rural setting

The FCC said today that it will not impose the high-cost Universal Service Fund (USF) budget control mechanism for the upcoming funding year. Budget control was scheduled to go into effect in July for small rural rate-of-return providers that have some of their costs covered through the fund.

The budget control mechanism is designed to essentially put a cap on the high-cost loop support (HCLS) and Connect America Fund broadband loop support (CAF-BLS) rural carriers receive annually. It caps the fund at the previous year’s level plus an inflation factor.

These support funds help cover the cost of delivering telecom and broadband services to high cost rural areas, helping achieve universal service.

Each year the Universal Service Administrative Company tallies up the total HCLS and CAF-BLS funding requested by the rural carriers and if that amount exceeds the funding available, the budget control mechanism calls for each carrier’s funding to be reduced commensurately.

According to USAC, the adjustment factor for the upcoming funding year would have been nearly .86, which would have reduced each carrier’s funding by about 14%.

According to an order adopted yesterday by the FCC and released today, the adjustment factor has now been set at 0% for July 2022 to June 2023, extending a decision that the commission also made for the 2021-2022 funding period.

The FCC cited a range of factors behind the USF budget control decision, including:

  • The growth in funding requested resulted, in part, from increased conversion of voice lines to broadband-only lines, which receive a higher support amount
  • The COVID-19 pandemic drove an increase in the rural population as some people migrated from urban areas, and as people made this move, rural broadband subscribership increased
  • Carriers continue to face pandemic-related cash flow and economic challenges, including increased labor and material costs
  • Some carriers offered free and discounted internet service during the pandemic and wrote off bills and late fees for customers who could not pay, which also negatively impacted cash flow

“Taken together, we find that current circumstances pose significant burdens on legacy carriers, which would be exacerbated should there be a significant reduction in support, at a time when they are facing insufficient cash flow and increased expenses,” the FCC said.

Service provider associations hailed the commission’s decision.

In a prepared statement, Michael Romano, senior vice president for industry affairs and business development for NTCA—The Rural Broadband Association, thanked the commission and noted that the decision “will allow rural broadband providers to keep their focus on deploying networks and delivering services rather than figuring out where to cut back investments and operations in the face of a significant budget cut.”

Derrick Owens, senior vice president of government & industry affairs for WTA—Advocates for Rural Broadband, said in a prepared statement that: “Our members are working hard to deploy more broadband throughout their service territories and the reduction in funding would have definitely had a negative effect,” adding that members were “grateful” for the decision.

Owens added, though, that WTA would like to see the budget control mechanism eliminated entirely.

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