Court Upholds 'Connect America Fund' Financing Shift

By Gary Kim May 27, 2014

A federal appeals court has ruled that the Federal Communications Commission is within its rights to change funding criteria of the Connect America Fund from voice to Internet access.

Basically, the FCC froze all existing high-cost support at present levels, and will allocate future funds to recipients using the funds to build high speed access facilities operating at at least 4 Mbps downstream and 1 Mbps upstream, with $775 in support per line.

Predictably, some service providers challenged either the level of support (not enough) or the switch of funding priorities.

The change means $4.5 billion in annual subsidies are shifted from support for operating voice networks to operation of Internet access networks.

The new rules still require that carriers receiving the subsidies provide voice service, but the Connect America Fund support now is provided specifically to support high speed access.

The Connect America Fund ultimately will replace all existing high-cost support mechanisms, as well.

Creation of the Connect America Fund was challenged by rural telephone companies that believe they will suffer financially if the funding criteria shift from support for voice calls to funding for high-speed Internet access.

Changes to the inter-carrier compensation program, the policy whereby carriers compensate each other for terminating traffic, also was an issue.

The court challenge is one more illustration of the inherently political nature of communications policy, something Internet app providers have discovered as well.

Any public policy unavoidably creates financial winners and losers. So any changes in policy are a mix of “politically rational” and “economically rational” elements. Another way of describing matters is that economically irrational or contestable elements can be adopted because it is politically rational to do so.

That will be true for any new rules adopted to deal with network neutrality as well. Such rules are not “only” about economic winners and losers. But very real perceived financial advantages and costs are at stake. 




Edited by Rory J. Thompson

Contributing Editor

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