We get into the weeds this week to cover the FCC’s February 15, 2019 Report and Order (Order) in Docket 10-90, which is important because it implements Phase II of the Connect America Fund (CAF).

Specifically, in the Order, the Commission establishes a transition framework to phase down CAF Phase I frozen dollar support in areas where universal service support is now determined by a competitive auction (CAF Phase II). The auction winners were announced in 2018. LECs that won the auction, in return for increased universal service support, will be required to deploy broadband in 45 states to 713,176 locations over the next ten years.

According to the Commission, approximately 73 percent of the locations available in the CAF Phase II auction were covered by winning bids, meaning there will be significantly fewer areas of the country where price cap carriers will receive support for voice service only. Here is some background.

The FCC created the CAF in 2011 to replace a variety of universal service mechanisms. One of the theories driving the move to the CAF was the idea that broadband deployment would be hastened by awarding support dollars through competitive bidding, to ensure deployment by the most cost-efficient carriers.

To begin the CAF transition, in 2012 the Commission implemented CAF Phase I by freezing the money carriers received under the old support mechanisms until the Phase II auction occurred. Specifically,

for a price cap carrier that declined the offer of Phase II model-based support and the associated state-wide service commitment, the carrier will continue to receive support in an amount equal to its CAF Phase I support amount until the first month that the winner of any competitive bidding process receives support under CAF Phase II; at that time, the carrier declining the state-wide commitment will cease to receive high-cost universal service support. (Order, para. 3).

At the same time, the Commission began a phase down to end the “identical support rule” which provided CLECs with the same per-line amount of high-cost support as the ILEC serving the same area. Phased-down legacy support to these CLECs would also end once Phase II CAF support begins.

The Order adopts a methodology to transition to the auction results by utilizing the Connect America Cost Model (CAM) to account for the relative costs of providing service among areas in states where price cap carriers declined model-based CAF Phase II support.

These price cap carriers currently receive an amount of frozen support for each carrier’s designated service area within a particular state. Within that state, we use the CAM to allocate a portion of each carrier’s existing frozen support to each auction-eligible census block based on the relative costs of providing service across all auction-eligible census blocks within the same state. Consistent with the cap for reserve prices exceeding the extremely high-cost threshold in the CAF Phase II auction, we limit the allocated monthly support for any census block to $146.10 per location. (Id., para 9).

Based on this methodology, the Commission mandates the following transition to Phase II CAF support.

Where the price cap carrier bid in the auction and won, legacy support is converted to auction-based support when Phase II support is authorized in that area.
In areas where a carrier other than the incumbent price cap carrier won in the auction, legacy support to the price cap carrier ceases when Phase II support for that winning bidder is authorized in that area.
In auction-eligible areas with no winning bidder, interim legacy support for existing price cap carriers will continue until further Commission action.
In areas that were ineligible for the auction, legacy support ceases when the first Phase II Auction support is authorized nationwide.
In areas where a competitive provider is receiving legacy support, it will be phased down over two years.

The implementation of Phase II support received nods of approval from all five FCC Commissioners. Commissioner Jessica Rosenworcel noted, however, that the auction is based on problematic data from LEC-created broadband maps that are strongly believed overstate actual broadband deployment—meaning that even where LECs meet their auction broadband obligations, there will still be problems. According to Rosenworcel,

We have broadband deserts in this country. We have places where networks do not reach and where digital opportunity is hard to find. Many of these locations are rural. But not all. The realities of redlining and harsh economics of service have put some populated places out of reach, too. The unfortunate truth is that the Federal Communications Commission does not know with precision where these broadband deserts are, who is affected, and how well our policies work to bring connectivity to communities that have been left behind. Our broadband maps are woefully inadequate. They overstate coverage in too many areas and understate it in others. Fixing this problem is not for the faint of heart. But we will never manage the problems we do not measure. So, I think this agency needs to repair our maps and improve the data we use to make decisions. (February 15, 2019 statement of Jessica Rosenworcel in Docket 10-90).

In other words, we still have a lot of work to do to bring broadband to everyone.