fairpoint+connect america fundFairPoint Communications yesterday became the second price cap carrier to agree to bring broadband to unserved customers in high-cost areas of its territory in exchange for obtaining $775 per line from Phase 1 of the Connect America Fund to help cover deployment costs. The Connect America Fund is the broadband fund created last year by the Federal Communications Commission by shifting some money from today’s voice-focused Universal Service fund.

FairPoint said it would accept $2 million or approximately 40% of the $4.8 million offered to the company by the FCC as an enticement to deploy broadband to areas where broadband isn’t available today. The company has agreed to provide service to 53 Vermont towns and to South China, Maine.

Although the company plans to bring broadband to approximately 7,100 locations, it said something “more than 2,600” of those locations qualify for CAF funding. And even for the 2,600 subsidized locations, the company most likely is contributing part of the construction costs.

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In yesterday’s announcement, FairPoint Vermont State President Mike Smith said that with this latest project, the company will have invested almost $100 million for broadband across Vermont since 2008.

A FairPoint spokesperson told Telecompetitor that the company expects to deploy fiber close to the network edge to support broadband service in the Vermont and Maine communities, with copper being used only for the “last small distance” to the end user.

It’s interesting that nearly two-thirds of the locations to which FairPoint plans to build did not qualify for CAF funding, presumably because those locations already can receive service at the Connect America Fund target threshold of 4 Mbps downstream and 1 Mbps upstream. That, coupled with the spokesperson’s comment about deep fiber, suggests FairPoint will be delivering service at speeds considerably higher than 4/1 Mbps.

It will be interesting to see if other carriers also use CAF funding as a springboard for not only deploying broadband to unserved areas, but also to help cost-justify broader network upgrades.

Frontier Communications last week also agreed to accept CAF Phase 1 funding in exchange for agreeing to bring broadband to approximately 92,000 unserved homes in its territory. Unlike FairPoint, Frontier did not reject any of the funding offered to it in CAF Phase 1.

Several other price cap carriers – including AT&T and Verizon – have been offered Phase 1 funding but have not yet announced whether they plan to accept it.

About CAF Phase 1
Phase 1 of the Connect America Fund program allocated $300 million among price cap carriers that have some areas within their territory that cannot receive broadband at the target data rates. The funding was meant to be a quick shot in the arm to get broadband quickly deployed to some unserved areas and was not intended to be a comprehensive solution.

The next phase of the program for price cap carriers will involve using a cost model to determine the cost of bringing broadband to remaining unserved areas within price cap territories, with different support levels targeted for different lines after considering factors such as geography and population density. The stakes for the next portion of the program are considerably greater, with approximately $1.8 billion annually in total support allocated to price cap carriers in the future.

This means that some areas where carriers rejected funding at the $775 per line-level could come up for grabs again – potentially at a higher level of support or potentially at a lower level of support. If the incumbent carrier again declines to deploy broadband at the target level of support, the lines for which funding was rejected will be the focus of a reverse auction, in which competitive carriers will be allowed to bid to deliver service, with funding awarded to the company offering to deploy service for the lowest level of support.

Funding for the next phase of the Connect America Fund program will be created by shifting more money from today’s voice-focused Universal Service program. An additional $2 billion shifted from today’s voice-focused program will go toward the cost of bringing broadband to customers served by smaller rate of return carriers who cannot get broadband today. Rate of return carriers are focused largely on serving rural areas. But regulators have not yet determined how Connect America funding for rate of return carriers will be awarded.

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