CAF Money Makes Broadband Possible for Frontier Customers; ACS May Return Funding

Frontier anticipated CAF, and put itself in a position where it could begin working on buildout as soon as the funds were disclosed and made available, FCC Chairman Julius Genachowski told us Monday. He and Wilderotter were spending the day touring some rural areas in California and Nevada that will now see broadband. “It’s been an extraordinary thing,” Genachowski said. “We've spent time with people in local communities telling us how much this meant to them."

To Frontier, the Phase 1 money was never meant to pay for the entire cost of the buildout, Wilderotter said. “The $775 is a subsidy.” Frontier will contribute a substantial portion of cost, and has already invested more than $1.5 billion in the last two years to deploy an advanced communications network to rural areas (CD July 10 p5). In terms of how much Frontier will contribute for the backbone, infrastructure and last-mile cost of the upcoming buildout, “we use a rule of thumb of about 3-to-1,” Wilderotter said. With the extra CAF assistance, that brings the cost down to a decent return on investment for the company, she said. Wilderotter said the telco hopes to get the broadband built out within 12 months, far sooner than the three years required as a condition of the grant. “These folks in these communities have been clamoring for broadband for so long,” she said. “They keep the pressure on us.” Frontier will build out to 6 Mbps, and will offer service ranging from 3-6 Mbps.

Even with the subsidy, building out broadband to unserved rural areas doesn’t make financial sense for several companies. ACS recently accepted 100 percent of the $4 million offered to it, but told representatives of the FCC’s Office of Native Affairs that wouldn’t be enough. “Despite this acceptance, the cost of construction of the facilities required to deliver broadband service to 5,401 new locations, required as a condition of the CAF I support, makes such service uneconomic for ACS,” the telco said Monday in an ex parte filing (http://xrl.us/bniqrk). “ACS is currently evaluating its options, and may seek a partial waiver of the CAF I conditions as an alternative to returning a portion of its CAF I award."

In total, telcos accepted $115 million of the $300 million allocated for Phase 1 (CD July 25 p3). Windstream accepted just 1 percent of the $60 million it was offered, since there are “very few areas” left in its territory that can be served for $775 or less in government support, a spokesman said. The telco asked for a waiver on rules capping support for broadband development to $775 per unserved location, “an amount that is insufficient to make deployment economic in a truly high-cost area,” the waiver said.

The level of funding for phase one “was essentially what we expected,” Genachowski said. “We understood that it’s the first tranche of funding and that companies would be looking at the CAF or the first time. The leadership that Frontier showed in analyzing the opportunity, looking at it in the context of its business plan ... is a signal of leadership to the rest of the industry.” Genachowski said he expects to see more examples of companies stepping up to help connect the 19 million U.S. residents the FCC estimates can’t get broadband at home, and expects that companies will continue to hear from consumers in their region that they want broadband. People “are comfortable with government programs that are effective and efficient,” he said.