Connect America Fund, ETC Annual Reports and Certifications, Establishing Just and Reasonable Rates for Local Exchange Carriers, Developing a Unified Intercarrier Compensation Regime, 4711-4733 [2019-01827]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 84, Number 33 (Tuesday, February 19, 2019)]
[Rules and Regulations]
[Pages 4711-4733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01827]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32, 54, and 65

[WC Docket Nos. 10-90, 14-58, 07-135, CC Docket No. 01-92; FCC 18-176]


Connect America Fund, ETC Annual Reports and Certifications, 
Establishing Just and Reasonable Rates for Local Exchange Carriers, 
Developing a Unified Intercarrier Compensation Regime

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) continues its efforts to bridge the digital divide. The 
Commission addresses the challenges that rate-of-return carriers face 
by taking steps to promote broadband deployment, ensure the efficient 
use of resources, and provide sufficient and predictable support 
necessary to increase broadband deployment. The Commission also denies 
three petitions seeking reconsideration of its decision directing the 
Wireline Competition Bureau (Bureau) to offer additional support up to 
$146.10 per-location to all carriers that accepted the revised offers 
of model-based support.

DATES: Effective March 21, 2019, except for the amendments to 
Sec. Sec.  54.313 and 54.316, which contain information collection 
requirements that have not been approved by OMB--the FCC will publish a 
document in the Federal Register announcing the effective date of those 
amendments awaiting OMB approval--and except for the amendments to 
Sec. Sec.  32.1410, 32.2680, 32.2681, 32.2682, 32.3400, 32.3410, 
32.4130, 32.4200, 32.4300, 32.7500, 54.643, and 65.450, which are 
effective January 1, 2020.

FOR FURTHER INFORMATION CONTACT: Suzanne Yelen, Wireline Competition 
Bureau, (202) 418-7400 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order and Order on Reconsideration in WC Docket Nos. 10-90, 14-58, 
07-135, CC Docket No. 01-92; FCC 18-176, adopted on December 12, 2018 
and released on December 13, 2018. The full text of this document is 
available for public inspection during regular business hours in the 
FCC Reference Center, Room CY-A257, 445 12th Street SW, Washington, DC 
20554 or at the following internet address: https://docs.fcc.gov/public/attachments/FCC-18-176A1.pdf. The Further Notice of Proposed 
Rulemaking (FNPRM) that was adopted concurrently with the Report and 
Order and Order on Reconsideration will be published elsewhere in this 
issue of the Federal Register.

I. Introduction

    1. In the Report and Order, the Commission continues its efforts to 
bridge the digital divide. According to the Commission's most recently 
available data, about 30% of rural Americans lack access to fixed, 
terrestrial high-speed internet of at least 25 Mbps download/3 Mbps 
upload (25/3 Mbps), the Commission's current speed benchmark, which 
reflects consumer demand for high-speed broadband services. In urban 
areas, that number is 2%. The gap between broadband access in rural and 
urban areas is unacceptable. The Commission must do better. The 
Commission has made progress in bringing broadband service to rural 
Americans living in areas served by our nation's largest 
telecommunications companies, and will realize additional gains as the 
winners of the Connect America Fund (CAF) Phase II auction begin to 
deploy 25/3 Mbps or higher speed service to approximately 713,176 
locations. But the rules governing smaller, community-based providers--
rate-of-return carriers--have not kept pace, making it more difficult 
for these carriers to bring 25/3 Mbps service to rural America. The 
Report and Order addresses the challenges that rate-of-return carriers 
face by taking steps to promote broadband deployment, ensure the 
efficient use of resources, and provide sufficient and predictable 
support necessary to increase broadband deployment.
    2. By improving access to modern communications services, the 
Commission can help provide individuals living in rural America with 
the same opportunities that those in urban areas enjoy. Broadband 
access is critical to economic opportunity, job creation, education, 
and civic engagement. And as important as these benefits are in 
America's cities, they can be even more important in America's more 
remote small towns and rural and insular areas. Rural Americans deserve 
to reap the same benefits of the internet--and not run the risk of 
falling yet further behind.
    3. The Report and Order marks a significant next step in closing 
the digital divide. The Commission recognizes that access to 25/3 Mbps 
broadband service is not a luxury for urban areas, but important to 
Americans wherever they live. To that end, the Commission adopts 
additional measures toward its goal of expanding the availability of 
affordable broadband service to rural America. First, the Commission 
makes another model offer to those rate-of-return carriers currently 
receiving Alternative Connect America Cost Model (A-CAM) support for 
additional funding if they commit to building out to additional 
locations at speeds of 25/3 Mbps. Second, the Commission makes a new 
model offer to those on legacy support in return for specifically 
tailored obligations to build out broadband networks providing speeds 
of 25/3 Mbps. Third, for those rate-of-return carriers remaining on 
legacy support that do not take the new model offer, the Commission 
adopts a new budget based on uncapped 2018 claims that will be 
increased by inflation annually, as well as new deployment obligations 
that require speeds of 25/3 Mbps rather than 10/1 Mbps. Fourth, the 
Commission adopts measures to mitigate the regulatory burden on 
providers and encourage the

[[Page 4712]]

efficient use of universal service support.
    4. In the Order on Reconsideration, the Commission denies three 
petitions seeking reconsideration of the Commission's decision 
directing the Bureau to offer additional support up to $146.10 per-
location to all carriers that accepted the revised offers of model-
based support.

I. Report and Order

    5. To promote additional broadband deployment in areas served by 
existing A-CAM carriers, the Commission initiates a new set of revised 
model offers which would provide support up to $200 per month, per 
location. These revised offers, in effect, fund the initial offers 
extended by the Bureau on August 3, 2016, before those offers were 
reduced for budgetary reasons. To ensure these revised offers are in 
the public interest, the Commission conditions them on increased 
deployment obligations. These increased deployment obligations will 
further advance the Commission's goal of widespread availability of 25/
3 Mbps service throughout the nation.
    6. Discussion. The Commission authorizes additional support up to 
$200 per location to all carriers that are currently authorized to 
receive A-CAM support. Increasing support immediately will result in 
substantial additional broadband deployment, while balancing overall 
budgetary constraints. This increase does not affect funding available 
to those carriers on legacy support.
    7. The record uniformly supports increasing the funding cap for A-
CAM to $200, as long as doing so does not adversely affect carriers 
receiving legacy support. With additional funding, parties have made 
clear the economic, educational, and healthcare benefits that will 
directly follow.
    8. Consistent with the Commission's goal of realizing widespread 
deployment of 25/3 Mbps service, it increases the deployment 
obligations associated with this revised offer. In adopting the speed 
obligations in the 2016 Rate-of-Return Reform Order, 81 FR 24282, April 
25, 2016, the Commission noted that ``our minimum requirements for 
rate-of-return carriers will likely evolve over the next decade.'' The 
Commission acknowledged, in particular, NTCA's argument that ``a 
universal service program premised on achieving speeds of 10/1 Mbps 
risks locking rural America into lower service levels.'' Although the 
Commission agreed that ``our policies should take into account evolving 
standards in the future,'' it required carriers electing A-CAM to 
deploy 25/3 Mbps service to only a fraction of their fully funded 
eligible locations. The Commission's recent experience with the CAF 
Phase II auction, which resulted in more than 99.7% of new locations 
being served by 25/3 Mbps service, affirms its conclusion that a higher 
standard of service is achievable.
    9. Therefore, the Commission increases the 25/3 Mbps deployment 
obligations associated with the revised offer. Carriers receiving A-CAM 
under the existing offers must deploy 25/3 Mbps service to a number of 
eligible locations equal to at least 25%, 50%, or 75% of the number of 
fully funded locations, depending on the density of the population in 
the carrier's service territory. The Commission increases the 25/3 Mbps 
service requirement to 50% of fully funded locations for low density 
carriers, 65% of fully funded locations for medium density carriers, 
and 85% of fully funded locations for high density carriers consistent 
with ITTA's proposal. ITTA's proposal assumes that carriers will devote 
the additional support from the revised offer entirely to capital 
expenses associated with the deployment of new broadband, and estimates 
the number of locations that carriers in each band would, on average, 
be able to reach with 25/3 Mbps service as a result. The Commission 
finds that ITTA's proposal provides a reasonable estimate of how many 
additional locations a carrier could be expected to serve with 25/3 
Mbps service and ensure that all new fully funded locations based on 
this offer will receive 25/3 Mbps service.
    10. The Commission notes that the revised offer will be made 
available to all carriers that accepted the first A-CAM offer, 
including those carriers whose offer of model-based support is less 
than their legacy support (referred to as glide path carriers). 
Although this will not provide any additional support to glide path 
carriers during the eight remaining years of the original 
authorization, it would provide an opportunity for the glide path 
carriers to receive an additional two years of A-CAM support, through 
the end of the term of this revised offer, in consideration for 
additional obligations to deploy 25/3 Mbps service. Glide path carriers 
currently receive approximately $51 million per year in A-CAM support 
(excluding transitional support) and would be required to deploy 25/3 
Mbps service to over 8,300 additional eligible locations if all 
companies accepted.
    11. If all eligible carriers accept the revised offer, this 
deployment obligation would increase the number of locations to which 
carriers would be required to offer 25/3 Mbps service by more than 
100,000 locations. This exceeds the more than 39,000 partially funded 
locations, currently required to be served with 4/1 Mbps or only upon 
reasonable request, that would be fully funded and would be required to 
be served by at least 10/1 Mbps service. The Commission further notes 
that the number of locations subject to the reasonable request standard 
would be reduced by more than 26,000. The Commission finds that these 
higher deployment obligations justify the potential $67 million per 
year cost of funding to the $200 per location cap.
    12. In the absence of the increased deployment obligations, the 
Commission does not believe a revised offer for the existing A-CAM 
carriers with a $200 per-location funding cap would provide a 
sufficient value for its limited universal service resources. Absent 
the higher deployment obligations, in contrast to the increased 
deployment figures noted above, the revised offer could increase the 
number of locations that would receive 25/3 Mbps over the course of the 
support term by only 17,800, with only another 21,678 locations 
receiving 10/1 Mbps (while still reducing the number of locations 
subject to provision of broadband service only on reasonable request by 
more the 26,000). Given a $67 million per year price tag, the 
Commission does not believe that this result, without more, achieves 
sufficient ``bang for the buck.''
    13. The Commission declines to adopt ITTA's request to count 
existing locations towards the deployment obligations of existing A-CAM 
carriers. Specifically, ITTA proposes that a carrier should be 
permitted to satisfy its deployment obligations by providing service to 
locations that were ineligible in the original offer because they were 
in census blocks in which the carrier or its affiliate already served 
with fiber-to-the-premises or cable facilities. The Commission does not 
believe this modification would be in the public interest. In most 
cases, the otherwise eligible locations that were excluded because they 
were already served by the carrier with fiber-to-the-premises or cable 
facilities are likely to be relatively less costly to serve than other 
eligible locations. As a result, ITTA's proposal would allow A-CAM 
carriers to meet their deployment obligations by serving locations that 
are, in many cases, far less costly to serve than the ones on which 
their A-CAM support offers were calculated. Further, by definition, 
some of these locations are already served by fiber-to-the-premises or 
cable technology, so making these areas

[[Page 4713]]

eligible for deployment would limit the amount of deployment to 
additional unserved locations. Finally, the Commission notes that this 
approach would make it much more difficult for the Commission to 
monitor and verify whether any built out locations are actually new.
    14. The Commission declines to adopt Gila River's proposal to apply 
a Tribal Broadband Factor, as it does with the new model offer, in the 
following, to existing A-CAM recipients. In the new model offer, the 
Commission includes a Tribal Broadband Factor to reflect that the 
assumptions made about the amount of end-user revenues in the model may 
not be reasonable for Tribal lands. When the existing A-CAM carriers 
accepted the model offer, they implicitly accepted that the end-user 
revenue assumptions were sufficiently reasonable for them to meet the 
deployment obligations associated with the model offer. Accordingly, 
the Commission does not believe that existing A-CAM carriers require 
the adjustment that it adopts for the new model offer.
    15. To provide carriers accepting this revised A-CAM offer 
sufficient time to meet the increased deployment obligations, the 
Commission adopts a modified term of support and deployment milestones 
for those carriers. The term of the revised offer will be ten years, 
beginning January 1, 2019, and running until December 31, 2028. 
Effectively, this revised term extends A-CAM by two years for carriers 
that elect this revised offer. Carriers electing this revised offer 
will be obligated to meet the deployment milestones to which they 
previously agreed with respect to 10/1 Mbps service. In addition, they 
will be required to meet similar milestones to deploy 25/3 Mbps service 
to the required number of eligible locations on a ten-year schedule 
beginning January 1, 2019. In other words, each carrier will be 
required to serve at least 40% of the requisite number of eligible 
locations by end of the 2022, 50% by the end of 2023, 60% by the end of 
2024, 70% by the end of 2025, 80% by the end of 2026, 90% by the end of 
2027, and 100% by the end of 2028.
    16. The Commission directs the Bureau to release a public notice 
announcing the revised model-based support amounts and corresponding 
deployment obligations and providing carriers that have previously been 
authorized to receive A-CAM support with 30 days to confirm that they 
will accept the revised offer. Any such election shall be irrevocable. 
USAC shall begin disbursing this revised model support the month 
following a Bureau public notice authorizing those carriers that accept 
this revised offer.
    17. The Commission extends a new model offer, or A-CAM II, to 
legacy rate-of-return carriers that did not previously elect model 
support or support pursuant to the Alaska Plan. This offer will re-open 
a voluntary path for legacy rate-of-return carriers to receive model-
based support in exchange for deploying broadband-capable networks to a 
predetermined number of eligible locations. Expanding the number of 
carriers receiving model-based support will advance the Commission's 
longstanding objective to provide high-cost support based on a 
carrier's forward-looking, efficient costs and will help spur 
additional broadband deployment in rural areas. As described in the 
following, this new model offer retains many elements of the original 
A-CAM offer but makes several critical adjustments to encourage new 
carriers to take advantage of model-based support and accelerate 
deployment of broadband networks.
    18. Discussion. The Commission adopts a new model offer, A-CAM II, 
as described in detail in the following. This new model offer of up to 
$200 per location will be available to all existing legacy carriers, 
including those previously excluded because they had deployed 10/1 Mbps 
service to more than 90% of eligible locations. The new model offer 
will include a Tribal Broadband Factor, rely on broadband coverage data 
from the most recent FCC Form 477 (which the Commission anticipates 
will be data as of December 2017), and include census blocks where the 
carrier or its affiliates have deployed fiber-to-the-premises or cable. 
It will exclude census blocks served by an unsubsidized competitor only 
when the competitor offers voice and 25/3 Mbps or faster broadband 
service. In addition to the deployment requirements previously required 
of A-CAM recipients, carriers accepting the new model offer will be 
required to deploy 25/3 Mbps service to a number of locations equal to 
the number of eligible fully funded locations in their service area. 
The new model offer will be fully funded up to the $200 per-location 
cap, and it will not affect the budget for rate-of-return carriers 
remaining on legacy support. To the extent the Report and Order is 
silent regarding the terms and conditions of the new model offer, the 
Commission adopts the terms of the original A-CAM offer.
    19. While a few commenters unconditionally supported a new model 
offer to all legacy carriers, many commenters supported the broader new 
model offer only on the condition that the Commission address the 
budgetary concerns of carriers remaining on legacy support. Because the 
new model offer has no impact on funds available for rate-of-return 
carriers receiving legacy support, the Commission believes they have 
satisfied the primary concerns of these parties.
    20. The Commission also is not persuaded by the Broadband 
Alliance's argument that any new model offer should be deferred until 
the Commission has gathered evidence about the efficacy of the existing 
A-CAM program as compared to legacy support. The Broadband Alliance 
suggests that legacy support may possibly be more effective because its 
members have ``already deployed [fiber-to-the-home] to 70 percent of 
their network, on average,'' but that model-based companies ``will not 
reach'' that same milestone until 2024. However, the Broadband Alliance 
contradictorily argues that whether legacy support or A-CAM offers 
better results cannot be empirically known for a number of years. In 
any event, the Commission disagrees with their argument. First, the 
Commission notes that Broadband Alliance ignores the difference between 
eligible locations (on which A-CAM recipients' deployment obligations 
are based) and all locations (on which Broadband Alliance's deployment 
percentage is based). Second, the Broadband Alliance seems to assume 
that A-CAM carriers will not deploy service before they are required to 
do so, but deployment submissions to the High Cost Universal Broadband 
(HUBB) portal show that there are A-CAM carriers deploying at faster 
rates than required by the Commission's rules. Further, the fixed 
amount of model-based support guaranteed to the carriers provides 
enormous benefits to carriers in planning capital spending, allowing 
them to deploy broadband to areas they would not have otherwise 
deployed than if they needed to base decisions on varying levels of 
legacy-based support.
    21. $200 per-location funding cap. Consistent with the original A-
CAM offer and with the new offer to existing A-CAM carriers described 
in this document, the Commission sets the per-location cap at $200. The 
Commission does not limit the amount of support available through this 
offer and does not adopt any provision to reduce the funding cap based 
on the amount of support resulting from carrier elections of this 
offer. Most commenters supported funding the new model offer up to a 
$200 per-location cap, rather than the proposed $146.10 per-location 
cap.

