For rural rate-of-return (ROR) ILECs, it has been an interesting year. Back in March, the FCC approved (in Docket 10-90) a new way for rural ILECs to obtain universal service. A voluntary methodology that would provide a carrier definite universal support dollar amounts per year over a ten-year time period in exchange for meeting required milestones for broadband deployment in its territory. The annual funding per ILEC would be determined by using a cost model similar to the one already used by larger price cap ILECs. A 10-year budget of $150 million annually was established for the program, with an additional $50 million in reserve if the budget was exceeded in a given year.

At the time of passage of this program, the Commission noted that a model-based approach was much sought after by ROR ILECs. Unfortunately, the Commission did not realize how popular the model would be.

On November 2, 2016, the FCC issued the following Public Notice:

Today, the Wireline Competition Bureau (Bureau) announces that 216 rate-of-return companies have submitted letters electing 274 separate offers of Alternative Connect America Cost Model (A-CAM) support in 43 states…The Bureau has totaled the amount of model-based support for electing carriers and determined that model based support and transition payments would exceed the overall 10-year budget set by the Commission by more than $160 million annually. In the Rate-of-Return Order, the Commission indicated that if demand for the model exceeded the additional funding allocated to the voluntary path to the model, it may consider whether circumstances warrant an additional allocation of up to $50 million annually. The Commission acknowledged, however, that “other measures may be necessary” if demand for the voluntary path to the model is so great that the funding per location cap would need to be set below $146.10 per location to remain within the available budget.

In fact, a Commission analysis indicated that if no additional funds are made available to satisfy this demand, the per-location cost of model support may be as low as $97 per location, which would fall far below the comparable cost of locations supported in the larger company cost model and leave far too many locations in rural America unserved or underserved.

With a target date of January 1, 2017 rapidly approaching, the Commission now finds itself in a dilemma. How should it handle a situation in which it does not have enough dollars budgeted to fund each ILEC that signed up for the model?

One method the Commission is considering is to prioritize carriers based on their level of broadband deployment (either their percentage of locations lacking 10/1 Mbps broadband speeds or the absolute number of such locations) or the average cost per location. The idea, of course, would be to target dollars to the companies who are lagging in broadband deployment.

Another suggestion urges the Commission not to eliminate carriers electing the cost model whose model-based support is less than legacy support. Additionally, some carriers are willing to accept revised model funding where the proportionate support reductions would be greater than the proportionate broadband build-out obligation reductions.

Most carriers believe the Commission should make additional funds available to fully budget the model program, shifting them from other parts of the Connect America Fund. ITTA suggests that if that is not possible, per location funding for ROR ILECs should be no lower than for price cap ILECs.

There is sound justification for the Commission to allocate sufficient additional funding for the [model] plan in order to overcome the entire budgetary shortfall. Doing so would maximize broadband build-out and would permit all carriers that have signified their interest in moving to a forward-looking, model-based support mechanism to do so. ITTA recognizes, however, that for one reason or another, the Commission may not be able to fully fund the [model] plan. Should that be the case, ITTA urges the Commission to allocate an additional $95 million of funding annually for model-based support. This would enable all carriers that accepted such support to receive $146.10 per location, the same amount of per-location support that the Connect America Phase II program provides to price cap carriers. (ITTA November 14 letter to the FCC, at. p. 2).

The question is what happens next? The clock is ticking for the FCC to reach a decision. Carriers must know their per-location funding if they are going to keep to their required broadband deployment schedule. Since almost the entire industry seems united that finding the additional funding is desirable, the Commission will almost surely find a way to shift funds from another program. However, it may be well after January 1, 2017 before the Commission makes a final decision.

By Andy Regitsky, CCMI