Create the Connect America Fund

Recommendation #65

FCC Chapter: 8.2

Status: Completed

The Federal Communications Commission should create the Connect America Fund (CAF).

The FCC's long range goal should be to replace all of the legacy High-Cost programs with a new program that preserves the connectivity that Americans have today and advances universal broadband in the 21st century.

The FCC should create an expedited process, however, to fund broadband infrastructure buildout in unserved areas.

As a general roadmap, CAF should adhere to the following principles:

CAF should only provide funding in geographic areas where there is no private sector business case to provide broadband and high-quality voice-grade service.
CAF support levels should be based on what is necessary to induce a private firm to serve an area. Support should be based on the net gap (i.e., forward looking costs less revenues). Those costs would include both capital expenditures and any ongoing costs, including middle-mile costs, required to provide high-speed broadband service that meets the National Broadband Availability Target. Revenues should include all revenues earned from broadband-capable network infrastructure, including voice, data and video revenues, and take into account the impact of other regulatory reforms that may impact revenue flows, such as intercarrier compensation (ICC), and funding from other sources, such as Recovery Act grants. The FCC should evaluate eligibility and define support levels on the basis of neutral geographic units such as U.S. Census-based geographic areas, not the geographic units associated with any particular industry segment.

In targeting funding to the areas where there is no private sector business case to offer broadband service, the FCC should consider the role of state high-cost funds in supporting universal service and other Tribal, state, regional and local initiatives to support broadband. A number of states have established state-level programs through their respective public utility commissions to subsidize broadband connections, while other states have implemented other forms of grants and loans to support broadband investment. As the country shifts its efforts to universalize both broadband and voice, the FCC should encourage states to provide funding to support broadband and to modify any laws that might limit such support.

There should be at most one subsidized provider of broadband per geographic area.
Areas with extremely low population density are typically unprofitable for even a single operator to serve and often face a significant broadband availability gap. Subsidizing duplicate, competing networks in such areas where there is no sustainable business case would impose significant burdens on the USF and, ultimately, on the consumers who contribute to the USF.

The eligibility criteria for obtaining support from CAF should be company- and technology-agnostic so long as the service provided meets the specifications set by the FCC.
Support should be available to both incumbent and competitive telephone companies (whether classified today as "rural" or "non-rural"), fixed and mobile wireless providers, satellite providers and other broadband providers, consistent with statutory requirements. Any broadband provider that can meet or exceed the specifications set by the FCC should be eligible to receive support.

The FCC should identify ways to drive funding to efficient levels, including market-based mechanisms where appropriate, to determine the firms that will receive CAF support and the amount of support they will receive.
If enough carriers compete for support in a given area and the mechanism is properly designed, the market should help identify the provider that will serve the area at the lowest cost.

Recipients of CAF support must be accountable for its use and subject to enforceable timelines for achieving universal access.
USF requires ongoing adjustment and re-evaluation to focus on performance-based outcomes.

The recipients of funding should:

• be subject to a broadband provider-of-last resort obligation,
• be subject to specific service quality and reporting requirements, including obligations to report on service availability and pricing, and
• offer service at rates reasonably comparable to urban rates.

The FCC should:

• establish timelines for extending broadband to unserved areas,
• should define operational requirements and make verification of broadband availability a condition for funding, and
• exercise all its relevant enforcement powers if recipients of support fail to meet FCC specifications.