[[Page 4714]]

    22. The Commission declines to make further adjustments to the per-
location funding cap. Specifically, the Commission rejects WISPA's 
request to reduce significantly the per-location cap to account for 
changes in technologies and business models that reflect that not all 
deployments are fiber. While WISPA advocates for an ad hoc change in 
the way cost estimates are used to calculate support, the rationale for 
WISPA's proposal implies a major reconsideration in the model's 
methodology for estimating the costs of deployment. The Commission 
specified the use of a wireline network architecture to estimate model 
costs in the USF/ICC Transformation Order, 76 FR 73830, November 29, 
2011, and rejected arguments that the model should also estimate 
wireless costs. Moreover, there is no evidence in the record to support 
how to construct a model based on the costs of deploying broadband with 
wireless technologies. Without a rigorous method of estimating the 
alternative costs of serving specific areas, considering their specific 
topography and other characteristics, the Commission cannot determine 
whether WISPA's suggested cost savings would even be achievable for any 
particular carrier. For example, the cost savings may be associated 
disproportionately with locations that are above the funding threshold 
by a relatively small amount. In that case, lowering the funding cap 
would have no effect on locations that could be cost-effectively served 
with wireless technologies, while reducing funding for model locations 
that could not be.
    23. Carriers Eligible for New Model Offer. The new model offer will 
be extended to all carriers that currently receive legacy support, 
i.e., CAF BLS and HCLS, and do not receive A-CAM or Alaska Plan 
support. Expanding the number of carriers receiving model-based support 
will advance the Commission's longstanding objective to provide high-
cost support based on forward-looking efficient costs to help spur 
additional broadband deployment in rural areas. Model-based support, 
backed by significant, verifiable deployment obligations, provides the 
appropriate incentives for carriers to serve their rural and high-cost 
communities efficiently with modern broadband networks. For that 
reason, the Commission believes it is in the public interest to make 
the new model offer available to all carriers, including those that 
were not previously eligible. The Commission discusses some notable 
elements of this broad eligibility.
    24. First, the Commission will extend the offer to carriers that 
have reported deploying 10/1 Mbps service to more than 90% of eligible 
locations. All commenters addressing this question support this 
approach. The Commission recognizes that the high-cost of maintaining 
networks in rural America means that the deployment of 10/1 Mbps does 
not end the need for high-cost support. Further, the model is an 
appropriate tool for determining high-cost support even when a carrier 
has fully deployed broadband service. The model's cost module, which 
calculates the cost of deploying and maintaining the network, estimates 
the static, life cycle cost of a network fully deploying fiber-to-the-
premises, and does not distinguish between carriers that have already 
deployed broadband and those that have not. As such, the model 
appropriately estimates the forward-looking costs of a carrier that is 
maintaining a broadband network and replacing its depreciated assets. 
Finally, because the Commission's deployment obligations require 
significant deployment of 25/3 Mbps service, it is likely that A-CAM II 
support will, in fact, spur deployment of higher speeds, even for 
carriers that were previously excluded due to their reported 10/1 Mbps 
deployment. The Commission therefore finds that it is appropriate to 
extend the model offer to all rate-of-return carriers receiving legacy 
support, regardless of the existing deployment.
    25. Second, the Commission extends the offer of support to all 
legacy carriers, even those that would receive more annual support from 
the model than under legacy rate-of-return support mechanisms. The 
model and its associated deployment obligations provide effective 
incentives for efficient and widespread deployment of high-quality, 25/
3 Mbps broadband service. If the model indicates that a carrier should 
receive additional support, then that suggests the carrier may require 
additional support to deploy or maintain its broadband network. And the 
Commission believes that providing the long-term funding certainty to 
such carriers, along with verifiable deployment obligations, outweighs 
the additional costs to the Fund. Although some commenters would prefer 
to limit the new model offer to carriers willing to accept lower 
payments than they have historically received, they rely on the 
rationale that doing so would enable the Commission to provide 
additional funding to other legacy and A-CAM carriers. As the 
Commission explains in the following, it delinks the legacy budget from 
the model budgets, ensuring that its decisions here do not impact those 
carriers that remain on legacy support mechanisms.
    26. The Commission declines to adopt Shawnee and Moultrie's 
proposal to limit the loss of support for each glide path carrier to a 
specified percentage of its current legacy support, essentially setting 
carrier-specific funding caps. Under Shawnee and Moultrie's proposal, 
some carriers could have funding caps well in excess of $200 per 
location, by virtue of their current high levels of legacy support. The 
Commission does not believe, at this time, that using model-based 
support to fund those very high cost locations is an effective use of 
universal service resources.
    27. Third, the Commission declines to exclude carriers from 
eligibility for the new model offer if the offer would include no fully 
funded locations. In other words, a carrier may elect the offer even if 
it would be required to deploy only 4/1 Mbps or on reasonable request. 
The Commission notes, however, that new model offers meeting this 
criterion would represent a very small number of carriers and very 
little support; moreover, these carriers can always exceed the minimum 
obligation.
    28. Revising Model Parameters. The Commission adopts revised model 
parameters for the purpose of extending the new model offer. The 
revised parameters will encourage carriers to take advantage of model-
based support.
    29. First, for reasons similar to those for which the Commission 
permits carriers with more than 90% deployment to participate, it finds 
that the new model offer should include census blocks where fiber-to-
the-premises or cable has already been deployed by the incumbent or its 
affiliate. ITTA, WTA, and USTelecom support this modification, and no 
commenter opposed it. Including census blocks which already have some 
fiber-to-the-premises will promote more and higher speed deployment to 
locations in those census blocks that do not currently have 25/3 Mbps 
or better service. Moreover, the Commission has previously recognized 
that areas with partially or fully-deployed fiber-to-the-premises may 
still require high-cost support to maintain existing service. The cost 
module of the model does not distinguish between those areas that have 
or have not had 25/3 Mbps service, and the model fairly estimates the 
costs of providing service even if that service has already been 
deployed.
    30. Second, the Commission adjusts the model so that it excludes 
locations presumed to be served by unsubsidized competitors only when 
the

[[Page 4715]]

unsubsidized competitor provides voice and at least 25/3 Mbps service. 
Previously, the model excluded areas served by unsubsidized competitors 
only if they provided voice and 10/1 Mbps or faster service. Based on 
the Commission's recent experience with the CAF Phase II auction, it 
believes that a higher standard of service is achievable. Given the 
Commission's commitment to using model-based support to achieve 
widespread deployment of 25/3 Mbps service, the Commission finds it 
necessary to exclude locations from eligibility only when a competitor 
provides a comparable level of service. NTCA, in particular, has 
emphasized the need for deployment of networks capable of providing 25/
3 Mbps or greater service throughout rural areas. Simultaneously asking 
carriers to deploy 25/3 Mbps service while excluding from eligibility 
locations served by competitors with inferior service would consign 
many more rural locations to lower quality service for at least the 
term of the new model offer.
    31. The Commission is not persuaded by WISPA's arguments that the 
model should exclude locations presumed to be served by unsubsidized 
competitors when the unsubsidized competitor provides at least 10/1 
Mbps, rather than 25/3 Mbps. WISPA argues that there is ``inherent 
inequity'' in providing A-CAM II support to rate-of-return carriers in 
areas where they provide 10/1 Mbps but excluding areas from A-CAM II 
only if an unsubsidized competitor provides 25/3 Mbps. The Commission 
finds no such inconsistency in these model parameters. Rate-of-return 
carriers that have already deployed 10/1 Mbps currently receive high-
cost support pursuant to legacy mechanisms and likely require support 
in areas where the model indicates their forward-looking costs exceed 
their reasonable end-user revenues. Providing A-CAM II model-based 
support that requires them to widely deploy 25/3 Mbps service is not 
inconsistent with the separate consideration that A-CAM II support is 
not required in areas where an unsubsidized competitor already provides 
25/3 Mbps service.
    32. WISPA further argues that the Commission's universal service 
resources would be better used if A-CAM II excluded areas where an 
unsubsidized competitor provides service of at least 10/1 Mbps because 
that unsubsidized competitor may provide 25/3 Mbps service at a future 
date or because the current service may be closer to 25/3 Mbps than 10/
1 Mbps. To create a functional model offer the Commission must have a 
brightline threshold for whether an unsubsidized competitor's service 
is sufficient to make an area ineligible for A-CAM II support. WISPA's 
proposal to address hypothetical future unsubsidized services, or 
services that do not meet the threshold, would effectively lower the 
threshold. The Commission concludes that reducing the threshold does 
not appropriately drive deployment of the 25/3 Mbps service that is the 
new service standard.
    33. Finally, WISPA notes that the 25/3 Mbps unsubsidized competitor 
standard harms service providers that have invested in reliance on 
``the Commission's representations that the establishment of 10/1 Mbps 
service would be sufficient to avoid government-funded subsidies 
flowing to competitors.'' WISPA does not cite with specificity any such 
representations, and the Commission finds that such reliance would be 
misplaced in any event. Congress explicitly defined universal service 
as ``an evolving level of telecommunications services . . . taking into 
account advances in telecommunications and information technologies and 
services.'' The Commission has previously stated that broadband speeds 
would be subject to an evolving standard, which indicates that higher 
speed thresholds would likely be established at a later time. Indeed, 
the Commission first determined that advanced telecommunications 
capability required 25/3 Mbps in 2015. Further, the areas subject to 
the new model offer currently receive high-cost support from legacy 
mechanisms that support rate-of-return carriers without regard to 
whether a competitor provides 10/1 service, except in the rare case 
where a competitive provider has completely overbuilt the incumbent 
provider.
    34. Third, the Commission modifies the model by updating the 
broadband coverage data with the most recent publicly available FCC 
Form 477 data (which the Commission anticipates will be data as of 
December 2017) prior to any additional offer of support. This broadband 
coverage data is used to determine which census blocks are served by 
unsubsidized competitors providing 25/3 Mbps broadband service, so that 
universal service resources can be effectively targeted to areas that 
require high-cost support. NCTA and WISPA support the use of FCC Form 
477 data to identify areas of competitive overlap. Relying on the 
certified FCC Form 477 data will permit us to avoid a time-consuming 
and administratively burdensome challenge process. In the challenge 
process for the first A-CAM offer, the Bureau granted only 61 
challenges of the more than 250 requests to change A-CAM coverage. Even 
that low success rate may overstate the consequences of the granted 
challenges because those particular census blocks still would not be 
considered ``unserved'' if there were other unsubsidized providers 
reporting service in those census blocks. Further, given the 
Commission's decision to adjust the model so that it will only exclude 
locations presumed to be served by unsubsidized competitors providing 
at least 25/3 Mbps service, the Commission believes that even fewer 
locations will be excluded based on competitive overlap, and many fewer 
will be linked to the type of false positives that the challenge 
process is intended to address.
    35. The Commission's reliance on FCC Form 477 data is consistent 
with the process the Commission used in the Connect America Phase II 
auction proceeding. There, the Commission found that FCC Form 477 data 
superseded the results of the prior Connect America Phase II model 
support proceeding. The Commission further did not require the Bureau 
``to entertain challenges from parties seeking to establish that a 
block reported as served on a certified FCC Form 477 . . . is 
unserved.'' In other words, the Connect America Phase II auction 
proceeding did not permit the type of challenges at issue here. In 
declining to permit such challenges, the Commission found that the 
Phase II model support process ``was very time-consuming and 
administratively burdensome for all involved.'' The Commission 
specifically found that it is ``difficult for the incumbent provider to 
prove a negative--that a competitor is not serving an area. . . .'' 
This burden of proving a negative is precisely the burden that possible 
electors of a new model offer would carry in their challenge process.
    36. Several commenters argue in favor of retaining a challenge 
process. Although a challenge process might make some modest 
improvement to the quality of the data, the Commission remains 
unconvinced that the challenge process represents a significant 
improvement over the FCC Form 477 data, such that the benefits of the 
improved data would outweigh the significant administrative burdens of 
conducting a challenge process.
    37. The Blooston Rural Carriers (Blooston), while conceding that 
the challenge process is administratively burdensome and that only 20% 
were granted in the past, argue that the ``volume of [challenges] . . . 
clearly

[[Page 4716]]

demonstrates the inaccuracy of [the 477] data.'' Blooston does not 
explain why the absolute number of challenges is more relevant than the 
low success rate of the challenges, nor does it try to quantify in any 
way the supposed benefit of the challenge process. Blooston further 
cites two Mobility Fund proceedings in which the Commission did not 
rely on FCC Form 477 data to suggest the ``importance of a bona fide 
challenge process used in connection with Form 477 data.'' The 
Commission does not find the two Mobility Fund proceedings cited by 
Blooston informative here. The Mobility Fund Phase I process did not 
rely on FCC Form 477 data (which did not collect the relevant broadband 
deployment information at that time), and instead used commercially 
available data to preliminarily identify eligible areas. In the 
Mobility Fund Phase II proceeding, the Commission ultimately decided to 
adopt an industry consensus proposal to perform a one-time data 
collection very specifically tailored to identify qualified 4G LTE 
coverage for the purposes of Mobility Fund II. Identifying qualified 4G 
LTE coverage is a significantly more complex issue than determining 
whether qualified broadband service is offered in a census block, and 
there is no industry consensus surrounding an alternative data 
collection process in this proceeding. Neither case provides any useful 
data regarding the benefits or burdens of a challenge process for the 
FCC Form 477 data. Similarly, to demonstrate the supposed inadequacies 
of FCC Form 477 data, TCA points to the Commission's review of study 
areas receiving legacy high-cost support to identify study areas 100% 
overlapped by unsubsidized competitors but that proceeding uses a much 
higher standard for competitive coverage than is used to determine A-
CAM eligibility.
    38. WTA and Granite State support the use of a challenge process, 
but specifically do so as a means of setting a higher standard for when 
a census block would be deemed ineligible for the new model offer. WTA 
argues specifically that the challenge process should be based on the 
``actual availability'' of service ``throughout the census block.'' 
Granite State argues in favor of ``a challenge process similar to the 
one adopted for the 100 percent overlap and rate-of-return challenge 
process where the competitor has the burden of proof.'' The Commission 
declines to adopt their proposals. Neither proposal includes sufficient 
detail to determine how the challenge process would work in the model 
offer context. Moreover, both proposals would appear to make locations 
eligible for model support even if they are served by unsubsidized 
competitors providing comparable service, on the grounds that the 
unsubsidized competitors do not provide service throughout the census 
block. Providing model support for such locations would be inconsistent 
with the Commission's policy, adopted in the USF/ICC Transformation 
Order, to condition Connect America Fund broadband obligations on not 
spending the funds in areas already served by an unsubsidized 
competitor.
    39. Finally, to address the unique challenges of deploying high-
speed broadband to rural Tribal communities, the Commission 
incorporates a Tribal Broadband Factor into the model. Specifically, A-
CAM incorporates nationwide assumptions about take rates and potential 
average revenues per subscriber to estimate a reasonable amount of end-
user revenues per location that form the basis of the $52.50 per 
location funding threshold. Those assumptions may be unrealistic given 
the ``high concentration of low-income individuals [and] few business 
subscribers'' in many rural, Tribal areas. By reducing the funding 
threshold by 25% for locations in Indian country--in other words, by 
setting a high-cost funding benchmark of $39.38 on Tribal lands--the 
revised model directly addresses the lower expected end-user revenues 
in rural, Tribal areas and by improving the business case will spur 
further broadband deployment there. The Commission believes that 25% is 
a reasonable approximation of the additional funding needed in Tribal 
areas. Because A-CAM support is calculated at the census block level, 
the Tribal Broadband Factor will efficiently target support to carriers 
that serve significant Tribal lands, as well as those carriers that 
serve only a minimal amount of Tribal lands or a small number of 
housing units on Tribal lands in their study area. For the purpose of 
this revised parameter, the Commission adopts the definition of 
``Tribal lands'' that was used in the USF/ICC Transformation Order and 
later modified in the 2015 Lifeline Reform Order, 80 FR 40923, July 14, 
2015. Several commenters support this revised parameter.
    40. To fully effectuate this Tribal Broadband Factor, the 
Commission also raises the funding cap for Tribal lands to $213.12 per 
location to reflect the additional funding arising from the lower 
threshold. The Commission notes that this approach is consistent with 
Sacred Wind's proposal to adopt another tier of model support for 
carriers serving Tribal lands.
    41. The Commission declines to adopt alternatives to the Tribal 
Broadband Factor proposed by the National Tribal Telecommunications 
Association (NTTA) and Gila River Telecommunications, Inc. (Gila 
River). Both propose a different tribal broadband factor that would be 
applied to increase support (both A-CAM and legacy) provided to 
carriers serving Tribal lands by 25%. Providing additional legacy 
support, without any particular correlation to circumstances faced by 
carriers serving Tribal lands, would not be an effective use of 
universal service resources in support of broadband deployment. 
Hypothetically, a carrier receiving high (but permissible) universal 
service support could receive enough additional support from this 
proposed factor that it could meet its revenue requirement without any 
subscribers and could receive more than an additional dollar of support 
for each additional dollar it spent. In contrast, the Tribal Broadband 
Factor the Commission adopts here makes model-based support more 
attractive for carriers serving Tribal lands by addressing a very 
specific element of model support--the estimated end-user revenues. 
NTTA further argues that, even with the Tribal Broadband Factor, most 
carriers serving Tribal lands are estimated to receive less support 
than they currently do under legacy support mechanisms. The Commission 
notes that some carriers have elected to receive A-CAM despite a 
reduction in support due to the stability of support and improved 
incentives for efficiently offering service.
    42. Term of Support. The Commission adopts a ten-year term of 
support for carriers that elect the new model offer, beginning January 
1, 2019. The Commission concludes carriers electing the new model offer 
should have ten-year terms to maximize broadband deployment. A ten-year 
term will also permit the Commission to align the deployment 
obligations of those accepting the new model offer with the terms set 
for the existing A-CAM carriers without adjusting the new model offer 
to a shorter term. Further, beginning the new model period on January 
1, 2019 will reduce the short-term burden on the Fund; an earlier date 
would require the possible upfront payment of true-ups associated with 
a prior start date.
    43. A ten-year term for the new model offer will align the 
termination of the term of the new model offer with existing A-CAM 
carriers that accept the revised offer adopted above. Multiple

