On March 30, the FCC released an Order and Notice of Proposed Rulemaking announcing $2 billion annually in new financial support (subsidies) to rural incumbent telecommunications carriers (so-called rate of return carriers) willing to deploy broadband services in unserved areas. Competitive providers serving rural and less-densely populated areas where these small rate of return carriers operate will have an opportunity to challenge any proposed subsidies directed to these areas. As explained below, the first step of the challenge process begins immediately, while the second step is likely to play out later this year.
The Commission’s proposal effectively extends the existing Connect America Fund (CAF) program to the smaller, independent rate of return incumbent providers located in many rural areas. It will provide $20 billion in support over the next 10 years to rate-of-return carriers, which may elect to receive the model-based support under the new Rate of Return CAF or support under a program that mirrors the existing subsidy program.
As with prior CAF initiatives, the FCC has included a challenge process that will permit unsubsidized competitors (such as cable operators, CLECs, and fixed wireless Internet service providers) to oppose subsidies in areas they already serve. To prevail in such a challenge the unsubsidized competitor must show that it offers voice and broadband service in census blocks that the Commission believes to be unserved and eligible for support.
The challenge process will be similar to that used in the CAF Phase II proceeding, which concluded last year. However, during this proceeding competitors will need to take two steps to ensure that these subsidies are not directed to areas they serve. The first step involves updating Form 477 broadband deployment data, while the second step requires competitors to file evidence of service in areas targeted by the FCC.
Step 1 – Updates to Form 477 Deployment Data
The new subsidies in this program are based on a cost model (the “A-CAM”), which uses FCC Form 477 data from December 2014, to create a baseline assumption of census blocks that are presumptively unserved by any broadband competitors. To ensure that the cost model is using updated deployment information the Wireline Competition Bureau is soliciting comments from competitors that have deployed broadband services since June 2015. Under this 477 update process, two kinds of updates may be made. First, competitors that have made any corrections to their Form 477 June 2015 data since February 19, 2016 may file comments to ensure those corrections are accounted for in the baseline assumption. Second, competitors that deployed broadband service in any new census blocks since June 2015 may file comments indicating that their Form 477 December 2015 data includes new broadband service in the specified census blocks. In both cases, these update comments are due on April 28.
Step 2 – Competitor Challenges to Areas Designated as Unserved
In the larger CAF challenge process, entities that are currently providing unsubsidized broadband and voice service within any census block identified as unserved will have the opportunity to file a challenge to such designation. In order to do so, the challenger must offer (1) fixed voice service at rates “reasonably comparable” to urban rates, and (2) fixed terrestrial broadband service with actual downstream speed of at least 10 Mbps and actual upload speed of at least 1 Mbps. In addition, the broadband service must include latency suitable for real time applications, including Voice over Internet Protocol; usage capacity that is reasonably comparable to offerings in urban areas; and be offered at rates that are reasonably comparable to those in urban areas.
As the FCC has explained, a census block will be deemed to be “served by a qualifying competitor” for this purpose if the competitor holds itself out to the public as offering “qualifying voice and broadband service” to at least 85 percent of the residential locations in a given census block. For purposes of meeting the requirement to “offer” service, the competitor must be willing and able to provide qualifying voice and broadband service to a requesting customer within ten business days, and be able to port telephone numbers in the block.
Significantly, the FCC is using a “serviceable” address standard, rather than requiring that all locations be actually served by the competitor. In addition, the Commission’s decision to adopt an 85 percent threshold recognizes that requiring competitive providers to show coverage of 100% of locations in these very rural areas may not always be feasible.
Another significant change from prior challenge processes is the Commission’s plan to utilize USAC as the entity that will receive and initially process the challenge data submitted by competitors. USAC’s role in the challenge process is likely to present new wrinkles for competitors submitting challenge data, but may provide more efficiencies in the long run.
All challenges must be filed on the specified FCC forms, and must include evidence sufficient to demonstrate that the area in question is, in fact, served. Although the permissible evidence will vary, the FCC noted that it would accept evidence such as lists of neighborhoods served, street addresses, or, for cable operators, a map showing boundaries of the cable franchise areas.
As with prior challenge processes, the incumbent RLEC or other parties may contest the challenger’s assertions. The challenger will not receive an opportunity to reply. Challenges will be due 21 days following the release of the revised model. The Order notes that the FCC expects the challenge process to be completed in 2017.
Providers of fixed wireline and wireless voice and broadband services should monitor this docket closely to ensure that the FCC does not identify portions of their territory as unserved, and thus subject to CAF subsidies. Davis Wright Tremaine attorneys have previously prevailed on numerous challenges filed on behalf of competitive providers, and are actively involved in this proceeding. Please contact us for any assistance with this matter.