CAF Phase II Challenges Seen as High-Stakes Battle of Positioning

The agency will now winnow the challenges by dismissing those that don’t make a prima facie case, said a commission official. Following responses, the agency will weigh the arguments made in the initial challenges against the responses in making a final determination, the official said. Attorneys involved in the challenges are waiting to see which challenges survive the initial cut before weighing in with replies, one lawyer said.

Under Phase II, the FCC is using CAF subsidies to expand and provide continued support for broadband in high-cost price-cap areas. To keep money from going to already served areas, incumbent price-cap carriers are only eligible for funding to serve an area that’s not already served by carriers not eligible for support, like cable companies. Once an offer is made, incumbents have the option to accept or decline to provide service for all of their areas in a state. Should they decline, the right to serve those areas and receive the funding would be put up for bid.

First, the challenge process is designed to determine which census blocks are eligible for funding. The agency took a first cut at determining that eligibility based on the National Broadband Map, examining such issues as the cost to serve the area, and whether an unsubsidized company is already providing minimum levels of broadband and voice services. Because of limits on data on broadband speed, latency, usage and pricing, the FCC said it made some assumptions in coming up with the initial list of areas eligible for funding. To some extent, the challenges reflect additional information the agency did not have in making its initial determination, an FCC official said.

Challenges are also being filed because the question of whether an area is served helps determine whether companies can receive funding, said industry lawyers. As important, at stake in the challenges is whether companies would face a competing company receiving subsidies, said attorneys.

In some cases, the FCC initially designated some areas as unserved, even though companies ineligible for support like cable companies are providing broadband in the areas. The agency may have lacked evidence that the companies already serving the area meet minimum performance requirements, said Ross Lieberman, American Cable Association senior vice president-government affairs. The unserved designation is significant because it would mean price-cap carriers would be eligible for CAF support in the areas, he said. Fearing continued support going to carriers with which they compete in these areas, unsubsidized operators, like cable companies, have challenged the “unserved” designation that carries with it funding eligibility, Lieberman said.

An attorney involved in one of the challenges had another take, agreeing that many challenges are filed by cable companies and fixed wireless providers seeking to ensure that CAF funds are not used to overbuild areas they claim to serve. “The rules allow them to exclude the entire Census block even if only one customer has access to broadband, and they don’t have to make any commitment to serve the other households in the excluded area,” the attorney said. If more higher-density, high-cost Census blocks are deemed served as a result, that could lead to fewer people benefiting from CAF funds, the attorney said, because if the money does not go to the higher-density, high-cost areas it will go to even less densely populated areas where fewer people will benefit.

Frontier’s Challenge

In other situations, companies like Frontier Communications have challenged the agency’s initial designation of an area it serves as being “served,” said Michael Saperstein, vice president-federal regulatory affairs. If the area were reclassified as unserved, it would mean companies like Frontier, as the incumbent, would have the right of first refusal to serve and receive funding for serving the area, Saperstein said.

Because price-cap carriers have a right of refusal, they will try to maximize the number of blocks considered “unserved,” and thus eligible for funding, said a cable industry official. But companies not eligible for support “will want to maximize the number of blocks considered served in order to keep support out of those areas,” said the official.

If the $9 billion in funding isn’t enough, the stakes will be higher because areas eligible for funding tend to be rural, where the largest cost is to begin service, an attorney said. If that cost can be subsidized, the provider will be in a position to add more customers at an incremental cost, said the lawyer.

"There’s money involved,” said Lieberman. “So there is a lot of interest among challengers to make sure the commission’s policy [about not overbuilding] is carried out right,” he said, referring to the agency’s aim of not providing CAF support in areas already served by other companies. The challenges also reflect that the agency has only gone through the challenge process once before, for CAF Phase One, he said. New issues inevitably arise and clarifications are desired to increase certainty and fairness, said Lieberman.

Cable Challenges

Part of the criteria to determine whether an area is served is if a company has or has in the past had customers in the census blocks. In a petition for reconsideration rejected by the FCC last week (CD Aug 12 p10), the American Cable Association and NCTA raised the scenario of companies having invested to serve a new subdivision. If no one has yet moved in, the company can’t meet the criteria that it’s serving the area by showing it has any customers there. The groups argued that in those situations, the area should be considered served. Despite the denial, cable companies in the situation are seeking individual waivers from proving they have customers, Lieberman said. The Wireline Bureau said more “robust” standards were being used to determine Phase II eligibility than under Phase I, when companies did not have to show they have or had customers in the past, he said.

In a petition for waiver (http://bit.ly/1q0yvTD) filed by Cablevision, the company argued it makes broadband available for a census block in the Bronx, New York, that has only one building. Customers in the building have not signed up for the service, and Cablevision said it should not be required to show it has customers there.

Out of the 753,503 eligible census blocks initially designated as served or unserved, 34,000 unserved designations are being challenged as served, and 130,000 initially identified as served are being challenged as unserved, said the FCC spokesman.

Among the filings was a Charter Communications challenge (http://bit.ly/1kSw9Hc) of the designation of 314 census blocks as “unserved” in the territories of AT&T, CenturyLink, FairPoint, Frontier, Verizon and Windstream. “Charter serves the census blocks identified and thus ... the Bureau should decline to direct CAF support to these blocks,” it said. The price-cap companies had no comment. Bright House Networks also challenged (http://bit.ly/1AvPTEi) the designation of 32 census blocks in AT&T, CenturyLink, Verizon and Windstream service areas as unserved, also saying it serves those areas and that the Census blocks should not be eligible for CAF support.

CenturyLink is challenging (http://bit.ly/1tlG3AX) the designation that Prairieburg Telephone is serving census blocks in Prairieburg, Iowa, and argued the blocks should be reclassified as unserved. A Prairieburg representative declined comment. “CenturyLink was unable to find a website for Prairieburg Telephone,” the challenge said. “Neither CenturyLink nor consumers can ascertain from the Internet information regarding the voice and Internet services Prairieburg purportedly provides. CenturyLink could not find anything that would demonstrate that Prairieburg is holding itself out as a provider of voice and broadband services at all.”(kmurakami@warren-news.com)