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Released: November 19, 2012

Federal Communications Commission

FCC 12-138

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of
)
)

Connect America Fund
)
WC Docket No. 10-90

FURTHER NOTICE OF PROPOSED RULEMAKING

Adopted: November 14, 2012

Released: November 19, 2012

Comment Date: (30 days after date of publication in the Federal Register)
Reply Comment Date: (45 days after date of publication in the Federal Register)

By the Commission:

I.

INTRODUCTION

1. On November 18, 2011, the Commission released the USF/ICC Transformation Order and
FNPRM, which comprehensively reforms and modernizes the high-cost universal service and intercarrier
compensation systems.1 Recognizing, among other facts, that over 80 percent of the more than 18 million
Americans unserved by broadband live in price cap territories, the Commission provided for two phases
of funding to make broadband-capable networks available to as many unserved locations as possible in
those areas. In Connect America Phase I, the Commission froze existing high-cost support for price cap
carriers and provided up to $300 million of additional, incremental support in 2012 in order to advance
deployment of broadband-capable infrastructure while it implements Phase II.2 In Phase II, the
Commission provided for up to $1.8 billion to be spent each year, over a period of five years, to further
advance deployment of broadband-capable infrastructure and sustain services in price cap territories
through “a combination of a forward-looking cost model and competitive bidding.”3
2.
Of the initial $300 million in Phase I incremental support allocated to price cap carriers to
support the deployment of broadband-capable networks to currently unserved locations, approximately
$115 million was accepted. 4 Because the USF/ICC Transformation Order calls for making the additional
incremental support available in the coming months, we now seek comment in this Further Notice of
Proposed Rulemaking (FNPRM) on potential modifications to the rules governing Connect America
Phase I incremental support to further accelerate the deployment of broadband facilities to consumers
who lack access to robust broadband. These changes would expand on the steps already taken in Phase I
earlier this year, while we continue to implement Phase II.


1 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed
Rulemaking, 26 FCC Rcd 17663 (2011) (USF/ICC Transformation Order), pets. for review pending sub nom. In re:
FCC 11-161
, No. 11-9900 (10th Cir. filed Dec. 18, 2011).
2 See USF/ICC Transformation Order, 26 FCC Rcd at 17715-17, paras. 133-38.
3 Id. at 17673, para. 23.
4 See Press Release, FCC, FCC Releases New Interactive Map Illustrating States Set to Receive ‘Connect America
Fund’ Support to Bring 400,000 Americans High-Speed Broadband (June 26, 2012).

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FCC 12-138

3. This FNPRM seeks comment on two sets of issues. First, we seek comment on two
alternative approaches to advancing our broadband objectives in price cap territories using the remaining
2012 Connect America Phase I funding. Under the first alternative, we would propose to combine the
remaining funding from the first round of the Connect America Fund into any future rounds of Connect
America Phase I funding, and to revise the Phase I rules to expand the definition of eligible areas, adopt a
process to update to the National Broadband Map, and alter the metric used to measure buildout. Under
the alternative proposal, remaining funds from the first round of Phase I would be added to the budget for
Phase II. To provide time to implement this, we also waive on our own motion the existing December 15,
2012 deadline for the Wireline Competition Bureau (Bureau) to announce Phase I funding allocations for
2013. Second, we propose measures to strengthen oversight and transparency of Phase I incremental
support.

II.

BACKGROUND

4. In the USF/ICC Transformation Order, the Commission adopted a framework for the
Connect America Fund to provide support in the territories of price cap carriers and their rate-of-return
affiliates based on a combination of a forward-looking cost model and competitive bidding.5 The
Commission observed, however, that developing a new cost model and bidding mechanism could be
expected to take some time.6 To support broadband deployment even as those mechanisms were being
developed, the Commission established Connect America Phase I to transition support from the old high-
cost support mechanisms for price cap carriers to the new Connect America Phase II mechanism. In
Phase I, the Commission provided up to $300 million annually in incremental support to promote
broadband deployment until Phase II could be implemented.7 The Commission determined that to the
extent incremental support was declined, the funding would be used in other ways to advance the
Commission’s broadband objectives consistent with its statutory authority.8
5. Participation in the Connect America Phase I incremental support program is optional. Under
the Commission’s current rules, carriers that do participate are required to deploy broadband within three
years to a number of locations, currently unserved by fixed terrestrial high-speed Internet access with a
minimum speed of 768 kbps downstream and 200 kbps upstream, equal to the amount of incremental
support the carrier accepts divided by $775.9 For the first round of Phase I incremental support, the $300
million available was allocated among price cap carriers using a formula to estimate wire center costs


5 See generally USF/ICC Transformation Order.
6 See id. at 17715, para. 132. To date, pursuant to its delegated authority, the Wireline Competition Bureau has
taken significant steps toward implementing Phase II, soliciting the submission of proposed cost models into the
record and developing a record on critical threshold design issues, as well as holding a public and virtual workshops
focused on the nationwide cost model submitted in the record. See Request for Connect America Fund Cost Models,
WC Docket Nos. 10-90, 05-337, Public Notice, 26 FCC Rcd 16836 (Wireline Comp. Bur. 2011); Wireline
Competition Bureau Announces Access to Connect America Fund Cost Models Filed in the Record
, WC Docket
Nos. 10-90, 05-337, Public Notice, 27 FCC Rcd 16836 (Wireline Comp. Bur. 2012); Wireline Competition Bureau
Announces Connect America Phase II Cost Model Workshop
, WC Docket Nos. 10-90, 05-337, Public Notice, 27
FCC Rcd 9882 (Wireline Comp. Bur. 2012); Wireline Competition Bureau Announces Connect America Phase II
Cost Model Virtual Workshop
, WC Docket Nos. 10-90, 05-337, Public Notice, 27 FCC Rcd 11056 (Wireline Comp.
Bur. 2012).
7 See USF/ICC Transformation Order, 26 FCC Rcd at 17715, para. 133.
8 See id. at 17717, para. 138.
9 See id. at 17715, para. 133.
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based on the prior high-cost proxy model.10 Price cap carriers were required to declare how much of their
allocated support they planned to accept and to identify the locations to which they would deploy
broadband in order to meet their deployment obligations.11 On July 24, 2012, price cap carriers accepted
nearly $115 million of Phase I incremental support, committing to bringing broadband to over 145,000
locations that previously had no access to even a minimal level of high-speed Internet service, and little
prospect of receiving service meeting our broadband standard within the next three years.
6. The USF/ICC Transformation Order specifies that further rounds of Phase I incremental
support will become available annually, as necessary, until Phase II is implemented.12 In particular, if
Phase II is not implemented to go into effect as of January 1, 2013, under our existing rules, the Bureau
must, no later than December 15, 2012, announce the next round of Phase I incremental support for 2013

III.

DISCUSSION

7. Building on the success of the first round of Phase I, we now seek comment on rule changes
that would provide further opportunities to advance our overarching goal to use available funds to rapidly
and efficiently deploy broadband networks throughout America. Given our interest in disbursing the
available funds to bring robust broadband-capable networks to consumers and businesses as soon as
possible, we intend to proceed expeditiously with this rulemaking.

A.

Options for Utilizing Remaining 2012 Connect America Phase I Funding

8. Of the $300 million in Connect America Phase I incremental support initially allocated in
2012 to promote broadband deployment, approximately $185 million remains. We seek comment on
whether to modify our rules for Phase I incremental support or instead use such funding in Phase II.
Under either option, we propose to use these remaining funds to support further broadband deployment in
the areas those funds were originally targeted to support—areas served by price cap carriers and their
rate-of-return affiliates that are costly for the private sector to serve.13
1.

