CenturyLink (NYSE: CTL), Frontier Communications and a number of other Tier 2 telcos that have struggled to bring broadband services to hard-to-reach rural areas will now have another aide with the second phase of the FCC's Connect America Fund (CAF-II), which is offering service providers about $1.7 billion in funding.
Under the CAF-II program, the FCC will provide support for price cap carriers to deploy broadband networks that can deliver speeds of at least 10/1 Mbps to an estimated 9 million rural residents.
The FCC said that the funding represents a 71 percent increase from current funding for these areas, but is accomplished without increasing the size of the Universal Service Fund (USF--or increasing ratepayer fees.
CenturyLink and Frontier praised the CAF-II program and its goal to help bring broadband to more rural areas of their footprints.
Like the CAF-I program, CenturyLink said in a statement that it would "evaluate these offers on a state-by-state basis and decide where we can accept them."
Frontier, which accepted $71.9 million in 2012 to deploy broadband to 93,000 unserved locations and $61.3 million in 2013 to deploy or upgrade broadband service to more than 103,000 locations, echoed a similar sentiment.
Dan McCarthy, president and CEO of Frontier, said in a statement that it will be "reviewing today's Public Notice in more detail and look forward to participating and utilizing the resources to expand broadband infrastructure across our rural markets."
Service providers that are interested in participating in CAF-II have 120 days to determine whether or not to accept the funding on a state-by-state basis. If a service provider declines the offer in a specific state where it operates today, the FCC will offer the subsidies to other providers on a competitive basis.
While service providers have been making progress upgrading their networks to support higher speed broadband services, the FCC's Broadband Progress Report revealed that there's a sizeable availability gap of 10/1 Mbps broadband services between urban and rural areas. According to the report, nearly one in three rural Americans lack access to 10/1 broadband, compared to only one in 100 urban Americans.
After allocating $438 million to expand broadband in Phase I of the Connect America Fund, service providers have in total expanded broadband to nearly 1.7 million people in over 637,000 homes and businesses in 45 states and Puerto Rico. The FCC said that during the next six years, CAF-II will provide more than $10 billion to expand broadband networks throughout rural areas of the U.S.
In CAF-II, the FCC funding will target census blocks that meet two criteria: where the cost of providing service according to the cost model exceeds $52.50 a month, and those that are not served by unsubsidized competitors offering service at speeds of at least 4/1 Mbps. Service providers accepting CAF-II funds will be required to build out broadband services to 40 percent of funded locations by the end 2017, 60 percent by end of 2018, and 100 percent by the end of 2020.
Getting to this point hasn't been easy, however. A number of service providers, including CenturyLink, Frontier and Windstream initially balked at the FCC's 10/1 Mbps requirement for the CAF-II program, saying the timeline to meet the 10/1 Mbps requirement was not realistic.
In a joint FCC filing, CenturyLink and Frontier said CAF-II should support the regulator's 10/1 proposed broadband definition in all rural areas they serve today. Likewise, Windstream told the FCC in a filing that in order to meet the 10/1 Mbps requirement, it would also need a longer buildout and support term.
Despite their initial concerns, the next phase for these telcos will be to review the FCC's latest order and decide how much money to accept or not accept.
- see the FCC release (.pdf)
- see Frontier's statement
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