The National Broadband Plan: Connect America Fund

In November 2011, the Federal Communications Commission (FCC) set guidelines for transforming the Universal Service Fund that subsidized rural voice phone services into paying for high-speed broadband infrastructure, known as the Connect American Fund and Mobility Fund or the National Broadband Plan. The rules regarding the Universal Service Fund and the Connect America Fund are complex. Most companies support some aspects of the plan and oppose others. While progress has been made, the final rules for small, rural companies have not yet been resolved. Small, rural companies’ main complaint is that the plan drastically limits interconnection fees (how local telecoms charge each other to complete calls). Without question, it will be difficult for many small companies to see this source of revenue disappear.

At least thirty-one, lawsuits were filed all over the country, challenging the Connect America Fund. The 10th Circuit Court of Appeals consolidated those cases and rejected them entirely in May 2014, giving broad deference to the FCC’s authority under the Communications Act of 1934 and noting that the FCC had a rational basis for its decisions in creating the broadband focused Connect American Fund and Mobility Fund.

The FCC has recently been enacting Phase II of its Connect America Fund that provides ongoing support to deploy and maintain fixed-location broadband and voice services in high-cost areas at rates comparable to those offered in urban areas. Phase II funds are only given in areas without unsubsidized competitors for Price-Cap Carriers, which are generally larger companies. In North Carolina, AT&T, CenturyLink, Frontier, and Windstream will receive more than $19 million of funding annually for the next few years. Carriers receiving CAF support must complete 100% of the build-out by the end of 2020 with required milestones each year.

Many smaller telephone companies and cooperatives are designated as rate of return carriers. The rules for small companies differ. In 2014 the FCC began a series of “experiments” to allow the FCC to determine how best to support rural broadband in areas served by rate of return carrier. In 2016 the FCC issued a series of Order giving rate of return carriers the option of continuing with their existing support mechanism based on their embedded costs or moving to a model based on a certain monthly payment, similar to the model provided to Price-CAP carriers. Most rate of return carriers have chosen to migrate to the new model.