[[Page 4717]]

commenters supported aligning the terms of support, and none opposed 
it. Carriers that decline the revised offer will have terms that end 
prior to the term of the new model offer. The Commission anticipates 
that it will take into account the different termination dates in a 
subsequent rulemaking to determine how support will be awarded at the 
end of the 10-year term and develop a plan that addresses them.
    44. Transition. The Commission adopts the same three-tiered 
transition process for carriers that receive less A-CAM support than 
they had received under legacy support mechanisms as the Commission 
used for existing A-CAM recipients. Specifically, the Commission bases 
the transition payments on the percentage difference between model 
support and legacy support, as described in the 2016 Rate-of-Return 
Reform Order. In that Order, the Commission found that ``a tiered 
transition is preferable because it recognizes the magnitude of the 
difference in support for particular carriers. At the same time, the 
transition is structured in a way that prevents carriers for whom 
legacy support is greater than [A-CAM] support from locking in higher 
amounts of support for an extended period of time.'' USTelecom and 
Concerned Rural LECs support the tiered transition process.
    45. Several commenters propose alternatives to the transition 
payments that focus on capping reductions to a specific percentage of 
current support levels. The Commission declines to adopt these 
proposals. Permanently locking carriers into specified levels of 
support based on the legacy mechanisms, higher than what the model 
would provide, is inconsistent with the Commission's goal of moving 
carriers toward more rational, efficient levels of support.
    46. As in the 2016 Rate-of-Return Reform Order, if the difference 
between legacy and model-based support is 10% or less, the carrier will 
have a one-year transition; if greater than 10% but not more than 25%, 
then the transition period will be four years; and if the difference is 
greater than 25%, then the transition will occur over the full-term of 
the plan, with no extra transition support only in the final year of 
the term.
    47. For carriers electing the new model offer, the Commission 
adopts 2018 claims as the base year for calculating transitional 
support. This is the most recent year for which complete data will be 
available when the new model offers are likely to be released.
    48. Deployment Obligations. The Commission adopts robust 
obligations for carriers accepting the new model offer to deploy 25/3 
Mbps to all fully funded locations. This requirement is consistent with 
the Commission's goal of realizing widespread deployment of 25/3 Mbps 
service throughout rural America. In adopting the speed obligations in 
the 2016 Rate-of-Return Reform Order, the Commission noted that ``our 
minimum requirements for rate-of-return carriers will likely evolve 
over the next decade.'' The Commission acknowledged, in particular, 
NTCA's argument that ``a universal service program premised on 
achieving speeds of 10/1 Mbps risks locking rural America into lower 
service levels.'' Although the Commission agreed that ``our policies 
should take into account evolving standards in the future,'' it 
required carriers electing A-CAM to deploy 25/3 Mbps service to only a 
fraction of their fully funded eligible locations. The Commission's 
recent experience with the CAF Phase II auction, which resulted in more 
than 99.7% of new locations being served by 25/3 Mbps service, affirms 
its conclusion that a higher standard of service is achievable. 
Accordingly, the Commission does not adopt the same speed requirement 
as are used for existing A-CAM carriers, as urged by several 
commenters. The Commission instead requires carriers electing model 
support to maintain voice and existing broadband service as of December 
31, 2018, and to offer 25/3 Mbps or higher service to at least the 
number of locations fully funded by the model by the end of the support 
term.
    49. Consistent with the previous A-CAM offer, the Commission also 
requires carriers electing model support to offer at least 4/1 Mbps to 
a defined number of locations that are not fully funded by the end of 
the support term. Carriers with a density of more than 10 housing units 
per square mile will be required to offer at least 4/1 Mbps to 50% of 
all capped locations; and carriers with a density of 10 or fewer 
housing units per square mile will be required to offer at least 4/1 
Mbps to 25% of all capped locations. The remaining capped locations 
will be subject to the reasonable request standard.
    50. The Commission will require carriers electing the new model 
offer to provide a minimum usage allowance of the higher of 170 GB per 
month or one that reflects the average usage of a majority of 
consumers, using Measuring Broadband America data or a similar data 
source. In addition, the Commission will require carriers electing to 
receive model support to certify that 95% or more of all peak period 
measurements of round-trip latency are at or below 100 milliseconds. 
This latency standard will apply to all locations that are fully 
funded. As stated previously, the Commission ``recognize[s] there may 
be need for relaxed standards in areas that are not fully funded, where 
carriers may use alternative technologies to meet their public interest 
obligations.'' Therefore, the Commission adopts the high-latency metric 
used in the CAF Phase II auction proceeding for any capped locations 
served by a non-terrestrial technology. Under the high-latency 
standard, carriers are required to certify that 95% or more of all peak 
period measurements of round-trip latency are at or below 750 
milliseconds, and with respect to voice performance, a score of four or 
higher using the Mean Opinion Score (MOS).
    51. The Commission adopts the same deployment milestones that the 
Commission required for existing A-CAM recipients, except delayed by 
two years to reflect the later start of the ten-year term. 
Specifically, companies accepting the new model offer will be required 
to offer at least 25/3 Mbps service to 40% of fully funded locations by 
the end of 2022, to 50% of the requisite number of funded locations by 
the end of 2023, an additional 10% each year thereafter, and 100% by 
2028. In addition, by the end of 2028, these carriers will be required 
to offer 4/1 Mbps to the requisite percentage of locations depending on 
density. The Commission also provides the same flexibility afforded 
other A-CAM recipients to deploy to only 95% of the required number of 
fully funded locations by the end of the term of support.
    52. Consistent with existing obligations, the Commission requires 
carriers to report geocoded location information for all newly deployed 
locations that are capable of delivering broadband meeting or exceeding 
the speed tiers. The Commission also adopts defined deployment 
milestones so that the same previously adopted non-compliance measures 
would apply.
    53. Election Process. The Commission adopts a single-step process 
whereby electing carriers make an irrevocable acceptance of the offered 
amount because no support adjustments will need to be made to address 
budget targets. The Commission directs the Bureau to release a public 
notice announcing the new model-based support amounts and corresponding 
deployment obligations and providing carriers with 45 days to confirm 
that they will accept the revised offer. Any such election shall be 
irrevocable.

[[Page 4718]]

    54. To ensure sufficient and predictable support for legacy 
carriers and spur additional deployment of 25/3 Mbps broadband service, 
the Commission increases the budget and make corresponding adjustments 
to carriers' buildout obligations. A budget designed to spur the 
deployment of 4/1 Mbps broadband to rural America is no longer 
sufficient or appropriate for deploying the high-speed broadband 
capable networks of at least 25/3 Mbps that consumers living in rural 
America demand. Moreover, fluctuations in support reductions make it 
more challenging to engage in capital planning, potentially resulting 
in reduced broadband deployment that, in turn, could harm consumers. 
The Commission therefore establishes a minimum threshold of support for 
each carrier and establish a budget for legacy carriers that is 
independent of the fluctuating needs of other rate-of-return support 
streams. Commensurate with the Commission's changes to provide a 
sufficient and predictable support mechanism, the Commission adopts 
measurable deployment obligations that will spur the availability of 
25/3 Mbps broadband service throughout rural America.
    55. The Commission also adopts further reforms to the legacy 
program to streamline its rules where possible and promote further 
predictability and efficiency. For example, the Commission eliminates 
the capital investment allowance and revise the budget control 
mechanism to simplify its rules and promote greater certainty. Further, 
to ensure the efficient use of the Commission's limited funding, it 
reduces the maximum support that a legacy provider can obtain on a per-
line basis and revise the Commission's methodology for allocating 
support to those areas that are close to 100% overlapped by 
unsubsidized competitors. Finally, the Commission addresses a number of 
technical changes, including revising line count reporting requirements 
and updating accounting rules.
    56. To spur broadband deployment, the Commission adopts a budget 
for legacy rate-of-return carriers based on 2018 unconstrained claims, 
including an inflationary factor to increase the budget annually. The 
Commission also establishes a minimum threshold of support for rate-of-
return carriers.
    57. Discussion. The Commission addresses the concerns raised by 
Congress and the industry by adopting a budget that provides sufficient 
and predictable support to legacy carriers, while meeting its 
responsibilities as stewards of public funds. The Commission also 
adopts a minimum threshold of support for legacy carriers to ensure 
that they receive sufficient and predicable funding to meet their 
revised deployment obligations. In adopting this budget for legacy 
carriers, the Commission continues the progress and adherence towards 
the Commission's universal service reform principles and goals.
    58. The Commission adopts a new budget for legacy carriers based on 
2018 uncapped claims--approximately $1.42 billion--increased annually 
by inflation.
    59. The increased legacy budget demanded by the industry and 
Congress is consistent with the Commission's requirement to base its 
policies on making services in ``rural, insular, and high cost areas . 
. . reasonably comparable to those services provided in urban areas and 
that are available at rates that are reasonably comparable to rates 
charged for similar services in urban areas.'' Consumers demand higher 
speeds as they realize the benefits that come with them, and the 
Commission cannot leave consumers in rural areas behind. Providing 
legacy carriers an increased budget will provide the means and the 
certainty necessary to spur investments to meet demand and help achieve 
the Commission's universal service goals. Without increasing the budget 
for legacy carriers, the Commission could expect increasing rates, 
diminishing deployment, and a growing gap between rural and urban areas 
in broadband availability.
    60. The Commission determines that using 2018 unconstrained claims 
as the basis to reset the budget is sufficient and will help spur 
broadband deployment in rural areas. Since the budget control mechanism 
became effective, the Commission has authorized repaying legacy 
carriers all support reductions since July 1, 2017. The Commission now 
takes 2018 support claims, i.e., what the carriers are spending today, 
and increase that by inflation annually going forward. Claims for 2018 
reflect a time when legacy carriers are fully engaged in deploying and/
or maintaining broadband capable networks. Accordingly, the Commission 
finds it is a reasonable timeframe from which to establish a budget 
better tailored for today's broadband needs. Furthermore, by basing the 
budget on 2018 unconstrained claims, the Commission is using a figure 
beneficial to meeting consumers' demand because, based on the 
Commission's claims data, 2018 unconstrained claims are the highest 
since the USF/ICC Transformation Order.
    61. Also, with a higher overall budget and a budget control 
mechanism that does not include a per-line reduction (discussed in the 
following), the Commission expects a higher degree of predictability 
for each carrier individually--predictability that over time will 
increase as carriers become more familiar with the process. A budget 
also helps with the overall predictability of the fund, which is 
financially prudent and in the public interest.
    62. To mitigate any harmful effects of having a lower 2018 budget, 
the Commission will reimburse all support reductions due to the budget 
control mechanism from July 1, 2018 through December 31, 2018, or the 
effective date of this Report and Order, whichever is later. In 
addition, there will be no reductions to legacy support from January 1, 
2019 through June 30, 2019, as the Commission anticipates claims to 
increase only slightly over 2018 claims during this time.
    63. In addition, rather than awarding legacy support based on the 
budget remaining once other rate-of-return recipients have been funded 
under the overall $2 billion budget, the Commission establishes this 
budget for legacy providers separate and apart from the other programs. 
In doing so, the Commission provides greater certainty and 
predictability for legacy providers. The Commission agrees that 
separate budgets ``enable proponents of the two support mechanisms 
[legacy and A-CAM] to focus on how best to efficiently maximize 
broadband deployment under each paradigm.'' Furthermore, the Commission 
agrees that ``each should be afforded a budget analysis on its own bona 
fides without regard to the other,'' which will allow us in the future 
to better evaluate ``each support mechanism on its own merits.'' The 
Commission also agrees with ITTA's proposal to remove CAF ICC from the 
budget equation and administer it outside of the legacy budget and A-
CAM support mechanism.
    64. In establishing a separate budget for legacy carriers, the 
Commission declines to adopt the joint industry proposal to adopt an 
overall budget for all the rate-of-return support mechanisms. The 
Commission finds that an all-encompassing rate-of-return budget is no 
longer appropriate, given the different obligations and terms of the 
various rate-of-return funding streams. In light of how other high cost 
support streams have evolved, the Commission sees no reason going 
forward why the support amounts for A-CAM, Alaska Plan, and CAF ICC

