FCC's Connect America Fund II receives mixed response

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The FCC is moving ahead with the second phase of its Connect America Fund (CAF) program, which is being used to move government subsidies from traditional POTS phone service to broadband in high-cost rural areas, drawing a mix of criticism and praise.

In phase I of the program, the FCC invested more than $438 million to bring broadband to 1.6 million people who could get no broadband connection.

During the second phase, it is offering nearly $9 billion over the course of five years to expand broadband in rural areas. Besides offering more funding, the regulator proposed that phase II should double the download speed required for subsidized broadband networks from 4 Mbps to 10 Mbps.

Under the new program, the FCC said that "price cap" service providers will be given the opportunity to access CAF-II funds in high cost areas, but they are required to accept or decline the offer of support for all entire high-cost locations they serve in a given state. In the event an incumbent turns down the funding, the subsidies will be made available to other providers, awarded through a Phase II competitive bidding process.

Another part of the CAF-II program is to focus on efficiency. The FCC said it wants to streamline the process for allowing non-traditional providers, such as cable operators, satellite providers and electric cooperatives, to become eligible for support.

Not everyone, including members of the FCC, are on board with the new plan, including Commissioner Ajit Pai, who expressed concerns over the regulator's decision to maintain the "rate floor."

"One particular problem is the Commission's reaffirmation of the "rate floor," an unfortunate legacy of the Universal Service Transformation Order," wrote Pai in his statement about the order. "Under that policy, the FCC sets a minimum price that telephone companies can charge their customers for local telephone service—and penalizes those companies that do not comply with this government mandate. And as a result of that policy, over one million rural Americans can expect their local telephone rates to increase by up to 46 percent as the rate floor rises from $14.00 to $20.46 per month."

Likewise, CenturyLink (NYSE: CTL), which accepted about $54 million in CAF funds in 2013 to extend broadband service to high-cost rural areas in a dozen states, cites a number of concerns about the latest phase of the program.

"We fervently believe that rural Americans have a right to join in this evolution," said Steve Davis, executive vice president for Public Policy and Government Relations for CenturyLink, in a statement. "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."

However, the NTCA (The Rural Broadband Association) was supportive of the measure.

"NTCA–The Rural Broadband Association 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," said Shirley Bloomfield, CEO of NTCA, in a prepared statement. "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." 

For more:
- see the release

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