Summary of USF & ICC S f Reform Order & NPRM

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CAF & ICC REFORM ORDER & FNPRM

Connect America Fund (CAF) and ConnectAmericaFund(CAF)and IntercarrierCompensation(ICC)Reform OrderandFNPRM Order and FNPRM
o ApprovedOctober27,2011 o Released November 18 2011 ReleasedNovember18,2011 o OrderprimarilyaddresseslongtermICCandinterim USFreform
Proposedeffectivedatesbeginningin2012

o FNPRMprimarilyaddresseslongtermUSFreform

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CAF & ICC REFORM ORDER & FNPRM Identifies 5 Goals Identifies5Goals
o Preserve&enhanceuniversalavailabilityof voice voice
Measuredusingtelephonepenetrationrate

o Universalavailabilityofnetworkscapableof y p providingvoiceandbroadband
Measuredbythenumberofresidential,business,and anchorinstitutionswithnewaccesstobroadband anchor institutions with new access to broadband

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CAF & ICC REFORM ORDER & FNPRM Identifies 5 Goals Identifies5Goals
o Universalavailabilityofnetworkscapableof providingmobile voiceandbroadband providing mobile voice and broadband
Noperformancemeasuresadoptedatthistime

o Ensurethatratesforvoiceandbroadband arereasonablycomparableacrosstheU.S.
Noperformancemeasuresadoptedatthistime

o MinimizeUSFcontributionburdenon consumers
M Measuredinmonthlycostperhousehold di thl t h h ld

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CAF & ICC REFORM ORDER & FNPRM Guided by 4 Principles Guidedby4Principles
o ModernizeUSF&ICCforBroadband o Fiscal Responsibility control the size of the FiscalResponsibility controlthesizeofthe fund o Accountability for recipients and Accountability forrecipientsand governmentadministrators o Incentive Based Policies IncentiveBasedPolicies

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CAF & ICC REFORM ORDER & FNPRM

Budget Budget
o Upto$4.5Beachyear
$1.8BforPriceCapcarriers $500MMobilityFund $100MRemoteAreasFund $2.0BforRateofReturncarriers $2.0B for Rate of Return carriers

o Fundinginagivenyearcouldbemoreorless
Contributionwillnotexceed$4.5B+expenses

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USF REFORM
Voice Service Requirements VoiceServiceRequirements
o VoicegradeaccesstothePSTNoritsfunctional equivalent o Localminutesofuseatnoadditionalcharge o Tolllimitationforqualifyinglowincomeconsumers o Accessto911andE911 o Voicemustbeofferedasastandaloneservice o Rates reasonably comparable to urban rates Ratesreasonablycomparabletourbanrates
Within2standarddeviationsabovethenationalaverage

o Continuetosatisfystaterequirements y q

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USF REFORM
Broadband Service Requirements BroadbandServiceRequirements
o Ratesreasonablycomparabletourbanrates
ReasonablerangelefttotheFNPRM USFrecipientsmustreportratesannually

o 4Mbpsdownload/1Mbpsupload
Speed from the modem to the public internet Speedfromthemodemtothepublicinternet AnnualtestingandreportingtoUSAC

o Latencysufficientlylowtoenablerealtime applications,generallylessthan100milliseconds
AnnualtestingandreportingtoUSAC

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USF REFORM
Measuring and Reporting Broadband MeasuringandReportingBroadband
o Nomonthlycapacityrequirementsatthistime
Usagelimitsmustbereasonablycomparabletobroadband offeringsinurbanareas

o Relaxedrequirementsforsatellitebackhaul
Annual certification of need to rely on satellite Annualcertificationofneedtorelyonsatellite 1Mbps/256Kbps Latencyandcapacityrequirementsdonotapply

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USF REFORM
Price Cap Carriers PriceCapCarriers
o CAFPhaseI
Freezesexistinghighcostsupportat2011levelforthe studyareaeffective1/1/2012
Pricecapandrateofreturnaffiliates Reducedifratesarebelowurbanratefloor 2013 atleast1/3ofsupportmustbeusedtobuildand operatebroadbandcapablenetworks
Ownretailbroadband S b t ti ll Substantiallyunserved areas d Nounsubsidizedcompetition

2014atleast2/3ofsupport 2015 all support 2015 allsupport

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USF REFORM
Price Cap Carriers PriceCapCarriers
o CAFPhaseI
Adds$300Mofincrementalsupportin2012
Deploy4/1Mbpsinunservedareas Supportdistributedbasedonacostmodelestimateofper locationcostsinawirecenter Carriersmayacceptall,some,ornosupport
Mustdeploybroadbandtoa#oflocations=toamountaccepted dividedby$775
2/3 of locations within 2 years 2/3oflocationswithin2years Alllocationswithin3years Supportreturnedifmilestonesnotmet

ContinuesuntilCAFPhaseIIisimplemented
PhaseIIexpectedtobeginon1/1/2013

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USF REFORM
Price Cap Carriers PriceCapCarriers
o CAFPhaseII
Upto$1.8Binannualsupport
Costmodelbasedsupportforincumbentsthatmakea statewidecommitmenttoprovidebroadband
Eligibilitydeterminedatacensusblock,orsmaller,level
M d ld t Modeldetermineswherecostcannotbesupportedbyreasonable i h t tb t db bl enduserrates

5yearcommitment(20132017) 4/1Mbpsrequirement
85%oflocationsinyears13 100%bytheendofyear5

6/1.5Mbpstoa#oflocationstobedeterminedintheFNPRM At the end of 5 years, expectation is that all support will be Attheendof5years,expectationisthatallsupportwillbe distributedviareverseauctions