[[Page 4719]]

should affect total legacy support. Legacy carriers should have their 
own budget--a budget that is suited to allow small, rural carriers to 
meet consumers' demands in rural areas in furtherance of universal 
service goals.
    65. The Commission finds that a budget in general for legacy 
carriers is in the public interest. In contrast to other rate-of-return 
support mechanisms, legacy support is based on carriers' costs, i.e., 
claims made for support, and support claims from legacy carriers have 
continued to increase since the Commission adopted a budget in 2011. 
The industry and NECA forecast continued increases. As the Commission 
noted in the 2018 Rate-of-Return Reform Order and NPRM, 83 FR 18951, 
May 1, 2018 and 80 FR 17968, April 25, 2018, rate-of-return regulation 
provides incentives for companies to operate inefficiently by 
``padding'' operating expenses and over-investing in capital projects 
to increase profits. Some portion of the continually increasing claims 
may be due to those incentives. Although commenters contend that there 
is no evidence to show rate-of-regulation provides incentives to 
operate inefficiently, that carriers lack the means to over spend/
invest as a practical matter, and that the Commission's rules already 
counteract these alleged incentives, basic economic theory confirms 
that such motivations exist. The Commission also recognizes, however, 
that network improvements to meet demand have led to increased claims.
    66. Setting a budget cap for legacy carriers is financially prudent 
and in the public interest. The Commission must be mindful of its 
obligation to ensure that scarce public resources are spent 
judiciously. Moreover, as courts have recognized, too much 
subsidization could affect the affordability of telecommunications 
services for those that pay for universal service support, in violation 
of section 254(b). An annual budget cap for a support mechanism that 
funds carriers' claims--claims that have continually increased at 
varying rates--helps us meet that obligation. A budget that constrains 
spending encourages efficiency and resourcefulness, and it ensures a 
relatively greater level of predictability for the overall CAF. 
Finally, the Commission notes that the record supports some form of a 
budget.
    67. The Commission will adjust the new budget for legacy carriers 
based on 2018 uncapped claims increased annually by inflation--the 
United States Department of Commerce's Gross Domestic Product-Chained 
Price Index (GDP-CPI). The Commission notes that industry supports 
budget adjustments using some type of inflationary factor. While NTCA 
suggests using the Employment Cost Index (ECI) because it recognizes 
that labor is a key component in rising costs, the ECI only accounts 
for one specific cost input. However, of the two, the Commission finds 
that GDP-CPI is more appropriate as it measures price changes in goods 
and services purchased by consumers, businesses, and governments, and 
is the inflationary factor the Commission has used for many years in 
other legacy support mechanisms.
    68. Further, in using an inflationary factor to annually increase 
the overall budget for legacy carriers, the Commission is not conceding 
that broadband deployment and maintenance costs increase over time 
commensurate with inflation. In the development of the Connect America 
Cost Model (CAM), Commission staff found that in the remote, model-
supported areas the Commission is subsidizing, costs are unlikely on 
average to rise going forward; roughly speaking, this is because rising 
labor costs are offset by falling equipment costs and productivity 
gains. Some commenters have echoed the belief that new equipment may 
lower costs. Nonetheless, other parties argue that their costs for 
labor and equipment have increased or that deployment costs have not 
been offset by increased productivity or lower equipment costs. 
Therefore, the Commission adopts an inflationary escalator to increase 
the budget and note that this increased support will be included in the 
revised calculation of mandatory deployment obligations. The Commission 
uses the GDP-CPI to address inflation in other high-cost support 
mechanisms and see no reason to deviate from that precedent here. 
Moreover, the Commission declines the industry's request to increase 
the entirety of the high-cost USF program to reflect inflation or the 
overall rate-of-return budget. As noted in this document, the 
Commission believes that giving legacy carriers a separate, independent 
budget is more appropriate at this time, and the Commission declines to 
make legacy carrier support dependent on the A-CAM, the Alaska Plan, 
CAF ICC, or other high-cost support.
    69. The Commission addresses issues raised regarding the effect 
that the increasing number of conversions to broadband-only lines are 
having on the budget. Several parties have raised the concern that as 
carriers convert voice and voice/broadband lines to broadband-only 
lines there will be additional pressure on the universal service budget 
because federal support for broadband-only lines is typically greater 
than for voice and voice/broadband lines. This circumstance is in large 
part because the costs of a broadband-only line are all interstate 
whereas a voice or voice/broadband line has a portion of its costs 
recovered through intrastate sources. The Commission believes that 
increases in support caused by these conversions will be offset through 
the approach it is taking to account for support for those carriers 
taking the new model offer.
    70. Although the Commission currently has insufficient data to 
quantify this increase, it concludes that 7% is a reasonable estimate 
that will promote stability for legacy rate-of-return carriers. The 
Commission notes that carriers expecting above average numbers of 
broadband-only conversions (and thus greater funding increases under 
the legacy mechanism) are more likely to remain on legacy support than 
those expecting below average conversion rates, putting pressure on the 
legacy rate-of-return budget. A 7% increase balances the Commission's 
interest in accounting for expected increases without unduly increasing 
the rate-of-return budget while it considers long-term means of 
addressing these conversions, as discussed in the concurrently adopted 
FNPRM. To account for this increase, the Commission adjusts how it 
allocates funding for those carriers accepting the new model offer. For 
carriers that accept a new model offer that will receive more model 
support than their uncapped claims, USAC shall take those claims out of 
the legacy budget. However, for carriers accepting a new model offer 
that will receive less model support than their unconstrained claims 
(glide-path carriers), USAC shall take only the carriers' model support 
amounts out of the budget cap. The Commission anticipates that a 
sufficient number of glide-path carriers will accept model-based 
support and that the amount of increase to the legacy budget will 
therefore be at least 7% of the budget cap (as adjusted for those 
taking model-based support), if not greater. However, to ensure that 
this is the case, the Commission will increase the budget in July 2019 
by 7%. Once the Commission has determined which carriers are accepting 
the new model offer, if, because of the number of glide-path carriers 
accepting model support, the legacy budget increases by more than 7%, 
legacy carriers will benefit from that entire increase in the budget 
going into effect in July 2020. This will be a one-time increase.

[[Page 4720]]

    71. This approach will also ensure that if carriers whose legacy 
support is decreasing choose model-based support, the funding that 
would have been available to other legacy carriers will continue to be 
available to those carriers that remain on legacy support. For the same 
reasons, after any future overlap auctions, the Commission will also 
leave any resulting savings in the legacy budget. Although the 
Commission believes that the new budget will account for any support 
demand increases due to conversions to broadband-only lines, the 
Commission seeks comment on whether additional measures are needed in 
the concurrently adopted FNPRM.
    72. The Commission recognizes that by setting the budget at 2018 
unconstrained claims initially, it is not setting it as high as the 
industry requests. The industry requests an overall amount that will 
``fully fund'' the entire high-cost program so that there is no budget 
constraint. Universal service support is paid by ratepayers, however, 
and increasing funding demands on those ratepayers could affect the 
affordability of telecommunications services, in violation of section 
254(b). By adopting an overall budget for legacy carriers based on 
today's support claims and then limiting future budget increases, the 
Commission minimizes unexpected increases in the contributions required 
from ratepayers.
    73. Moreover, the Commission still is providing sufficient and 
appropriate funding for the rate-of-return high-cost program. A-CAM 
carriers will receive up to $200 per location and all transition 
payments; Alaska Plan carriers will continue to receive their 
authorized amounts; CAF ICC will receive its full amounts; and for 
legacy carriers the Commission will reimburse all support cuts to date 
due to the budget control mechanism. To encourage efficient and 
resourceful spending and help minimize contribution burdens, going 
forward, starting in July 2019, the Commission establishes a budget for 
the legacy carriers, but to help meet demands and obligations, it still 
allows for gradual and predictable annual increases. Furthermore, as 
explained in the following, the Commission revises deployment 
obligations based on the projected funding that carriers will receive. 
As the Tenth Circuit stated in upholding the budget adopted in 2011, 
``the FCC quite clearly rejected any notion that budgetary 
`sufficiency' is equivalent to `complete' or `full' funding for 
carrying out the broadband and other obligations imposed upon carriers 
who are voluntary recipients of USF funds.''
    74. In addition to the new budget described in this document, the 
Commission also adopts a minimum threshold of support for each carrier. 
The uncapped threshold will be based on a five-year CAF BLS forecast to 
be developed by NECA for establishing the carrier-specific deployment 
obligation, but any amounts greater than that may be subject to a 
budget control mechanism. Thus, no legacy carrier will receive less 
support, i.e., HCLS plus CAF BLS, as a result of budget constraints 
than predicted in this CAF BLS forecast. The Commission links this 
minimum threshold of support for each carrier to its minimum deployment 
obligation so that carriers will receive at a minimum, the amount of 
support that went into determining minimum deployment obligations. This 
new five-year forecast will be calculated using the budget adopted in 
this Report and Order, including the annual inflation adjustment, and 
will be used to calculate each legacy carrier's new mandatory 
deployment obligations. In conjunction with the new budget, this 
minimum threshold will provide legacy carriers the sufficiency and 
predictability that they have argued did not exist under the previous 
budget. In addition, to the extent any support adjustments may be 
appropriate, by eliminating the per-line reduction component of the 
budget control mechanism, the Commission expects that no carrier will 
see drastic reductions from the budget control mechanism relative to 
other carriers.
    75. While commenters support the general concept of using 
unconstrained claims for a support ``floor,'' there is no consensus on 
how any such ``floor'' should be established. Although some commenters 
express concerns with this approach, the Commission finds that a 
minimum threshold based on a revised NECA five-year forecast, in 
combination with the revised budget amounts adopted herein, will ensure 
that carriers can meet their deployment obligations. The Commission 
disagrees with NTTA's suggestion that it prioritizes Tribal areas, the 
highest-cost areas, and then all other areas because it lacks any 
justification of how such a proposal is consistent with the goals of 
the high-cost program, and in particular how it would further bringing 
broadband to all high-cost areas of the country. And the Commission 
disagrees with a recent industry proposal to use each carrier's 
``unconstrained costs over the prior three years'' as a minimum. Such a 
proposal would essentially require the elimination of the budget 
constraint mechanism entirely while guaranteeing more support for each 
carrier than that tied to its deployment obligations. Indeed, this 
proposal would negate the overall predictability for the fund that a 
budget provides. The ``floor'' for each carrier would be dependent upon 
each's spending behavior, which can change annually or even quarterly. 
As the ``floor'' changes for each carrier, the Commission would be 
required to adjust the overall budget accordingly. In other words, the 
Commission could not know with as much predictability how much of the 
ratepayers' money it would be collectively spending each year on the 
high-cost program--a situation that as stewards of public funds the 
Commission aims to avoid. Consequently, the Commission declines to 
adopt this industry proposal.
    76. In the 2018 Rate-of-Return Reform Order and NPRM, the 
Commission sought comment on when it should next revisit the budget. 
Commenters support various timeframes. NTCA, WTA, USTelecom, and the 
Broadband Alliance suggest that the new budget should be in effect 
until 2026. ADTRAN recommends the Commission assess the budget four 
years after adoption, and FWA advocates reviewing the budget no later 
than three years after adoption. By fully funding A-CAM, the Alaska 
Plan, and CAF ICC, and adopting a legacy budget that annually adjusts 
for inflation, the Commission expects that rate-of-return carriers will 
have stable and sufficient budgets for at least the next five years. 
Although the Commission does not expect to review the budget prior to 
2024, it may be appropriate to revisit the budget at the end of five 
years to reevaluate whether any changes to the budget are appropriate.
    77. By May 1, 2019, the Commission directs USAC, in consultation 
with Bureau, to publish a new legacy budget cap along with the new 
budget adjustment factor. USAC will calculate 2018 actual unconstrained 
legacy support claims plus one year of inflation using GDP-CPI, as 
reported by NECA in the most recent October annual filing. The budget 
cap will be that total increased by 7%. USAC, in consultation with the 
Bureau, will calculate the budget adjustment factor using that budget 
cap pursuant to sections 54.901(f) and 54.1310(d), as modified in this 
Report and Order to eliminate the per-line reduction calculation. The 
budget adjustment factor USAC publishes by May 1, 2019 will be in 
effect from July 1, 2019 to June 30, 2020.
    78. By May 1, 2020, the Commission directs USAC to publish the next 
legacy budget cap along with the next budget

[[Page 4721]]

adjustment factor to be in effect from July 1, 2020 to June 30, 2021. 
The budget cap will be set at the previous year's budget cap, i.e., 
July 1, 2019 to June 30, 2020, plus inflation using GDP-CPI, which will 
be published in the October 2019 filing by NECA. USAC shall then 
account for the new model offers as follows. For carriers that accept 
the new model offer, USAC shall deduct those carriers' 2018 actual 
unconstrained claims plus the two years of inflation out of the legacy 
budget. For glide-path carriers, USAC shall calculate the total amount 
by which their 2018 actual unconstrained claims plus two years of 
inflation exceeds their model support. If that number is greater than 
7% of the 2020 budget, USAC shall increase the budget by the amount in 
excess of 7%. In addition, prior to publishing the results of the 2020 
budget cap, USAC shall compare the capped amount for each carrier with 
the CAF BLS five-year forecast adopted in this Report and Order. If the 
cap for any individual study area falls below the CAF BLS forecast for 
that study area in that year, USAC shall raise the cap for that study 
area to the amount of the CAF BLS forecast. Thus, carriers are assured 
of receiving at least the amount of support that will be identified in 
the forecast.
    79. Going forward, for the 2021 budget and beyond, USAC shall 
annually increase the previous year's budget cap by inflation using 
GDP-CPI. Each year USAC shall use the budget cap to calculate the 
budget adjustment factor for that budget year, July 1 to June 30. Also, 
each year, for CAF BLS, USAC shall calculate the pro rata reductions 
once per year, and for HCLS, USAC shall calculate the pro rata 
reductions semiannually, which allows the reduction factor to reflect 
the new rural growth factor for HCLS that goes into effect January 1 of 
each calendar year. As noted above, if the cap for any individual study 
area falls below the CAF BLS forecast for that study area in that year, 
USAC shall raise the cap for that study area to the amount of the CAF 
BLS forecast. Based on the Commission's experience in implementing the 
budget control mechanism, it believes that it will enhance 
predictability with no discernable cost by setting the budget 
adjustment factor semiannually rather than quarterly.
    80. To maximize the benefit resulting from the Commission's new 
legacy budget, it revises the deployment obligations for legacy 
carriers commensurate with the minimum threshold of support that will 
not be subject to the budget constraint. The Commission also revises 
the minimum speed obligation to 25/3 Mbps, up from 10/1 Mbps.
    81. Discussion. The Commission revises the deployment obligations 
for legacy carriers commensurate with the revised budget and minimum 
threshold of support adopted in this Report and Order. The Commission 
also resets the five-year deployment term and revise the minimum speed 
obligation to 25/3 Mbps, up from 10/1 Mbps. By increasing the budget 
for legacy carriers, the Commission expects those carriers to do more 
to meet consumer demand and its obligations than they did when the 
budget was first adopted in 2011.
    82. Under the Commission's rules, a carrier's deployment 
obligations are based, in part, on its five-year forecasted CAF BLS. 
The original five-year obligations were based on forecasted CAF BLS 
pursuant to the budget and rules in effect at the time, and also then-
current data. Now that the Commission resets the budget for the legacy 
carriers and adopt a minimum level of support of no less than a 
carrier's revised CAF BLS five-year forecast, those original forecasts 
are outdated, and the Bureau must update them. The Commission disagrees 
with USTelecom and Blooston to the extent they do not support changing 
deployment obligations at this time. As NTCA stated, buildout 
obligations should correspond to the level of support; given that the 
Commission is increasing the amount of support, broadband deployment 
obligations should increase as well. The assumptions in the five-year 
forecast of the total CAF BLS support for each rate-of-return legacy 
study area for the purposes of determining deployment obligations were 
provided in Appendix D of the Order.
    83. The Commission further finds that it is necessary to provide 
carriers revised CAF BLS deployment obligations at the time it expects 
to make the new model offers so that carriers can properly evaluate 
their options. Because the Commission expects the new offers in early 
2019 and actual 2018 claims will not be available until March 2019, 
projected claims for 2018 may be used for calculating forecasted CAF 
BLS.
    84. In addition to forecasted CAF BLS, part of the calculation for 
determining deployment obligations is a cost-per-location figure based 
on one of two methodologies. The Commission updates both methodologies 
to reflect that 25/3 Mbps is the Commission's new broadband standard. 
The methodologies also factor in the per-line, per-month cap, which the 
Commission revises in the Report and Order.
    85. Revising deployment obligations at this junction is also 
consistent with the precedent established in the 2016 Rate-of-Return 
Reform Order. There, the Commission appropriately decided that at the 
end of the five-year deployment term, ``carriers with less than 80 
percent deployment of broadband service meeting then-current standards 
in their study areas will be required to utilize a specified percentage 
of their five-year forecasted CAF BLS to deploy broadband service 
meeting the Commission's standards where it is lacking in subsequent 
five-year periods.'' Because the Commission is increasing the budget 
for legacy carriers, setting a minimum threshold of support, and 
implementing the current broadband standard of 25/3 Mbps, the 
Commission is replacing the prior five-year, 10/1 Mbps deployment 
obligations with new obligations that reflect the increased budget and 
broadband speed. Therefore, allowing carriers a full five years--rather 
than the remaining three years of the original deployment term--to 
complete deployment is warranted.
    86. To ensure that consumers in rural areas enjoy a reasonably 
comparable quality of broadband as those in urban areas, the Commission 
revises the deployment obligations to require recipients of CAF BLS to 
offer broadband service at actual speeds of at least 25/3 Mbps. 
Broadband of at least 25/3 Mbps is now the Commission standard, and 
deployment obligations for its legacy program must reflect that.
    87. To be consistent with CAF BLS deployment obligations being 
based on a five-year term, the deployment term will run from the 
effective date of the Report and Order until December 31, 2023. For 
administrative convenience, the Commission bases this new term on the 
calendar year starting January 1, 2019. Further, the Commission will 
count towards the new five-year obligation any locations CAF BLS 
carriers deployed to with at least 25/3 Mbps since May 25, 2016, 
regardless of whether the carriers had defined deployment obligations 
in the original term. CAF BLS carriers that have not had HUBB portal 
reporting obligations will be provided an opportunity to certify as 
needed 25/3 Mbps or higher locations deployed to since May 25, 2016. 
The Commission also maintains the Commission's prohibition on deploying 
``terrestrial wireline technology in any census block if doing so would 
result in total support per line in the study area to exceed'' the per-
line, per-month cap, as revised in this Report and Order.
    88. In the 2016 Rate-of-Return Reform Order, the Commission did not 
set

