© 2017 by Mattey Consulting LLC

Connect America Fund
What is the Connect America Fund?

The Connect America Fund (CAF) is a federal program that provides funding to defray the cost of operating and extending both fixed and mobile broadband networks to serve consumers and small businesses in rural, high-cost areas in the United States. CAF was created by the Federal Communications Commission (FCC) in 2011 to fulfill the statutory mandate that all Americans have access to communications service that is reasonably comparable to what’s available in urban areas.

It is the largest of the FCC’s four universal service programs, providing roughly $4.5 billion in annual funding to eligible recipients. Funding can be used both for new capital investment and recurring operating expenses. The FCC is planning to extend and revamp this program in the coming year, creating a $20.4 billion Rural Digital Opportunity Fund (RDOF).

Who’s Eligible to Receive CAF/RDOF Funding?

Under federal law, only “eligible telecommunications carriers” (ETCs) may receive CAF or RDOF funding.  ETCs are designated by state public utility commissions, or in some instances, by the FCC.

All incumbent telephone companies are ETCs. Other entities such as competitive carriers, mobile wireless carriers, wireless internet service providers, cable operators, electric utilities, local government entities, and satellite companies are eligible to become ETCs, and receive CAF or RDOF funding, if they are willing to offer voice and broadband meeting the FCC’s standards and meet other requirements.

 

What Funding Is Available?

There are several different programs under the overall umbrella of the Connect America Fund. Unlike several other FCC universal service programs, funding is provided on a recurring, monthly basis without an annual application process. 

In certain areas of the country, the FCC is currently providing $1.5 billion annually to the larger incumbent telcos, who are obligated to offer 10/1 Mbps fixed broadband service to a specified number of homes and small businesses by the end of 2020. The FCC plans to hold a competitive bidding process to award funding from the newly renamed Rural Digital Opportunity Fund to serve these and potentially additional areas after 2020, which will provide an significant opportunity for non-incumbents to compete for funding. 

In other areas of the country, the larger telcos declined the offered funding. The FCC held the CAF Phase II auction in 2018, with over 100 winning bidders eligible to receive nearly $150m annually for ten years ($1.5b total) to serve these areas and other areas that are very expensive to serve. 

The Connect America Fund also provides support to another group of incumbent local telephone companies, which are smaller cooperatives and independent companies. These companies are subject to varying service obligations for fixed broadband:  10/1 Mbps and/or 25/3 Mbps to a specified number of residential and small business locations.

What is the future of the CAF program?

The current FCC has made closing the digital divide one of its highest priorities, and has announced plans to revamp the Connect America Fund into the new Rural Digital Opportunity Fund. The FCC's universal service programs are a key tool to achieving that objective. FCC funding helps the private sector to have a viable business case in less densely populated rural areas where customer revenues are insufficient to cover the costs of building and operating a network. The job of getting broadband to all Americans is far from complete, with the FCC's funding programs playing a critical role for the next decade and beyond.