The afternoon before Thanksgiving, the FCC released a draft version of a Report and Order and Order on Reconsideration (R&O) and a Further Notice of Proposed Rulemaking (FNPRM) that pertain to universal service items for rate-of-return carriers. The FCC Commissioners will vote on the R&O & FNPRM at the upcoming December 12 Open Meeting. The following covers the major items, which include additional funding for A-CAM carriers, increased budget changes to the budget control mechanism, and new buildout requirements for Legacy carriers, as well as an opportunity for Legacy carriers to elect A-CAM and modifications to certain Legacy rules. JSI will be providing additional details after the Dec. 12 meeting.
Additional Funding for A-CAM
For carriers that already receive A-CAM support, the R&O offers to “fully fund” these carriers up to the original, $200 per location cap. This is accompanied by an increase in the number of locations to which these carriers must deploy 25/3 Mbps, depending upon the density of the population in the carrier’s study area, and a reduction in the number of 4/1 and reasonable request locations. A-CAM electors accepting this latest revised offer will have an additional two years of support, for a total of 12 years’ support under A-CAM. “Glidepath” carriers, those carriers that elected A-CAM whose model-based support was less than Legacy support, are not eligible for this funding as they are already at the $200 per location cap.
Increased Budget for Legacy to Address the BCM
The R&O also creates a budget solely for carriers that remain on Legacy support based upon 2018 uncapped claims. This new annual budget will be $1.42 billion and was calculated without taking the budget control mechanism (BCM) into account. The FCC may revisit this budget at the end of five years.
Additionally, in July 2019, this newly created budget will be increased by 7% to account for additional Consumer Broadband-Only Loop (CBOL) support needed as customers transition from voice/data to standalone broadband. Subsequent years will be increased by an inflation factor using GDP=CPI. In the FNPRM, the FCC seeks comment on whether the FCC should adopt measures to address any gaming that may take place in converting lines from voice/data to standalone broadband lines solely to increase universal service support.
To address the period of time that the BCM has impacted carriers since July 1, 2018, the R&O directs USAC to refund all support withheld to carriers due to the impact of the BCM since that date through December 31, 2018, or the effective date of the R&O, whichever is later. The R&O also rules that there will be no reductions due to the BCM from January 1 – June 30, 2019, and anticipates minimal impact from the BCM after July 1, 2019, due not only to the 7% increases in the budget in 2019 but also because the R&O states that any carriers that accept a new model offer that will receive less model support than their unconstrained claims (Glidepath carriers), only the amount needed to satisfy the model support comes out of the Legacy carriers’ bucket. This would increase the funding available for Legacy carriers.
New Legacy Buildout Requirements
Due to the creation of the new budget for Legacy carriers, the five-year buildout obligations which were based on the former budget must be revised. In making the revisions, the R&O adopts an “uncapped” threshold of CAF-BLS support based on a five-year CAF-BLS forecast to be developed by NECA for carrier-specific buildout obligations based on 25/3 Mbps broadband deployment. According to the R&O, this ensures that no Legacy carrier will receive less support as a result of budget constraints than predicted in the forecast. Any amounts greater than the forecast “may” be subject to the BCM. This new five-year forecast will be used to calculate each Legacy carrier’s new buildout obligations.
This means that the current five-year buildout obligations will be replaced with new buildout obligations beginning January 1, 2019, and will require all Legacy carriers to meet 25/3 Mbps buildout requirements. This is especially important to Legacy companies that had deployed 10/1 Mbps to 80% or more of their service area and previously had no buildout requirements. Not only will these carriers now be required to report buildout annually in the HUBB, but they also will be required to meet the broadband measurement requirements, as those requirements apply to Legacy carriers with mandatory buildout requirements.
Opportunity for Legacy Carriers to Elect A-CAM
The R&O provides an opportunity for any company on Legacy support, even those with more than 90% broadband deployment, to transition to A-CAM support at the $200 per location cap. Carriers electing this offer must deploy 25/3 Mbps broadband to all locations not subject to the cap and will receive support for 10 years beginning January 1, 2019. To determine which locations will be eliminated due to competitive overlap, the FCC will use the most recent publicly available Form 477 data to identify competitors offering at least 25/3 Mbps broadband, and there will be no opportunity to challenge as there was with the initial A-CAM offer. Areas where the rate-of-return carrier has deployed fiber or cable modems will not be excluded from support, which also differs from the initial A-CAM offer.
Other Changes to Legacy Rules
In a victory for Legacy carriers, the R&O eliminates the Capital Investment Allowance (CIA) which has imposed a significant burden. On the other hand, the R&O reduces the monthly per-line limit on USF from $250 to $225 in 2019 and then to $200 in 2021.
Additionally, the R&O revises the existing 100% overlap process. Under the current process, every two years, the FCC publishes a list of Legacy carriers at risk of losing universal service support because, based on Form 477 data, 100% of the locations in the carrier’s study area are considered served by one or more unsubsidized competitors offering voice and 10/1 Mbps broadband service. There is no impact to the Legacy carrier, however, unless the competitor submits evidence showing that it offers voice and broadband to 100% of the locations in the census blocks indicated on the Form 477. If this showing is successfully made, the Legacy carrier’s support is phased out over a two-year period.
In the R&O, the FCC modifies this rule by replacing the phase-out of support with a reverse auction mechanism that is based solely on Form 477 data, eliminating the opportunity to challenge. The R&O also increases the speed requirement to 25/3 Mbps. In the FNPRM, the FCC seeks comment on how to implement the mechanism and asks whether the new rule should be applied only to situations where there is a 100% overlap or “slightly less” than 100% percent, such as 95%.
If you have questions or would like to discuss how these changes could affect your company’s USF, please contact John Kuykendall or Steve Meltzer in our Maryland office at 301-459-7590.