[[Page 4722]]

mandatory deployment obligations for those carriers that had deployed 
broadband of 10/1 Mbps to 80% or more of their study areas, as 
determined by FCC Form 477. Rather, the Commission stated that it would 
monitor the deployment progress of legacy carriers without defined 
buildout obligations and could ``revisit this framework in the future 
if such carriers do not continue to make reasonable progress on 
extending broadband.'' Although those carriers with 80% or greater 
deployment of 10/1 Mbps have in many cases reported additional 
deployment, the Commission is unable to evaluate their progress without 
an understanding of how this new deployment relates to the mandatory 
obligations it has set for other carriers. Therefore, the Commission 
finds that all legacy carriers should be subject to deployment 
obligations.
    89. As the Commission did in 2016, it finds that carriers' 
mandatory deployment obligations should be determined based on a 
percentage their CAF BLS, with those carriers with greater deployment 
devoting a lower percentage of support to new deployment and those with 
relatively lower levels of deployment devoting a higher percentage to 
new deployment. Therefore, legacy rate-of-return carriers with less 
than 20% deployment of 25/3 Mbps broadband service in their entire 
study area, based on the most recently available FCC Form 477 data, 
will be required to use 35% of their five-year forecasted CAF BLS 
support specifically for the deployment of 25/3 Mbps broadband service 
where it is currently lacking. Rate-of-return carriers with 20% or 
greater but less than 40% deployment of 25/3 Mbps broadband service in 
their entire study areas, will be required to use 25% of their five-
year forecasted CAF BLS support specifically for the deployment of 25/3 
Mbps broadband service where it is currently lacking. Rate-of-return 
carriers with 40% or greater deployment of 25/3 Mbps broadband service 
in their entire study areas, will be required to use 20% of their five-
year forecasted CAF BLS support specifically for the deployment of 25/3 
Mbps broadband service where it is currently lacking. Once a carrier 
has deployed broadband service of 25/3 Mbps to all locations within the 
study area, it has satisfied its deployment obligation, although the 
Commission encourages such carriers to continue to look for ways to 
increase the speed and reduce the latency of their services. Because 
all legacy carriers will have defined deployment obligations, all will 
be required to report their locations deployed in the HUBB portal.
    90. The Commission finds that the capital investment allowance 
should be eliminated because its burdens and inefficiencies outweigh 
any benefits.
    91. Discussion. The Commission finds that the capital investment 
allowance should be eliminated because the burdens it imposes outweigh 
the benefits. To show compliance with the capital investment allowance, 
legacy carriers must track every capital expenditure and allocate it to 
locations affected by that expenditure--something carriers were not 
required to do previously. While carriers always account for their 
capital expenditures, the requirement to tie these expenditures to 
particular locations is difficult and time consuming. In addition, the 
capital investment allowance may discourage marginal capital 
expenditures that are economically efficient. For instance, the capital 
investment allowance, which limits the total amount a carrier can spend 
on a project, may prevent a carrier from deploying broadband to an 
additional location or locations as part of an existing project if such 
expenditures would exceed the capital investment allowance. 
Accordingly, the Commission agrees with commenters that the capital 
investment allowance does not encourage efficient spending and is 
creating unnecessary burdens. Moreover, the Commission has found no 
evidence that the capital investment allowance has encouraged 
additional capital investment by those carriers below the average level 
of broadband deployment. Because the burdens and disincentives on 
deployment in the current capital investment allowance outweigh the 
purported benefits, the Commission finds that elimination of the 
capital investment allowance is appropriate.
    92. The Commission declines to adopt NTCA's proffer of an 
engineer's certification and record retention. Carriers are already 
required to retain documentation for auditing purposes so that USAC can 
determine whether support is being used for its intended purpose, and 
NTCA's proposal appears to increase the paperwork burden on carriers 
without much benefit.
    93. In this section, the Commission modifies sections 54.901(f) and 
54.1310(d) and eliminate the per-line reduction calculation that is 
part of the budget control mechanism.
    94. Discussion. The Commission eliminates the per-line reduction 
calculation that is part of the budget control mechanism. The previous 
Commission adopted the per-line and pro rata calculation on grounds 
that it struck a ``fair balance among differently-situated carriers.'' 
Although NTCA argues that incorporating the per-line reduction is part 
of a ``carefully designed balance'' or ``carefully struck balance'' 
between larger and smaller rate-of-return incumbent local exchange 
carriers (LECs), the Commission finds that this two-part calculation 
has resulted in some carriers bearing an unreasonably large share of 
the support limit.
    95. When adopting the budget control mechanism with both the per-
line and pro rata mechanisms, the Commission expected a ``fair 
balance'' among the legacy carriers, large and small. Data since 
adoption of this mechanism show, however, that the per-line reduction 
has resulted in an increasingly wide variation of cuts to carriers' 
support. The table in the following details across all legacy carriers 
over different time periods reductions in support due to the budget 
control mechanism with the per-line reduction.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Weighted
               From                                  To                       Average        Standard     5th Percentile       95th           average
                                                                           reduction (%)   deviation (%)        (%)       Percentile (%)   reduction (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
9/2016...........................  12/2016..............................             5.3             2.3             3.5             8.2             4.6
1/2017...........................  6/2017...............................             9.7             4.4             6.6            14.0             8.7
7/2017...........................  6/2018...............................            13.6             4.0             9.1            20.2            12.3
7/2018...........................  6/2019...............................            17.0             6.3            11.5            24.9            15.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Legacy Study Areas: 654.


[[Page 4723]]

    96. What started as a relatively narrow variation has become 
significantly wider, and now ranges (between the 5th and 95th 
percentile) from 11.5% to 24.9% reductions in claimed support. The 
Commission thus concludes that the per-line reduction has not, over 
time, resulted in the ``fair balance'' that the Commission originally 
anticipated. The carriers collectively are exceeding their budget, but 
in applying the budget control mechanism, the Commission cuts some 
carriers significantly more than others. Given the large variations the 
Commission has now seen, it believes that it is more equitable for each 
carrier to have the same percentage reduction across the board. 
Accordingly, the Commission eliminates the per-line reduction 
calculation that is part of the budget control mechanism.
    97. In addition to making the budget control mechanism more 
equitable, eliminating the per-line reduction will make it simpler to 
implement administratively. Eliminating the per-line calculation will 
make it easier for carriers to determine what their specific support 
reduction will be and make application of the budget control mechanism 
more transparent.
    98. The Commission amends its rules to reduce the monthly per-line 
limit on support from $250 to $225, effective July 1, 2019, and then to 
$200, effective July 1, 2021. The Commission finds that reducing the 
presumptive cap on support will advance the Commission's goal of 
implementing responsible fiscal limits on universal service support.
    99. Discussion. The Commission's experience indicates that a lower 
limit is justified and will be useful in mitigating wasteful spending. 
Currently, approximately 14 study areas are affected by the monthly 
per-line limit. However, carriers serving only 10 of those study areas 
have petitioned the Commission to justify higher support amounts, and 
some withdrew their requests following requests for further supporting 
information. To date, the Commission has awarded relief to only two 
companies. Further, the Commission's experience reviewing the waiver 
petitions that have been filed suggests that some companies cannot 
justify their high expenses. Based on this history, the Commission 
finds that the $250 per-line monthly limit has been neither too 
restrictive nor likely to have a negative impact on the ability of 
carriers to provide service. Moreover, the Commission notes that a 
reduction to $200 will currently affect approximately 30 study areas 
that are not already subject to the $250 per-line monthly limit, and 
the same waiver process would be available to all affected study areas.
    100. The Commission is unpersuaded by the arguments of those 
opposing this change. Contrary to NTCA and SCC's claims, the 
Commission's experience suggests that, while some carriers legitimately 
incur high expenses, some of the highest supported carriers have been 
found to have wasteful or abusive expenses and/or improper accounting 
procedures. In the Adak Reconsideration Order, for example, the 
Commission denied relief of the $250 cap, affirming findings that the 
company had ``excessive and unreasonable'' operating expenses, 
unwarranted executive compensation, and had engaged in improper 
affiliate transactions. The Commission similarly identified 
noncompliance in evaluating Allband's request for waiver of the $250 
cap, finding that Allband's consistent misapplication of its cost 
allocation rules rendered its cost accounting ``unreliable.'' Finally, 
the Commission uncovered improper support payments of more than $27 
million in connection with its review of Sandwich Isles Communications, 
finding that the carrier had misclassified costs and received support 
for inflated and ineligible expenses. Other carriers may not seek 
waiver of the $250 monthly per-line limit because they wish to avoid 
scrutiny. Indeed, despite NTCA's arguments, other existing controls to 
promote the efficient distribution of support have not been sufficient 
to prevent the reporting of wasteful or abusive expenses by the highest 
cost carriers. The Commission does not find that its waiver process is 
unreasonable and burdensome. Rather, the Commission's review of 
previously filed waivers has shown that it is more likely that carriers 
would not be able to justify their high expenses and sought to avoid 
embarrassing scrutiny. In the Commission's experience, carriers have 
contributed to the time it has taken to resolve the waiver petitions 
because of their own reluctance to provide supporting data and the 
number of violations of the Commission's accounting rules that it has 
discovered.
    101. The Commission does not agree that the budgetary relief that 
would be provided by this reduction is insignificant or that possible 
reductions in support will be crippling. Even if the budgetary relief 
is small, the Commission has an interest in eliminating waste, fraud, 
and abuse that will be served by the reduction in the monthly per-line 
cap. Moreover, any carrier entitled to support above the $250 cap can 
avoid support reductions by justifying its support needs through cost 
studies and accounting done consistent with our rules.
    102. TCA provides no data or even anecdotal evidence in support of 
its assertion that carriers reduced or slowed deployment to avoid 
triggering a cap or limitation on support. Further, the Commission 
notes that it has invited carriers to use the waiver process 
specifically as an avenue to justify their necessary spending in the 
type of cases that TCA identifies. If investment is necessary to deploy 
service, then the expenses will be justifiable in the waiver process.
    103. South Park's alternate proposal to modify the operation of the 
monthly per-line cap or to exempt carriers subject to monthly per-line 
cap from the budget constraint mechanism would tend to undermine the 
effect of the rule by exempting some support without regard for whether 
the underlying expenses have been justified. Exempting carriers subject 
to the monthly per-line cap from the budget constraint's operation 
would undermine the budget constraint's purpose of limiting the size of 
the fund.
    104. The Commission declines to adopt, as Allband requests in its 
comments, a streamlined waiver process to review any requests that 
Allband might file of the monthly per-line cap, because it previously 
was granted relief. Allband maintains that a streamlined process would 
allow it to ``redirect financial resources from such filings to provide 
expanded lines and services'' to the areas it serves. Although the 
Commission is mindful of minimizing regulatory burdens in order to 
maximize the benefit of limited universal service support, the 
Commission must balance that goal with our responsibility as stewards 
of the Fund. The Commission does not believe it is appropriate at this 
time to take further action to reduce Allband's evidentiary burdens in 
light of its prior misallocation of costs and need for corrective 
action.
    105. Finally, the Commission notes that its decision to reduce the 
monthly cap in two steps addresses the possibility that a sudden influx 
of many petitions for waiver will be administratively difficult to 
manage. By our estimates, only an additional 10 carriers would 
currently be impacted by the intermediate $225 monthly per-line cap. 
The two years prior to the further reduction of the cap to $200 should 
be sufficient to address any petitions for waiver arising from the $225 
monthly per-line cap. Both reductions to $225 and $200 will be 
implemented on July 1, to ease administrative considerations associated 
with the calculation of the budget constraint mechanism.

[[Page 4724]]

    106. In this section, the Commission finds that the 100% overlap 
process the Commission has used to ensure that federal funding is not 
being used to compete with unsubsidized competitors has not lived up to 
its promise. Accordingly, the Commission ends that process and replace 
it with competitive auctions for legacy service areas that are nearly 
entirely overlapped by unsubsidized competitors. In the concurrently 
adopted FNPRM, the Commission seeks further comment on several auction-
related issues.
    107. Discussion. The Commission finds that an auction mechanism in 
certain legacy study areas would be an efficient, market-based way to 
distribute any high-cost support that may be necessary. In a study area 
that is 100%, or almost entirely, overlapped by unsubsidized 
competitors, there may still be some locations within census blocks 
that do not have access to broadband, i.e., although a block is 
partially served by an unsubsidized provider not all of the locations 
in that block are served. As the Commission has noted previously, 
competitive bidding can result in more efficient levels of support by 
providing incentives to bid less than current levels of support in the 
area. The Commission agrees with WISPA in general that an auction in 
competitive areas ``recognizes that when a competing provider is 
serving a critical mass of nearby areas, the incumbent carrier is no 
longer uniquely capable of rolling out new service to locations within 
the study area that remain unserved.'' While an auction would also 
require administrative resources, an auction would help move the CAF 
towards market-based solutions rather than sorting through documentary 
evidence in hopes of determining whether locations are in fact served 
by competitors. The Commission also has now seen the success of the CAF 
II auction, which ``unleashed robust price competition'' so that ``more 
locations will be served at less cost.'' The total locations awarded 
support had an initial reserve price (maximum amount) of $5 billion 
over ten years, but the amount awarded to cover these locations is only 
$1.488 billion.
    108. The Commission determines that support in legacy study areas 
identified by FCC Form 477 data as entirely or almost entirely 
overlapped with voice and 25/3 Mbps broadband by an unsubsidized 
competitor or group of competitors will be awarded through a 
competitive bidding process. When there are competitors, competitive 
bidding can be an efficient, market-based way to distribute high-cost 
support. By auctioning off support in study areas that are entirely or 
almost entirely overlapped at 25/3 Mbps, the Commission expects to see 
significant savings relative to current legacy claims in those areas. 
Competitive bidding will result in a market-based allocation of limited 
funding in areas where support is overwhelmingly not needed to achieve 
our universal service goals as evidenced by the amount of unsubsidized 
competition. And the Commission will dedicate those savings to 
increasing the overall budget for legacy carriers--shifting support to 
areas where it is needed most. Currently, there are eight legacy study 
areas with 100% overlap and seven additional legacy study areas with at 
least 95% overlap with approximately $12 million in unconstrained 
projected claims for 2018 respectively. The Commission expects an 
auction to shift a large portion of that support to other study areas 
not entirely or almost entirely overlapped.
    109. Consequently, the Commission eliminates the current 100% 
overlap rule and process. By replacing the existing process, the 
Commission eliminates the resources used to sort through documentary 
evidence; and if that evidence shows even one location in the study 
area is not served by unsubsidized competition, the entire process 
results in zero savings. Although the Commission recognizes that an 
auction could theoretically result in more funding in an area entirely 
or almost entirely overlapped by unsubsidized competitors than the 
existing process, the existing process has yielded almost no tangible 
results and instead allowed incumbent carriers almost entirely 
overlapped by unsubsidized competitors to continue to receive support 
for locations also being served by unsubsidized providers. The 
Commission believes that it would be better to allow such incumbent 
carriers to compete against their unsubsidized competitors for federal 
funds and to use a competitive bidding process to reduce funding to a 
more competitive level rather than to continue with the status quo.
    110. The Commission declines to formally codify a rule for this 
process until it resolves certain issues it seeks comment on in the 
concurrently adopted FNPRM, including ensuring the Commission properly 
addresses issues raised by the incumbent LECs in their comments. In the 
meantime, the Commission will reserve sections 54.319(a)-(c) of the 
Commission's rules. The Commission declines to adopt the proposals of 
WISPA and NCTA to auction study areas that are at least 50% overlapped 
but seek further comment in the concurrently adopted FNPRM on how to 
determine which study areas are almost entirely overlapped.
    111. The Commission adopts two changes to our rules governing the 
filing of line count data by rate-of-return carriers on FCC Form 507.
    112. Discussion. The Commission adopts its proposal to change the 
date for mandatory line count filings for CAF BLS to March 31 of each 
year but to continue to require line counts as of December 31 (i.e., 
reduce the lag until filing to 3 months). This change will ensure that 
recent line counts are used to apply the monthly cap and administer the 
budget control mechanism. Currently, when USAC performs the necessary 
calculations in April of each year, it typically must rely on the 
carrier's FCC Form 507 from the prior July, which in turn reports line 
counts as of the prior December 31. In other words, these calculations 
are based on line counts that are more than 15 months old. By changing 
the collection date to March 31, USAC will be able to use line count 
data that is much more recent--only three months old--in determining 
the monthly cap and administering the budget control mechanism.
    113. The Commission declines to make any changes to the HCLS line 
count filing at this time. When the Commission sought comment regarding 
whether to modify the FCC Form 507 line filing schedule, it noted that 
HCLS line counts are currently collected on the same schedule as FCC 
Form 507, and asked whether conforming changes to the HCLS line count 
filing would be appropriate. The Commission finds that such changes 
would not be appropriate because HCLS line counts are collected at the 
same time as HCLS cost data, and it believes that carriers will find it 
less burdensome to make the HCLS line count and cost data filing on the 
same schedule.
    114. The Commission also adopts a requirement for rate-of-return 
carriers that do not receive CAF BLS (i.e., carriers that have elected 
A-CAM or Alaska Plan support) to file line counts annually on FCC Form 
507. Line count data is essential for monitoring and analyzing high-
cost universal service programs. Carriers that elected A-CAM were 
required to file line count data on FCC Form 507 prior to the 
implementation of A-CAM because they received ICLS, which they no 
longer do. Likewise, carriers authorized for Alaska Plan were also 
required to file line count data on FCC Form 507 prior to the 
implementation of the Alaska Plan. Requiring the A-CAM and Alaska Plan

