CAF USF ORDER: A-CAM IMPACTS

Transcription

1 CAF USF ORDER: A-CAM IMPACTS DECEMBER 19, 2018 INTRODUCTIONS Jamie Becker Senior Managing Consultant Omaha, Nebraska Bob Abrams Senior Managing Consultant Madison, Wisconsin 1

2 CAF USF ORDER: A-CAM IMPACTS DECEMBER 19, How We Got Here OUR GOALS FOR TODAY 2 CAF FCC Order: Overview & Timeline 3 New A-CAM Offer: Funding 4 New A-CAM Offer: Buildout Obligations 2

3 OUR GOALS FOR TODAY 5 A-CAM Offer Timeline 6 Decision Time for the Offer Issues Raised for Existing A-CAM Carriers Summary Evolutionary Steps Since the FCC s 2011 USF Reform Order Set This in Motion HOW WE GOT TO THIS ORDER The Imposition of a USF Budget The evolution of presenting broadband as a public interest obligation of telecommunications providers FCC Commitment to model-based funding tied to buildout obligations, using CostQuest s green field model CAF1 support for price cap companies for six years FCC application of Cost Quest modeling to rural support in the 2016 A-CAM Offer The FCC s USF Budget wasn t enough to fully fund Continuing FCC preference for model-based outcomes National Association engagement consistent over time Universal Service has always been central to Congressional telecommunications policy 3

4 Additional Influences for the FCC s Order & the Desire for a Second A-CAM Offer HOW WE GOT TO THIS ORDER Access to 25/3 service no longer a luxury in urban areas Digital Divide About 30% of rural Americans still lack access to fixed, terrestrial high-speed internet of at least 25/3 Mbps Jobs Broadband access critical to economic development opportunities, job creation, education & civic engagement 5G will come to urban areas. But when to rural America? CAF Phase II auction To deploy 25/3 or higher speeds to approximately 713,176 rural locations Support of $1.488B over 10 years Approximately $.5B is left for a CAF Phase III Satellite was the big winner CAF FCC ORDER OVERVIEW & TIMELINE Federal Communications Commission (FCC) Issued a Report & Order FCC adopted December 12, 2018 Released December 13, 2018 A-CAM & Legacy Offer Timeline Public Notices Setting Decision Dates & Providing Decision Data for Voluntary Adoption of New Offers A-CAM I Carrier Notice in 30 days for Revised A-CAM I Legacy Carrier Notice soon after for A-CAM II Offers Further Notice of Proposed Rulemaking Comments due 60 days after publication in the Federal Register, primarily impacting legacy carriers 4

5 THE SECOND A-CAM : VOLUNTARY A-CAM recipients get a second voluntary offer to increase A-CAM support in exchange for heightened buildout obligations & two extra years If Declined o No Changes in Existing A-CAM Support o No Changes in A-CAM Deployment Obligations o No Changes in A-CAM Term Ends 12/31/2026 o No Word on Possible Post-Term Support If Accepted o Changes to Support o Additional Deployment Obligations o New 10-Year Term Ends 12/31/2028 BUT FIRST, LET S REVIEW THE CURRENT A-CAM I PROGRAM Reviewing How Location Counts Work Under the Current 10-Year A-CAM Term Deploy 10/1 Mbps Broadband to All Fully-Funded Locations Initially Fully-Funded meant a maximum of $ Of those, between 25% and 75% must be capable of 25/3 Mbps speed, based on model-based density Deploy 4/1 Mbps Broadband to Capped Locations Below 10 locations per square mile: 4/1 to 25% of capped locations Above 10 locations per square mile: 4/1 to 50% of capped locations Provide 4/1 Mbps to the remainder, but only in response to customers Reasonable Request If I Accepted the Initial A-CAM Offer with a Glide Path Their higher $200/location maximum Transitional support recovered some of the initial drop in support 5

6 $200 is the new $ For Fully-Funded Eligible Locations FUNDING WILL BE TO A MAXIMUM OF $200 PER LOCATION Voluntary Offer is Available to All Current A-CAM Recipients The Order provides for an increase funding to a $200 maximum per location for carriers who took the first offer at the $ level There will be shifts from capped to fully-funded locations, with 25/3 Mpbs obligation milestones beginning in year 4 No changes in the total number of eligible location counts Existing A-CAM carriers on a Glide-Path A-CAM carriers, stay at their current $200 maximum per location. Get two more years under the offer, in exchange for broadband obligations rising to 25/3 Mbps, with milestones beginning in year 4 instead of being required by year 10. No changes in the total number of eligible location counts $200 is the new $ For Fully-Funded Eligible Locations TOTAL FUNDING RISES WHEN THE PER LOCATION MAXIMUM RISES FROM $ TO $200 If All Current A-CAM Carriers Take the Revised Offers, $67M will be Added to Total A-CAM Annual Support 100,000 additional locations would be capable of purchasing 25/3 Mbps broadband service 39,000 partially funded at 4/1 Mbps would become fullyfunded with a 10/1 Mbps serving requirement 26,000 fewer locations would fall under the Reasonable Request category 25/3 Mbps, 4/1 Mbps and reasonable request obligations come in the tenth and final year of the funding window 6

