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Connect America Cost Model Illustrative Results

As part of its open, transparent, and deliberative process to adopt a cost model for Phase II of the Connect America Fund, the Wireline Competition Bureau (Bureau) is publishing on the FCC website a number of illustrative reports showing the results of various runs of versions of the Connect America Cost Model. These reports provide the opportunity for the public to see how changes in certain input values and other decisions impact total support amounts per carrier and the number of locations eligible for support.

Report Illustrating Support Assumptions for CAM v4.1
View Connect America Cost Model v4.1 Illustrative Results
Version 4.1 Announcement Public Notice
List of Census Blocks Funded by CAM v4.1 Using a $52.50 Threshold

This illustrative report depicts the potential funding outcomes for price cap carriers to be offered model-based support in exchange for a state-level commitment associated with changes made to Version 4.1 of the Connect America Cost Model (CAM v4.1). As detailed in the Public Notice above, CAM v4.1 contains updated broadband coverage data to reflect June 2013 State Broadband Initiative Round 8 data and updated voice coverage data to reflect FCC Form 477 data (June 2013). CAM v4.1 also makes certain adjustments for the U.S. Virgin Islands, including approximating the terrain mix by mirroring the terrain mix data used in Puerto Rico. Finally, CAM v4.1 increases the average revenue per user (ARPU) assumption used by the model from $65 to $75, which in turn impacts the model inputs for customer operations marketing expense and bad debt expense. It assumes a 70 percent subscription rate for purposes of calculating the funding benchmark.

As with the CAM v4.0 illustrative results, this report includes explanatory notes to assist the public in understanding what is portrayed in the report’s various rows and columns. Users can also filter the results to easily see the potential support amounts and the number of supported price cap carrier locations CAM v4.1 calculates for each price cap carrier by study area and by state. The illustrative report was run with a funding benchmark of $52.50, with a $1.75 billion budget used to calculate the corresponding upper extremely high-cost threshold, using the assumption that CAF-ICC would be $50 million annually, on average, over the five-year term. This report depicts the number of locations that would be funded and of that, the number that would newly receive broadband. The report also shows the number and percentage of total price cap carrier locations where the average cost per location would exceed the extremely high-cost threshold—areas where the price cap carrier making a state-level commitment would not be obligated to extend broadband if the Bureau were to adopt CAM v4.1. The Bureau has not finalized the funding benchmark.

Reports Illustrating Various Support Assumptions for CAM v4.0
Connect America Cost Model v4.0 Illustrative Results
CAM v4.0 Maps of Illustrative Results Public Notice
CAM v4.0 $48 Illustrative Funding Threshold CAM v4.0 $52 Illustrative Funding Threshold Version 4.0 Announcement Public Notice

These illustrative reports depict the potential funding outcomes for price cap carriers to be offered model-based support in exchange for a state-level commitment associated with changes made to Version 4.0 of the Connect America Cost Model (CAM v4.0). As detailed in the CAM v4.0 Announcement Public Notice, CAM v4.0 includes a number of modifications to address the unique circumstances and operating conditions in the non-contiguous areas of the United States. Additionally, CAM v4.0 incorporates several modifications to CostQuestLandLine and CostQuestMiddleMile, the proprietary applications that CAM relies on to develop the network topology for the CAM. CAM v4.0 also adjusts the default input for the cost of money to 8.5 percent and incorporates updated broadband coverage data to reflect December 2012 State Broadband Initiative Round 7 data and updated voice coverage data to reflect FCC Form 477 data (December 2012).

These illustrative reports include a number of new and improved user-friendly features. They include explanatory notes to assist the public in understanding what is portrayed in the reports’ various rows and columns. Users can also filter the results to easily see the potential support amounts and the number of supported price cap carrier locations CAM v4.0 calculates for each price cap carrier by study area and by state. The illustrative reports were run with funding thresholds of $48 and $52, enabling the public to see how the funding threshold impacts the number of funded locations in price cap areas subject to the offer of model-based support. For each lower funding threshold, a $1.75 billion budget was used to calculate the corresponding upper extremely high-cost threshold, using the assumption that CAF-ICC would be $50 million annually, on average, over the five-year term. These reports depict the number of locations that would be funded and of that, the number that would newly receive broadband for each funding threshold. The reports also now show, for the two illustrative funding thresholds, the number and percentage of total price cap carrier locations where the average cost per location would exceed the extremely high-cost threshold—areas where the price cap carrier making a state-level commitment would not be obligated to extend broadband if the Bureau were to adopt CAM v4.0. The Bureau has not finalized the funding threshold.

