Frontier Accepts Entire $283.4 Million in CAF Phase II USF Support
Frontier Communications agreed to accept $283.4 million in annual USF support to provide broadband access to more than 650,000 unserved rural locations over the next few years, the company said Tuesday in a news release. Frontier accepted the entire amount it was offered under the FCC Connect America Fund Phase II program, becoming the first price-cap telco to announce its decision. The FCC gave price-cap carriers until Aug. 27 to decide whether to accept CAF Phase II funding, state by state (see 1504290066). Frontier accepted funding for all its 28 states.
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CEO Dan McCarthy said Frontier accepted the funding well before the deadline "because we are eager to start building the infrastructure necessary to provide service to these markets as soon as possible." In its acceptance letter to the FCC, Frontier said, "To the extent model-based [CAF Phase II] support in a given state is greater than Phase I support, Frontier elects to receive the lump sum payment for prior months immediately." A Frontier spokeswoman said the FCC has indicated that, after it reviews the acceptance, it will issue a public notice authorizing Universal Service Administrative Co. to disburse funds, and the money is to be distributed in the month following the public notice. "Based on this guidance, we believe the FCC will start distributing the funding in July or August," the spokeswoman said. The FCC's Wireline Bureau authorized Frontier to receive the $283.4 million, in a public notice released later on Tuesday.
The CAF money will let Frontier deliver broadband speeds of at least 10/1 Mbps (down/up) to over 1.3 million rural customers, the agency said in its own news release. FCC Chairman Tom Wheeler called Frontier's decision "a major step forward in the FCC's efforts to ensure that all Americans have access to modern broadband and the opportunities it provides, no matter where they live." The FCC said CAF Phase II will make available more than $10 billion over the next six years to price-cap carriers, which "must build out broadband to 40 percent of funded locations by the end of 2017, 60 percent by the end of 2018, and 100 percent by the end of 2020."
Wells Fargo analyst Jennifer Fritzsche viewed the Frontier announcement "as a positive (albeit not surprising) development," though she "would not describe [the CAF support] as a total windfall and many questions remain around the accounting of this distribution." The new CAF-backed deployment and "the additional cash cushion should help further protect [Frontier's] dividend," she said in a research note emailed to investors.
USTelecom Senior Vice President Jon Banks said Frontier's decision was "a win for consumers, and an affirmative step toward solving the challenge of extending broadband infrastructure in difficult to serve areas." Other price-cap companies continue to evaluate their potential CAF funding and obligations, he said.
CenturyLink was offered the most annual CAF support at $514.3 million, followed by AT&T at $494 million, Frontier at $283.4 million, Windstream at $178.8 million, Verizon at $143.9 million, FairPoint at $38.2 million, Consolidated Communications at $13.9 million, Hawaiian Telecom at $4.4 million and Micronesian Telecom at $2.6 million. Each carrier must decide whether to take all the money it's eligible to receive in a state or none of it, though it can make different decisions for different states.