[[Page 4725]]

carriers to continue to provide line count information will allow the 
Commission to maintain a frequently used data set for assessing whether 
the Commission's rules are achieving its universal service goals, while 
being a minimal burden. To lessen what the Commission considers to be 
an already minimal the burden associated with this data collection, it 
requires carriers to file this data on July 1 of each year to coincide 
with other filing dates.
    115. The Commission incorporates into its Part 32 accounting rules, 
the updated lease accounting standards adopted in 2016 by the Financial 
Accounting Standards Board (FASB and the FASB lease accounting 
standards). In so doing, the Commission eliminates the need for 
incumbent LECs to account for leases under different standards in order 
to comply with our rules and with the FASB lease accounting standards. 
To expedite the effectiveness of these changes and ease administrative 
burdens, the Commission also waives its Part 32 rules to the extent 
necessary, to permit an incumbent LEC to use the FASB standards 
immediately.
    116. Discussion. The Commission agrees with TDS telecom that 
``maintaining two sets of lease accounts, by its nature,'' imposes 
burdens on carriers subject to our Part 32 rules. The Commission also 
agrees that there is no benefit to requiring such carriers to maintain 
two sets of lease accounts that reflect different accounting procedures 
for regulated purposes and for financial reporting. Importantly, the 
amendments the Commission makes to its Part 32 rules will have no 
impact on a carrier's rates or on the amount of universal service 
support it receives. The Commission therefore amends its Part 32 rules 
to conform them to the FASB lease accounting standards, so that 
carriers can maintain a single set of lease accounts that is consistent 
with both our rules and the FASB standards.
    117. The Commission adopts the definition of a lease as contained 
in the FASB lease accounting standards, which define a lease as a 
contract, or part of a contract, that conveys the right to control the 
use of identified property, plant and equipment (an identified asset) 
for a period of time in exchange for consideration. As a result of this 
definitional change, in order to comply with our Part 32 rules, a 
carrier will need to determine whether a contract is or contains a 
lease because lessees are required to recognize lease assets and lease 
liabilities for all leases (financing or operating) other than short-
term (less than 12 months) leases. Furthermore, the FASB lease 
accounting standards require an entity to separate the lease components 
from the non-lease components (for example, maintenance services or 
other activities that transfer a good or service to the customer) in a 
contract. With respect to operating and finance leases, our rules allow 
carriers to use subsidiary accounts as they deem necessary to most 
efficiently process the transactions.
    118. Lessee Accounting for Operating Leases. To be consistent with 
the FASB lease accounting standard's approach, the Commission amends 
its rules to require that when a lessee enters into an operating lease 
longer than one year, it records the net present value of the lease 
payments. As the lease term runs, the lessee must recognize the lease 
expense as a straight-line amortization over the life of the lease.
    119. Lessor Accounting for Operating Leases. The FASB lease 
accounting standards do not require substantial modifications to our 
current rules governing a lessor's accounting for operating leases. A 
lessor will continue to report the capital asset that it is leasing to 
another entity and to apply the required standards to the asset, such 
as recording depreciation expense and disclosing changes in the amount 
of the asset during the fiscal year. The Commission does, however, 
amend its rules to make clear that a lessor must recognize a long-term 
lease receivable in Account 1410 ``Other Non-current Assets,'' 
measuring the amount in generally the same manner as a lessee 
liability. Pursuant to our amended rules, a lessor must also recognize 
a deferred inflow of resources equal to the lease receivable plus any 
up-front payments the lessor received from the lessee that relate to 
future periods in Account 4300 ``Other long-term liabilities and 
deferred credits.''
    120. The Commission also amends its rules to require that when a 
carrier, that is a lessor, enters into an operating lease longer than 
one year, it records the present value of the lease receivables in each 
account. The lessor must determine the present value of the lease and 
recognize a deferred inflow of resources equal to the lease receivable 
plus any up-front payments the lessor received from the lessee that 
relate to future periods.
    121. As the lease term runs, the lessor in the normal course will 
recognize lease revenue and a credit to the deferred lease account, 
which will be done as a straight-line amortization over the life of the 
lease. The actual amount recorded under our amended rules could vary 
from what would have been recorded under the previous Part 32 rules. 
Over the length of the lease, however, the lease revenues recognized 
under either approach will be the same.
    122. Finance Leases. Other than referring to capital leases as 
finance leases, no additional changes are necessary to the sections of 
our Part 32 rules governing finance leases. As with operating leases, 
carriers may employ subsidiary accounts to facilitate FASB reporting 
requirements.
    123. Ratemaking and universal service considerations. Our revisions 
to Part 32 do not raise any ratemaking or universal service concerns. 
While there may be slight differences in the timing of certain entries, 
the overall effect over the length of the lease will not create any 
material disruptions to the ratemaking and universal service processes.
    124. Effective date. Section 220(g) of the Act provides that the 
Commission shall give notice of alterations in the manner or form of 
the keeping of accounts at least six months before the alterations are 
to take effect. Thus, the earliest the rules the Commission adopts in 
this document could become effective would be mid-2019. Because most 
accounting systems are based on a calendar year, the Commission makes 
the revised rules effective on January 1, 2020. That is also the first 
month in which the FASB lease accounting standards are applicable to 
all entities that use GAAP accounting. For those carriers that must 
comply with the FASB lease accounting standards before January 1, 2020 
and for those that elect an earlier date to conform their accounts to 
the FASB lease accounting standards, the Commission grants a waiver of 
Part 32 as described in the following to cover the time period between 
now and January 1, 2020.
    125. Waiver. Generally, the Commission's rules may be waived for 
good cause shown. The Commission may exercise its discretion to waive a 
rule where the specific facts make strict compliance inconsistent with 
the public interest. Waiver of the Commission's rules is therefore 
appropriate only if special circumstances warrant a deviation from the 
general rule and such deviation will serve the public interest.
    126. On the Commission's own motion, it grants incumbent LECs 
subject to Part 32 a waiver allowing them to employ the revised 
procedures adopted herein effective upon release of this Report and 
Order. Absent such relief, the six-month notice required by Section 
220(g) of the Act would require those incumbent LECs subject to the 
FASB lease accounting standards to have two sets of lease accounts 
until the revised rules become effective. The Commission finds good 
cause exists to

[[Page 4726]]

grant this waiver to preclude the imposition of duplicative accounting 
requirements. To encourage efficient use of carrier resources, the 
Commission extends this waiver to any carrier electing to follow the 
FASB lease accounting standards before January 1, 2020.
    127. The Commission declines to make any changes to the rural 
growth factor or the application of the HCLS cap.
    128. Discussion. The Commission declines to make any changes to the 
rural growth factor or the application of the HCLS cap. Commenters fail 
to address that HCLS support should be declining as customers switch to 
broadband-only services, which are supported through CAF BLS. The rural 
growth factor, which accounts for line loss, results in a declining 
HCLS cap and a decline in the overall amount of HCLS. When there are 
fewer lines to be supported, the amount of support should decrease. The 
Commission also notes that because 100% of the cost above the revenue 
imputation is available under CAF BLS, relative to HCLS, more support 
is available to the carrier when that loop becomes a standalone 
broadband loop.
    129. Although the Commission seeks to preserve and advance 
universal availability of voice service, it also strives to ensure 
universal availability of modern networks capable of providing voice 
and broadband service to homes, businesses, and community anchor 
institutions. Increasing HCLS support provides a disincentive for 
legacy carriers to deploy broadband capable networks. Freezing the HCLS 
cap or increasing it by removing line loss from the rural growth factor 
would provide carriers with an incentive to maintain voice-only loops, 
and discourage the deployment of broadband.
    130. While in the past the Commission spoke of limiting increases 
to HCLS because at that time the number of lines was typically 
increasing, the Commission noted that ``using a rural growth factor 
will more accurately reflect changes in the number of rural lines over 
time.'' Even though the number of voice lines is now typically 
decreasing, the mechanism adopted by the Commission is still 
effectively aligning HCLS support appropriately with the number of 
lines. For these reasons, the Commission does not adopt any changes to 
the rural growth factor or the application of the HCLS cap.
    131. At this time, the Commission finds that no changes to the 
rate-of-return operating expense (opex) limitation are needed.
    132. Discussion. The Commission declines to make any changes to the 
opex limitation at this time. The opex limitation has been in effect 
for only a limited period of time and was recently adjusted to account 
for inflation. The Commission finds it prudent to continue to monitor 
the effects of this modified limitation before adopting any further 
changes. The Commission also declines to adopt any changes to account 
for business locations as the Concerned Rural LECs and NTCA recommend. 
As NTCA notes, the Commission does not have ``public availability of 
business location data.'' Although future consideration of this issue 
may be warranted, NTCA's suggestion that the Commission apply ``some 
kind of factor'' does not provide a sufficient basis or means for us to 
move forward with any modifications.
    133. The Commission directs USAC to collect contributions based on 
projected demand in order to minimize the universal service burden on 
consumers and businesses, while ensuring sufficient support to 
implement the high-cost program.
    134. Discussion. The Commission concludes that its traditional 
approach, which bases collections on actual projected demand, will best 
serve our goals of minimizing the universal service burden on consumers 
and businesses while ensuring sufficient and predictable support to 
implement the high-cost program. While the uniform collection may have 
served a useful purpose when the CAF program was first getting 
underway, the Commission has largely implemented the CAF program now 
that the Phase II auction has ended and associated support amounts have 
been determined. Moreover, now that the Commission has concluded its 
budget review through this Report and Order, the Commission expects a 
fairly predictable and stable budget for the high-cost program for the 
next several years. Finally, collecting only enough support to meet 
demand enhances transparency and promotes accountability in the high-
cost program. The Commission therefore directs USAC to discontinue 
uniform collections for the high-cost program and going forward to 
collect contributions based on projected demand.
    135. There is no need for us to do a ``full accounting'' of the 
high-cost support available as SCC recommends. The Commission and USAC 
always have a full accounting of the amount of high-cost support needed 
and how much has been collected in excess of this total. There is 
currently no excess cash in USAC's high-cost account; USAC will need to 
collect additional funds to meet the requirements of the high-cost 
program, including the allocations adopted in this Report and Order. 
The Commission further declines to address SCC's recommendation to 
``allocate any unencumbered excess'' from other universal service 
programs to HCLS and CAF BLS at this time.

II. Order on Reconsideration

    136. Introduction. In the Order on Reconsideration, the Commission 
denies three petitions purportedly seeking reconsideration of the 
Commission's decision in the 2018 Rate-of-Return Reform Order and NPRM 
to increase A-CAM support by approximately $36.5 million annually--
increasing support up to $146.10 per location for all A-CAM carriers 
authorized on January 24, 2017. Grand River Mutual Telephone 
Corporation (Grand River) requests additional A-CAM support for 747 
locations. Clarity Telecom, LLC (Clarity) requests additional A-CAM 
support for 2,167 locations. Hamilton County Telephone Co-op (Hamilton) 
(collectively, Petitioners) requests additional A-CAM support for 2,444 
locations. The petitions for reconsideration ``relate to matters 
outside the scope of the order for which reconsideration is sought.'' 
Accordingly, the Commission denies them.
    137. Discussion. The Commission denies all three petitions for 
reconsideration because they ``relate to matters outside the scope of 
the order for which reconsideration is sought.'' While on their face, 
the Petitioners are asking for an additional increase of A-CAM support, 
in effect, they are requesting that the Commission reconsiders what 
locations (census blocks) are eligible for A-CAM support. In other 
words, to increase the amount of support as Petitioners request, the 
Commission would have to first direct the Bureau to revise the A-CAM 
eligible census blocks, which was not at issue in the 2018 Rate-of-
Return Reform Order and NPRM. Rather, the Commission made the 
determination regarding eligible census blocks in the 2016 Rate-of-
Return Reform Order. Since that 2016 order, the Commission has not 
sought comment on or otherwise indicated in any way that would allow 
changes, modifications, or adjustments to funded locations for 
authorized A-CAM carriers. Finally, the Commission finds that 
Petitioners' requests as they phrase them and as they argue pertain 
only to them and do not justify a change of any rule of general 
applicability based on their pleadings. Accordingly, the Commission 
denies the three petitions for reconsideration.

[[Page 4727]]

    138. Even were the Commission to address the petitions for 
reconsideration on their merits, the arguments raise nothing new to 
consider and are identical to petitions the Bureau rejected in the 2016 
Orders and A-CAM Challenge Process Order. With respect to Hamilton, its 
attempt to introduce ``new evidence'' falls short. The ``new evidence'' 
is that since Hamilton accepted its A-CAM offer, Wisper ISP updated its 
FCC Form 477 and reduced the number of census blocks that ``knocked out 
many'' locations. Hamilton also claims that Wisper ISP decommissioned a 
tower that ``would have supposedly served some of the locations that 
were rendered ineligible from the A-CAM funding.'' Hamilton then claims 
that it ``knows without a doubt'' Wisper ISP will not provide service 
in the area.
    139. Regarding the decommissioned tower and Wisper ISP's lack of 
intention to provide service in the area, Hamilton provides no support 
or evidence to back its claims. In addition, Hamilton's petition lacks 
clarity on the number of locations that should be funded due to Wisper 
ISP's updated FCC Form 477 and its decommissioned tower. Wisper ISP 
apparently still serves some of the area, so the Commission can surmise 
that not all of Hamilton's 2,444 locations would be funded. Based on 
the record before the Commission, however, it cannot determine an exact 
number. Accordingly, Hamilton's petition is unpersuasive on the merits.
    140. As to Clarity and Grand River, the Commission agrees with the 
Bureau's decision not to waive the date for determining FTTP and cable 
deployment. As the Bureau determined, administrative closure on the 
data set for incumbent study areas ``at a specific moment in time'' was 
necessary for ``efficient implementation of the overall reform 
effort.'' Moreover, as the Bureau recognized, the Commission clearly 
stated that under the terms of their offers, ``carriers may not 
resubmit their previously filed data to reduce their reported FTTP or 
cable coverage.''

IV. Procedural Matters

A. Paperwork Reduction Act Analysis

    141. The Report and Order adopted herein contains new or modified 
information collection requirements subject to the Paperwork Reduction 
Act of 1995 (PRA), Public Law 104-13. It will be submitted to the 
Office of Management and Budget (OMB) for review under section 3507(d) 
of the PRA. OMB, the general public, and other Federal agencies will be 
invited to comment on the new or modified information collection 
requirements contained in this proceeding. In addition, the Commission 
notes that pursuant to the Small Business Paperwork Relief Act of 2002, 
Public Law 107-198, see 44 U.S.C. 3506(c)(4), it previously sought 
specific comment on how the Commission might further reduce the 
information collection burden for small business concerns with fewer 
than 25 employees. In this present document, the Commission has 
assessed the effects of the new and modified rules that might impose 
information collection burdens on small business concerns, and find 
that they either will not have a significant economic impact on a 
substantial number of small entities or will have a minimal economic 
impact on a substantial number of small entities.

