Broadband Communities

MAY-JUN 2013

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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bandwidth hawk Connect America Fund: A Muddled Transition Many hard-pressed rural carriers didn't take CAF funds last year – and there's little progress yet. Here's why the current approach is absurd. By Steven S. Ross / Broadband Communities T he good news: In May, the Federal Communications Commission released $300 million in Connect America Fund Phase I funds for construction of broadband rural telecom systems. Combined with $185 million left over from last year, this makes almost a half billion dollars theoretically available immediately to large price cap carriers to serve rural customers. If all the money were used, it would subsidize improved service to about 700,000 customers with a one-time payment of $550 or $775 each. Te bad news: Access to the funds (including unused Phase I funds that go to all carriers in the $1.8 billion Phase II) is controlled in large part by a cost model whose exact workings are proprietary. Last year, the model produced results weird enough for many carriers to refuse funding. Accepting funding requires accepting caps on total system costs as calculated by the model. Wouldn't local costs vary more widely than a model can possibly predict? Te money comes from repurposing part of the Universal Service Fund toward data service in underserved (mainly rural) areas. No one says this is easy. Deciding where funds will get the biggest bang for the buck is difcult enough. In this case, funds generally go toward helping local carriers build or enhance networks in areas that need subsidies. Some areas are so difcult to serve that conventional wired or even wireless networks would soak up a lot of money to serve few people. So FCC policy should – and does – ofer alternatives or ignore such areas entirely. Te $485 million encourages the largest carriers to improve service they already supposedly ofer. But many of the carriers didn't take the bait last year. Why would they this year? Te FCC must also unwind a system that grew on a subsidy tilted toward voice. As the system was patched over the years, it descended into nonsense, particularly with regard to intercarrier compensation. However, tossing it all out at once would endanger existing companies (typically very small telcos) and the services they provide. Te right way to do this is to be guided, not ruled, by the 8 math. But to avoid ungainly patches and add-ons to the new system, the FCC has made only one major concession – for Alaska, where most rural communities do not have roads leading to them. Tere's something more than faintly unappetizing about the model. For instance, the FCC is seeking guidance on whether to assume a capital cost of 8 percent and a debtto-equity ratio of 45:55, rather than the existing model's 9 percent at 25:75. In the electric utility world, states regulate rates based on a fair rate of return of a utility's assets. If the utility spends more or less money to build a certain amount of new capacity because of local considerations, the rates are adjusted to match. Public-interest groups and industrial users of electricity have access to the data. Tough less of the electric generating and transmission system is regulated now than in the 1970s, there always was this fexibility (actual costs, not modeled costs, ruled unless the actual costs were found to be infated by negligence) and – at least in theory – openness. Not at the FCC! Tis far into the process, isn't it a bit odd to still be wrangling over "Determining the Fraction of Supported Locations Tat Will Receive Speeds of 6 Mbps/1.5 Mbps or Greater" as part of the model rather than as a matter of broader policy informed by the model? And is there a place for rural fber at all? Te model comes from CostQuest Associates. I assume some of the laughable mathematical errors apparent when the model was used to help defne the National Broadband Plan have been fxed (the model calculated a total cost to build 100 Mbps access everywhere at almost $700 billion; the industry estimated $185 billion). But assumption is all we have. To use the model, I would have to sign a nondisclosure agreement and still could not test and debug the source code. One thing is clear: Assigning a fxed, one-time subsidy per customer for all rural areas is simply absurd. v Contact the Bandwidth Hawk at | BROADBAND COMMUNITIES | | May/June 2013

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