The Federal Communications Commission is funding rural broadband deployments again with its 2020 Rural Digital Opportunity Fund (RDOF). And because offering phone service is a requirement, VoIP will play a role in making it happen.
More Money for Rural Broadband
The Connect America Fund Phase II Auction (CAF II), which closed in August 2019, awarded $1.5 billion in total to more than 100 service providers in 713,176 locations across 45 states. With RDOF, the FCC will provide the next wave of funding for fixed broadband service to address the digital divide. After collecting input from the broadband ecosystem, the FCC approved RDOF in January 2020.
The FCC is planning to grant $20.4 billion over 10 years to areas that currently lack broadband using a two-phased approach. The first auction will be for completely unserved areas, followed by an auction for partially served areas. The application process and auction format look to be the same as CAF II, including a weighting system that favors fiber broadband: the greater the bandwidth and lower the latency, the more favorable a bid would be treated.
Unlike the CAF II approach, all service providers will be competing together for RDOF dollars in a single auction: incumbent telcos, cable operators, electric cooperatives, WISPs, and other independent ISPs. Applicants must demonstrate two years of experience providing voice, broadband, and/or electric distribution or transmission service.
Winning applicants must provide speeds of at least 25/3 Mbps and, like CAF II, must deploy service to locations in the census block groups they win: 40% of the census block area by year three, increasing by an additional 20% each year and ending with 100% coverage by year six.
The first phase RDOF auction is slated to start in October and target census blocks that are wholly unserved with fixed broadband at speeds of at least 25/3 Mbps.
RDOF Phone Service Requirement
Like CAF II, there’s a requirement for service providers that are awarded funding to offer “standalone voice service” and “voice and broadband services at rates that are reasonably comparable to rates offered in urban areas.”
Winning applicants will also need to be designated as eligible telecommunications carriers (ETCs) by the state PUC if they are not already. In taking funding, service providers must adhere to a coverage requirement that applies to broadband as well as phone service.
Why is the FCC marrying a service that is over a century old to broadband? People and businesses still want, need and use wireline phones, especially VoIP. Plus, there are good business reasons for the RDOF phone service requirement.
Business Drivers for VoIP Service Offerings
While the FCC doesn’t mandate that the phone service be VoIP, we expect it will be unless it’s an established telco eking the useful life out of its central office equipment.
Here’s why offering VoIP along with broadband makes sense:
- Substantial addressable market – The FCC reports over 116 million phone lines in the U.S. and VoIP lines have grown 39% since 2013. While landlines are declining overall, VoIP is still growing.
- Bundles produce results – There’s still value in home phone. Leichtman Research Group reports that 64% of broadband households subscribe to a bundle (not necessarily phone). Based on industry norms and our experience, broadband providers can expect 20-40% take rates for VoIP.
- Business demand – Most small-medium businesses (SMBs) are stuck on antiquated phone systems. The average portion of SMBs with a legacy phone solution ranges from 64-94% depending on the employee size. We’ve also heard businesses are less likely to switch broadband providers without a phone service bundle. That’s why there’s a big move to cloud communications: According to Frost & Sullivan, cloud PBX users in North America will reach 67.8 million in 2023—more than double the number in 2019.
- Revenue boost – Expect to be able to command pricing ranging from $15-35/month per home for residential and $20-50/month per seat for business services. The exact price will be informed by the market competition and the strategy you want to employ: optimizing for maximum adoption or the most revenue.
- ROI Impact – With 60%+ gross margins from phone services, this revenue also helps accelerate the payback period on that broadband build-out.
In the rural areas where RDOF funded service providers will offer service, the most likely option is an outdated, expensive POTS line. VoIP is perfect to disrupt that by providing a modern, more convenient, lower-cost communication service to customers. With these new rural broadband deployments, VoIP will be available in areas not previously been offered.
So, adding VoIP to your portfolio is a good thing for your business and your customers. Check out our eBook “Got Fiber? You Need VoIP!” to read more about the business case for new ISPs to offer phone services.
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