FCC Adopts Rules to Move CAF Phase II Forward

Implements 100% Overlap Rule, Modifies 481 Requirements and Penalties

Shortly before Christmas, the FCC released a Report and Order which brings Phase II of the Connect America Fund (CAF) closer to reality. The FCC anticipates that it will make the official CAF Phase II model-based support offer to price cap carriers on a statewide basis in early 2015, and the final rules for the competitive bidding process will also be adopted in the coming months. The December 18, 2014, Report and Order includes many ancillary items that are important for rate-of-return carriers and the FCC hints at developing more permanent reforms for a rate-of-return CAF throughout 2015.  Of particular note, the Report and Order covers some aspects of the Form 481 ETC Annual Report which JSI will be addressing in a webinar scheduled for January 28 (more details forthcoming next week).

In conjunction with this Report and Order, the FCC has also moved forward with the Rural Broadband Experiments and permitted entities that did not provisionally win support to file additional information to “stay in the game,” as some initial provisional winners withdrew or did not meet the financial and technical requirements.

10/1 Mbps Speed Obligation
The FCC adopted a new minimum speed standard of 10/1 Megabits per second (Mbps) for CAF support. Price cap carriers that accept statewide CAF Phase II support will be required to offer at least 10/1 Mbps service by the end of the support term (six or seven years).  Also, rate-of-return carriers are required to offer at least 10/1 Mbps upon reasonable request, using the reasonable request standard the FCC adopted last year. If a request for 10/1 Mbps is deemed unreasonable, but 4/1 Mbps is reasonable, then the carrier would be expected to offer 4/1 Mbps. The FCC expects rate-of-return carriers to take the increased speed standard into account when planning upgrades, and rate-of-return carriers will be expected to report on progress in their Five-Year Plans.

100 Percent Overlap Rule
The FCC adopted a rule last year to eliminate support in rate-of-return study areas where there is a 100 percent overlap of an incumbent’s study area with one or more unsubsidized competitors. The December Report & Order develops a methodology for how the overlap will be determined. This year, the FCC will publish a “preliminary determination” of areas subject to the 100 percent overlap rule based on Form 477 and state broadband census block data and provide an opportunity to comment and challenge the determination. All indications are that this process will be very similar to the CAF challenge process. Once a determination is made that a study area is subject to a total overlap, the FCC will base the support reduction on the amount of support that was awarded in the previous year (2014, assuming this process is carried out this year).

Changes to Form 481 and Penalties for Noncompliance
The Report and Order adds some items to the Form 481 ETC Annual Report that will be required for rate-of-return carriers. All filers will have to complete the broadband reasonable comparability rate certification. This certification will be required in the 2016 Form 481 addressing performance in 2015. Next, The FCC clarifies that unfulfilled broadband requests must be reported if the request is determined to be unreasonable. Also noteworthy, the FCC is reducing the penalties for a late-filed Form 481. The previous rule called for a quarter-year’s reduction in support for a late filing, which the FCC acknowledges was “unduly harsh.” The new penalty calls for a reduction on a pro-rata daily basis, with a minimum reduction of seven days. After the seven days, the support will be reduced on a day-by-day basis until the report is filed. Additionally, the FCC allows for a single three-day grace period.

For more information about this Report & Order, contact John Kuykendall or Cassandra Heyne in JSI’s Maryland office at 301-459-7590 or Douglas Meredith in Utah at 801-294-4576.

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