Modifications for a New Round of Connect America Phase I

9. We propose several changes to Connect America Phase I that build on the success of the first
round of funding and use the remaining $185 million of incremental support and any future Phase I
funding with maximum impact. First, we propose to expand the definition of unserved areas to include
any census block lacking access to broadband with speeds of 4 Mbps downstream and 1 Mbps upstream,
which would be consistent with the minimum standard for broadband service required from carriers
receiving Connect America Phase I incremental support and would be in line with the Commission’s
broadband speed benchmark for Connect America Phase II recipients. Second, we propose to conduct a
challenge process, to be completed before carriers have the opportunity to elect to receive additional
funding, to develop a list of census blocks eligible for funding. Third, we seek comment on several
proposals to distribute the next round of Phase I funding, including tying funding to the construction of
second-mile fiber, tying funding to the estimated costs of deployment in an area, and maintaining the
$775 per unserved location metric. Finally, we propose that the remaining 2012 funds be made available
under these revised rules to further expand access to broadband-capable networks. We seek comment on


10 See id.; see also Wireline Competition Bureau Announces Support Amounts for Connect America Fund Phase One
Incremental Support
, WC Docket Nos. 10-90, 05-337, Public Notice, 27 FCC Rcd 4203 (Wireline Comp. Bur.
2012) (Phase I Support Announcement PN).
11 See Phase I Support Announcement PN, 27 FCC Rcd at 4206, para. 10.
12 See USF/ICC Transformation Order, 26 FCC Rcd at 17722, para. 148.
13 See id. at 17712, para. 127 (noting that more than 83 percent of the Americans who lacked access to broadband
meeting the Commission’s standards lived in price cap study areas).
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the costs and benefits of each proposal, and how those approaches might impact small businesses and
whether there are alternatives that would minimize impacts on small businesses. We also seek comment
on alternatives in the event we do not adopt these rule changes.
10. Expanding the Areas Eligible for Phase I. Under our current rules, carriers accepting Phase I
incremental support are required to deploy broadband to one unserved location for each $775 in
incremental support they accept.14 For these purposes, the Commission specified that locations would be
eligible if, according to the then-current version of the National Broadband Map, those locations were in
areas that did not have access to fixed terrestrial broadband with a minimum speed of 768 kbps
downstream and 200 kbps upstream.15 As the Commission explained, Phase I was initially targeted to
bring high-speed Internet access to consumers who lacked any broadband access at all, even though there
are many other consumers who did not have broadband that meets our standard of 4 Mbps downstream
and 1 Mbps upstream.16
11. Given the success of the first round of Phase I in targeting support to those areas lacking any
form of high-speed Internet access, we now propose to broaden Phase I by permitting carriers to accept
additional funds to target consumers and businesses that are in areas unserved by broadband that meets
our 4 Mbps downstream and 1 Mbps upstream standard. We seek comment on this proposal.
12. Such an approach would further the objective of ensuring that all Americans can, at a
minimum, take advantage of modern Internet applications, such as voice over Internet protocol and
streaming video. If we were to take such an approach, we propose to designate an area as unserved by
broadband with speeds of 4 Mbps downstream and 1 Mbps upstream if it is shown on the National
Broadband Map as unserved by fixed terrestrial broadband with an advertised speed of at least 3 Mbps
downstream and 768 kbps upstream.17 This baseline would be the starting point for the challenge process
discussed below. The 4 Mbps downstream and 1 Mbps upstream standard is consistent with what is
required from carriers receiving Connect America Phase I incremental support and is also in line with the
Commission’s broadband speed benchmark for Phase II. Is a different standard for initially determining
what locations are unserved by 4 Mbps upstream and 1 Mbps downstream broadband more appropriate?
13. Challenge Process. The Commission relies on the National Broadband Map in many
contexts, including as a tool to target funding appropriately in Phase I of the Connect America Fund.
Some commenters, however, have suggested the National Broadband Map may contain inaccuracies that
materially impact the targeting of support as the Commission intended.18
14. As an alternative to having carriers rely exclusively on the National Broadband Map to
determine eligible areas, we propose to utilize a limited challenge process to allow interested parties to


14 See 47 C.F.R. § 54.312(b)(2).
15 See USF/ICC Transformation Order, 26 FCC Rcd at 17720, para. 146; see also Connect America Fund et al., WC
Docket No. 10-90 et al., Second Order on Reconsideration, 27 FCC Rcd 4648, 4650-51, paras. 8-9 (2012) (Second
Reconsideration Order
); Connect America Fund et al., WC Docket No. 10-90 et al., Order, 27 FCC Rcd 8141, 8144,
para. 9 (Wireline Comp. Bur. 2012) (Phase I Clarification Order).
16 See Second Reconsideration Order, 27 FCC Rcd at 4655, para. 21.
17 We use 3 Mbps downstream and 768 kbps upstream as a proxy for 4 Mbps downstream and 1 Mbps upstream.
This is consistent with the Commission’s prior approach in the USF/ICC Transformation Order, as 3 Mbps/768
kbps is the best data currently available on the National Broadband Map for determining whether an area is served
by 4 Mbps/1 Mbps. See USF/ICC Transformation Order, 26 FCC Rcd at 17701, para. 103 n.168.
18 Several commenters have alleged that the National Broadband Map does not accurately portray coverage. See,
e.g.
, Letter from Matthew A. Brill, Attorney for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, WC
Docket Nos. 10-90, 05-337 (July 24, 2012); Independent Telephone & Telecommunications Alliance Petition for
Reconsideration, WC Docket No. 10-90 et al., at 3-6 (Dec. 29, 2011); CenturyLink Petition for Waiver, WC Docket
No. 10-90 et al. (June 26, 2012).
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provide updates to the National Broadband Map for purposes of any additional round of Phase I funding.
We seek comment on this proposal.
15. Within 15 days of release of this FNPRM, we direct the Bureau to publish a list of eligible
census blocks shown on the current version of the National Broadband Map as unserved by fixed
terrestrial broadband with an advertised speed of 3 Mbps downstream and 768 kbps upstream. The
Bureau will solicit public input on updates, revisions, and other potential corrections to the National
Broadband Map data. In particular, the Bureau should seek comment on areas where coverage is either
overstated (i.e., census blocks are listed as served where they are in fact unserved) or understated (i.e.,
census blocks are listed as unserved when they are in fact served). The Bureau also should seek comment
on areas listed as unserved on the map that are served through the Broadband Initiatives Program or the
Broadband Technology Opportunities Program. The most useful comments will be those that list specific
census blocks that are inaccurately reported on the map, along with a detailed explanation of why the
commenter believes the areas are inaccurately reported. Comments are also sought on steps parties have
taken to bring the alleged errors to the attention of the relevant state mapping entity or any other entity,
and, if they have, the outcome of any of those discussions.19 Finally, commenters claiming that an entity
does not provide service as reflected on the National Broadband Map are encouraged to serve a copy of
their comments on the entity whose service area the commenter is challenging.20
16. Where the Bureau finds that the evidence demonstrates that it is more probable than not that
the National Broadband Map inaccurately portrays coverage of a particular area, we propose that the
Bureau deem that census block as served or unserved, as appropriate, for purposes of Phase I incremental
support. We propose that the Bureau would give more weight to comments supported by tests (with the
testing methodology described and the underlying data provided) and/or engineering certifications where
appropriate. We propose that the Bureau publish a revised list, after the public comment described above,
which will then become the list of areas eligible for Phase I support going forward. The census blocks on
this list would be deemed unserved, and carriers would meet buildout obligations by deploying to
unserved locations in those areas. We seek comment as to whether this is a workable approach that can
be implemented quickly so that a finalized list of eligible census blocks would become available shortly
after adoption of the revised rules under consideration in this FNPRM.
17. Alternative Proposals for Distributing Phase I Funding. We seek comment on several
proposals to distribute the next round of Phase I funding, including tying funding to the construction of
second-mile fiber, tying funding to the estimated costs of deployment in an area, and maintaining the
$775 per location metric.
18. The first proposal would require carriers to satisfy their buildout obligations for incremental
support based on a metric that measures the number of miles of fiber deployed for a defined dollar
amount, with a requirement to connect to a minimum number of unserved locations per mile. Under this
proposal, carriers accepting Phase I incremental support would be required to meet their buildout
obligations by building a certain number of miles of fiber for a specified amount of support accepted. We
propose that a carrier would be permitted to count any fiber it builds between its central office and an
unserved location, where that location is unserved by the carrier with 4 Mbps downstream and 1 Mbps
upstream broadband, and that location is within a census block not served by any other provider, which
would be determined as proposed above. This would allow carriers maximum flexibility in determining
how to invest Phase I support to deploy new fiber. We seek comment on this proposal.


