FCC Approves Framework for Phase II of CAF

The FCC voted on its proposed framework for the second phase of the Connect America Fund (CAF), which is being used to migrate subsidies from phone to broadband in high-cost (hard to reach, rural) areas, and it drew a range of mostly mixed responses.  

Phase 1 of the program provided almost $800 million to deploy broadband to 1.6 million people previously unserved by broadband, according to the commission. Phase two, a five-year plan, will spend almost $9 billion to continue that expansion, including proposing upping the speed requirements for the subsidy from 4 Mbps to 10.

Incumbent (price cap) carriers will have a right of first refusal for CAF funds in high cost areas, but they must serve all high-cost areas they serve in a particular states. There will be a competitive bidding process among other telecom providers, including cable ops, if the incumbent declines the money.

Among the other framework proposals are to phase out "excessive" subsidies that allowed some rural companies to charge below market rates. But since that will impact customers bills, the FCC agreed to delay the change until January 2015.

The mixed reaction began with FCC commissioner Ajit Pai, who agreed in part and dissented in part to the framework, the dissent part being the increased rates to the customers of those rural companies getting cuts to their "excessive" subsidies.

"I strongly disagree with the Commission’s decision to substantially increase many rural Americans’ phone bills," he said. He said that at least the six-month delay in implementing the policy "has opened up a six-month window for us to reexamine this policy before it hits rural America."

Commissioner O'Rielly was not fully on board either, though he did not go as far as dissenting, concurring to the speed change part, which is short of support.

O'Rielly suggesting the FCC should concentrate on getting 4 MBps service to all consumers before diverting funds to raising the speed standard.

Similarly, Industry reaction was mixed.

“We applaud the FCC’s decision to move forward with a competitive bidding mechanism for universal service high-cost support in limited areas, but remain concerned that meaningful reform of this outdated subsidy regime will remain a distant vision for most areas of the country," said the National Cable & Telecommunications Association. "In today's competitive marketplace, it makes little sense to perpetuate a subsidy regime of sole source contracts for incumbent phone companies that bars consumers from reaping the benefits of competitive broadband providers.”

“The Connect America Fund program is perhaps the best hope for hundreds of thousands of Americans with no high-speed Internet service today," said Centurylink. "We agree that faster Internet speeds are where much of the focus must be in terms of meeting the rapidly evolving needs of our customers. Online opportunities are changing the way Americans look at education, commerce and entertainment. We fervently believe that rural Americans have a right to join in this evolution. 

“Accordingly, we believe that the Connect America Fund must first connect America by ensuring that all consumers have access to broadband service. Higher speeds will require commensurate changes in other parts of the program. We are concerned that reverse auctions, extended challenge processes, and funding unlicensed and untested technologies will not help rural Americans get the benefits and opportunities that come with high-speed Internet.”

NTCA: The Rural Broadband Association was unsurprisingly upbeat about the move to promote rural broadband subsidies.

“NTCA welcomes today’s actions by the FCC to move closer to implementation of a Connect America Fund that is tailored for the unique challenges faced by smaller carriers that serve those rural areas left behind long ago by larger providers. NTCA also applauds the FCC’s thoughtful course corrections on matters such as the 2011 flash-cut elimination of the Safety Net Additive and the quantile regression analysis caps on Universal Service Fund support that created untold levels of uncertainty to the detriment of our country’s shared broadband deployment objectives."

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.