letter to the FCC summarizing the meeting. “The opposite is true however. Maintenance costs increase as plant ages and is more fully depreciated. . . [C]ompanies with antiquated circuit switching equipment would be faced with deciding whether to purchase less expensive, more efficient softswitches and have their support reduced or continuing to use their existing switching equipment and pay more in maintenance costs. Thus, using net rather than gross plant would provide incentives that contravene the Commission’s stated goal to bring broadband to as many currently unserved locations as possible under its limited budget.”

CAF Broadband Support Recommendations
Other recommendations for CAF broadband support made by the ITTA in the meeting with the FCC last week include:

• Considering applying an appropriate “trigger” for each company to fully transition to the new mechanism to avoid penalizing companies that have made more recent investments in their networks
• If the FCC moves forward with a plan to eliminate support in study areas where there is 75% overlap with an unsubsidized competitor, the ITTA urged the commission to apply the standard on a geographic rather than a location basis because many study areas are sparsely populated overall but have population pockets within the study area
• Ensuring an appropriate challenge process for areas deemed to overlap with an unsubsidized competitor
• Creating a fair mechanism for ensuring that the total funding for ROR carriers does not exceed the budget cap and avoiding problems that arose when the commission imposed a cap on high-cost loop support 
• Giving companies participating in the model-based plan the same flexibility granted to price cap carriers to address differences between the cost model and the actual number of locations in a given area and other unforeseen factors
• Avoiding potential double recovery and administrative complexities by requiring companies opting to participate in the model-based plan to comply with price cap rules for special access services