ALTERNATIVE CONNECT AMERICA COST MODEL (“A-CAM”) LEGAL SUMMARY
What is A-CAM?
The “Connect America” model was developed by the Federal Communications Commission (“FCC”) to “transform” its “universal service fund” (“USF”) into a program emphasizing delivery of broadband infrastructure to unserved Americans. In its original order, the FCC stated its intent to:
- Implement a “modernized universal service regime”;
- Ensure that all consumers “have access to . . . advanced telecommunications and information services”; and
- Pave the way for “deployment of new broadband infrastructure to millions of unserved Americans.”¹
The goal was to adopt “transformational reforms” to “modernize universal service for the 21st century.”²
The “Alternative Connect America Cost Model” (A-CAM) adopted a voluntary path for eligible telecommunications carriers (“Eligible Carriers”) to elect to receive support based on a cost model (therefore “model-based”) “in exchange for extending broadband service to
a pre-determined number of eligible locations.”³
A-CAM permits Eligible Carriers to receive specific and predictable monthly support payments over a 10-year period (2017-2026).
Eligible Carriers must:
- maintain voice and existing broadband service;
- offer at least one voice and one broadband service commercially;
- construct broadband infrastructure to all locations fully funded by the model; and
- satisfy the required timetable for deployment of the infrastructure.
How is A-CAM Different from Legacy USF Payments?
Legacy USF payments were based on providing services to unserved and underserved consumers. The A-CAM model is based on providing infrastructure to unserved locations so that services can be provided.
Unlike the legacy program, there are specific location-based build-out requirements.
Locations are determined by geographic mapping tools.
How are A-CAM Payments Determined?
Payments are calculated based on (1) a “cost model” for providing and maintaining services to those specific locations and (2) a “support model” for determining government support to subsidize the cost of the build-out to such locations.
Cost Model. The A-CAM cost model is designed to estimate the cost to provide voice and broadband-capable network connections to all locations unserved by such connections. The intent is to “model forward-looking costs to estimate the cost of deploying broadband capable networks in high-cost areas.”4
Further, the intent is to reflect cost differences consistent with the actual geographic conditions at a “granular level.”5
The model takes geographic and non-geographic data (including potential
demand, network topology and existing coverage) as inputs and produces an “estimate of the cost of providing voice and broadband-capable networks” to the given locations (“cost to serve”).6
Demand is assessed by determining consumer and business locations served by the modeled network. The network topology uses real-world network engineering rules, equipment capabilities and spatial realities (road systems and relevant terrain attributes) to assemble a model of an efficient forward-looking wireline network to serve such demand. “Cost to serve” is then calculated using the modeled network construction and operational costs.7
Support Model: The A-CAM support model utilizes the “cost to serve” as an input to produce a “universal service support amount.” Areas served by alternative voice and broadband providers are not eligible for support. Extremely high-cost areas will be excluded due to a “cutoff” designed to identify areas better suited to alternative technologies.
Using the model-based calculations, the FCC made offers in 2016 to Eligible Carriers inviting participation in A-CAM. Certain additional revisions were made due to unexpected interest in participation, initial budget constraints and subsequent additional funding. Ultimately 182 Eligible Carriers accepted offers of A-CAM support in a total
amount over $5.3 billion over the 10-year period.8
The FCC subsequently offered additional A-CAM funding in a total amount of $657 million over a new 10-year period beginning in 2019. The additional funding is in exchange for providing faster broadband service (25/3 Mbps as opposed to 10/1) to additional locations. A total of 186 Eligible Carriers accepted the offers for the additional funding.
What are the Build-Out Requirements?
By accepting an A-CAM offer, the Eligible Carrier agrees to extend broadband service to a pre-determined number of eligible locations.9 The locations for each Eligible Carrier are specific to that carrier.
The original build-out obligation must be completed over the original 10-year period (2017-2026). The additional build-out obligation related to the acceptance of additional funding must be completed over the second 10-year period (2019-2028).