19 See Letter from Raquel Noriega, Director of Public Policy, Connected Nation, Inc. to Marlene H. Dortch,
Secretary, FCC, WC Docket Nos. 10-90, 05-337 (Oct. 12, 2012).
20 See id.
.
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19. We seek comment on the specific metric that would be adopted to implement this approach.
We note that Windstream, in its July 2012 request for a waiver of the Phase I incremental support
deployment requirement, has suggested that it could deploy fiber to high-cost rural areas with a subsidy of
$35,784 per mile.21 Is there any significant variation in the cost per fiber mile among price cap carriers?
If we were to adopt this proposal, should we adopt a uniform metric for all recipients of Phase I support
and what should that dollar value per miles of fiber deployed be? Is the figure Windstream suggests
appropriate? We note that the Commission has structured the Connect America Phase I program in a way
that would enable recipients to seek a ruling from the Internal Revenue Service that such Phase I
incremental support is a contribution to capital under section 118 of the U.S. Internal Revenue Code. The
funding is a governmental payment to private parties for the express purpose of their making capital
investments—the deployment of fiber and related broadband facilities—to achieve the Commission’s
public policy purpose of extending broadband-capable infrastructure to unserved Americans. Should we
establish the dollar amount based on a pre-tax or post-tax figure?
20. If we were to require carriers to satisfy buildout requirements by reporting on miles of fiber
deployed, we propose also to require that a minimum average number of unserved locations per route
mile of fiber be served, averaged over the entirety of the fiber the carrier seeks credit for under Connect
America Phase I. In this context, we note that Windstream indicated that, if its waiver petition were
granted, it would deploy broadband, on average, to approximately ten locations defined as unserved,
under our existing definition, per mile of fiber deployed.22 We note that requiring service to an average
minimum number of unserved locations would be one way to prevent a carrier from deploying Connect
America fiber almost entirely in areas already served by an unsubsidized competitor, with just a small
number of unserved customers. It would also support our goal of bringing broadband-capable
infrastructure to as many unserved homes and businesses as possible. Is requiring deployment to a
minimum number of unserved locations per route mile an appropriate requirement for Phase I support,
given the goal of quickly maximizing the number of locations that become served with this finite amount
of support? How many locations per mile should be required, and should that figure be altered depending
on whether we update our definition of eligible areas to be those that do not have 4 Mbps downstream and
1 Mbps upstream broadband, as proposed above? Are there other factors or exceptions to this approach
that should be considered by the Commission?
21. As an alternative or in addition to a predefined requirement to deploy to a number of
unserved locations per mile of fiber deployed, should we require carriers to certify that they have ranked
potential fiber deployments by the number of unserved locations that would be served by each route
deployment and have selected the fiber routes with the highest number of unserved locations per mile? If
we were to adopt such a requirement, would we need to adopt additional measures in order to monitor and
enforce the accuracy of such certifications?
22. We also seek input on any additional rule modifications we should adopt to prevent
subsidizing fiber in areas served by unsubsidized competitors. Although we wish to avoid providing
support to carriers in areas where an unsubsidized competitor provides service without support,23 we are
at the same time mindful that if we prohibit support to any fiber construction that could theoretically
benefit a geographic area with an unsubsidized competitor, such a restriction could unreasonably deprive


21 See Windstream Election and Petition for Waiver, WC Docket Nos. 10-90, 05-337, at 15 n.38 (July 24, 2012)
(Windstream Waiver Petition); see also Letter from Jennie B. Chandra, Windstream Communications, Inc., to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-90 et al., Attachment A-2 (Apr. 16, 2012) (Windstream Ex
Parte Letter) (suggesting a post-tax support amount of $37,375 per mile).
22 This proposed figure is calculated from the information Windstream provided in its petition for waiver.
Windstream claims it could connect to 16,981 unserved locations by deploying 1,688 miles of fiber. This averages
to approximately 10 unserved locations per mile. Windstream Waiver Petition at 3.
23 See USF-ICC Transformation Order, 26 FCC Rcd at 17722, para. 149 & n.238.
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many unserved consumers from obtaining broadband, to the extent the fiber to connect those customers
would need to traverse a geographic area that is served.24 Given the tradeoff between encouraging fiber
construction and not wanting to provide subsidies that unfairly skew competition, we seek comment on
how to design a workable standard to meet our policy objectives that could be implemented quickly and
efficiently. For example, should we require that no more than a specified percentage of the fiber route
miles traverse census blocks where there is an unsubsidized competitor? Should the carrier be required to
build more miles of fiber to meet its buildout obligations if that fiber could potentially serve areas with
unsubsidized competitors? Should support be reduced on a prorated basis if a length of fiber serves
locations that are both served and unserved by an unsubsidized competitor?25
23. We also invite comment on whether to impose any other restrictions on where a carrier may
build fiber that it wishes to count toward its buildout obligations.
24. Under our existing rules, carriers are required to deploy broadband to two-thirds of the
required number of locations within two years, and all required locations within three years.26 We seek
comment on what deployment milestones would be appropriate if we were to provide support for fiber
deployment with or without a per-location requirement. Should, for instance, we require that two-thirds
of the route miles be deployed within two years, and all of the route miles be deployed within three years?
25. We seek comment on what information carriers should be required to provide about their
deployments at the time of acceptance and after meeting any deployment milestones, if we were to
require carriers to meet buildout obligations based on a metric of miles of fiber deployed. Should carriers
be required at the time of acceptance to specify the census blocks where the fiber would be deployed,
consistent with our current Phase I incremental support requirements? Should they be required at the time
of acceptance to provide fiber route maps? Should such maps be required as they reach the two-year and
three-year deployment milestones? Should they be required, either the time of initial acceptance or the
two- or three-year deployment milestones, to provide geocoded location information for unserved
locations that gain service as a result of Phase I incremental support? We seek comment on whether we
should require that any such information be made available to the public or whether carriers should be
permitted to provide that information on a confidential basis.
26. In an ex parte letter filed in the spring, before Phase I acceptances were submitted,
Windstream suggested that before a carrier would be eligible to meet buildout obligations by deploying
fiber facilities, it should first be required to provide broadband to any unserved location in its territory that
could be connected at a cost below a fixed benchmark.27 Only after all those locations had been served
could the carrier then meet buildout requirements based on the metric of miles of fiber deployed. Should
we adopt this two-step approach as an alternative to the single-step proposal, which would require carriers
to meet buildout obligations through a combination of a miles of fiber metric and a fixed-cost per location
metric, similar or the same as that used in the first round of Connect America Phase I funding?
27. In order to be eligible for funding under this option, should carriers be required to provide
some level of matching funding for each mile of fiber they seek to count toward buildout obligations? If


24 This would be the case in any situation where the price cap carrier seeks to extend fiber from its central office to a
remote terminal that serves those customers lacking access to broadband-capable networks, but the area immediately
surrounding the central office has an unsubsidized competitor, such as a cable company.
25 For example, if a mile of second-mile fiber is used to extend a broadband-capable network to twenty locations, ten
of which are served by an unsubsidized competitor and ten of which are unserved, should the carrier only receive
half of the support normally provided for a mile of fiber?
26 See 47 C.F.R. § 54.312(b)(4).
27 See Windstream Ex Parte Letter at Attachment A-1 (Apr. 16, 2012). The benchmark Windstream suggested at
that time was approximately $1,275 per location. See Windstream Waiver Petition at 11.
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so, how much matching funding should be required? Should carriers be required to disclose the amount
of matching funding either they or third parties provide for Phase I buildout?
28. If the Bureau adopts a greenfield model for Phase II, should fiber built to meet obligations in
Phase I be excluded from support under any Phase II model we develop? Excluding Phase I fiber would
avoid the issue of providing double support for fiber construction (i.e., providing support to construct a
mile of fiber in Phase I, then providing support to construct that same mile again in Phase II). How
would such an exclusion work in practice? One obstacle to excluding Phase I fiber from Phase II support
is that the Bureau would not likely receive information regarding actual fiber deployments in a time frame
needed before finalizing a cost model to determine support amounts to be offered to price cap carriers.
What rule changes would need to be adopted to address this timing issue? Finally, if carriers accept
Phase I funding for fiber builds, what is the likely impact on their willingness to accept Phase II funding
for the remainder of their qualifying areas? Does it serve the public interest to advance broadband
deployment in Phase I even if carriers may be less likely to accept the funding and service obligations in
Phase II?
29. The second proposal would tie funding to the estimated costs of deployment in an area. As
the Commission recognized in the USF/ICC Transformation Order, distributing universal service support
through a forward-looking cost model—and scaling the amount of support to the costs of serving a
particular area—incentivizes providers to deploy service efficiently, while advancing our goals to provide
universal access.28 Because “CAF Phase I incremental support is designed to provide an immediate boost
to broadband deployment in areas that are unserved by any broadband provider,”29 the Commission
declined to await the development of the more complete Phase II cost model and instead relied on the
existing high-cost proxy model to distribute support. The Commission relied on that model to estimate
the forward-looking costs of serving a location in each wire center served by price cap carriers and their
affiliates.30 Under this proposal, the $775-per-location-metric would be adjusted based on the estimated
cost to serve a location in a particular wire center.
30. Using the existing high-cost proxy model, the Bureau can estimate the average cost per
location of deploying broadband-capable infrastructure for a given wire center.31 By analyzing this data
in aggregate, the Bureau could determine the mean and median estimated cost for all wire centers (i.e.,
determine what would be the average nationwide cost per location of deploying to locations, at the wire
center level).
31. Under this approach, how should we determine what is the baseline cost that would be used
to anchor the upward or downward adjustments in support per location? In USF/ICC Transformation
Order
, the Commission examined cost estimates from the National Broadband Plan and the ABC Plan in
determining that $775 per location was sufficient to cover the “median cost of a brownfield deployment
of broadband to low-cost unserved census blocks.”32 Should we set $775 per location as the baseline
support amounts for wire centers whose already estimated costs are at or near the median (i.e., setting the
baseline by looking at all wire centers)? If we were to use the median wire center cost figure as the
baseline, a carrier extending service to unserved locations in a wire center where the average cost equal to
that baseline would receive $775 in support per location. A carrier extending service to locations in a