7 $200 Stays $200 if you were Glide Path For Fully-Funded Eligible Locations TOTAL FUNDING CONTINUES FOR AN ADDITION TWO YEARS FOR GLIDE PATH A-CAM CARRIERS TAKING THE Glide Path A-CAM Carriers Get About $51M in Annual Support (Excluding Transitional Support Payments No additional support for taking the Revised Offer If All Glide Path-ers Take this Offer, the FCC Says: 8,300 additional locations would be capable of purchasing 25/3 Mbps broadband service, because a higher share of fully-funded locations must get the faster speed Support under the Revised Glide Path offer would extend it for two more years, totaling 12 years DEPLOYMENT OBLIGATIONS Existing A-CAM Obligations 25/3 Mbps, 10/1 Mbps, 4/1 Mbps and reasonable request deployment obligations 25/3 Mbps, 4/1 Mbps and reasonable request obligations come in the tenth and final year of the funding window Revised A-CAM I Obligations by 12/31/2028, are ratcheted upward, and must meet earlier milestones A-CAM State Level Housing Unit Density Fully-Funded 25/3 Mbps Location Pctg., for Current A-CAM Support Fully-Funded 25/3 Mbps Location Pctg., in the New A-CAM Offer Lowest Density <5 per sq. mi. 25% 50% Middle Density 5-10 per sq. mi. 50% 65% Higher Density 10+ per sq. mi. 75% 85% 14 7

8 DEPLOYMENT OBLIGATIONS 15 Voluntary election of the New A-CAM Offer Brings Additional Deployment Obligations 10/1 Mbps Milestones remain in place in fully funded census blocks, whether or not the new offer is taken 25/3 Mbps Obligations, due by Year 10 of the Existing A-CAM term, now begin in Year 4 of the New Offer The 5% Flexibility for Fully-Funded Deployment Obligations in Year 10 Remains in Place Fully-Funded Eligible Housing Units Capable of 10/1 Mbps By The End Of Existing A-CAM I Year 40% % % % % % % Fully-Funded Eligible Housing Units Capable of 25/3 Mbps By The End Of Revised A-CAM I Offer Year 40% % % % % % % ONE EXAMPLE A HIGH-LEVEL LOOK AT SOME NUMBERS Existing A-CAM Obligations Do Not Change Revised A-CAM I Obligations for Fully-Funded Locations are ratcheted upward A CAM Telephone Company Example FCC Annual Example Support Number of ROR Locations Fully Funded Locations Capped Locations By Reas. Request Original Densities 25/3 4/1 Current $1,800,000 1,500 1, % 25% 25% 25% 50% 25% Revised A CAM $2,200,000 1,500 1, % 25% 75% 50% 25/3 Mbps End State 10/1 Mbps End State 4/1 Mbps End State Density Factor 25/3 Density Factor 4/1 Changes $400, (200) 350 (150) (50) (150) 25% 16 8

9 ONE EXAMPLE NON-COMPLIANCE MEASURES 25/3 Mbps Milestones Begin in Year 4, instead of Year 10, Under the Revised A-CAM I Offer Non-Compliance Terms and Conditions Currently Unchanged in the FCC Rules Compliance Gap Non-Compliance Measure 5% to less than 15% Quarterly reporting 15% to less than 25% Quarterly reporting & withhold 15% of monthly support 25% to less than 50% Quarterly reporting & withhold 25% of monthly support 50% or greater Quarterly reporting & withhold 50% of monthly support for 6 months; after 6 months withhold 100% of monthly support & recover support equal to compliance gap plus 10% of support paid 17 If Your Existing A-CAM Decision Was Made Based on A-CAM Support Being Below Then Current Base-Year Support BOTH A-CAM I & TRANSITION PAYMENT PLAN FOR GLIDE PATH CARRIERS Transition Payments for Glide Path Acceptances Difference was 10% Receive model-based support plus Half of difference in program year 1 No extra support in program years 2 through 10 Difference was 10% to 25% Model-based support plus A transition payment in program year 1 though 4 that will decline by 20% per year, in each year No extra support in program years 5 through 10 But, if 20% of this difference is less than 5% of the total Base Year Support amount, the transition payments will be phased down 5% of the total, in each year 9

