Connect America Fund I (NOI)

Description

On April 21, 2010, the Federal Communications Commission launched a Notice of Inquiry (NOI) and Notice of Proposed Rulemaking (NPRM) to begin what it calls a once-in-a-generation transformation of the Universal Service Fund from supporting networks providing plain old telephone service into an effective and efficient tool for making affordable, high-quality broadband communications service available to all Americans.

The NOI asks for public comment on the use of an economic model to precisely target support for areas where there is no private-sector business case for carriers to provide broadband and voice services. The economic model developed in the National broadband Plan estimates the gap between the cost of deploying broadband services to Americans living in unserved areas and the potential additional revenue generated from the broadband investment. The NOI seeks comment on how that model could be adapted to determine efficient levels of universal service support to provide all Americans with broadband access.

The NOI also seeks comment on how to quickly provide consumers in unserved areas with broadband access while the FCC is considering final rules to implement fully the new CAF funding mechanism.

Issues

1. Model
The National Broadband Plan concludes that private investment alone is unlikely to extend broadband in some areas of the country with low population density. To estimate the amount of additional funding required to close the broadband availability gap, FCC staff developed an economic model to estimate the level of additional funding that would be required to extend broadband service to the estimated 7 million housing units that presently are unserved by broadband that provides 4 Mbps actual download speed, 1 Mbps upload speed, and acceptable quality of service for the most common interactive applications.

First, FCC staff developed a baseline of the current state of broadband availability and infrastructure deployment throughout the nation, which included all the major types of terrestrial broadband infrastructure as they are deployed today, and as they likely will evolve over the next three to five years without public support.

• Because the FCC does not presently have access to a comprehensive data set, at the required level of geographic granularity, regarding availability (i.e., which people have access to what services) and infrastructure (i.e., which people are passed by what types of network hardware), FCC staff combined several data sets and supplemented nationwide data with the output of a large multivariate regression model.
• Staff then used this regression model to predict availability by speed tier and to fill gaps, especially last mile gaps, in the infrastructure data.

Second, building on the infrastructure data, known and inferred, FCC staff’s economic analysis calculated the incremental
forward-looking cost of upgrading or extending existing infrastructure to provide broadband service consistent with the national broadband availability target, and the incremental revenues that might be expected to be generated by the network upgrades.

• From this, they calculated the net present value (NPV) of the gap between incremental costs and expected incremental revenues of broadband deployments in unserved areas.
• This NPV represents the amount of additional funding necessary toupgrade or extend existing infrastructure to the level necessary to support the target (4 Mbps download/1
• Mbps upload).
• Underlying the economic model is the principle that only profitable business cases will induce incremental network investments and the best measure of profitability is the net present value of a build.

a. Use of a Model
b. Cost Basis for Support
c. Types of Models
(i) HCPM vs. New Model
(ii) Total Costs vs. Incremental Costs
(iii) Cost vs. Cost and Revenue
d. Geographic Areas

2) Expedited Process for Providing Funding to Extend Networks in Unserved Areas

Comment due date: 07/12/2010