Deployments must meet the relevant service requirements and meet the following milestones for the required number of locations:
- 40 percent by the end of Year 4;
- 50 percent by the end of Year 5;
- 60 percent by the end of Year 6;
- 70 percent by the end of Year 7;
- 80 percent by the end of Year 8;
- 90 percent by the end of Year 9;
- 100 percent by the end of Year 10.
What are the Legal Requirements for Use of A-CAM Funds?
Annual reporting is required, including certification that the funds are being used in accordance with the offer. Cooperation with random compliance audits and other investigations is also mandatory. Records should be maintained for 10 years from receipt of funding.
Ineligible Use of Funds. Use of funds is limited to support of facilities and services related to provision of universal service. A-CAM are expressly prohibited from being used for certain expenses, including, but not necessarily limited to:
- Personal expenses of employees or other persons affiliated with the Eligible Carrier, and family members thereof;
- Gifts to employees;
- Housing allowances (except for reasonable work-related temporary or seasonal lodging);
- Food and beverages or cafeterias or dining facilities (except for reasonable expenses for work-related travel);
- Tangible property not related to the offering of voice or broadband services;
- Corporate aircraft or watercraft;
- Off-road vehicles except insofar as necessary for access to areas not readily accessible by roads;
- Entertainment property or consumer electronics;
- Kitchen appliances except as part of work-related temporary or seasonal lodging;
- Works of art;
- Political contributions;
- Charitable donations;
- Membership fees and dues;
- Sponsorships of conferences or events;
- Non-product-related “image” advertising; or
- Penalties, fines or fees.10
Failure to Meet Interim Milestones. Eligible Carriers must notify the FCC within 10 business days if they fail to meet a build-out milestone. Default in build-out milestones results in additional reporting obligations and potential withholding of A-CAM payments.
A Tier-1 default (more than 5 percent but less than 15 percent non-compliant) results in an obligation to provide quarterly reports. Failure to file the quarterly reports can result in reductions of support.
A Tier-2 default (more than 15 percent but less than 25 percent) results in withholding of 15 percent of the Eligible Carrier’s monthly support. Quarterly reports are also required. Withholding of support will cease once compliance is back within 15 percent of the milestone.
A Tier-3 default (more than 25 percent but less than 50 percent) results in withholding of 25 percent of the Eligible Carrier’s monthly support. Quarterly reports are also required. Once compliance is back within 25 percent of the milestone, withholding with drop back to the Tier-2 level.
A Tier-4 default (more than 50 non-compliant) results in withholding of 50 percent of the Eligible Carrier’s monthly support for six months. If compliance is not back to a Tier-3 level or lower within six months, then 100 percent of support is withheld and the FCC will commence a recovery action for support paid equal to the percentage of the compliance gap plus 10 percent of the support that has been disbursed to that date.
If an Eligible Carrier that was non-compliant at the Tier-2 level or higher reverts to Tier-1 non-compliance or full compliance, then such Eligible Carrier will have all withheld support restored.11
Failure to meet Final Milestone. If a final milestone is not met, the Eligible Carrier will have 12 months from the date of the final milestone to come into full compliance. If the Eligible Carrier does not meet the final milestone within 12 months, then the FCC will recover the percentage support equal to 1.89 times the average amount of support per location received in the state for that carrier over the term of support plus 10 percent of the total relevant support over the support term.12
¹ FCC Report and Order 14-190 (December 18, 2014), ¶¶ 1-2 (emphasis added).
² FCC Report and Order and Further Notice of Proposed Rulemaking 10-90 (November 18, 2011).
³ FCC Order 16-842, ¶ 3 (July 25, 2016) (emphasis added).
4 FCC Report and Order and Further Notice of Proposed Rulemaking 10-90, ¶ 166.
5 Id., ¶ 188.
6 Connect America Cost Model (A-CAM) Model Methodology version 2.4.0 (Revised May 1, 2018)
(https://docs.fcc.gov/public/attachments/DOC-350679A1.pdf), p. 10.
7 Id., pp. 12-18.
8 FCC Public Notice 17-99 (January 24, 2017).
9 FCC Order 16-842, ¶3 (July 25, 2016).
10 47 C.F.R. §54.7.
11 47 C.F.R. §54.320(d)(1).
12 47 C.F.R. §54.320(d)(2).