FCC Issues Rate-of-Return USF Overhaul Aimed at Boosting Rural Broadband
The FCC revamped rate-of-return USF support mechanisms for the broadband era, in a 249-page order and Further NPRM released late Wednesday, with Commissioner Ajit Pai partially dissenting and partially concurring. The order gives rate-of-return telcos the option of receiving rural high-cost USF subsidies based on a broadband cost model over 10 years, which will be supplemented by $150 million in additional annual funding from existing USF reserves. For carriers not opting in to the model-based approach, the order updates a legacy mechanism -- renamed Connect America Fund Broadband Loop Support (CAF-BLS) -- to fund stand-alone broadband service to customers, which was a major driver of the reform effort. The changes include measures and incentives to spark greater broadband deployment, the order said.
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"These reforms will help to ensure that federal universal service funds are spent wisely, for their intended purpose, and take concrete steps to bring broadband to those rural Americans who remain unserved today," FCC Chairman Tom Wheeler said in a statement. Commissioner Mike O'Rielly said in a statement the agency is adopting "timely and meaningful reforms" that "will provide stability and certainty for carriers to invest in broadband and expand service for consumers in rural America. It is the right thing to do, and I am proud to support the order."
Pai said he concurred with the efforts to fund stand-alone broadband, create a model-based path, and revise legacy mechanisms without using a "bifurcated approach that many rural carriers feared." But he said the changes the FCC was making are "anything but simple" and the "complexity only increases as you go further down the rabbit hole." He said he sought revisions but was denied. "The truth is I don’t know whether this Order will help or hinder broadband deployment in rural America. No one does. That’s in part because FCC leadership has deliberately left the public in the dark," he said.
To achieve savings, the order cuts the rate of return from 11.25 percent to 9.75 percent over six years and limits operating and capital expenditures eligible for support. It also sets an annual budget of $2 billion. To better target support, the order prohibits CAF-BLS support in census blocks served by a qualifying unsubsidized competitor, with a "robust challenge process" to make specific determinations. Carriers accepting model-based support must eventually deploy 10/1 Mbps service to all funded locations, with 25/3 Mbps service to denser areas, said an FCC release. They would have to meet a 40 percent buildout requirement within four years, increasing by 10 percentage points a year until reaching 100 percent by year 10, it said.
The order didn't address Alaska-specific or tribal broadband proposals, but Wheeler noted his commitment to address an Alaska Plan in the second quarter and to acting on broadband deployment in tribal areas by the end of the year. The FCC asked about the tribal issues and other matters in the accompanying FNPRM.
ITTA and USTelecom issued positive statements; NTCA was more guarded. ITTA said the reforms should provide "needed stability" and broadband deployment. USTelecom called the order "a major step to modernizing an aging program" that will benefit rural consumers. NTCA said: "We are in the process of reviewing the order now, but we are hopeful that it contains thoughtful, targeted updates that respond to consumer demand for broadband and build upon the already unparalleled work of smaller carriers in leading the broadband charge to date in rural America. ... It will take time, analysis, and experience to understand whether certain measures actually further or hinder the mission of universal service, but we very much appreciate the FCC’s willingness to discuss the development and implementation of such measures."