The list of census blocks for each illustrative funding threshold show census blocks that would potentially be funded through the offer of model-based support to price cap carriers if the Bureau were to adopt CAM v4.0. Note that the census blocks for which support would be offered to the price cap carrier are subject to a challenge process . Thus, some of the census blocks on the lists may not ultimately be eligible for funding if it is determined through the challenge process that an unsubsidized competitor serves the census block. If two price cap carriers serve the same census block, the census block will appear on the lists for both price cap carriers as long as each carrier’s costs for the census blocks are eligible—i.e. they fall between the funding threshold and the extremely high-cost threshold.

Reports Illustrating Various Combinations of Inputs and Support Assumptions for CAM v3.2

View Connect America Cost Model v3.2 Illustrative Results
Version 3.2 Announcement Public Notice

These reports depict the outcomes associated with changes made to Version 3.2 of the Connect America Cost Model (CAM v3.2), which include certain adjustments to the CAM to reflect the unique circumstances and operating conditions in the non-contiguous areas of the United States, as detailed in the Public Notice above.  CAM v3.2 adds code changes and a new Undersea tab in the Capital Expenditures workbook that includes inputs for undersea cable and landing stations.  These changes and inputs are used to calculate the investment and cost for undersea and landing station facilities that connect areas outside of the contiguous United States, including Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and Northern Mariana Islands, to the contiguous United States.  Among other changes detailed in the Public Notice, CAM v3.2 also includes plant mix values for Alaska that were proposed by Alaska Communications Systems, Inc., and modifies the regional cost adjustment for the U.S. Virgin Islands.  The reports show potential support amounts and number of supported locations, by carrier, by study area, and by state.

The reports were run with illustrative funding thresholds of $49.15, $52 and $55.40.  The illustrative funding threshold of $52 was selected to be consistent with the default assumptions in version 3.2 of the model regarding take rate (80 percent) and assumed average revenue per user ($65).  The illustrative funding threshold of $49.15 is the figure that would result if one uses an eight percent rate of return, and the extremely high-cost threshold were to be set at a level so that the number of locations above this threshold do not exceed one percent of all locations, consistent with the expectation of the Commission that no more than one percent of all locations would be addressed by the Remote Areas Fund.  The illustrative funding threshold of $55.40 is the figure that would result if one uses a nine percent rate of return, and the extremely high-cost threshold were to be set at a level so that the number of locations above this threshold do not exceed one percent of all locations.  If one were to use a nine percent rate of return, and a $52 funding threshold, that would result in more than one percent of all locations above the funding threshold.

For each lower funding threshold, a $1.75 billion budget was used to calculate the corresponding upper extremely high-cost threshold, using the assumption that CAF-ICC would be $50 million annually, on average, over the five-year term.

Reports Showing Results with an Illustrative $52 Funding Threshold and a Nine Percent or Eight Percent Cost of Money

View Connect America Cost Model v3.1.4 Illustrative Results
Version 3.1.4 Announcement Public Notice

These reports depict the outcomes associated with an illustrative $52 funding threshold. The illustrative funding threshold of $52 was selected to be consistent with the default assumptions in CAM v3.1.4 of the model regarding take rate (80 percent) and assumed average revenue per user ($65). A $1.75 billion budget was used to calculate the corresponding upper extremely high-cost threshold, using the assumption that CAF-ICC would be $50 million annually, on average, over the five-year term. Additionally, the reports demonstrate the potential impact of using a nine percent or eight percent cost of money (i.e., the interest cost of debt and equity) in the model’s annual charge factors to capture the annual cost of capital investments. The Bureau recently sought comment on this topic in the virtual workshop.

Reports Illustrating Various Combinations of Inputs and Support Assumptions: Cost of Money Inputs, Support Thresholds, and Frozen Support/Model-Based Support for Non-Contiguous Areas

View Connect America Cost Model v3.1.2 Illustrative Results
Version 3.1.2 Announcement Public Notice

View Connect America Cost Model v3.1.3 Illustrative Results
Version 3.1.3 Announcement Public Notice

Given the Commission’s direction that model-derived support be targeted to locations that exceed a certain lower “funding threshold”, but do not exceed an upper “extremely high cost threshold”, these reports illustrate the outcomes associated with the range of lower funding thresholds on which the Bureau sought comment in the virtual workshop. For each lower funding threshold, a $1.75 billion budget was used to calculate the corresponding upper extremely high-cost threshold, using the assumption that CAF-ICC would be $50 million annually, on average, over the five-year term. Additionally, the reports demonstrate the potential impact of using a nine percent or eight percent cost of money (i.e., the interest cost of debt and equity) in the model’s annual charge factors to capture the annual cost of capital investments. The Bureau recently sought comment on this topic in the virtual workshop.

For each combination of the specific thresholds and cost of money input values, the reports also show the total support amounts and number of eligible locations under two alternatives: (1) all carriers that serve non-contiguous states and territories have their support frozen at 2011 levels, or (2) those carriers receive model-based support.

Published: May 31, 2013 Updated: March 28, 2014
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