In the latest step of implementing the National Broadband Plan, the FCC recently released their Report and Order on Reconsideration, and Further Notice of Proposed Rulemaking (FCC Order 16-33, the Order). The Order continues to angle the industry towards universal broadband deployment and narrowing the urban-rural divide of access to broadband service. This is to be accomplished predominantly through the creation of a voluntary cost-recovery model to support broadband deployment as well as changes in current cost recovery mechanisms.

The Order divides the telecommunications world into two separate regimes; one for carriers who elect the voluntary path to model-based-support (A-CAM), and the other for those carriers who choose to remain with the reformed legacy support mechanisms or are ineligible for model-based support. The model will not be available to carriers who currently offer 10/1 Mbps broadband service to over 90% of their eligible locations, which can be through various technologies, or for census blocks where there are unsubsidized competitors who offer 10/1 Mbps broadband to even one customer based on FCC Form 477 data.

One of the primary provisions of the Order was the adoption of the Alternative Connect America Cost Model (A-CAM). Carriers who elect the model will lock in support for a 10 year period, scheduled to begin in 2017, in exchange for deploying broadband-capable networks. The support fund for this model is capped at $200 million annually over the 10-year period. The amount of support a carrier will receive may be impacted by the actual carriers who elect the model. If the group of carriers electing the model pushes support over the cap, then support will be reallocated, resulting in a revised offer of the model. Carriers will then have 30 days to decide whether to accept the revised offer. Once these irrevocable elections have been finalized, support will be transitioned to model levels over a period of two to nine years depending on the disparity of model and legacy support amounts

During the 10 years of receiving model support, carriers will be required to meet milestones for deployment of 10/1 Mbps broadband, starting with 40% deployment by year four and 100% deployment by the end of the 10 year model period. Also, during this time, carriers will be expected to deploy 25/3 Mbps broadband to 25% to 75% of locations, depending on the density of the area being served. It was recognized in the Order that certain areas will not be able to meet these requirements within the prescribed budget. As such, based on costs, certain areas will only be required to meet a 4/1 Mbps minimum speed.

If a carrier does not specifically opt into the A-CAM, or is not eligible for the model, they will continue to receive support based on modified legacy support mechanisms. The main modification of legacy support will be moving support from interstate common line support (ICLS) to a new mechanism: Connect America Fund – Broadband Line Support (CAF-BLS). This new element will be divided into two subcomponents to provide support for voice and voice–data lines (formerly ICLS) and a new mechanism for broadband-only lines. The fund for CAF-BLS is set to be $2 billion.

Coupled with the change in recovery elements, there will be a reduction in the rate of return prescribed for regulated operations from the current rate of 11.25% down to 9.75%. This decline will be phased in by .25% per year beginning July 1, 2016, and ending July 1, 2021.

Legacy support carriers will also have broadband deployment obligations. The number of locations that each carrier will be required to build out will be based on the level of availability of 10/1 Mbps broadband in a given study area. The build out obligation takes into account the 5 year FCC projected CAF- BLS amount, multiplied by a CAF-BLS factor.

Support received by legacy carriers will be phased out in census blocks where 85% or more of the locations are capable of being served with 10/1 fixed voice and broadband services by an unsubsidized competitor. While the data used to determine these areas has already been obtained through the most recent FCC Form 477 data, there is a process for carriers to challenge the data, with the burden of proof being with the unsubsidized competitor. Support lost due to competitive overlap will be phased out over three or six years depending on the severity of the decline in support.

Further, for legacy carriers, operating expenses and capital expenditures will be capped using regression calculations. In addition, capital expenditures will have support allowances imposed based on current levels of broadband deployment. Any limitations of capital expenditures will only be on a prospective basis in order to continue to provide support for existing plant investment.

Along with changes in support mechanisms, the Order prescribes various other changes. For rate of return Eligible Telecommunications Carriers (ETC), there are significant changes to reporting requirements. The Order further recognizes the difference in circumstances for Alaska carriers and has indicated that an Alaska Plan is expected to be issued by June 30, 2016. Beyond these provisions, the Order includes a Further Notice of Proposed Rule Making that seeks comment on disaggregation options for competitive overlap issues, a mechanism to support unserved tribal lands, modifying affiliate transaction rules, and various compliance and reporting issues.

This is only a short summary of the new order; the decision to opt in or out will vary by carrier and will be difficult. Please feel free to contact our telecommunications group if you have any questions regarding further specifics of the rule or need help in analyzing what the best decision is for your company.