B. Congressional Review Act

    142. The Commission will send a copy of this Report and Order and 
Order on Reconsideration to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A).
    143. The Regulatory Flexibility Act of 1980 (RFA) requires that an 
agency prepare a regulatory flexibility analysis for notice and comment 
rulemakings, unless the agency certifies that ``the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' Accordingly, the Commission has prepared a FRFA 
concerning the possible impact of the rule changes contained in the 
Report and Order on small entities. The FRFA is set forth in the 
following.
    144. In the Report and Order, the Commission adopts further changes 
to universal service support mechanisms for rate-of-return carriers to 
spur broadband deployment to consumers in rural America, promote 
efficiency, and deter waste, fraud, and abuse. The Commission 
authorizes an offer of up to $200 per location for carriers currently 
on A-CAM support with revised deployment obligations, and the 
Commission authorizes a new A-CAM offer of up to $200 per location for 
current legacy carriers (those carriers receive HCLS and/or CAF BLS). 
The Commission then creates a separate budget for carriers that remain 
on legacy support and set that budget at 2018 unconstrained claims, 
which will be annually adjusted based on an inflationary factor. The 
Commission also sets a minimum threshold of support for legacy carriers 
equal to the five-year projection for CAF BLS. The Commission 
eliminates the per-line reduction that is part of the budget control 
mechanism, which will make legacy support amounts more predictable and 
make the budget control mechanism less burdensome administratively. The 
Commission eliminates the capital investment allowance, which has been 
deterring economically efficient investments and was administratively 
overburdensome for the carriers. To further the Commission's efforts in 
eliminating waste, fraud, and abuse, it reduces the per-line, per-month 
cap of legacy support from $250 to $225 and then to $200. The 
Commission modifies a reporting deadline related to line counts so that 
it is using more recent data in determining carriers subject to the 
per-line, per-month cap. The Commission also makes line count filings 
required for all rate-of-return carriers, which provides data it needs 
to effectively monitor our high-cost program while minimally burdening 
the carriers. The Commission amends the Uniform System of Accounts 
(USOA) contained in Part 32 of the Commission's rules to incorporate 
new lease accounting standards adopted by the Financial Accounting 
Standards Board (FASB). Amending the USOA eliminates the need for 
incumbent local exchange carriers (LECs) subject to Part 32 to maintain 
two methods of accounting for leases. The Commission updates deployment 
obligations consistent with the reset budget and rules changes adopted 
in the Report and Order. The Commission adopts changes whereby support 
in certain legacy areas will be awarded through competitive bidding. 
Finally, to make sure that consumers in rural areas have access to 
broadband consistent with demand and what services available in urban 
areas, the Commission generally makes 25/3 Mbps the minimum obligations 
for legacy support.
    145. There were no comments raised that specifically addressed the 
proposed rules and policies presented in the 2018 Rate-of-Return Reform 
Order and NPRM IRFA. Nonetheless, the Commission considered the 
potential impact of the rules proposed in the IRFA on small entities 
and generally reduced the compliance burden for all small entities to 
reduce the economic impact of the rules enacted herein on such 
entities.
    146. The RFA directs agencies to provide a description of, and 
where feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term

[[Page 4728]]

``small business'' has the same meaning as the term ``small-business 
concern'' under the Small Business Act. A small-business concern'' is 
one which: (1) Is independently owned and operated; (2) is not dominant 
in its field of operation; and (3) satisfies any additional criteria 
established by the Small Business Administration (SBA).
    147. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. Our actions, over time, may affect small entities that 
are not easily categorized at present. The Commission therefore 
describes here, at the outset, three broad groups of small entities 
that could be directly affected herein. First, while there are industry 
specific size standards for small businesses that are used in the 
regulatory flexibility analysis, according to data from the SBA's 
Office of Advocacy, in general a small business is an independent 
business having fewer than 500 employees. These types of small 
businesses represent 99.9 percent of all businesses in the United 
States which translates to 28.8 million businesses.
    148. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of Aug 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    149. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau data from the 2012 Census of Governments indicates that there 
were 90,056 local governmental jurisdictions consisting of general 
purpose governments and special purpose governments in the United 
States. Of this number there were 37,132 General purpose governments 
(county, municipal and town or township) with populations of less than 
50,000 and 12,184 Special purpose governments (independent school 
districts and special districts) with populations of less than 50,000. 
The 2012 U.S. Census Bureau data for most types of governments in the 
local government category shows that the majority of these governments 
have populations of less than 50,000. Based on this data the Commission 
estimates that at least 49,316 local government jurisdictions fall in 
the category of ``small governmental jurisdictions.''
    150. In the Report and Order, the Commission requires all rate-of-
return carriers, not just legacy carriers, to file line count data in 
the FCC Form 507, and the Commission changes the deadline for line 
count reporting. The Commission amends the Uniform System of Accounts 
(USOA) contained in Part 32 of the Commission's rules to incorporate 
new lease accounting standards adopted by the Financial Accounting 
Standards Board (FASB). The Commission updates deployment obligations 
consistent with the reset budget and rules changes adopted in the 
Report and Order. By adopting defined deployment obligations for all 
legacy carriers, the Commission requires all of them to report 
deployment in the High Cost Universal Broadband (HUBB) portal.
    151. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include (among others) the following four alternatives: (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities. The Commission has considered all of these factors subsequent 
to receiving substantive comments from the public and potentially 
affected entities. The Commission has also considered the economic 
impact on small entities, as identified in comments filed in response 
to 2018 Rate-of-Return Reform Order and NPRM and IRFA, in reaching its 
final conclusions and taking action in this proceeding.
    152. The rules that the Commission adopts in the Report and Order 
take steps to provide greater certainty and flexibility to rate-of-
return carriers, many of which are small entities. The Commission 
authorizes additional support for existing A-CAM carriers. The 
Commission also authorizes a new A-CAM offer for current legacy 
carriers, providing them the opportunity to receive model-based support 
in exchange for deploying broadband-capable networks to a pre-
determined number of eligible locations. The Commission recognizes that 
permitting rate-of-return carriers to elect to receive fix monthly 
support amounts over the ten years will enhance the ability of these 
carriers to deploy broadband throughout the term and free them from the 
administrative burdens associated with doing cost studies to receive 
high-cost support. For this new offer, as with the existing A-CAM 
carriers, to provide flexibility, the Commission adopts interim 
milestones over the support term and permit the carriers to meet their 
obligations by deploying to 95 percent of the minimum number of 
locations.
    153. Furthermore, the Commission adopts a new and separate budget 
for the legacy carriers that annually adjusts to factor in inflation 
and includes a minimum threshold of support not subject to the budget 
constraint. This will increase the amount of support available 
providing sufficiency and predictability for the legacy carriers. The 
Commission reimburses all support reductions budget control mechanism. 
Another action the Commission takes to make carriers' support more 
predictable is eliminating the per-line reduction calculation that was 
part of the budget control mechanism. The Commission also eliminates 
the capital investment allowance, which provides further relief to 
legacy carriers. The capital investment allowance had been deterring 
economically efficient investments and was administratively 
overburdensome for the carriers.
    154. In adopting mandatory line count reporting for all rate-of-
return carriers, the Commission notes that this is something that all 
carriers were required to do previously, and the burden is minimal. In 
lowering the monthly per-line support for legacy carriers, to minimize 
the impact, the Commission does it gradually--from $250 to $225, 
effective July 1, 2019, and then to $200, effective July 1, 2021. In 
revising the deployment obligations for legacy carriers, to minimize 
the impact, the Commission restarts the five-year deployment term and 
allow any locations deployed to with at least 25/3 Mbps broadband in 
the original term to count towards this new term. Finally, our decision 
to auction off support in legacy study areas may have a significant 
economic impact on small entities, but to reduce that impact, the 
Commission limits the auction to study areas that are significantly 
overlapped with unsubsidized competition. Moreover, while it affects 
incumbent LECs, our decision to auction certain legacy areas may have a 
positive impact on other small entity providers who currently do not 
receive universal service support.

V. Ordering Clauses

    155. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1-4, 5, 201-206, 214, 218-220,

[[Page 4729]]

251, 252, 254, 256, 303(r), 332, 403, and 405 of the Communications Act 
of 1934, as amended, and section 706 of the Telecommunications Act of 
1996, 47 U.S.C. 151-155, 201-206, 214, 218-220, 251, 252, 254, 256, 
303(r), 403, 405, and 1302, the Report and Order, Further Notice of 
Proposed Rulemaking, and Order on Reconsideration is adopted, effective 
thirty (30) days after publication of the text or summary thereof in 
the Federal Register, except for those rules and requirements involving 
Paperwork Reduction Act burdens, which shall become effective 
immediately upon announcement in the Federal Register of OMB approval, 
and the rules adopted pursuant to section III.C.8 of the Report and 
Order (paragraphs 115 to 126 of this Federal Register summary) shall 
become effective on January 1, 2020. It is the Commission's intention 
in adopting these rules that if any of the rules that it retains, 
modifies, or adopts herein, or the application thereof to any person or 
circumstance, are held to be unlawful, the remaining portions of the 
rules not deemed unlawful, and the application of such rules to other 
persons or circumstances, shall remain in effect to the fullest extent 
permitted by law.
    156. It is further ordered that Part 32, 54, and 65 of the 
Commission's rules, 47 CFR part 32, 54, and 65, are amended as set 
forth in the following, and such rule amendments shall be effective 
thirty (30) days after publication of the rules amendments in the 
Federal Register, except that those rules and requirements which 
contain new or modified information collection requirements that 
require approval by the Office of Management and Budget under the 
Paperwork Reduction Act will become effective after the Commission 
publishes a notice in the Federal Register announcing such approval and 
the relevant effective date, and the rules adopted pursuant to section 
III.C.8 of the Report and Order (paragraphs 115 to 126 of this Federal 
Register summary) shall become effective on January 1, 2020.
    157. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and sections 0.331 and 1.429 of the Commission's rules, 
47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed 
by GRAND RIVER MUTUAL TELEPHONE CORPORATION on May 2, 2018 is denied.
    158. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and sections 0.331 and 1.429 of the Commission's rules, 
47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed 
by CLARITY TELECOM, LLC on May 10, 2018 is denied.
    159. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and sections 0.331 and 1.429 of the Commission's rules, 
47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed 
by HAMILTON COUNTY TELEPHONE CO-OP on May 8, 2018 is denied.
    160. It is further ordered, pursuant to section 1.3 of the 
Commission's rules, 47 CFR 1.3, the Commission waives Part 32 rules to 
the extent necessary to allow carriers subject to those rules to employ 
the revised procedures adopted in section III.C.8 (paragraphs 115 to 
126 of this Federal Register summary).

List of Subjects

47 CFR Part 32

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone, Uniform system of accounts.

47 CFR Part 54

    Communications common carriers, Health facilities, Infants and 
children, Internet, Libraries, Reporting and recordkeeping 
requirements, Schools, Telecommunications, Telephone.

47 CFR Part 65

    Administrative practice and procedure, Communications common 
carriers, Reporting and recordkeeping requirements, Telephone.

Federal Communications Commission.
Marlene Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR parts 32, 54 and 65 as follows:

PART 32--UNIFORM SYSTEM OF ACCOUNTS FOR TELECOMMUNICATIONS 
COMPANIES

0
1. The authority citation for part 32 continues to read as follow:

    Authority: 47 U.S.C. 219, 220 as amended, unless otherwise 
noted.


0
2. Amend Sec.  32.1410 by adding paragraphs (l) and (m) to read as 
follows:


Sec.  32.1410  Other noncurrent assets.

* * * * *
    (l) This account shall include property subject to a lessee 
operating lease longer than one year.
    (1) An operating lease is a contract, or part of a contract, that 
conveys the right to control the use of identified property, plant and 
equipment (an identified asset) for a period of time in exchange for 
consideration.
    (2) The amounts recorded in this account at the inception of an 
operating lease shall be equal to the present value not to exceed fair 
value, at the beginning of the lease term, of minimum lease payments 
during the lease term, excluding that portion of the payments 
representing executory costs to be paid by the lessor, together with 
any profit thereon. Amounts subject to current treatment shall be 
included in Account 1350, Other current assets.
    (3) Any balance in this account relating to capitalized operating 
leases shall be excluded in any ratemaking calculations.
    (m) This account shall include the amount of lessor receivables 
from an operating lease longer than one year.
    (1) The amount recorded in this account at the inception of an 
operating lease shall be equal to the present value not to exceed fair 
value, at the beginning of the lease term, of minimum lease payments 
during the lease term, excluding that portion of the payments 
representing executory costs to be paid by the lessee, together with 
any profit thereon. Amounts subject to current settlement shall be 
included in Account 1350, Other current assets.
    (2) Any balance in this account relating to receivables associated 
with capitalized operating leases shall be excluded in any ratemaking 
calculations.

0
3. Revise Sec.  32.2680 to read as follows:


Sec.  32.2680  Amortizable tangible assets.

    This account shall be used by companies to record amounts for 
property acquired under finance leases and the original cost of 
leasehold improvements of the type of character detailed in Accounts 
2681 and 2682.

0
4. Amend Sec.  32.2681 by revising the section heading and paragraphs 
(a) and (c) to read as follows:


Sec.  32.2681  Finance leases.

    (a) This account shall include all property acquired under a 
finance lease. A lease qualifies as a finance lease when one or more of 
the following criteria is met:
* * * * *
    (c) The amounts recorded in this account at the inception of a 
finance lease shall be equal to the original cost,

[[Page 4730]]

if known, or to the present value not to exceed fair value, at the 
beginning of the lease term, of minimum lease payments during the lease 
term, excluding that portion of the payments representing executory 
costs to be paid by the lessor, together with any profit thereon.

0
5. Amend Sec.  32.2682 by revising paragraph (a) to read as follows:


Sec.  32.2682  Leasehold improvements.

    (a) This account shall include the original cost of leasehold 
improvements made to telecommunications plant held under a finance or 
operating lease, which are subject to amortization treatment. This 
account shall also include those improvements which will revert to the 
lessor.
* * * * *

0
6. Amend Sec.  32.3400 by revising paragraphs (a)(1) and (b) to read as 
follows:


Sec.  32.3400  Accumulated amortization--tangible.

    (a) * * *
    (1) The accumulated amortization associated with the investment 
contained in Account 2681, Finance leases.
* * * * *
    (b) This account shall be credited with amounts for the 
amortization of finance leases and leasehold improvements concurrently 
charged to Account 6563, Amortization expense--tangible. (Note also 
Account 3300, Accumulated depreciation--nonoperating.)
* * * * *

0
7. Amend Sec.  32.3410 by revising the section heading and paragraphs 
(a) and (b) to read as follows:


Sec.  32.3410  Accumulated amortization--capitalized finance leases.

    (a) This account shall include the accumulated amortization 
associated with the investment contained in Account 2681, Finance 
Leases.
    (b) This account shall be credited with amounts for the 
amortization of finance leases concurrently charged to Account 6563, 
Amortization expense--tangible. (Note also Account 3300, Accumulated 
depreciation--nonoperating.)
* * * * *

0
8. Amend Sec.  32.4130 by revising paragraph (c) to read as follows:


Sec.  32.4130  Other current liabilities.

* * * * *
    (c) The current portion of obligations applicable to property 
obtained under finance leases.
* * * * *

0
9. Amend Sec.  32.4200 by revising paragraph (a)(5) and adding 
paragraph (a)(9) to read as follows:


Sec.  32.4200  Long term debt and funded debt.

    (a) * * *
    (5) The noncurrent portion of obligations applicable to property 
obtained under finance leases. Amounts subject to current settlement 
shall be included in Account 4130, Other current liabilities.
* * * * *
    (9) The noncurrent portion of obligations applicable to property 
subject to capitalized operating leases. Amounts subject to current 
settlement shall be included in Account 4130, Other current 
liabilities. Any balance in this account relating to capitalized 
operating leases shall be excluded in any ratemaking calculations.
* * * * *

0
10. Amend Sec.  32.4300 by adding paragraph (c) to read as follows:


Sec.  32.4300  Other long-term liabilities and deferred credits.

* * * * *
    (c) This account shall include the deferred obligations associated 
with a capitalize operating lease longer than one year. The amounts 
recorded in this account at the inception of an operating lease shall 
be equal to the present value not to exceed fair value, at the 
beginning of the lease term, of minimum lease payments during the lease 
term, excluding that portion of the payments representing executory 
costs to be paid by the lessor, together with any profit thereon.

0
11. Amend Sec.  32.7500 by revising paragraph (e) to read as follows:


Sec.  32.7500  Interest and related items.

* * * * *
    (e) This account shall include the interest portion of each finance 
lease and capitalized operating lease payment.
* * * * *

PART 54--UNIVERSAL SERVICE

0
12. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
254, 303(r), 403, and 1302 unless otherwise noted.


0
13. Amend Sec.  54.302 by adding two sentences to the end of paragraph 
(a) and revising paragraph (c) to read as follows:


Sec.  54.302  Monthly per-line limit on universal service support.

    (a) * * * Beginning July 1, 2019, until June 30, 2021, each study 
area's universal service monthly per-line support shall not exceed 
$225. Beginning July 1, 2021, each study area's universal service 
monthly per-line support shall not exceed $200.
* * * * *
    (c) The Administrator, in order to limit support for carriers 
pursuant to paragraph (a) of this section, shall reduce safety net 
additive support, high-cost loop support, safety valve support, and 
Connect America Fund Broadband Loop Support in proportion to the 
relative amounts of each support the study area would receive absent 
such limitation.


