Imminent Release of FCC Rulemakings on A-CAM and CAF-BLS Settlement USF Reform

Clients Should Begin Preparing Now for the Imminent Release of FCC Rulemakings on A-CAM and CAF-BLS Settlement Universal Service Fund Reform.

On Friday, June 16, the FCC (Federal Communications Commission) issued a press release announcing that two items are under consideration that have the potential to make major changes to the current Universal Service Fund (USF) payment streams for rural Incumbent Local Exchange Carriers (ILECS). The first is an Order that would provide an option for ILECs under the Alternative Connect America Cost Model (A-CAM) to adopt an updated version of A-CAM known as the “Enhanced A-CAM” program. The Order would also allow carriers under the Connect America Fund Broadband Loop Support (CAF-BLS) funding mechanisms (known as “legacy carriers”) to receive fixed support. A separate but related rulemaking and inquiry would seek comments on further reforms to the legacy and USF program. Carriers will have the option to move to one of these options, which would extend the current USF settlement programs. The release of the two items is expected to be imminent.

Indications from the FCC and Industry sources indicate that highlights of this update would include the following:

     •    A-CAM carriers would be given an opportunity to opt into an Enhanced A-CAM funding stream in exchange for an extended term of A-CAM support and a commitment build out to 100% of their funded study area to at least 100/20 Mbps broadband speed.

     •    CAF-BLS or Legacy rate of return carriers will be provided an optional path towards a stream of fixed support payments, as well as likely transition to A-CAM participation. These carriers likely also would be required to build out 100% of their study area to 100/20 Mbps.

Details, including time frames, changes to existing mechanisms, and reporting requirements, are all expected to be released in the forthcoming Order. The FCC has indicated that proposals included in the rulemaking and inquiry will be circulated for further changes to the overall USF funding mechanisms, changes that would likely occur both concurrently with the options above, as well as beginning discussions for funding processes that would commence in future years as the broadband industry evolves further.

It is expected that ILECs will have a relatively short time window available to them to evaluate the options presented to them in this Order, as well as to make an informed decision as to which paths should be taken. These decisions likely could substantially impact funding and build out requirements for many years to come and, as such, must be evaluated as fully as possible. JSI stands ready to assist our clients in this evaluation process.

Although the details of the Order have not been released, we are advising our clients to begin gathering their thoughts and plans that will be needed to properly evaluate all options available to them. We expect that these should include:

    •   Status of current broadband coverage and areas remaining to be built to both existing 25/3 Mbps requirements as well to 100/20 Mbps and above.

    •    Potential costs and time required to complete buildouts as indicated above.

    •    Capex and Opex projections for future periods – we expect this plan will potentially include payments for 10-15 years into the future. Proper analysis will need to evaluate these projections under both current and proposed USF payment scenarios.

    •    The presence of competitive carriers within your study area. There is expected to be some impact on payments for those ILECs with significant competitive coverage.

    •    Estimated bandwidth demands for your subscribers well into the 2030s.

JSI will be reviewing and analyzing the Order and related rulemaking and inquiry immediately upon their release. We will be following up with you with further e-Lerts and correspondence.

If you have any questions concerning the possible items in the FCC’s proposed Order, or you wish to begin formulating the analysis process, please contact Brian Sullivan, Ryan Denzel, Steve Meltzer, or Douglas Meredith.