28 USF/ICC Transformation Order, 26 FCC Rcd at 17727–38, paras. 164–93.
29 Id. at 17717, para. 137.
30 Id. at 17715, para. 134.
31 The Bureau used these calculations, based off the existing high-cost proxy model, to determine allocation amounts
for the first round of Phase I support. See id.
32 Id. at 17718–19, paras. 141–42; id. at 17719, para. 142 (noting that $775 per location should exceed the “median
cost of upgrading existing unserved homes”).
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wire center with below baseline costs would receive less than $775 of support per location, while a carrier
extending service to locations in a wire center with above baseline costs would receive greater than $775
of support per location.
32. We already have some data that may shed some insights into the estimated costs of
deployment given the acceptances of $775 per location by many carriers. Should we instead correlate the
locations where carriers accepted $775 of support with the already estimated costs to establish the
baseline (i.e., setting the baseline by looking at the wire centers that carriers actually deployed to in the
first round of Phase I)?
33. Once we have established a baseline per-location amount, should we scale the per-location
support amounts for other wire centers proportionately (so that an area expected to cost twice as much as
the baseline would receive twice the support) or dollar for dollar (so that an area expected to cost $100
more per year than the baseline would receive $875 per location)? Should we establish minimum and
maximum support amounts per location to ensure that we adequately incentivize deployment in an
efficient manner?33 We are also mindful that costs could vary greatly between locations within a single
wire center: some locations within a wire center could cost considerably more to deploy to than the wire
center average, while other locations could cost considerably less. We seek comment on how we should
handle this variability. Is there a more granular metric than wire center average costs that we could use to
set support amounts?
34. We expect that determining the per-location support amounts for each wire center would be
relatively trivial once we have determined a baseline and scaling mechanism because we have already
estimated the costs of deploying infrastructure in each price cap wire center. As such, we would delegate
to the Bureau authority to create a list of the per-location support amount for each wire center, based on
each wire center’s average deployment cost, within fifteen days of adopting an order if we adopted this
proposal. We also expect that buildout obligations of carriers would remain the same under this proposal,
with two small changes. First, the two-year and three-year commitments would be premised on serving a
sufficient number of locations to justify two-thirds of the total support claimed by a carrier. Second, as
with 2012 Phase I support, carriers would not be bound by the initial list of locations to be served, but the
locations actually served after two years and three years would be compared to the support amounts in
each wire center for purposes of fulfilling the buildout obligations.34
35. The third proposal would allow carriers to accept support based on our current metric of one
unserved location per $775 accepted. We note that carriers that accepted funds in the first round of Phase
I incremental support likely will use those funds to build to the lower-cost locations in their territories,
leaving generally higher-cost locations remaining, which would raise the average cost to connect to a
location in the next round of funding and militate in favor of using a figure higher than $775. However,
we also note that if we expand our definition of eligible areas, it could reduce the average cost per
location. We accordingly seek comment on whether we now should modify the $775 per location metric.
36. Adding Remaining 2012 Phase I Incremental Support into Phase I Support for 2013. We
propose to combine the remaining $185 million in 2012 Phase I incremental support with whatever


33 For example, the Commission estimated that serving the 25th percentile of unserved locations would cost $530
per location and that serving the median such location would cost $765. Id. at 17719, para. 142. Conversely, recent
petitions from Windstream and FairPoint request $3,703 or even $4,063 per location to bring broadband to customer
in their high-cost territories. Windstream Waiver Petition at 4, 6; Fairpoint Communications, Inc. Petition for
Waiver of Sections 54.312(B)(2) and (3) of the Commission’s Rules and Conditional Election of Incremental CAF
Support, WC Docket Nos. 05-337, 10-90, at 11 (Sept. 10, 2012).
34 Thus if a carrier originally elected to receive $1,550 for serving one location in a high-cost wire center, it could
fulfill that obligation by serving two locations in a lower-cost wire center where support per location is $775.
Notably, as in round one, a carrier could not increase the total amount of support received by exceeding its buildout
obligations.
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funding is made available for Phase I in 2013, employing any revised rules we adopt in response to this
FNPRM. Our rules currently provide that if Connect America Phase II is not implemented to be effective
by January 1, 2013, the Bureau would follow the same rules to conduct a second round of Phase I
support.35 The amount of support available would be determined based on the length of the term the
Bureau establishes for the second round—set based on the Bureau’s expectation of when Phase II will
begin—but ordinarily would not exceed the annual budget of $300 million.36 Augmenting any 2013
Phase I support with the remaining Phase I funds, however, could dramatically increase the impact of the
next round of Phase I incremental support. If the Bureau were, for example, to set a term of six months
for Phase I in 2013, the amount of money available would, under existing rules, be $150 million.
Combining the $185 million remaining from the first round of Phase I with such an amount would more
than double the scope of a second round of Phase I. We seek comment on this approach.
37. We seek comment on how funding should be allocated in the event we add the remaining
funds from the first round of Phase I into a future round of Phase I. One approach would be to allocate
any funding a carrier previously declined to that carrier, in addition to the funding it would otherwise be
allocated for the future round.37 An alternative approach would be to allocate support to carriers based on
carriers’ original allocations, regardless of the amount of funding a carrier took 2012.38 Under such an
approach, all carriers would have their 2013 allocations increased by a fixed percentage. A third
approach would recalculate the per-carrier support amounts using the same distribution process used for
the initial round of Phase I set forth in section 54.312(b)(1) of our rules, but recalculating the funding
threshold so that the total amount of incremental support available in Phase I would be distributed.39
Under such an approach, the support available to a carrier in 2013 would be the recalculated amount
minus the amount accepted in 2012 Phase I support.40 We seek comment on these potential approaches.
38. We also propose to allow carriers to accept additional funding if other carriers choose not to
accept their full allocation. Under existing rules, the allocation to each carrier serves two functions: It
guarantees a set amount of funding for each carrier (regardless of the choices of other carriers) and sets
the upper limit on how much each carrier may accept. We propose to modify our rules to eliminate that
upper limit and permit carriers to seek support up to the entire amount of available Phase I funding.
Under such an approach, each carrier would still be guaranteed funding up to their allocation as described
in the previous paragraph. If the total requested funding from all carriers is less than the amount
available, each carrier would receive the amount it requested; if carriers collectively request support in
excess of the amount available, support above each carrier’s allocation would be distributed in proportion
to the relative allocations between carriers requesting additional support.41 Such an approach should


