Connect America Fund (Formerly High-Cost Support): What Is It
The Connect America Fund (CAF) is a Universal Service Fund program established by the Federal Communications Commission (FCC) to provide subsidies to telecommunications companies to build out broadband infrastructure in rural areas of the United States.
The CAF was created in 2011 as part of a broader FCC reform of the Universal Service Fund and is focused on expanding broadband access to unserved and underserved communities. The goal of the CAF is to make sure rural areas have access to high-speed internet on par with urban and suburban regions.
This article will provide an overview of the Connect America Fund, including its history, eligibility requirements, funding amounts, and impact. We will also explore the differences between the various phases of the CAF, as well as examine some of the projects and criticisms associated with the program. The future of the CAF will also be discussed.
History of the Connect America Fund
The Connect America Fund (CAF) was established by the FCC in 2011 as part of comprehensive reform of its Universal Service Fund (USF) program. The USF was created in 1997 to promote universal telecommunications service in the United States, especially in rural areas where the cost of infrastructure deployment is high.
The CAF specifically replaces the old high-cost program within the USF, which provided subsidies to telephone companies to provide landline service in high-cost areas. However, the proliferation of mobile phones and demand for broadband internet led the FCC to reform the USF to focus on expanding broadband access. Thus, the CAF was created to support broadband deployment in unserved and underserved areas in the US.
According to the FCC, the CAF aims to expand broadband to the estimated 18 million Americans living in rural areas who lack access. The goal is to connect these communities and provide the economic, health, and educational benefits that broadband enables in the 21st century.
How the Connect America Fund Works
The Connect America Fund (CAF) was established in 2011 as part of the FCC’s overhaul of the Universal Service Fund high-cost program. The goal of CAF is to expand access to high-speed internet in rural areas that lack broadband infrastructure [1].
CAF provides subsidies to eligible telecommunications carriers to build out and support broadband networks in high-cost areas. The FCC determines which areas are eligible for CAF support based on a cost model that calculates the cost per location of providing 4G LTE wireless coverage [2].
CAF is administered by the Universal Service Administrative Company (USAC) under the oversight of the FCC. USAC collects contributions from telecommunications providers and distributes CAF funds to carriers that have been awarded support [3]. Carriers must meet deployment milestones for voice and broadband services to continue receiving support.
As of late 2019, CAF Phase II has allocated $1.5 billion annually to provide broadband to over 700,000 homes and small businesses in 45 states [2]. Additional CAF phases and programs continue to expand broadband access and affordability.
Eligibility Requirements
The Connect America Fund provides subsidies to service providers to offer broadband in rural areas that lack access to high-speed internet. To be eligible for CAF funding, companies must be designated as Eligible Telecommunications Carriers (ETCs) by state public utility commissions or the FCC. ETCs are typically incumbent local exchange carriers, competitive local exchange carriers, fixed wireless providers, mobile wireless providers, cable companies, and satellite companies.
To receive CAF subsidies, ETCs must deploy broadband networks that offer speeds of at least 10 Mbps download and 1 Mbps upload. They must also build out service to a certain number of locations in each state, with deployment milestones that increase each year. The specific buildout requirements depend on whether the provider is receiving CAF Phase I or Phase II funding. CAF Phase II recipients have more stringent buildout mandates, requiring them to serve a certain percentage of funded locations each year.
In addition to speed and buildout requirements, CAF-funded networks must meet latencies of 100 ms or less. Providers also commit to offering broadband at rates reasonably comparable to urban areas and must comply with all program rules and consumer protection requirements.
Funding Amounts
The Connect America Fund (CAF) Phase II provides substantial funding to expand broadband access in rural areas across the United States. The FCC set aside a budget of $2.15 billion for the CAF Phase II auction, aiming to connect over 700,000 unserved homes and small businesses.
The FCC allocated the $2.15 billion budget into several categories:
- $1.98 billion for price cap carriers like AT&T, CenturyLink, Frontier, and Verizon
- $173.5 million for rate-of-return carriers, smaller local exchange carriers
- $211.7 million for New York’s New NY Broadband Program
Within the $1.98 billion allocated to price cap carriers, the FCC assigned each state a budget based on the number of locations lacking 10/1 Mbps broadband. The FCC then auctioned support to providers within each state, awarding funding over 10 years to expand and maintain broadband networks.
The significant CAF Phase II funding aims to spur network investment in rural and high-cost areas where it is uneconomical for providers to expand service without government support.
Impact and Criticisms
Overall, the Connect America Fund has been effective in expanding broadband access, especially to rural areas. By the end of 2020, the CAF Phase I program had allocated over $1.5 billion to provide broadband to nearly 7.3 million rural homes and businesses, covering over 6.5 million locations with actual broadband deployment [1]. The CAF Phase II auction in 2018 allocated $1.488 billion to provide broadband to over 700,000 unserved and underserved locations in 45 states.
However, the CAF has also faced some criticisms:
- The funding is not sufficient to deliver high-speed broadband to all rural areas that need it. Many remote areas still lack access.
