Lessons from the 2013 Broadband Connect America Fund

The final accounting from the 2013 Broadband Connect America Fund program is all but completed – and the results were considerably different from what occurred with the 2012 program.

I tallied up data from the FCC (see chart below), which yielded two key takeaways about the program, which is designed to help spur broadband deployment in rural America.

First, the plan to allow a carrier to request and obtain additional funding that other carriers declined succeeded in increasing overall participation in the program.

Second, a considerable amount of funding that carriers requested was challenged by competitors who argued that they already provided broadband to some of the homes for which funding was requested. And in the majority of cases, the FCC resolved the disputes in favor of the competitors.

The total funding approved in the 2013 program to date is more than $300 million. The final tally won’t be known until the FCC responds to requests from AT&T and Windstream that could cause that number to increase. But if those requests are not granted, the total comes to $307 million. That’s about $7 million above the  $300 million annual budget – a scenario that was allowed to occur because $185 million in unclaimed funding from the 2012 program was carried over.

That means there would still be $178 million or so left over for the 2014 program, assuming it will again be carried over. (The FCC is expected to change the CAF program substantially for 2014.)
The FCC said previously that the total funding requested by carriers was sufficient to bring broadband to as many as 600,000 homes. With the funding reduced as a result of the competitive challenges, I would estimate that number now is in the range of 500,000.

Fund redistribution
The 2013 Connect America Fund program, like the 2012 program, was open to price cap carriers, with funding offered to carriers based on the number of rural homes in each carrier’s territory. Companies taking the funding agreed to deploy broadband to a specific number of homes.

In both 2012 and 2013 some companies declined funding. Some said the funding level was insufficient on a per-home basis. Others didn’t state their reason for declining but may simply have preferred to spend their investment dollars elsewhere.

In the 2013 program, unlike in the 2012 program, telcos had the option of requesting more than their allotted amount of funding, in exchange for a commensurate increase in the number of homes they agreed to build to. Because some carriers declined all or part of the funding they were offered, that meant that additional funding was available for carriers that wanted to increase their build-out commitment.

Four carriers – including AT&T, Hawaiian Telcom, Puerto Rico Telephone Company and Windstream — requested and received additional funding.

The winners
PRTC is an interesting case because the FCC didn’t offer the company any funding allotment. But the company requested $31.6 million, arguing that the island had a commensurate number of homes that lacked broadband. Competitors had the option of challenging the request and when no one did (and with the surplus funding available) the commission awarded the company the full amount it requested.

AT&T and Windstream were the other big winners. AT&T will collect at least $46.8 million more than the $47.9 million it was offered and Windstream will collect at least $14.8 million more than the $60.4 million it was offered. Although those may sound like big numbers, both companies actually requested considerably more funding than they were awarded — and both could see their awards increase, depending on the pending FCC decision.

Competitors of both AT&T and Windstream challenged the funding requests made by those companies and the FCC sided with the competitors for the majority of the homes in question after making a determination that the competitors already offered broadband to the census blocks for which the awards were made. In response AT&T and Windstream argued that there were some unserved homes in those census blocks and asked for permission to pull out those homes and add them to areas where funding requests were approved.

The total amount of funding that competitors challenged AT&T on was $5.3 million and the FCC sided with the competitors for all but $11,000 of that amount. Windstream received challenges for $63.5 million of the $123.9 million it requested and the FCC sided with Windstream’s competitors on $48.7 million of that amount.

Alaska Communications Systems, CenturyLink, Fairpoint and Frontier each accepted a portion of the funding they were offered. ACS received no challenges from competitors but the other three did. As with AT&T and Windstream, the FCC ruled that the majority of challenges were valid.