35 USF/ICC Transformation Order, 26 FCC Rcd at 17722, para. 148.
36 See id.
37 For example, assume Carrier A is allocated $100 and Carrier B is allocated $150. In the first round of Phase I,
Carrier A accepted $0, while Carrier B accepted $150. In the second round, Carrier A would be allocated $200,
while Carrier B would be allocated $150.
38 For example, assume Carrier A is allocated $100 and Carrier B is allocated $150. In the first round of Phase I,
Carrier A accepted $0, while Carrier B accepted $150. $100 in first round funding remains. In the second round,
Carrier A would be allocated $140, while Carrier B would be allocated $210.
39 Thus, if another $300 million of incremental support is available, the Bureau would recalculate the funding
threshold for total Phase I distribution of $600 million.
40 To continue the example from before, in the first round of Phase I, Carrier A accepted $0 out of $100 available,
while Carrier B accepted $150 out of $150. If the total Phase I support for Carrier A is $150 and for Carrier B is
$350, Carrier A would be allocated $150 in the second round, while Carrier B would be allocated $200 (the $350
total allocation minus the $150 previously accepted).
41 For example, assume Carrier A is allocated $100, Carrier B $150, and Carrier C $200 out of $450. Assume the
carriers propose to accept the following amounts of funding: A, $150; B, $300; and C, $100. Each carrier would
(continued . . .)
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enable us to maximize the benefit to consumers of the limited funds that are available. We seek comment
on how specifically such an allocation process should work, particularly in the case where carriers request
more funding than has been made available. Should we, for example, permit carriers to revise their
original proposed acceptances downward once allocations have been set, in order to ensure that carriers
will be able to use the amounts of support they receive?42
39. Timing Issues for Any Future Round of Support. We anticipate that we will act promptly in
this proceeding. We recognize, however, that the effective date of any modifications we might adopt in
this rulemaking would be after the December 15 deadline by which the Bureau is currently required to
issue a Public Notice for the next round of Phase I incremental support funding. We therefore
acknowledge we need to modify the timing of the December 15, 2012 announcement regarding Phase I
allocations for 2013. We hereby waive the current deadline and postpone such announcement until after
we have had the opportunity to act on the record developed in response to this notice.
40. We propose to permit the Bureau to establish the deadlines for all necessary announcements
and elections so as to manage efficiently any future funding opportunities involving Phase I incremental
support.43 In the USF/ICC Transformation Order, the Commission delegated authority to the Bureau to
establish the term lengths of any future round of incremental support.44 We propose to permit the Bureau
to schedule any necessary future round of Phase I incremental support in its discretion, provided that: (i)
the term of any round of incremental support should not exceed a year; (ii) the Bureau should set the term
of rounds so that Phase I incremental support continues no later than when Phase II begins actual
disbursements of support; and (iii) the Bureau shall offer any future round of Phase I incremental support
subject to the previously established overall limitation that funding for Phase I incremental support should
not exceed $300 million per year, excluding any amounts carried forward from the previous round
consistent with any direction the Commission provides in this proceeding. We seek comment on this
proposal.
2.

Adding Remaining Phase I Incremental Support into Phase II

41. An alternative approach would be to apply any funding remaining from Phase I to our overall
budget for Connect America Phase II. In the USF/ICC Transformation Order, the Commission
established a budget for Phase II in price cap areas of up to $1.8 billion annually.45 Increasing that
budgeted amount might allow more locations to be supported in Phase II and also potentially encourage
carriers to deploy broadband-capable networks more rapidly.46
(Continued from previous page)


receive the amounts accepted within their allocations: $100, $150, and $100. The remaining $100 will be
distributed between Carrier A and Carrier B, in proportion to their relative allocation under the cost-estimation
function. That is, Carrier A will receive an additional $40 and Carrier B will receive an additional $60.
42 To continue the last example, Carrier A had proposed to accept $150 but only received $140 because of high
demand. Assume Carrier A’s territory contains six areas of residences that can be connected for $25 for each area,
and connecting to any of these six areas without full support is not feasible. In this situation, Carrier A would be
slated to receive $15 in support that it has no use for, along with the accompanying buildout obligations. Under this
proposal, Carrier A could decline $15 of the additional support, ultimately accepting only $125 in support, and it
would deploy to five of its areas.
43 If the Bureau were to select a start date after January 1, 2013 for the next round of Phase I incremental support,
that would not decrease the amount of funding available for that round.
44 See USF/ICC Transformation Order, 26 FCC Rcd at 17722, para. 148.
45 Id. at 17711, para. 126.
46 Our current rules for Phase II require carriers to deploy broadband to 85 percent of supported locations by the end
of the third year and all supported locations by the end of the fifth year. See id. at 17726, para. 160.
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42. Phase I incremental support was designed to be an interim measure until Phase II can be
implemented. Adding any remaining funds from Phase I into the budget for Phase II could help to
achieve the longer term goals of Connect America Phase II. Moreover, as Connect America Phase I is
scheduled to transition to Phase II in 2013, expanding the Phase II budget provides a mechanism to begin
distributing the remaining Phase I funds in a prompt and seamless manner.47
43. We seek comment on whether we should apply these funds to Phase II, and, if we were to do
so, what adjustments to Phase II would be appropriate. Should the public interest obligations in Phase II
should be altered if additional funding were provided? Should we use the money to accelerate
deployment milestones, or should we expand the overall scope of Phase II? How might different levels of
funding affect these obligations?
44. As another alternative approach, we also seek comment as to whether the remaining Phase I
incremental support should be used to reduce high-cost demand below the $4.5 billion budget established
by the Commission in the USF-ICC Transformation Order, thereby reducing the amount contributors
need to pay into the Universal Service Fund.

B.

Oversight and Accountability for Phase I Incremental Support

45. Above, we seek comment on potential modifications to the rules that will govern any future
incremental support. In this section, we seek comment on several issues that have arisen in the initial
implementation of Phase I. In particular, we seek comment on measures to ensure we have the tools to
monitor compliance with existing obligations for support that has already been accepted, whether certain
reporting requirements should be modified for recipients of second round incremental support, and
whether certain Phase I data should be afforded confidential treatment.
46. Incremental Support Reporting Requirements. As noted above, under existing rules, carriers
accepting Phase I incremental support are required to deploy broadband to a number of unserved
locations equal to the amount of support they accept, divided by $775. Carriers are required to deploy to
two-thirds of the total number of required locations within two years, and they must complete deployment
within three years. The acceptance of Connect America Phase I incremental support comes with a
number of reporting requirements designed to ensure that support is targeted appropriately and that
carriers meet the obligations they take on when they accept support. First, when carriers accept support,
they are required to identify, by census block and wire center, where they intend to deploy broadband to
satisfy their obligation.48 Those initial filings, however, do not bind the carriers to deploy only to in those
areas, or to every location in those areas.49 Rather, the initial filings are only good faith statements of the
carriers’ initial intentions—carriers may deploy broadband to other eligible locations instead, though, if
they do so, they are required to identify where they in fact deployed.50 In addition, as part of their annual
filings under section 54.313 of our rules, carriers are required to certify that they have met any two- or
three-year deployment milestone that passed in the year covered by that filing.51 Along with their
certifications, carriers are required to specify the number of locations in each census block and wire
center to which they have deployed broadband.52 And, to assist the Commission and the Administrator in


47 Id. at 17725, para. 157. Using the remaining Phase I funds in Phase II also would allow the money to be used
with a minimum of change to the existing Connect America framework for price cap areas. This could avoid the
potential delay and administrative burdens of developing detailed new rules and processes to implement some of the
options discussed above.
48 See 47 C.F.R. § 54.3122(b)(3).
49 See Phase I Clarification Order, 27 FCC Rcd at 8143, para. 5.
50 See id.
51 See 47 C.F.R. § 54.317(b).
52 Phase I Clarification Order, 27 FCC Rcd at 8143, para. 6.
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validating carriers’ deployments, carriers are required to provide, upon request, sufficient information
about the location of actual deployments to allow confirmation of the availability of service and the
eligibility of each location for support.53
47. We propose a minor modification to the Phase I reporting obligations to strengthen our ability
to monitor compliance with our rules for carriers that have already accepted Phase I incremental support
as well as for any future rounds of funding. Specifically, we propose that each carrier, with its two- and
three-year milestone certifications, would provide geocoded latitude and longitude location information,
along with census block and wire center information, for each location the carrier intends to count toward
its deployment requirement. Specific location information would assist the Commission and the
Administrator in comparing actual deployed locations against the National Broadband Map that was
current as of the date the carrier accepted funding, confirming that all deployed locations were eligible for
support. We also propose to clarify that in the event a carrier intends to deploy to areas other than those
identified in the carrier’s initial acceptance, it is permitted (but not required) to make a supplemental
filing providing updated deployment plans at any time. Compliance with our rules will be determined
based on the carrier’s final deployment certification, which would identify where the carrier did, in fact,
deploy. These changes should improve accountability in the program. We do not expect that these
requirements would impose a significant or unexpected burden on any carrier that has accepted
incremental support.54 We seek comment on these proposals.
48. Confidentiality of Phase I Elections. Of the seven carriers that accepted Connect America
Phase I support, four made claims of confidentiality for the location information they submitted along
with their election of funding.55 The carriers claiming confidentiality alleged that public disclosure could
give competitors insight into the carriers’ network buildout plans, which the competitors could then
exploit for operational and marketing purposes.56 We note that public disclosure is generally the
preferred option, as it promotes oversight and accountability of the parties involved. This is especially
true where public funds are being employed. We therefore seek comment on whether to grant or deny the
requests for confidentiality that carriers have made regarding location data in their Connect America
Phase I incremental support elections. If we grant these requests for confidentiality, should such
confidentiality end in two or three years, when the buildout plans of these carriers will have been
completed according to the buildout obligations of Phase I? Additionally, independent of how we handle
the currently pending requests for confidentiality, we seek comment as to whether and to what extent
carriers should be permitted to request confidential treatment of future Connect America Phase I funding
elections.


