FCC+Connect America FundThe FCC took several important actions on Universal Service late yesterday—including releasing details about the $300-million Phase 1 Connect America Fund program targeting price cap carrier territories that cannot get broadband today and adopting an order that will change the way Universal Service high-cost loop support is calculated for the nation’s smaller more rural service providers. Read more about each of these developments below.

Big carrier bonanza
Several of the nation’s largest price cap carriers could have tens of millions of dollars coming their way for 2012 as the result of reforms to the Universal Service program adopted in the fall and formalized by the Federal Communications Commission yesterday.

The big winner is CenturyLink, which stands to take in nearly $90 million to help bring broadband service to parts of its local service territory that are costly to serve and where broadband is not available today. Other companies with substantial money allotted to them under the new Connect America Fund program include Frontier, Windstream, AT&T and Verizon, whose target support amounts range from nearly $20 million to more than $60 million.

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To receive these funds, the carriers will have to ante up additional funding of their own and will have to agree to meet certain build-out targets and target dates. The carriers have 90 days to let the Federal Communications Commission know whether they will build out broadband to the unserved areas at the target level of support. For any areas where one of the carriers opts not to do the build-out a reverse auction will be conducted, with funding going to the network operator that agrees to do the build-out for the lowest cost.

A total of $300 million has been allotted for this portion of the program, which is the first phase of a multi-phase multi-year program aimed at ensuring that all Americans have broadband available to them. In a press release the FCC touted the fact that the $300 million will be funded through reforms that “cut waste and imposed strict fiscal responsibility standards” on the Universal Service program.

Question marks on high-cost loop support
The commission also announced additional reforms to the traditional Universal Service program focusing specifically on high-cost loop support (HCLS). The new reforms call for using a cost model to determine the benchmark level of HCLS for each of the nation’s smaller rate-of-return carriers that operate in high-cost areas, with the goal of distributing funds more fairly.

According to an FCC announcement, about 100 small carriers with “unusually high expenses” will see their level of HCLS decrease, which the commission says will free up additional funding for 500 other small carriers to support broadband. This may be a reference to the fact that although the existing Universal Service program is focused on voice services, much of the money has helped support broadband deployment because the underlying network infrastructure is shared between the two services.

I scanned the 72-page order and did not see anything describing how the freed up money would be redistributed. Back in October the FCC indicated the total amount of funding that smaller rate-of-return carriers as a group would receive when today’s voice-focused Universal Service program transitions to a broadband-focused Connect America Fund program. But the commission still has not detailed how funding for individual rate-of-return carriers would be determined in the broadband program.

According to the new order, the FCC plans a phased approach to adopting the new cost model for the traditional program. Those 100 or so carriers whose HCLS level will decrease will not immediately drop to the new level but instead will see funding decrease over a period of about two year until it reaches the new target amount.

The FCC already has crunched the numbers on the cost model. Any rate of return carriers wishing to see whether their HCLS will remain at the current level or will be decreased can look themselves up in Appendix B attached to the benchmark order.

Update
Telecompetitor checked in with National Telecommunications Cooperative Association Senior Vice President of Policy Mike Romano this morning, who said the NTCA is reviewing details of the HCLS cost model and its impact on NTCA member companies. He noted that the FCC addressed some rural telco concerns in developing the cost model.

He added, though, that the NTCA still has several underlying concerns, including whether the caps the FCC has imposed are consistent with statutes and whether the moves will “attract capital back to this space.” A key question, he said, is whether the changes will impose enough certainty to make lenders feel more comfortable making loans to rate-of-return telcos.

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