Major Telcos Accept $1.5 Billion in CAF Annual Support for Broadband

On Thursday, the deadline for price-cap telco decisions, CenturyLink accepted more than $500 million, AT&T accepted almost $430 million, Verizon conditionally accepted almost $50 million, Consolidated Communications accepted almost $14 million, and Cincinnati Bell accepted more than $2 million. Previously, Frontier Communications, Windstream and three other carriers had made their announcements, accepting all or almost all of the support they had been offered.

FCC Chairman Tom Wheeler called CenturyLink’s acceptance of more than half a billion dollars a “huge” broadband investment for its rural customers. “This is the largest amount accepted by any company to date -- and the opportunities that modern broadband will provide for the rural communities CenturyLink serves are priceless,” he said in a commission release. Wheeler made a similar statement about AT&T’s acceptance and also lauded some other carriers’ commitments.

Under CAF Phase II, which provides annual USF support for calendar years 2015-2020, incumbent price-cap telcos must provide 10/1 (down/up) broadband speeds to increasing percentages of covered locations in high-cost areas of states where they accept the subsidy. Phase II participants must build out 10/1 Mbps broadband to 40 percent of funded locations by year-end 2017, 60 percent by year-end 2018, and 100 percent by year-end 2020.

The FCC is planning a reverse auction (low subsidy bidder wins the support) for areas where the incumbents don't accept funding, but it's still developing the rules. That the incumbents took almost 90 percent of the Phase II support offered lowers the stakes somewhat for that auction by reducing the areas that will be covered.

“Holding auctions for rural support probably has academic appeal, but if the goal is moving the needle quickly on rural broadband, the carriers’ high take rate is a very good outcome for the commission,” Guggenheim Securities analyst Paul Gallant told us. Consultant Mike Balhoff of Balhoff & Williams, which advises telcos and cable companies, said the incumbents’ acceptances are “probably going to make it more difficult for competitors to enter into a reverse auction process, because the remaining territory is more challenging to serve, with the possible exception of some of the Verizon areas.”

CenturyLink accepted $505.7 million in annual support in 33 of its 37 states to provide broadband to about 1.2 million households and businesses with more than 2.3 million rural customers, the FCC said. “Those are high-cost markets with many deployment challenges,” CenturyLink Senior Vice President John Jones said in a company release. “The Connect America Fund, along with our significant capital investments over the years, help make deploying rural broadband more cost effective.” Related construction is expected to begin in early 2016. CenturyLink was eligible for $514.3 million, but declined to take funding in California, Mississippi, Oklahoma and Wyoming. Wells Fargo analyst Jennifer Fritzsche said CenturyLink received $346 million in frozen CAF Phase I support, so the CAF Phase II money adds about $160 million in incremental annual support.

AT&T accepted $427.7 million in annual support in 18 of its 21 traditional wireline states to provide broadband to 1.1 million locations with 2.2 million rural customers, the FCC said. “AT&T is committed to rural and small town America, and to using all available technologies to serve those who live in hard-to-reach and remote areas,” said AT&T Senior Executive Vice President Jim Cicconi in an emailed statement. AT&T was eligible for $494 million but declined support for Missouri, Nevada and Oklahoma.

In an FCC acceptance letter, Cicconi said AT&T expected to meet its CAF Phase II duties “through a mix of network technologies, including through the deployment of advanced wireless technologies on new wireless towers that will be constructed in previously unserved areas.” He said AT&T would pursue necessary tower-siting and permit processes to build the towers and expects states and localities to comply with a 2009 FCC “shot clock” order to speed wireless deployment. If delays develop, AT&T would seek FCC help to meet its CAF deployment “milestones” but would seek time extensions if necessary to address any delays beyond its control.

Verizon conditionally accepted about $48.6 million in annual support in California and Texas on behalf of Frontier, which is buying the company’s wireline systems in those two states and Florida (see 1502050059), Verizon said in its FCC filing. Verizon was eligible for $144 million. The accepted funding, $32 million in California and $16.6 million in Texas, is the amount Frontier previously said it would seek in both states (see 1507070046). Verizon said its acceptance hinges upon the regulatory approval of its sale to Frontier by Dec. 31, and it requested the Phase II payments be deferred until the deal is finalized and then paid directly to Frontier. The transaction is awaiting state and federal regulatory approval.

“We are very pleased that Verizon has agreed to accept the Connect America funding for California and Texas, subject to various regulatory approvals," Kathleen Abernathy, Frontier executive vice president-external affairs, said in a statement. "If the acquisition is approved, Frontier will leverage the CAF support with its own resources to deliver broadband to rural areas in California and Texas." Frontier said it had been working with both Verizon and the FCC in order to secure the Phase II funding (see 1508240035).

Consolidated Communications accepted almost $14 million in annual support for about 24,700 rural locations across seven states, the company said in a release. Cincinnati Bell accepted its full $2.2 million allotment in two states to provide broadband to more than 14,000 rural customers, the FCC said.

Previously, Frontier accepted its full $283.4 million allotment (see 1506160039); Windstream accepted $174.9 million of the $178.8 million it was eligible for (see 1508050072); FairPoint accepted $37.4 million of the $38.2 million it was eligible for (see 1508190014); Hawaiian Telecom accepted its full $4.42 million allotment and Micronesian Telecommunications accepted its full $2.63 million (see 1508240013).