Budget Control Mechanism (BCM) Update

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On May 23, 2023 the FCC released an Order waiving the application of the Budget Control Mechanism (BCM) for the July 2023 to June 2024 period. In our 3/17/23 edition of the ICORE BLOG we discussed this important issue. The BCM is a key element in the calculation of HCLS and CAF-BLS support for legacy, rate of return carriers. In the 2018 USF/ICC Order the FCC adopted an overall budget for the Universal Service program that included a $2 billion dollar budget for rate of return carriers. To ensure that the support amounts paid to rate of return carriers for HCLS and CAF-BLS did not exceed $2 billion annually, the Order also created the BCM. The FCC describes the BCM as a “self-effectuating mechanism” to enforce the rate of return budget by reducing HCLS and CAF-BLS claims as necessary to remain within the defined budget.

As discussed in the 3/17/23 ICORE BLOG, the FCC has previously waived the application of the BCM, most recently for the 2022-2023 period, and ordered USAC to set the BCM at 0%. The rationale for waiving the BCM for this period was the recognition that legacy rate of return carriers were facing cash flow issues and increased costs related to the pandemic and increased demand for broadband services, in particular for broadband only lines which receive a higher level of support. In recent months a significant amount of discussion has occurred at the FCC regarding the Broadband Coalition’s plan for Enhanced ACAM and NTCA’s plan for revisions to existing HCLS and CAF-BLS support. NTCA’s comments in particular have strongly urged the FCC to waive the application of the BCM for 2023-2024 and to further address the issue for the longer term.

In the May 23, 2023 Order, the FCC cites a letter from NTCA filed in anticipation of a significant negative BCM adjustment for the 2023-2024 period. In this letter NTCA put forth that “substantial ensuing cuts in the CAF-BLS and HCLS support resulting from the BCM factor would undermine the efforts of hundreds of small providers to fulfill and sustain the mission of delivering better broadband to millions of rural Americans at affordable rates.” On May 1,2023, USAC announced that the projected BCM for 2023-2024 would be 18.35%. The FCC concluded that absent a waiver of the BCM for 2023-2024, the application of the BCM (in excess of 18%) would result in a substantial reduction of support for legacy rate of return carriers that continue to face cash flow issues and increased expenses as they emerge from the pandemic. In addition, although the FCC’s rules expect that that legacy rate of return carriers would have the ability to make up for reductions to CAF-BLS through increases to higher consumer broadband-only (CBOL) rates, to offset an 18.35% reduction CBOL rates would need to increase on average to $78 per month from the current level of $42 per month which the FCC acknowledged is not tenable. For these reasons the FCC concluded that a waiver of the BCM for 2023-2024 was warranted and directed USAC to set the factor at 0% for this period.

The FCC acknowledged that waiving the BCM for the 2023-2024 period will put increased pressure on the USF but concluded that the benefits of waiving the BCM outweigh the limited impact on the fund given the significant reduction in support that otherwise would occur. Further, the FCC stated that it remains committed to re-evaluating the deployment obligations and funding levels for legacy rate of return carriers in 2024.

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