10 If Your Existing A-CAM Decision Was Made Based on A-CAM Support Being Below Then Current Base-Year Support BOTH A-CAM I & TRANSITION PAYMENT PLAN FOR GLIDE PATH CARRIERS Transition Payments for Glide Path Acceptances (Cont d.) Difference was 25% Receive model-based support plus Transition payments for up to 9 years, phased down by 10% in each of the first 9 years, & No extra support in program year 10 But, if 10% of this difference is less than 5% of the total base-year support amount, the transition payments will be phased down 5% of the total, in each year Calculation of Base-Year Support for All A-CAM Carriers The amount of high-cost loop support (HCLS) and interstate common line support (ICLS) disbursed to the carrier for 2015, without regard to r prior period adjustments related to years other than 2015, as determined by USAC as of January 31, 2016 and publicly announced prior to the election period for the voluntary path to the model Several Additional Changes & Notes OTHER CHANGES & NOTES March 1 st HUBB Line Count Filings continue A-CAM I providers will certify 2026 public interest obligation completions by March 1, 2027 Revised A-CAM I providers will certify 2028 public interest obligation completions by March 1, 2029 FCC will delink ACAM and Legacy budget for CAF and USF Separate budgets: A-CAM and legacy Changes to one no longer impact the other Legacy carriers no longer bear impact of A-CAM carriers support increases To Protect and Increase budget for legacy carriers Add annual inflationary factor Based on GDP-CPI 2019 budget based on legacy companies : 2018 unconstrained budget + inflation factor + 7% to account for conversions from voice/data to data-only Separate CAFICC Budget will remain for now at $400M 10

11 How Are We Going to Pay for This? Let s Do the Math, Based on What We Know FCC BUDGETARY ISSUES ACROSS THE BOARD A $2.0 billion annual USF budget for rural carriers was a cornerstone of the FCC s 2011 USF Reform Order Delinking of the budget is an important aspect of this Order Legacy Carriers: $1.62B vs. $1.23 with BCM restored A-CAM Carriers: $635M, including $200M in reserves CAFICC Support: $400M, so far, steady at this level The Alaska Plan: $44.5M Totals to $2.7B, so far, a 35% increase November 21 Order on Circulation Was Voted at the FCC s December 12, 2018, Open Meeting The Timeline Is Aggressive DECISION TIMELINE FCC Action Estimated Dates Outcomes/Impacts FCC Open Meeting December 12, 2018 Debate & Vote the Order Order Effective Date FCC Releases Public Notice on Revised Support & Deployment Obligations Decision Window 30 Days After Federal Register Appearance 30 Days After Order Becomes Effective 30 Days After Public Notice Is Released Order Becomes Effective Public Notice to detail all revised ACAM support & deployment obligations at provider level Existing A-CAM recipients have 30 days to confirm acceptance of revised offer; decisions are irrevocable Support Term 1/1/2019 to 12/31/2028 Anticipated USAC to distribute revised support the month following Public Notice authorizing increased support to carriers accepting the revised offers 11

12 Responding to the Offer Will Be Simple & Straightforward NEXT STEPS Accept The Offer: Formal Response should Reference the Order Number, Date, Name and Study Area(s) at State Level, Officer s Title, Statement of Support Levels, Buildout Obligations, New Support Start Date As before, acceptance is irrevocable Format is you protection. The FCC s Bias Toward Modelbased Outcomes, but needs clarity We Assume a Muli-State company accept by State Decline The Offer: Better to Respond than to Assume Generally, No Response = Offer is Declined Recommend a Simple Response Declining the Offer NEXT STEPS Questions Existing A-CAM Providers Should Weigh When Working Toward Their Decision Deployment Obligation Continue at 95% of Housing Units 25/3 Mbps Buildout Obligations beginning in Year 4 Anticipated FTTH and Cable Buildout Plan and Costs Plusses: FTTH Cable - Funded Plan in-progress Minuses: Primarily Copper Infrastructure Construction Cost Planning: Earlier vs. Later Vetting the FCC s Existing A-CAM Location Counts Mapping of Eligible Locations by census block Where are the new fully-funded locations? Special Considerations in Glide Path A-CAM Situations 12

13 NEXT STEPS Questions Existing A-CAM Providers Should Weigh When Working Toward Their Decision Additional Sources of Revenue and Opportunity Recent Economic Activity in the Area Continuing success with broadband take rates Expansion State, RUS & 2018 Farm Act broadband opportunities $600M econnectivity Program of grants and loans State funds and programs? Finally, where is the additional annual $700M support? For now, not Contribution Reform SUMMARY SUMMARY A-CAM A New A-CAM Offer $200 funding max per location 25/3 Mbps deployment obligations heightened No changes in location counts, but as maximum location cost drops, the number & share of 25/3 locations grows Important to Weigh the Offer Against Staying Put Location counts Affording the additional 25/3 locations & milestones Impacts of the New Offer Breaks the FCC s cornerstone $2.0B USF budget Timing new construction 13

14 BKD Thoughtware Webinars, seminars & articles Many are CPE-eligible Choose Industry = Telecom Questions? Bob Abrams, Senior Managing Consultant rabrams@bkd.com Jamie Becker, Senior Managing Consultant jbecker@bkd.com

15 Thank You! 15