CAF Phase II Will Use Greenfield Cost Model, Officials Say
The FCC Wireline Bureau has chosen a “greenfield” model for Phase II of the Connect America Fund, said industry and agency officials. A greenfield approach estimates the full cost of building and operating a network from scratch. The ABC Coalition, consisting of USTelecom and several ILECs, supports the greenfield approach. The American Cable Association, a primary proponent of the competing brownfield model (CD Jan 16 p3), criticized the choice of a greenfield model as a “wasteful” move that will hurt consumers and small cable operators.
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USTelecom applauded the expected decision. “The FCC is following the same economically right course it followed in the last USF proceeding in the 90s, in the TELRIC proceeding and in the original NPRM in this proceeding,” said Jonathan Banks, USTelecom senior vice president-law and policy.
The adopted model is not exactly what the ABC Coalition proposed, but rather is more analogous to the high-cost proxy model of 1998, said an FCC official. That model was used by price-cap carriers to estimate the cost of building out the voice only network. The idea there, the official said, was to determine what a network would look like using the cheapest available pieces. Similarly in this instance, the commission chose the least expensive components available, which in terms of continued operating cost is fiber, the official said.
The ABC Coalition’s proposal was more of a fiber-to-the-node approach that used copper the rest of the way, but “if you were actually building a greenfield deployment, you wouldn’t have copper anywhere,” the FCC official said. On an amortized basis, the cheapest option is fiber, he said.
American Cable Association Vice President-Government Affairs Ross Lieberman said the adopted model is a “lousy deal for the public.” ACA had championed a brownfield model that assumed the existing plant could deliver the desired 4 Mbps download/1 Mbps upload speeds. All the price-cap LECs need to do to offer baseline broadband service is run fiber somewhat farther into their networks and then re-use their existing copper loops from that node to the home, Lieberman told us. Now price-cap LECs will “in essence” receive support “as if they are going to build an entirely new fiber-to-the-home network in rural areas,” but “these carriers won’t build that advanced network,” he said. Their rural customers will only get low-speed DSL broadband service, he said. “With a greenfield approach, you pay for a BMW but end up with a BMX."
"It is simply wasteful to provide greenfield support to already-served areas, especially when the program doesn’t even contemplate serving all the millions of homes unserved by any broadband today,” said Lieberman. The small cable operators that serve smaller and rural markets are “tremendously concerned” that price-cap LECs will use the extra support to compete with their privately funded businesses, he said. “With a greenfield approach, the losers are consumers who contribute billions towards universal service, as well as the many small cable operators and their subscribers.” The full commission should decline to adopt the greenfield approach, said Greenfield.
Phoenix Center Chief Economist George Ford suspects the greenfield model is less expensive, he said. “Some people would say that ’the reality is that I've got to provide this over my existing plant, and I want to be subsidized.'” In a greenfield model, that subsidy would be smaller, he said. A brownfield model, on the other hand, is “imposing a constraint that the things be located in a particular place, and then you price it out as if it were new,” he said. “If you're trying to get the Universal Service Fund under control … a greenfield model could get costs down.”