Within the next few years, the nation’s largest local telecom service providers could see their collective annual revenues increase by more than $400 million from new broadband build-outs funded through the Connect America Fund program, according to Telecompetitor’s analysis.
Companies likely to see the greatest impact are AT&T and CenturyLink, who could see annual revenues increase by $134 million and $140 million, respectively. Telecompetitor’s analysis assumes that about 50% of people in a CAF-funded area will take broadband service from the local carrier, increasing revenues from those customers by $20 per month.
The CAF program is set to give $1.5 billion annually to seven of the nation’s largest price cap carriers for six years in exchange for a commitment that the carriers will build out broadband service to high-cost areas of their local service territories that cannot get broadband today. The amount of funding that carriers were offered was based on a cost model developed by the FCC.
The upshot of Telecompetitor’s analysis is that the CAF program seems to be a significant windfall for the carriers, particularly considering that the carriers seem to be relying on CAF funding to cover the entire build-out costs. At the financial conferences where the Connect America Fund revenue impact was discussed, executives from three out of three companies — CenturyLink, Frontier and Windstream — said they did not expect the CAF build-outs to require the companies to contribute additional capex funding.
Connect America Fund Revenue Impact
Both CenturyLink and Windstream said they anticipated take rates in the range of 50% in CAF-funded areas within a few years of completing construction. When asked about the Connect America Fund revenue impact, CenturyLink cited the $20 a month figure, which was in line with estimates provided by Frontier and Windstream. (Frontier’s estimate of its CAF revenue impact was higher than Telecompetitor’s – $100 million versus $80 million — either because the carrier expects higher take rates or revenues or both. For example Frontier’s estimate assumed some customers also would take the company’s security offering, potentially raising average monthly revenues.)
Carriers accepted or declined CAF funding on a state-by-state basis and most of them accepted funding for all or most of the areas for which it was offered. The major exception was Verizon, which accepted funding only for two states – two of the three states where it plans to sell its operations to Frontier — on the condition that the deal goes through.
The FCC plans to conduct a reverse auction to award funding for areas where the price cap carriers declined funding. The commission also has committed to establishing parameters this year for a CAF program for the nation’s smaller rate of return carriers that primarily serve rural areas.