Sec.  54.303   [Amended]

0
14. Amend Sec.  54.303 by removing and reserving paragraph (b) and 
removing paragraphs (c) through (m).

0
15. Amend Sec.  54.308 by
0
a. Revising the first sentence of paragraph (a)(1);
0
b. Adding paragraphs (a)(1)(iii) and (iv); and
0
c. Revising paragraphs (a)(2) introductory text, (a)(2)(i), 
(a)(2)(ii)(A)(1) and (2), (a)(2)(ii)(B), and (a)(2)(iii).
    The revisions and additions read as follows:


Sec.  54.308  Broadband public interest obligations for recipients of 
high-cost support.

    (a) * * *
    (1) Carriers that elect to receive Connect America Fund-Alternative 
Connect America Cost Model (CAF-ACAM) support pursuant to Sec.  54.311 
are required to offer broadband service at actual speeds of at least 10 
Mbps downstream/1 Mbps upstream to a defined number of locations as 
specified by public notice, with a minimum usage allowance of 150 GB 
per month, subject to the requirement that usage allowances remain 
consistent with median usage in the United States over the course of 
the term. * * *
* * * * *
    (iii) Revised A-CAM I carriers, as defined by Sec.  54.311(a)(2), 
must offer the following broadband speeds to locations that are fully 
funded, as specified by public notice at the time of the 
authorizations, as follows:
    (A) Revised A-CAM I carriers with a state-level density of more 
than 10 housing units per square mile, as specified by public notice at 
the time of election, are required to offer broadband speeds of at 
least 25 Mbps downstream/3 Mbps upstream to 85 percent of all fully 
funded locations in the state by the end of the term.
    (B) Revised A-CAM I carriers with a state-level density of 10 or 
fewer, but

[[Page 4731]]

more than five, housing units per square mile, as specified by public 
notice at the time of election, are required to offer broadband speeds 
of at least 25 Mbps downstream/3 Mbps upstream to 65 percent of fully 
funded locations in the state by the end of the term.
    (C) Revised A-CAM I carriers with a state-level density of five or 
fewer housing units per square mile, as specified by public notice at 
the time of election, are required to offer broadband speeds of at 
least 25 Mbps downstream/3 Mbps upstream to 50 percent of fully funded 
locations in the state by the end of the term.
    (iv) A-CAM II carriers, as defined by Sec.  54.311(a)(3), must 
offer broadband speeds of at least 25 Mbps downstream/3 Mbps upstream 
to 100 percent of fully funded locations in the state by the end of the 
term, and therefore have no additional 10/1 Mbps obligation.
* * * * *
    (2) Rate-of-return recipients of Connect America Fund Broadband 
Loop Support (CAF BLS) shall be required to offer broadband service at 
actual speeds of at least 25 Mbps downstream/3 Mbps upstream, over a 
five-year period, to a defined number of unserved locations as 
specified by public notice, as determined by the following methodology:
    (i) Percentage of CAF BLS. Each rate-of-return carrier is required 
to target a defined percentage of its five-year forecasted CAF BLS 
support to the deployment of broadband service to locations that are 
unserved with 25 Mbps downstream/3 Mbps upstream broadband service as 
follows:
    (A) Rate-of-return carriers with less than 20 percent deployment of 
25/3 Mbps broadband service in their study areas, as determined by the 
Bureau, will be required to use 35 percent of their five-year 
forecasted CAF BLS support to extend broadband service where it is 
currently lacking.
    (B) Rate-of-return carriers with more than 20 percent but less than 
40 percent deployment of 25/3 Mbps broadband service in their study 
areas, as determined by the Bureau, will be required to use 25 percent 
of their five-year forecasted CAF BLS support to extend broadband 
service where it is currently lacking.
    (C) Rate-of-return carriers with more than 40 percent deployment of 
25/3 Mbps broadband service in their study areas, as determined by the 
Bureau, will be required to use 20 percent of their five-year 
forecasted CAF BLS support to extend broadband service where it is 
currently lacking.
    (ii) * * *
    (A) * * *
    (1) The weighted average unseparated cost per loop for carriers of 
similar density that offer 25/3 Mbps or better broadband service to at 
least 95 percent of locations, based on the most current FCC Form 477 
data as determined by the Bureau, but excluding carriers subject to the 
current per-line per-month cap set forth in Sec.  54.302 and carriers 
subject to limitations on operating expenses set forth in Sec.  54.303; 
or
    (2) 150% of the weighted average of the cost per loop for carriers 
of similar density, but excluding carriers subject to the per line per 
month cap set forth in Sec.  54.302 and carriers subject to limitations 
on operating expenses set forth in Sec.  54.303, with a similar level 
of deployment of 25/3 Mbps or better broadband based on the most 
current FCC Form 477 data, as determined by Bureau; or
    (B) The average cost per location for census blocks lacking 25/3 
Mbps broadband service in the carrier's study area as determined by the 
A-CAM.
    (iii) Restrictions on deployment obligations. No rate-of-return 
carrier shall deploy terrestrial wireline technology in any census 
block if doing so would result in total support per line in the study 
area to exceed the per-line per-month cap in Sec.  54.302.
* * * * *

0
16. Amend Sec.  54.311 by adding paragraphs (a)(1) through (3) and 
revising paragraph (c) through (e) to read as follows:


Sec.  54.311  Connect America Fund Alternative-Connect America Cost 
Model Support

    (a) * * *
    (1) For the purposes of this section, ``A-CAM I'' refers to 
carriers initially authorized to receive CAF-ACAM support as of January 
24, 2017, including any carriers that later elected revised offers, 
except for carriers described in paragraph (a)(2) of this section. For 
such carriers, the first program year of CAF-ACAM is 2017.
    (2) For the purposes of this section, ``Revised A-CAM I'' refers to 
carriers initially authorized to receive CAF-ACAM support as of January 
24, 2017, and were subsequently authorized to receive CAF-ACAM pursuant 
to a revised offer after January 1, 2019. For such carriers, the first 
program year of CAF-ACAM is 2017.
    (3) For the purposes of this section, ``A-CAM II'' refers to 
carriers first authorized to receive A-CAM support after January 1, 
2019. For such carriers, the first program year of CAF-ACAM is 2019.
* * * * *
    (c) Term of support. CAF-ACAM model-based support shall be provided 
to A-CAM I carriers for a term that extends until December 31, 2026, 
and to Revised A-CAM I and A-CAM II carriers for a term that extends 
until December 31, 2028.
    (d) Interim deployment milestones. Recipients of CAF-ACAM model-
based support must meet the following interim milestones with respect 
to their deployment obligations set forth in Sec.  54.308(a)(1)(i) of 
this subpart. Compliance shall be determined based on the total number 
of fully funded locations in a state. Carriers that complete deployment 
to at least 95 percent of the requisite number of locations will be 
deemed to be in compliance with their deployment obligations. The 
remaining locations that receive capped support are subject to the 
standard specified in Sec.  54.308(a)(1)(ii).
    (1) A-CAM I and Revised A-CAM I carriers must complete deployment 
of 10/1 Mbps service to a number of eligible locations equal to 40 
percent of fully funded locations by the end of 2020, to 50 percent of 
fully funded locations by the end of 2021, to 60 percent of fully 
funded locations by the end of 2022, to 70 percent of fully funded 
locations by the end of 2023, to 80 percent of fully funded locations 
by the end of 2024, to 90 percent of fully funded locations by the end 
of 2025, and to 100 percent of fully funded locations by the end of 
2026. By the end of 2026, A-CAM I carriers must complete deployment of 
broadband meeting a standard of at least 25 Mbps downstream/3 Mbps 
upstream to the requisite number of locations specified in Sec.  
54.308(a)(1)(i). For Revised A-CAM I carriers, the deployment 
milestones for 10/1 Mbps service described in this paragraph shall be 
based on the number of locations that were fully funded pursuant to 
authorizations made prior to January 1, 2019.
    (2) Revised A-CAM I and A-CAM II carriers must complete deployment 
of 25/3 Mbps service to a number of eligible locations equal to 40 
percent of locations required by Sec.  54.308(a)(1) of this subpart by 
the end of 2022, 50 percent of requisite locations by the end of 2023, 
60 percent of requisite locations by the end of 2024, 70 percent of 
requisite location by the end of 2025, 80 percent of requisite 
locations by the end of 2026, 90 percent of requisite locations by the 
end of 2027, and 100 percent of requisite locations by the end of 2028.

[[Page 4732]]

    (e) Transition to CAF-ACAM Support. An A-CAM I, Revised A-CAM I, or 
A-CAM II carrier whose final model-based support is less than the 
carrier's legacy rate-of-return support in its base year as defined in 
paragraph (e)(4) of this section, will transition as follows:
    (1) If the difference between a carrier's model-based support and 
its base year support, as determined by paragraph (e)(4) of this 
section, is ten percent or less, it will receive, in addition to model-
based support, 50 percent of that difference in program year one, and 
then will receive model support in program years two through ten.
    (2) If the difference between a carrier's model-based support and 
its base year support, as determined in paragraph (e)(4) of this 
section, is 25 percent or less, but more than 10 percent, it will 
receive, in addition to model-based support, an additional transition 
payment for up to four years, and then will receive model support in 
program years five through ten. The transition payments will be phased-
down 20 percent per year, provided that each phase-down amount is at 
least five percent of the total base year support amount. If 20 percent 
of the difference between a carrier's model-based support and base year 
support is less than five percent of the total base year support 
amount, the transition payments will be phased-down five percent of the 
total base year support amount each year.
    (3) If the difference between a carrier's model-based support and 
its base year support, as determined in paragraph (e)(4) of this 
section, is more than 25 percent, it will receive, in addition to 
model-based support, an additional transition payment for up to nine 
years, and then will receive model support in year ten. The transition 
payments will be phased-down ten percent per year, provided that each 
phase-down amount is at least five percent of the total base year 
support amount. If ten percent of the difference between a carrier's 
model-based support and its base year support is less than five percent 
of the total base year support amount, the transition payments will be 
phased-down five percent of the total base year support amount each 
year.
    (4) The carrier's base year support for purposes of the calculation 
of transition payments is:
    (i) For A-CAM I and Revised A-CAM I carriers, the amount of high-
cost loop support and interstate common line support disbursed to the 
carrier for 2015 without regard to prior period adjustments related to 
years other than 2015, as determined by the Administrator as of January 
31, 2016 and publicly announced prior to the election period for the 
voluntary path to the model; and
    (ii) For A-CAM II carriers, the amount of high-cost loop support 
and Connect America Fund--Broadband Loop Support disbursed to the 
carrier for 2018 without regard to prior period adjustments related to 
years other than 2018, as determined by the Administrator as of January 
31, 2019 and publicly announced prior to the election period for the 
voluntary path to the model.

0
17. Amend Sec.  54.313 by revising paragraph (f)(1)(i) and adding 
paragraph (f)(5) to read as follow:


Sec.  54.313  Annual reporting requirements for high-cost recipients.

* * * * *
    (f) * * *
    (1) * * *
    (i) If the rate-of-return carrier is receiving support pursuant to 
subparts K and M of this part, a certification that it is taking 
reasonable steps to provide upon reasonable request broadband service 
at actual speeds of at least 25 Mbps downstream/3 Mbps upstream, with 
latency suitable for real-time applications, including Voice over 
internet Protocol, and usage capacity that is reasonably comparable to 
comparable offerings in urban areas as determined in an annual survey, 
and that requests for such service are met within a reasonable amount 
of time; if the rate-of-return carrier receives CAF-ACAM support, a 
certification that it is meeting the relevant reasonable request 
standard; or if the rate-of-return carrier is receiving Alaska Plan 
support pursuant to Sec.  54.306, a certification that it is offering 
broadband service with latency suitable for real-time applications, 
including Voice over internet Protocol, and usage capacity that is 
reasonably comparable to comparable offerings in urban areas, and at 
speeds committed to in its approved performance plan to the locations 
it has reported pursuant to Sec.  54.316(a), subject to any limitations 
due to the availability of backhaul as specified in paragraph (g) of 
this section.
* * * * *
    (5) Rate-of-return carriers receiving support pursuant to the 
Alternative Connect America Model or the Alaska Plan, that are not 
otherwise required to file count data pursuant to Sec.  54.903(a)(1) of 
this subpart, must file the line count data required by Sec.  
54.903(a)(1).
* * * * *

0
18. Amend Sec.  54.316 by revising paragraphs (b)(2)(i) and (ii) and 
(b)(3)(i) and (ii) to read as follows:


Sec.  54.316  Broadband deployment reporting and certification 
requirements for high-cost recipients.

* * * * *
    (b) * * *
    (2) * * *
    (i) No later than March 1, 2021, and every year thereafter ending 
on no later than March 1, 2029, a certification that by the end of the 
prior calendar year, it was offering broadband meeting the requisite 
public interest obligations specified in Sec.  54.308 to the required 
percentage of its fully funded locations in the state, pursuant to the 
interim deployment milestones set forth in Sec.  54.311(d).
    (ii) No later than March 1, 2027, a certification that as of 
December 31, 2026, it was offering broadband meeting the requisite 
public interest obligations specified in Sec.  54.308(a)(1) to all of 
its fully funded locations in the state and to the required percentage 
of its capped locations in the state.
    (3) * * *
    (i) No later than March 1, 2024, a certification that it fulfilled 
the deployment obligation meeting the requisite public interest 
obligations as specified in Sec.  54.308(a)(2) to the required number 
of locations as of December 31, 2023.
    (ii) Every subsequent five-year period thereafter, a certification 
that it fulfilled the deployment obligation meeting the requisite 
public interest obligations as specified in Sec.  54.308(a)(2)(iv).
* * * * *


Sec.  54.319  [Amended]

0
19. Amend Sec.  54.319 by removing and reserving paragraphs (a) through 
(c).:

0
20. Amend Sec.  54.643 by revising paragraph (a)(6)(iv) introductory 
text to read as follows:


Sec.  54.643  Funding commitments.

    (a) * * *
    (6) * * *
    (iv) Sustainability plans for applicants requesting support for 
long-term capital expenses: Consortia that seek funding to construct 
and own their own facilities or obtain indefeasible right of use or 
finance lease interests are required to submit a sustainability plan 
with their funding requests demonstrating how they intend to maintain 
and operate the facilities that are supported over the relevant time 
period. Applicants may incorporate by reference other portions of their 
applications (e.g., project management plan, budget). The 
sustainability plan must, at a minimum, address the following points:
* * * * *

[[Page 4733]]


0
21. Amend Sec.  54.901 by removing and reserving paragraph (f)(2) and 
revising paragraph (f)(3).
    The revision reads as follows:


Sec.  54.901  Calculation of Connect America Fund Broadband Loop 
Support.

* * * * *
    (f) * * *
    (3) The Administrator shall apply a pro rata reduction to CAF BLS 
for each recipient of CAF BLS as necessary to achieve the target 
amount.
* * * * *

0
22. Amend Sec.  54.903 by revising the first sentence of paragraph 
(a)(1) to read as follows:


Sec.  54.903  Obligations of rate-of-return carriers and the 
Administrator.

    (a) * * *
    (1) Each rate-of-return carrier shall submit to the Administrator 
on March 31 of each year the number of lines it served as of the prior 
December 31, within each rate-of-return carrier study area showing 
residential and single-line business line counts, multi-line business 
line counts, and consumer broadband-only line counts separately. * * *
* * * * *

0
23. Amend Sec.  54.1310 by revising paragraph (d)(2) to read as 
follows:


Sec.  54.1310  Expense adjustment.

* * * * *
    (d) * * *
    (2) Each January 1 and July 1, the Administrator shall apply a pro 
rata reduction to High Cost Loop Support for each recipient of High 
Cost Loop Support as necessary to achieve the target amount.
* * * * *

PART 65--INTERSTATE RATE OF RETURN PRESCRIPTION, PROCEDURES, AND 
METHODOLOGIES

0
24. The authority citation for part 65 continues to read as follow:

    Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
254, 303(r), 403, and 1302 unless otherwise noted.


0
25. Amend Sec.  65.450 by revising paragraph (b)(1) to read as follows:


Sec.  65.450  Net income.

* * * * *
    (b) * * *
    (1) Gains related to property sold to others and leased back under 
finance leases for use in telecommunications services shall be recorded 
in Account 4300, Other long-term liabilities and deferred credits, and 
credited to Account 6563, Amortization expense--tangible, over the 
amortization period established for the finance lease;
* * * * *
[FR Doc. 2019-01827 Filed 2-15-19; 8:45 am]
BILLING CODE 6712-01-P