Dollar SignWhen the FCC in December raised the broadband speed target for the Connect America Fund  to 10 Mbps downstream and 1 Mbps upstream, some stakeholders questioned carriers’ ability to meet that target without an increase in the size of the fund, considering that the previous downstream speed target was a considerably lower 4 Mbps. The order raising the target speed has now been made public – and in it the FCC offers more details about how the new target speed will be implemented, along with the thinking behind the commission’s latest decisions on the CAF program.

Two important take-aways are that:

  • Despite the new target speed, the number of homes to which price cap carriers accepting CAF money will be required to bring service will not increase much if at all and could actually decrease.
  • Competitive carriers will have the opportunity to bid to deliver broadband to more homes than originally anticipated.

The reason these changes will occur is that homes that can get service at rates above 3 Mbps downstream and 768 kbps upstream will not be targeted in the initial implementation of Phase II of the CAF program, in which price cap carriers will be offered funding to cover some of the costs of delivering 10/1 Mbps service to unserved homes in their territories.

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Carriers will accept or decline that funding on a state by state basis, and if a carrier declines the funding, a competitive bidding process or reverse auction will be used to award funding. According to the new FCC order, any homes that can get 3 Mbps/ 768 kbps service but can’t get 10/1 Mbps service will automatically be included in the competitive bidding process, even if they are in states where the incumbent price carrier accepts the proffered funding. Another change is that the price cap carriers will only be required to bring broadband to 95% of the homes targeted in their serving area in a state.

The FCC is hoping that in the reverse auction, competitors will bid to deliver broadband with a lower level of support than what will be offered to the price cap carriers based on a cost model. But whether the FCC has allotted enough money to cover all of the lowest bids remains to be seen. Some industry observers say there is a possibility the reverse auction could fail, thereby jeopardizing the prospect of bringing broadband to all Americans.

In the new order, the FCC rejects the possibility of raising the CAF budget, noting that it has to balance universal service goals with the need to avoid imposing an “excessive burden” on ratepayers. “The Commission previously conducted just such a balancing in adopting the budget at issue here, and we are not persuaded to depart from it at this time,” the FCC wrote.

Broadband Speed Target for Rate of Return Telcos
Although the new 10 Mbps downstream/ 1 Mbps upstream Connect America Fund speed target was put in place for price cap carriers, the FCC indicates in the new order that it expects rate of return carriers to meet the same target in response to “reasonable requests” for broadband service.

A “reasonable request” is one that would enable the carrier to “cost-effectively extend a voice and broadband-capable network to that location,” the FCC said. To determine cost-effectiveness “the carrier should not consider only its anticipated end-user revenues for the services to be offered over that network, both voice and Internet access, but also other sources of support such as federal and, where available, state universal service funding.”

The commission also noted that “if . . . the cost of extending fiber sufficiently close to a requesting customer to be able to offer 10/1 Mbps service is more than a rate-of-return carrier could cover with existing universal service support and anticipated end-user revenues, but it would be able to cover the cost of extending fiber to provide 4/1 Mbps service, then we would expect the carrier to extend 4/1 Mbps service.”

The New HCLS Cap
The new order also provides details on the new methodology that will be used to limit high-cost loop support without using quantile regression analysis. The commission essentially formalized plans outlined in April 2014 when it negated the quantile-regression based caps.

Readers wishing to learn more about this should see pages 36 to 42 of the new order.

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