53 See id. at 8143, para. 7.
54 The Office of Management and Budget has already approved the collection of geocoded information under the
Paperwork Reduction Act. See 77 Fed. Reg. 26,987 (May 8, 2012) (announcing OMB approval of information
collection for Connect America).
55 Letter from Amy Gardner, Vice President, Alaska Communications Systems to Marlene H. Dortch, Secretary,
FCC, WC Docket Nos. 10-90, 05-337 (July 24, 2012); Letter from Michael D. Saperstein, Director of Federal
Regulatory Affairs, Frontier Communications to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-
337 (July 24, 2012); Letter from Stephen P. Golden, Vice President, Hawaiian Telecom to Marlene H. Dortch,
Secretary, FCC, WC Docket Nos. 10-90, 05-337 (July 24, 2012); Letter from Eric N. Einhorn, Senior Vice
President, Windstream Communications to Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-337
(July 24, 2012).
56 See Letter from Michael D. Saperstein, Director of Federal Regulatory Affairs, Frontier Communications to
Marlene H. Dortch, Secretary, FCC, WC Docket Nos. 10-90, 05-337 (July 24, 2012).
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IV.

PROCEDURAL MATTERS

A.

Initial Regulatory Flexibility Act Analysis

49. As required by the Regulatory Flexibility Act of 1980 (RFA),57 the Commission has prepared
an Initial Regulatory Flexibility Analysis (IRFA) relating to this FNPRM. The IRFA is attached to this
FNPRM as Appendix B. Written public comments are requested on the IRFA. Comments must be
identified as responses to the IRFA and must be filed by the deadlines for comments provided at the
beginning of this FNPRM. The Commission will send a copy of the FNPRM, including this IRFA, to the
Chief Counsel for Advocacy of the Small Business Administration (SBA).58

B.

Initial Paperwork Reduction Act of 1995 Analysis

50. This document contains proposed modified information collection requirements. The
Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and
the Office of Management and Budget (OMB) to comment on the information collection requirements
contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. In
addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4), we seek specific comment on how we might further reduce the information collection
burden for small business concerns with fewer than 25 employees.

C.

Ex Parte Presentations

51. Permit-But-Disclose. The proceeding this Notice initiates shall be treated as a “permit-but-
disclose” proceeding in accordance with the Commission’s ex parte rules.59 Persons making ex parte
presentations must file a copy of any written presentation or a memorandum summarizing any oral
presentation within two business days after the presentation (unless a different deadline applicable to the
Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda
summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting
at which the ex parte presentation was made, and (2) summarize all data presented and arguments made
during the presentation. If the presentation consisted in whole or in part of the presentation of data or
arguments already reflected in the presenter’s written comments, memoranda or other filings in the
proceeding, the presenter may provide citations to such data or arguments in his or her prior comments,
memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or
arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given
to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must
be filed consistent with rule 1.1206(b). In proceedings governed by rule 1.49(f) or for which the
Commission has made available a method of electronic filing, written ex parte presentations and
memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through
the electronic comment filing system available for that proceeding, and must be filed in their native
format (e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize
themselves with the Commission’s ex parte rules.


57 See 5 U.S.C. § 603. The RFA, see 5 U.S.C. § 601 et. seq., has been amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (“SBREFA”), Pub. L. No. 104-121, Title II, 110 Stat. 847 (1996). The SBREFA
was enacted as Title II of the Contract with America Advancement Act of 1996 (“CWAAA”).
58 See 5 U.S.C. § 603(a). In addition, the FNPRM and IRFA (or summaries thereof) will be published in the Federal
Register. Id.
59 47 C.F.R. §§ 1.1200 et seq.
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D.

Filing Requirements

52. Comments and Replies. Pursuant to sections 1.415 and 1.419 of the Commission’s rules, 47
CFR §§ 1.415, 1.419, interested parties may file comments and reply comments on or before the dates
indicated on the first page of this document. Comments may be filed using the Commission’s Electronic
Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR
24121 (1998).
§
Electronic Filers: Comments may be filed electronically using the Internet by accessing the
ECFS: http://fjallfoss.fcc.gov/ecfs2/.
§
Paper Filers: Parties who choose to file by paper must file an original and one copy of each
filing. If more than one docket or rulemaking number appears in the caption of this proceeding,
filers must submit two additional copies for each additional docket or rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-
class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission’s
Secretary, Office of the Secretary, Federal Communications Commission.
§
All hand-delivered or messenger-delivered paper filings for the Commission’s Secretary
must be delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325,
Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries
must be held together with rubber bands or fasteners. Any envelopes and boxes must be
disposed of before entering the building.
§
Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority
Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.
§
U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th
Street, SW, Washington DC 20554.
53. People with Disabilities. To request materials in accessible formats for people with
disabilities (braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call
the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).
54. Availability of Documents. Comments, reply comments, and ex parte submissions will be
publically available online via ECFS.60 These documents will also be available for public inspection
during regular business hours in the FCC Reference Information Center, which is located in Room CY-
A257 at FCC Headquarters, 445 12th Street, SW, Washington, DC 20554. The Reference Information
Center is open to the public Monday through Thursday from 8:00 a.m. to 4:30 p.m. and Friday from 8:00
a.m. to 11:30 a.m.
55. Additional Information. For additional information on this proceeding, contact Ryan Yates
of the Wireline Competition Bureau, Telecommunications Access Policy Division, ryan.yates@fcc.gov,
(202) 418-0886.

V.

ORDERING CLAUSES

56. Accordingly, IT IS ORDERED that, pursuant to the authority contained in sections 1, 4(i),
4(j), 214, and 218-220 of the Communications Act of 1934, as amended, and section 706 of the


60 Documents will generally be available electronically in ASCII, Microsoft Word, and/or Adobe Acrobat.
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Telecommunications Act of 1996, 47 U.S.C. §§ 151, 154(i), 154(j), 214, 218-220, and 1302, NOTICE IS
HEREBY GIVEN of the proposals and tentative conclusions described in this Notice of Proposed
Rulemaking.
57. IT IS FURTHER ORDERED that the December 15, 2012 deadline for the Wireline
Competition Bureau to announce future rounds of Phase I incremental support IS WAIVED.
58. IT IS FURTHER ORDERED that the authority necessary to perform the functions described
in paragraphs 15 and 16 of this document IS DELEGATED to the Wireline Competition Bureau.
59. IT IS FURTHER ORDERED that the Reference Information Center, Consumer and
Governmental Affairs Bureau, shall send a copy of this Notice of Proposed Rulemaking, including the
Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
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APPENDIX A

