CenturyLink (NYSE: CTL) and Windstream are prime candidates for FCC's Connect America Fund Phase II (CAF-II) since both telcos serve a large swatch of Tier 2 and Tier 3 markets, but both telcos are concerned that the timeline to meet the 10/1 Mbps requirement is not realistic.
The FCC ruled last week that service providers that want to take advantage of CAF funding will have to deliver broadband speeds of at least 10 Mbps downstream and 1 Mbps upstream. By increasing the requirement from 4/1 Mbps, the regulator said that it will be able to make certain that rural consumers get the same broadband speeds that 99 percent of urban Americans receive.
Steve Davis, executive vice president for Public Policy and Government Relations for CenturyLink, said in a statement that while the CAF-II program will enable it to bring broadband service to more rural customers that don't have any service today, the "effect of the program will be smaller than originally anticipated."
"In particular, we're disappointed that after taking more than three years to write this order, the FCC has adopted such a restrictive timeline for the build-out to high-cost areas that we will not be able to build facilities to many of our rural customers," Davis said. "This means that customers in many of the areas that are most difficult to reach will have to wait until the FCC adopts workable auction rules before learning whether or not they will be eligible to receive broadband service."
Windstream expressed a similar concern in a filing, saying that in order to meet the 10/1 Mbps requirement, it would also need a longer buildout and support term. The service provider suggested to the FCC that it allow service providers an additional year to conduct buildouts under the CAF-II program.
"Providing 10/1 Mbps service in high-cost areas will require a massive extension of fiber, new remote terminal equipment, and reconfiguration of existing copper," Windstream wrote in a letter to the FCC. "Windstream would have to nearly triple its network deployment to meet even a six-year build-out requirement. Moreover, increasing build-out capacity is not simply a matter of increased manpower, but includes various factors beyond Windstream's control, such as supply of fiber and network equipment, a limited number of qualified third-party vendors, rights of way issues, and the cooperation of electric companies."
Already, Windstream is extending service to nearly 110,000 new homes and upgrading about 100,000 existing lines to support broadband through Round Two of the Rural Utilities Service's Broadband Initiatives Program (BIP) and Round Two of CAF Phase I.
The service provider pointed out that BIP had a three-year deadline that has been extended for nearly two additional years because"[w]eather, seasonal conditions, and project volumes have posed challenges for ... suppliers of goods and services and awardees."
Windstream said that in CAF-II, the service provider will have to extend broadband service to nearly 420,000 locations--twice as many that it addressed with BIP and CAF-I--and several locations are in higher cost areas than what was in the previous programs.
During the CAF II program, the service provider will face an additional challenge of fighting to get access to vendor equipment and contractor resources.
"In CAF Phase II, Windstream will be required to provide broadband service to approximately 420,000 locations--twice as many as will be addressed with BIP and CAF Phase I, and many of which are higher-cost than the BIP and CAF Phase I locations," Windstream wrote. "Moreover, the CAF Phase II program as a whole is supporting the provision of broadband service to more than 4.2 million locations, and Windstream will be competing with other providers for a limited quantity of third-party vendors and contractors."
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