Inflation Prompts USF Policy Adjustment for Rural Telcos

In an effort to provide relief to rural telephone companies, the FCC has ordered a temporary waiver of its “budget control mechanism” for rate-of-return (RoR) telcos collecting universal service support.  The waiver applies to those participating in the legacy High Cost Loop Support (HCLS) and Connect America Fund Broadband Loop Support (CAF BLS) programs from July 2022 through June 2023. The two programs affect rural voice and broadband services.

Under an earlier-adopted policy, the FCC set aside $2 billion in universal service funding to RoR carriers during the 2022-23 tariff year and provided for support levels to change each year based on the rate of inflation. The Commission also developed a budget control mechanism to ensure that spending did not exceed budget. The mechanism would automatically reduce payments from HCLS and CAF BLS if claims total more than the $2 billion maximum.

The Commission estimated 2022-2023 claims on the USF programs would exceed the budget by 14 percent. “We find that a waiver is in the public interest given the substantial reduction in support that would result from imposition of the budget constraint, as well as the unique and continued cash flow and other economic challenges carriers face as a result of the pandemic,” according to the order (PDF).

The Commission acknowledged that waiving the budget control mechanism would put some pressure on the overall universal service budget but concluded the benefits of the waiver “outweigh the limited impact on the fund.”

NTCA – the Rural Broadband Association advocated for the temporary waiver. “As we work to achieve a national goal of connecting all Americans and keeping them connected at more affordable rates, now is not the time to cut back on the support necessary to do so,” Michael Romano, NTCA’s senior vice president for industry affairs and business development, said in a statement. “We look forward to continuing to work with the commission to stabilize the USF programs and reorient them for their fundamental mission.”

Commissioner Brendan Carr praised (PDF) the unanimous action, saying “The dollars [rural telcos] need to extend their networks and connect Americans are not going nearly as far today as they did a short while ago. So, today’s decision makes eminent sense. Now is not the time to cut back on the support for these rural providers.”