Proposed Rules

The Federal Communications Commission proposes to amend Part 54 of Title 47 of the Code of Federal
Regulations (C.F.R.) as follows:
PART 54 – UNIVERSAL SERVICE
1.
The authority citation for Part 54 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 201, 205, 214, 219, 220, 254, 303(r), 403, and 1302 unless otherwise
noted.
2.
Amend § 54.312 by modifying paragraph (b) and adding paragraph (c) as follows:
§ 54.312 Connect America Fund for Price Cap Territories – Phase I
(a) ***
(b) Incremental Support Accepted in 2012. Beginning January 1, 2012, support in addition to baseline
support defined in paragraph (a) of this section will be available for certain price cap local exchange
carriers and rate-of-return carriers affiliated with price cap local exchange carriers as follows. This
paragraph applies only to support accepted before January 1, 2013.
***
(c) Incremental Support After 2012. Support in addition to baseline support defined in paragraph (a) of
this section will be available for certain price cap local exchange carriers and rate-of-return carriers
affiliated with price cap local exchange carriers as follows. This paragraph applies only to support
accepted after December 31, 2012.
(1) A carrier may initially accept any amount of funding up to the total amount of funding available,
regardless of the carrier’s initial allocation under paragraph (b)(1).
(2) A carrier accepting incremental support must deploy a mile of fiber for every $[[X]] in support it
accepts, providing broadband to [[Y]] locations unserved by broadband with speeds of 4 Mbps
downstream and 1 Mbps upstream per mile of fiber.
(3) A carrier may elect to accept or decline incremental support. A holding company may do so on a
holding-company basis on behalf of its operating companies that are eligible telecommunications carriers,
whose eligibility for incremental support, for these purposes, shall be considered on an aggregated basis.
A carrier must provide notice to the Commission, relevant state commissions, and any affected Tribal
government, stating the amount of incremental support it wishes to accept and identifying the areas by
wire center and census block in which the designated eligible telecommunications carrier will deploy
fiber to meet its deployment obligation, along with a fiber route map of planned deployments, or stating
that it declines incremental support. Such notification must be made within 90 days of being notified of
any incremental support for which it would be eligible. Along with its notification, a carrier accepting
incremental support must also submit a certification that the locations to be served to satisfy the
deployment obligation are within census blocks that are deemed unserved areas in a Public Notice to be
published by the Wireline Competition Bureau; that, to the best of the carrier’s knowledge, the locations
are, in fact, unserved by fixed broadband; that the carrier’s current capital improvement plan did not
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already include plans to complete broadband deployment within the next three years to the locations to be
counted to satisfy the deployment obligation; and that incremental support will not be used to satisfy any
merger commitment or similar regulatory obligation.
3.
Amend § 54.313 by adding subparagraphs (b)(3) and (b)(4) to read as follows:
§ 54.313 Annual Reporting Requirements for High-Cost Recipients
(a) ***
(b) In addition to the information and certifications in paragraph (a) of this section, any recipient of
incremental CAF Phase I support pursuant to § 54.312(b) shall provide:
***
(3) For a carrier meeting deployment obligations under section 54.312(c), in its next annual report due
after two years after filing a notice of acceptance of funding pursuant to § 54.312(c), a certification that
the company has deployed no fewer than two-thirds of the required miles of fiber and connected to no
fewer than two-thirds of the required number of locations, accompanied by a list of all locations deployed
to, including census block, wire center, and geocoded latitude and longitude location information for each
location, and a fiber route map for any fiber deployed to reach those locations; and
(4) In its next annual report due after three years after filing a notice of acceptance of funding pursuant to
§ 54.312(c), a certification that the company has deployed all required miles of fiber and connected to the
required number of locations, accompanied by a list of all locations deployed to, including census block,
wire center, and geocoded latitude and longitude location information for each location, and a fiber route
map for any fiber deployed to reach those locations, and a certification that the company is offering
broadband service of at least 4 Mbps downstream and 1 Mbps upstream, with latency sufficiently low to
enable the use of real-time communications, including Voice over Internet Protocol, and with usage caps,
if any, that are reasonably comparable to those in urban areas.
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APPENDIX B

Initial Regulatory Flexibility Act Analysis

1. As required by the Regulatory Flexibility Act of 1980, as amended (RFA),1 the Commission
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic
impact on a substantial number of small entities by the policies and rules proposed in this FNPRM.
Written comments are requested on this IRFA. Comments must be identified as responses to the IRFA
and must be filed by the deadlines for comments on the FNPRM. The Commission will send a copy of
the FNPRM, including this IRFA, to the Chief Counsel for Advocacy of the Small Business
Administration (SBA).2 In addition, the FNPRM and IRFA (or summaries thereof) will be published in
the Federal Register.3

A.

Need for, and Objectives of, the Proposed Rules

2. The FNPRM seeks comment on a variety of issues relating to modifications of Connect
America. As discussed in this FNPRM, the Commission believes that making these modifications will
aid in efficiently achieving the goals of Connect America and broadband deployment generally. Bringing
robust, affordable broadband to all Americans is the infrastructure challenge of the 21st century. To allow
the Commission to help meet this challenge, the FNPRM asks for comment in a number of specific areas.

Modifications for a New Round of Connect America Phase I

3. In this FNPRM, the Commission seeks comments on several alternatives that would allow the
remaining funds to be used in Phase I.
4. The Commission proposes to expand the definition of unserved location to include locations
that, while having some access to high-speed broadband, do not have service meeting the Connect
America goal of 4 Mbps downstream and 1 Mbps upstream.4 The Wireline Competition Bureau would
generate a list of eligible areas that lack 4 Mbps downstream and 1 Mbps upstream broadband service,
and the public would be invited to bring challenges to that list.5
5. The Commission seeks comment on three alternatives to satisfying Connect America Phase I
buildout obligations. First, the Commission also seeks comment on allowing carriers to meet buildout
obligations based on the number of miles of fiber deployed.6 Comment is sought on how fiber should be
credited toward buildout obligations, how much fiber must be built for every dollar of support received,
whether a minimum number of homes should per served per mile of fiber, where carriers should be
restricted in building fiber, what information carriers should be required to provide, whether carriers
should be required to provide matching funds, and whether fiber built with these funds should be
excluded from future Connect America funding opportunities.7 Second, the Commission alternatively
seeks comment on scaling the $775 based on the average deployment cost for a wire center, such that


1 See 5 U.S.C. § 603. The RFA, see 5 U.S.C. §§ 601–612, has been amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
2 See 5 U.S.C. § 603(a).
3 See id.
4 See FNPRM at paras. 10-12.
5 See id. paras. 13-16.
6 See id. paras. 18-19.
7 See id. paras. 20-28.
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costlier wire centers would receive support per location above $775, while cheaper wire centers would
receive support per location below $775.8 Third, the Commission seeks comment on changing the
requirement that carriers connect to one unserved location for every $775 of support receive without
regard to the costs of a particular wire center.9
6. The FNPRM proposes that the remaining funds from the first round of Connect America
Phase I would be combined with any Phase I support for 2013, and all the funds would be distributed
through a single round of funding.10 Comment is sought on how such funds should be distributed,
especially in light of the fact that carriers accepted different amounts of funding for the first round of
Phase I.11 In the proposed 2013 round of Phase I, carriers would be allowed to accept above their
originally allocated amount of funding.12 Comment is sought on how funding should be allocated,
particularly in the event that carriers accept more funds in total than have been made available.13
7. The existing December 15, 2012 deadline for the Wireline Competition Bureau to announce
the 2013 round of Phase I is waived to allow time for the rule changes discussed in this FNPRM to go
into effect.14

Adding Remaining Phase I Incremental Support into Phase II

8. As an alternative to the approach discussed above, this FNPRM seeks comment on adding the
remaining funds from Phase I into Connect America Phase II.15 Commenters are encouraged to provide
input on how the obligations for Phase II should be adjusted in light of this additional funding.16 Rather
than placing funds into Phase II, this FNPRM also seeks comment on using the remaining incremental
support to reduce the budget for high-cost universal service, which would reduce the amount of universal
service contribution required from carriers.17

Oversight and Accountability for Phase I Incremental Support

9. This FNPRM also seeks comment on modifying the reporting requirements for carriers
accepting Connect America Phase I incremental support. A carrier would be required to provide specific
geocoded latitude and longitude information for locations the carrier wishes to count toward buildout
obligations.18 The FNPRM also requests comment on the extent to which carriers should be granted
confidentiality on these and other reports.19

B.

Legal Basis



8 See id. paras. 29-34
9 See id. para. 35.
10 See id. paras. 36-38.
11 See id. para. 37.
12 See id. para. 38.
13 See id.
14 See id. para. 39.
15 See id. paras. 41-42.
16 See id. para. 43.
17 See id. para. 44.
18 See id. paras. 46-47.
19 See id. para. 48.
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10. The legal basis for any action that may be taken pursuant to the FNPRM is contained in
sections 1, 4(i), 4(j), 214, 218-220, of the Communications Act of 1934, as amended, and section 706 of
the Telecommunications Act of 1996.

C.

Description and Estimate of the Number of Small Entities to Which the Proposed
Rules Will Apply

11. 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.20 The RFA generally
defines the term “small entity” as having the same meaning as the terms “small business,” “small
organization,” and “small governmental jurisdiction.”21 In addition, the term “small business” has the
same meaning as the term “small-business concern” under the Small Business Act.22 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 SBA.23
12.

Small Businesses

. Nationwide, there are a total of approximately 27.5 million small
businesses, according to the SBA.24
13.

Wired Telecommunications Carriers

. The SBA has developed a small business size
standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or
fewer employees.25 According to Census Bureau data for 2007, there were 3,188 firms in this category,
total, that operated for the entire year.26 Of this total, 3144 firms had employment of 999 or fewer
employees, and 44 firms had employment of 1000 employees or more.27 Thus, under this size standard,
the majority of firms can be considered small.
14.