- Some providers have been accused of overstating coverage or taking subsidies without meeting deployment targets [2].
- The definition of broadband was set too low at 10 Mbps download/1 Mbps upload initially. This allowed funding of networks not fast enough for modern needs.
- The program relies on large telecom companies that may lack incentives to serve high-cost rural areas.
- A lack of transparency and oversight in reporting progress and coverage maps.
While not perfect, the CAF has been a key initiative in promoting universal broadband access. As the program continues to evolve, stakeholders hope oversight and effectiveness will improve to better serve those still lacking connectivity.
CAF Phase I vs Phase II
The Connect America Fund (CAF) was established by the FCC in 2011 to replace some of the old high-cost support mechanisms like the high-cost model and frozen high-cost support. CAF has been implemented in two phases:
CAF Phase I ran from 2012-2015 and provided $300 million annually to price cap carriers like AT&T, Verizon, and CenturyLink to extend broadband in unserved areas. Funding was determined based on the number of locations lacking 3 Mbps broadband service in each state (Connect America Fund Phase II Auction (Auction 903)).
CAF Phase II launched in 2015 and allocated $1.5 billion annually over 6 years to target wholly unserved high-cost census blocks, providing model-based support to price cap carriers for census blocks costing over $52.50 to serve. Carriers had to commit to providing 10/1 Mbps broadband to supported locations. Any unclaimed funds were auctioned off to other carriers (Connect America Fund Phase II FAQS).
The key differences between CAF Phase I and Phase II include:
- Phase I focused more on partially served areas, while Phase II targeted completely unserved areas.
- Phase I allocated a fixed amount per state, while Phase II was based on a cost model to determine support amounts.
- Phase I required only 3 Mbps broadband, Phase II mandated at least 10/1 Mbps service.
- Phase I funding was distributed to price cap carriers without a competitive process, while Phase II auctioned off unclaimed funds.
CAF Projects and Examples
The Connect America Fund has provided support for many real-world broadband infrastructure projects across the United States. Here are some examples:
In North Carolina, RiverStreet Networks used $1.1 million in CAF Phase II auction funding to provide fiber-based broadband service to over 1,300 rural homes and businesses. This enabled high-speed internet access in underserved areas across five counties.
The Sacred Wind Communications company utilized $2.7 million in CAF Phase II support to deploy fiber-to-the-premises broadband to the Navajo Nation tribal lands around New Mexico. This aimed to close the digital divide for families in the rural reservation areas.
Midwest Energy & Communications was awarded $9.6 million through the CAF Phase II auction to expand fiber broadband service to over 5,000 rural locations around Michigan. This extends modern connectivity to underserved farming communities.
Additional CAF Phase I and Phase II funding has been allocated to projects across Alaska, Montana, Wyoming, and other states to promote broadband deployment in high-cost rural regions nationwide.
Future of the Connect America Fund
The Connect America Fund’s future looks to further expand broadband access and availability to rural Americans. In August 2023, the FCC issued a Notice of Inquiry seeking input on methods to ensure universally affordable and available fixed broadband services (1). This inquiry indicates the FCC’s continued commitment to the CAF program and interest in making improvements. Some potential changes under consideration include:
– Increased annual funding amounts as the FCC found current levels inadequate in 2021 (2)
– Expanded eligibility to additional broadband providers beyond traditional telephone companies
– New accountability standards and requirements for funded projects
– A review of the current cost model to better align subsidies with real costs in high-cost areas
Overall, the Connect America Fund will likely continue evolving to meet the FCC’s goals of affordable, available broadband for all Americans. More funding, expanded eligibility, improved accountability, and an updated cost model could be part of CAF’s future as it continues supporting vital broadband infrastructure deployment.
(1) https://www.federalregister.gov/documents/2023/08/23/2023-18084/connect-america-fund-a-national-broadband-plan-for-our-future-high-cost-universal-service-support
(2) https://www.fcc.gov/wireline-competition/universal-service-support-mechanisms/connect-america-fund-caf
Summary
In summary, the Connect America Fund (CAF) is an FCC program that provides subsidies to telecommunication carriers to build out and support broadband infrastructure in rural and underserved areas of the United States. The CAF was created in 2011 as part of broader reforms to the Universal Service Fund and has gone through multiple phases and iterations since its inception.
Key points about the CAF include:
- It provides billions of dollars in subsidies to providers like AT&T, CenturyLink, Frontier, and others to expand broadband access.
- Funding is awarded through competitive bidding and other mechanisms to determine eligible and cost-efficient providers.
- The CAF aims to support broadband at speeds of at least 10 Mbps download/1 Mbps upload.
- Phases I and II have supported broadband expansion to millions of rural Americans.
- The FCC and providers have faced criticism about oversight, delivery, and the pace of progress.
- The CAF is ongoing with future auctions and support planned to further address unserved areas.
In closing, the CAF has become an essential program for promoting digital inclusion by subsidizing broadband infrastructure deployment in hard-to-reach places. Though imperfect, it has helped connect millions of rural Americans to high-speed internet.
