FCC Modifies Letter of Credit Requirements for Universal Service Fund High-Cost Support Recipients

FCC Modifies Letter of Credit Requirements for Universal Service Fund High-Cost Support Recipients

The Federal Communications Commission (FCC) has adopted significant changes to its letter of credit (LOC) requirements for recipients of high-cost Universal Service Fund (USF) support awarded through competitive bidding processes. The changes, adopted December 11, 2024, intend to reduce administrative and financial burdens on support recipients while maintaining program integrity.

The FCC Letter of Credit Report and Order (Order) changes the rules for which banks can issue letters of credit. Previously, banks were required to maintain a Weiss bank safety rating of B- or better. Under the new rules, any U.S. bank that is FDIC-insured and meets federal standards for being “well capitalized” can issue letters of credit. This change applies to all high-cost programs awarded through competitive processes, including Connect America Fund Phase II (CAF II), Rural Digital Opportunity Fund (RDOF), 5G Fund, Bringing Puerto Rico Together Fund, and Connect USVI Fund.

Modified Letter of Credit Value Requirements

The Order also makes significant modifications to LOC value requirements. RDOF support recipients can now reduce their LOC value to one year of support if they have deployed service to 10% of required locations by the end of their second year of support, a reduction from the previous 20% requirement. Additionally, CAF II support recipients that have met all deployment and reporting obligations may maintain LOCs in accordance with RDOF rules, allowing them to reduce LOC values to one year of support.

These modifications are particularly meaningful for small or rural providers. The expanded pool of eligible banks that can issue LOCs will provide more options for obtaining necessary financial instruments. Additionally, with LOC value reductions under RDOF now available at the 10% buildout milestone, providers will have earlier opportunities to free up capital for network deployment, while the streamlined requirements should reduce administrative burdens associated with obtaining and maintaining LOCs.

The FCC will implement these new rules in two phases. The revised bank eligibility requirements will become effective in June 2025 (six months after Federal Register publication). All other changes, including the new LOC value reduction thresholds, will take effect in January 2025 (30 days after Federal Register publication). During this transition period, JSI is available to assist you in evaluating their current LOCs against the new requirements, determining eligibility for LOC value reductions, and implementing changes to comply with the new rules.

JSI’s team of experts is ready to help you navigate these changes and ensure your company can take full advantage of the new requirements. For assistance with LOC requirements or questions about how these changes may affect your operations, please contact Bhavini Sokhey.