FCC Order Finalizes Details of CAF Phase II; Modifies Rate-of-Return Support


The Federal Communications Commission (FCC) has adopted a Report and Order that continues its efforts to implement the universal service reforms adopted in the landmark 2011 USF/ICC Transformation Order. For rate-of-return carriers, the FCC’s order modifies the high-cost funding mechanism that has been in place since the elimination of the quantile-based regression analysis benchmarks, but the move is only intended to be a short-term measure. Also of note to rate-of-return carriers are the parts of the order that continue the implementation of the “competitive overlap rule” and the FCC’s decision to require all recipients of Connect America Fund (CAF) support to provide broadband service at speeds of 10 Mbps downstream and 1 Mbps upstream. In the rest of the Report and Order, the FCC finalizes the details of Phase II of the CAF, and announces that it is prepared to make offers of CAF Phase II support – totaling roughly $1.8 billion annually – to price cap carriers in early 2015. These details include the following:

  • The CAF Phase II term of support for price cap carriers has been increased from five years to six years, with an option for a seventh year in certain circumstances.
  • The CAF Phase II build-out requirements have been modified to provide carriers with more flexibility.
  • The FCC will forbear from applying certain universal service obligations in low-cost census blocks where price cap carriers are not eligible to receive CAF support, as well as census blocks where carriers face competition.
  • Price cap carriers that decline the offer of CAF Phase II support in a state will be required to continue to deliver voice service to high-cost census blocks until the winner of the competitive bidding process begins providing service.
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