On November 18, 2011, the FCC issued an Order adopting comprehensive reforms to the federal high-cost USF mechanism. The primary purpose of the changes to the federal USF is to help fund a modern broadband network that reaches customers throughout the nation. With respect to wireline providers, there will be a gradual shift in funding from the existing high-cost component of the federal USF (which has largely subsidized voice networks in high-cost areas) to a new Connect America Fund (“CAF”) that is intended to support the buildout and provisioning of networks capable of
providing both voice and high-quality broadband service.
The CAF mechanism will be implemented in two phases. In Phase I, which begins in 2012, the existing levels of high-cost federal USF support disbursed to ILECs
that are ETCs will be frozen at current levels. All carriers receiving this support must use it in a manner that is consistent with achieving universal availability of both voice and broadband. In addition, $300 million in additional CAF funding will be made available to ETCs which agree to use it to deploy new broadband facilities in unserved areas which are capable of delivering actual speeds of at least 4 Mbps downstream and 1 Mbps upstream. In Phase II, the CAF funding will be disbursed in amounts
determined by using of a forward-looking cost model. The recipients of CAF funding will be determined through a mechanism of competitive bidding. In Phase II, all CAF
funding must be used to deploy new broadband at speeds to be determined by the cost model but which meet the minimum threshold of 4 Mbps downstream and 1 Mbps upstream.
It is too early to predict precisely how these changes to the federal USF will impact carriers in Maine, in part because the Commission does not know whether, and to what extent, Maine’s ILECs will seek a portion of the $300 million in additional CAF funding to build out broadband at the required speed thresholds, or successfully bid for Phase II CAF funding. Nonetheless, certain aspects of the FCC’s Order suggest that the Commission’s Plan is consistent with the new federal USF regime.
First, the FCC’s Order recognizes the importance of establishing a definition for “voice telephony service” that is based on the functionality of the service as opposed to the technology used to deliver it. This comports both with the Plan’s use of the
technologically neutral term Voice Service Provider to refer to all carriers the offer a voice transmission service, and also with the definition of POLR service, which is not dependent on any particular technology.
Second, the FCC expressly retained the authority of state commissions to enforce “carrier of last resort (‘COLR’)” obligations. Specifically, the FCC noted that no evidence had been presented of “specific legacy service obligations that represent an unfunded mandate that makes it infeasible for carriers to deploy broadband in high cost areas.” Thus, to the extent that the Commission’s Plan seeks to preserve the
availability of POLR service, it is entirely consistent with the FCC’s Order. In fact, the FCC observed that “states could consider providing state support directly to the
incumbent LEC to continue providing voice service in areas where the incumbent is no longer receiving federal high-cost universal support or, alternatively, could shift COLR obligations from the existing incumbent to another provider who is receiving federal or state universal service support in the future.” Such flexibility is, indeed, anticipated by the Commission’s Plan.
Third, as noted previously, the FCC’s CAF mechanism will rely on the
development of a forward looking cost model approach in much the same way in which the Commission’s Plan will employ such a model to determine the cost-side of any revenue requirements analysis undertaken upon the request of a POLR service provider for additional revenues. As the FCC explains, it intends to construct its model to
analyze the costs of a modern communications network capable of supporting voice and broadband, and that CAF funding will not be awarded based upon “embedded
costs.” This is precisely the vision of a forward-looking cost analysis articulated in the Commission’s Plan. Moreover, just as the Commission’s Plan anticipates the
application of a cost model to discrete geographic areas of a POLR service provider’s service territory, the FCC intends to “model forward-looking costs to estimate the cost of deploying broadband-capable networks in high-cost areas and identify at a granular level the areas where support will be available.” The FCC suggests that the level of granularity of its approach will be to calculate “costs based on the plant and hardware required to serve each location in a small area (i.e., census block or smaller),” and that this will enable it to “accurately capture the true costs of subscale markets.” The Plan also anticipates an analysis of costs at a similar level of granularity. In all, the FCC’s forward-looking cost model approach is strikingly similar to the approach recommended by the Commission’s Plan.
Fourth, the FCC recognizes that “there are instances where an unsubsidized competitor offers broadband and voice” to a significant portion of an ILEC’s service area “typically where customers are concentrated in a town or other higher density sub-area,” but not throughout the entire territory. Consequently, the FCC will phase out high-cost support for ILECs only in areas where a non-satellite unsubsidized competitor offers service for 100% of the locations in territory. This recognition that competition may not be ubiquitous, and that competitors are able to selectively determine where they wish to offer service (cream skimming), is consistent with the Commission’s Plan to enable all POLR service providers (even those facing competition) to seek, where it is justified, Maine USF support.
Finally, the FCC’s Order retains the role of the state commissions in certifying each year that the recipients of federal support (i.e., ETCs) have used and will use the funds for approved purposes. Moreover, the Commission will receive annual
broadband performance reports filed by CAF recipients, including verification of speed and latency testing results. The FCC’s Order anticipates that the Commission will share the responsibility of ensuring that the CAF recipients are, in fact, using funds to build a broadband network capable of achieving specified performance benchmarks.