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USF REFORM
Price Cap Carriers PriceCapCarriers
o CAFPhaseII
CostModelbasedsupport
Carriersacceptingstatewidecommitment
Supportisphasedinover2years
Year150%ofCAFPhaseIand50%ofCAFPhaseII Year 2 100% of CAF Phase II Year2 100%ofCAFPhaseII

Carriersrejectingstatewidecommitment
ReceivesCAFPhaseIsupportuntilreverseauctionwinner receivessupportunderCAFPhaseII Supportthenceases

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USF REFORM
Price Cap Carriers PriceCapCarriers
o CAFPhaseII
Competitivebiddingtodistributesupportwhere incumbentdeclinesstatewidecommitment
ProcesstobedefinedintheFNPRM Censusblockistheminimumareaeligibleforcompetitive bidding
Potentialforaggregationofcensusblocks

CostModelcharacteristics
Estimatecostsatthecensusblockorsmallerlevel Estimatethecostofawirelinenetwork

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o $2.0Bannualbudget
IncludescurrenthighcostmechanismsandICCreform
HCLS ICLS LSS SNA

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o PublicInterestObligations
4Mbpsdownstream/1Mbpsupstream
No5yearrequirementat6/1.5Mbps

100millisecondlatency,suitableforrealtimeapplications Deploybroadbanduponreceiptofareasonablerequestfor p y p p q service,withinareasonableamountoftime

AnnualreportingtothePUCandUSAC Constructionchargesmaybeassessedpursuanttostate g y p requirements AdditionalrequirementstobeidentifiedinFNPRM

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o Limitationsoncapitalandoperatingexpenses
Implementednolaterthan7/1/2012 AdditionalcommentaspartofFNPRM
Regressionanalysisusingpubliclyavailablecost,geographic anddemographicdata Comparisonofcoststosimilarlysituatedcompanies

Annualpublicationofcappedcoststhatwillbeusedin placeofactualcoststhatexceedthecap FocusedinitiallyonHCLS,butFNPRMdirectssimilar benchmarksforICLS

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o ExtendsCorporateOperationsExpenselimitationto ICLS,effective1/1/2012
Minorupdatestotheformula
Loops6,000Loopsmonthlyperloopexpense=greaterof
$42.337(.00328*workingloops) $63,000/workingloops

6,000Loops17,887monthlyperloopexpense=
$3.007+(117,990/workingloops)

Loops17,887 monthlyperloopexpense=
$9.56

AdjustedbytheannualchangeinGDPCPI,beginning 1/1/2013

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o ReducesHCLSforcarrierswithartificiallylowvoice rates
3stepphaseinbeginning7/1/2012
7/1/20126/30/2013=$10.00 7/1/20136/30/2014=$14.00 Thereafter,annuallydeterminedbyWCBannualsurveyof voicerates
Currentnationalaverage=$15.62

IncludesstateSLC,stateUSFfeesandmandatoryEAS

DollarfordollarreductioninHCLS RequiresannualsubmissionofratesandfeestoUSAC

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o SafetyNetAdditivegrandfatheredorphasedout
Eligibilityaresultof14%increaseinTPIS
Supportgrandfatheredfortheremainderofeligibilityperiod Nonewsupportforcostsincurredafter2009

Eligibilityasaresultoflossofaccesslines
Supportphasedoutover2years
50%ofcalculatedsupportin2012 Supporteliminatedin2013

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o EliminateLSSasaseparatesupportmechanism effective7/1/2012
LimitedongoingrecoverythroughICCrecoverymechanism Supportfrozenat2011supportlevelsfor1/1/2012 6/30/2012 / /
Subjecttotrueupbasedonactual2011operatingcosts

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o AdjustedHCLSCapfor2012
EliminationofHCLSforPriceCapcarriersrequiresthatthe overallsizeofthefundbereduced
IncludesRateofReturnstudyareasaffiliatedwithPriceCap carriers NECArequiredtosubmitrevisedcapwithin30days

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o StudyAreaWaivers
Eliminate1%changeinUSFguideline Newstandardsforapproval
StatePUCapproval Publicinterest

StreamlinedProcess
PublicNoticewith30daycommentand45dayreply comments AbsentactionbytheWCB,waiverdeemedgranted60days afterreplycomments

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o RevisionstoParentTrapRule
Ifactualcostswouldgeneratelessersupport,LECwill receivethelesser Doesnotapplytopricecapcarriersandtheirrateofreturn affiliates(frozensupport) Effective1/1/2012

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o Capperlinesupportat$250amonth
Effective7/1/2012 AppliestobothETCsandCETCs AppliestoallHighCostSupport,excludingCAFICCsupport 3yearphaseinofcap 3 year phase in of cap
7/1/20126/30/2013=$250/line+2/3ofdifference 7/1/20136/30/2014=$250/line+1/3ofdifference 7/1/2014 =Nomorethan$250/line 7/1/2014 No more than $250/line

o Carriersmayfileapetitionforwaiveroradjustment o Supportreducedfromeachsupportmechanism,except LSS,basedontherelativeamountsofsupport LSS b d h l i f

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USF REFORM
Rate of Return Carriers RateofReturnCarriers
o UnsubsidizedCompetition
Eliminatessupportwhereunsubsidizedcompetitor(s)offer voiceandbroadbandto100%ofthestudyarea Incumbentsupportphasedoutover3years
Supportfrozenatthelesserof2010supportor$3,000/line Supportreducedby33%eachyear

FNPRMseekscommentonprocessfordeterminingsupport instudyareaswithlessthan100%overlap

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