Local Exchange Carriers (LECs)

. Neither the Commission nor the SBA has developed a
size standard for small businesses specifically applicable to local exchange services. The closest
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.28 According to Commission data,
1,307 carriers reported that they were incumbent local exchange service providers.29 Of these 1,307
carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees.30


20 See 5 U.S.C. § 603(b)(3).
21 See 5 U.S.C. § 601(6).
22 See 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small
Business Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies
“unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after
opportunity for public comment, establishes one or more definitions of such term which are appropriate to the
activities of the agency and publishes such definition(s) in the Federal Register.”
23 See 15 U.S.C. § 632.
24 See SBA, Office of Advocacy, “Frequently Asked Questions,” http://www.sba.gov/advocacy/7495/29581 (last
visited Nov. 19, 2012).
25 13 C.F.R. § 121.201, NAICS code 517110.
26 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 517110” (issued Nov. 2010).
27 See id.
28 13 C.F.R. § 121.201, NAICS code 517110.
29 See Trends in Telephone Service, Federal Communications Commission, Wireline Competition Bureau, Industry
Analysis and Technology Division at Table 5.3 (Sept. 2010) (Trends in Telephone Service).
30 See id.
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Consequently, the Commission estimates that most providers of local exchange service are small entities
that may be affected by the rules and policies proposed in the FNPRM.
15.

Incumbent Local Exchange Carriers (incumbent LECs)

. Neither the Commission nor the
SBA has developed a size standard for small businesses specifically applicable to incumbent local
exchange services. The closest applicable size standard under SBA rules is for Wired
Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer
employees.31 According to Commission data, 1,307 carriers reported that they were incumbent local
exchange service providers.32 Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees
and 301 have more than 1,500 employees.33 Consequently, the Commission estimates that most providers
of incumbent local exchange service are small businesses that may be affected by rules adopted pursuant
to the FNPRM.
16. We have included small incumbent LECs in this present RFA analysis. As noted above, a
“small business” under the RFA is one that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its
field of operation.”34 The SBA’s Office of Advocacy contends that, for RFA purposes, small incumbent
LECs are not dominant in their field of operation because any such dominance is not “national” in
scope.35 We have therefore included small incumbent LECs in this RFA analysis, although we emphasize
that this RFA action has no effect on Commission analyses and determinations in other, non-RFA
contexts.
17.

Competitive Local Exchange Carriers (competitive LECs), Competitive Access

Providers (CAPs), Shared-Tenant Service Providers, and Other Local Service Providers.

Neither
the Commission nor the SBA has developed a small business size standard specifically for these service
providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications
Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees.36
According to Commission data, 1,442 carriers reported that they were engaged in the provision of either
competitive local exchange services or competitive access provider services.37 Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than 1,500 employees.38 In addition,
17 carriers have reported that they are Shared-Tenant Service Providers, and all 17 are estimated to have
1,500 or fewer employees.39 In addition, 72 carriers have reported that they are Other Local Service
Providers.40 Of the 72, seventy have 1,500 or fewer employees and two have more than 1,500
employees.41 Consequently, the Commission estimates that most providers of competitive local exchange


31 See 13 C.F.R. § 121.201, NAICS code 517110.
32 See Trends in Telephone Service at Table 5.3.
33 See id.
34 5 U.S.C. § 601(3).
35 See Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to William E. Kennard, Chairman, FCC (May
27, 1999). The Small Business Act contains a definition of “small business concern,” which the RFA incorporates
into its own definition of “small business.” See 15 U.S.C. § 632(a); see also 5 U.S.C. § 601(3). SBA regulations
interpret “small business concern” to include the concept of dominance on a national basis. See 13 C.F.R. §
121.102(b).
36 See 13 C.F.R. § 121.201, NAICS code 517110.
37 See Trends in Telephone Service at Table 5.3.
38 See id.
39 See id.
40 See id.
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service, competitive access providers, Shared-Tenant Service Providers, and Other Local Service
Providers are small entities that may be affected by rules adopted pursuant to the FNPRM.
18.

Internet Service Providers

. Since 2007, these services have been defined within the broad
economic census category of Wired Telecommunications Carriers; that category is defined as follows:
“This industry comprises establishments primarily engaged in operating and/or providing access to
transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data,
text, sound, and video using wired telecommunications networks. Transmission facilities may be based on
a single technology or a combination of technologies.”42 The SBA has developed a small business size
standard for this category, which is: all such firms having 1,500 or fewer employees.43 According to
Census Bureau data for 2007, there were 3,188 firms in this category, total, that operated for the entire
year.44 Of this total, 3144 firms had employment of 999 or fewer employees, and 44 firms had
employment of 1000 employees or more.45 Thus, under this size standard, the majority of firms can be
considered small. In addition, according to Census Bureau data for 2007, there were a total of 396 firms
in the category Internet Service Providers (broadband) that operated for the entire year.46 Of this total,
394 firms had employment of 999 or fewer employees, and two firms had employment of 1000
employees or more.47 Consequently, we estimate that the majority of these firms are small entities that
may be affected by rules adopted pursuant to the FNPRM.
19.

All Other Information Services

. The Census Bureau defines this industry as including
“establishments primarily engaged in providing other information services (except news syndicates,
libraries, archives, Internet publishing and broadcasting, and Web search portals).”48 Our action pertains
to interconnected VoIP services, which could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant messaging, and other, similar IP-enabled
services. The SBA has developed a small business size standard for this category; that size standard is
$7.0 million or less in average annual receipts.49 According to Census Bureau data for 2007, there were
367 firms in this category that operated for the entire year.50 Of these, 334 had annual receipts of under
$5.0 million, and an additional 11 firms had receipts of between $5 million and $9,999,999.
Consequently, we estimate that the majority of these firms are small entities that may be affected by our
action.

D. Description of Projected Reporting, Recordkeeping, and Other Compliance

Requirements for Small Entities

(Continued from previous page)


41 See id.
42 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial definition),
http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.
43 13 C.F.R. § 121.201, NAICS code 517110.
44 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 517110” (issued Nov. 2010).
45 See id.
46 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms for
the United States: 2007, NAICS code 5171103 (issued Nov. 2010).
47 See id.
48 U.S. Census Bureau, “2007 NAICS Definitions: 519190 All Other Information Services”,
http://www.census.gov/naics/2007/def/ND519190.HTM.
49 See 13 C.F.R. § 121.201, NAICS code 519190.
50 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 4, “Establishment and Firm Size:
Receipts Size of Firms for the United States: 2007 NAICS Code 519190” (issued Nov. 2010).
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20. In this FNPRM, the Commission seeks public comment on modifications to Phase I of
Connect America. Depending on which modifications the Commission adopts could be subject to
additional compliance requirements. 51
21. If the Commission puts in place a system whereby price cap carriers may meet buildout
requirements through fiber deployment, carriers will likely be required to report where they intend to
build fiber they wish to count toward their obligations. This reporting requirement would affect any small
entities that are also price cap carriers. Those carriers would also be subject to compliance requirements
in meeting their buildout obligations.

E.

Steps Taken to Minimize the Significant Economic Impact on Small Entities, and
Significant Alternatives Considered

22. The RFA requires an agency to describe any significant, specifically small business,
alternatives that it has considered in reaching its proposed approach, which may include the following
four alternatives (among others): “(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 and reporting requirements under the rules for such 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 such small entities.”52
23. The FNPRM seeks comment from all interested parties. The Commission is aware that some
of the proposals under consideration may impact small entities. Small entities are encouraged to bring to
the Commission’s attention any specific concerns they may have with the proposals outlined in the
FNPRM, and the Commission will consider alternatives that reduce the burden on small entities.
24. The Commission expects to consider the economic impact on small entities, as identified in
comments filed in response to the FNPRM, in reaching its final conclusions and taking action in this
proceeding. The reporting, recordkeeping, and other compliance requirements in the FNPRM could have
an impact on both small and large entities. The Commission believes that any impact of such
requirements is outweighed by the accompanying public benefits. Further, these requirements are
necessary to ensure that the statutory goals of Section 254 of the Act are met without waste, fraud, or
abuse.
25. In the FNPRM, the Commission seeks comment on several issues and measures that may
apply to small entities in a unique fashion. If price cap carriers are permitted to use Connect America
funds to build fiber facilities, any small businesses accepting funding would be required to report where
they intend to build such fiber. This is only a minor burden in addition to the current requirement of
reporting what unserved locations a carrier plans to connect to, and that burden is outweighed by the
benefit of funding to build such facilities.

F.

Federal Rules that May Duplicate, Overlap, or Conflict with the Proposed Rules

26. None.


51 Most of the reporting, recordkeeping, and compliance requirements of Connect America were discussed in earlier
NPRMs. See Notice of Inquiry and Notice of Proposed Rulemaking, WC Docket No. 10-90 et al., 25 FCC Rcd.
6657, 6685 (2010). We do not reiterate those requirements here.
52 5 U.S.C. § 603(c)(1)–(c)(4).
24

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