Broadband Communities

JUL 2012

BROADBAND COMMUNITIES is the leading source of information on digital and broadband technologies for buildings and communities. Our editorial aims to accelerate the deployment of Fiber-To-The-Home and Fiber-To-The-Premises.

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B7+(B%$1':,'7+B+$:.B Connect America NOW The long-needed Universal Service Fund reform and political realities are starving small carriers' access to capital. The White House needs to get involved. By Steven S. Ross ■ Broadband Communities S ince 1997, the Universal Service Fund has subsidized phone ser- vice in high-cost (mainly rural) areas through a charge on voice tele- phone service. Because the charges and subsidies applied only to traditional te- lephony, rural carriers have had greater incentive to offer landline voice than broadband or cellular service. Last November, the FCC announced that it was repurposing the USF's high- cost support program, one of four USF programs that subsidize underserved communities, and replacing it with the Connect America Fund (CAF). To re- ceive subsidies, carriers must now offer both voice and broadband. Larger carri- ers subject to price-cap regulation must deploy broadband in high-cost areas to receive operating subsidies – though they may lack the capital to expand. Smaller rate-of-return carriers must offer broadband service only if "reasonably" requested. Tere is also a CAF Mobility Fund – $300 million this year to support mobile broadband buildout and $500 million annually after September 30. Ultimately, this could provide about $4.5 billion a year in broadband sub- sidies, mainly for operating expenses (and indirectly for expansion by making capital easier to get). However, detailed rules have yet to be published for either the broadband or mobility funds. At the same time, the FCC is phasing out the impossibly complex intercarrier compensation system, basically in favor of peering – the carrier that originates the traffic bills the customer for it and keeps the revenue – and limited access recov- ery charges. Compensation today applies only to telephone networks, but the new system will apply to data as well and could thus favor symmetrical data networks enabled by FTTH if the FCC writes the regulations well. Carriers could benefit from outgoing data that offsets the costs of incoming data. But first a rural carrier has to build or improve its broadband network to allow such exchanges. Where will the capital come from? FINDING THE FUNDS Te FCC has a history of flawed mod- eling on flawed data. Te network cost model it used to justify part of the Na- tional Broadband Plan overestimated to- tal costs for deploying first-mile FTTH by a factor of four – in part by averaging in the hardest 5 percent of deployments and in part because the proprietary, se- cret model was simply inaccurate. Now the FCC is using its own statis- tical model to determine whether rate- of-return carriers' expenditures are jus- tified. Already, the commission's magic computer program has tagged about 100 carriers' costs as "excessive," despite the fact that many of them received Rural Utilities Service loans after exhaustive review. Te FCC has already told the Ru- ral Broadband Alliance that reform "will require some carriers that are spending much more than their peers to adjust." How will these carriers get the money to expand? According to former RUS administrator and current BROADBAND COMMUNITIES board member Hilda Legg, for FY 2012, with carryover from previous years, RUS has $736 million About the Author Contact the Hawk at steve@bbcmag.com. 6 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | JULY 2012 available in program level funding for the Farm Bill Broadband Loan Program and another $690 million under the In- frastructure Loan Program. However, not all the funds are likely to be spent by the end of the fiscal year on September 30, and rollover to 2013 seems unlikely at this time. In addition, though the ap- propriation for 2013 is not set, it will be small – at press time, the new farm bill offered a $50 million authorization for rural broadband with new strings at- tached on eligibility. Te FCC is pushing for broadband speeds of 4 Mbps downstream, 1 Mbps upstream with eventual improvement to 6 Mbps/1.5 Mbps. Tat requirement, together with the extra "mobility" fund- ing this year and next, strongly suggests the FCC favors cellular over fiber or ca- ble broadband even in places outside the "last 5 percent" of premises for which landline costs seem too high. Even worse, RUS and FCC don't seem to be talking to each other. Te FCC model, for instance, does not take into account carriers' ability to pay off existing RUS loans. Te uber-careful RUS has never had a loan default, but any future defaults would further tar- nish the image of rural broadband. All this is leading to court fights and a patchwork of renewed state-by-state regulation – which are sure to close Wall Street wallets. Time for the White House to exhibit strong leadership and more common sense. Y

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