The FCC announced Phase II of the Connect America Fund, extending the program designed to encourage the extension of broadband networks to reach unserved and underserved Americans, mostly in rural areas.

Phase II will provide ongoing annual support of $1.8 billion for both voice and broadband service, all without increasing growth in the fund, according to the FCC. Any funding not accepted in Phase 1 will be used to connect unserved communities in Phase II. Total FCC investment in expansion and support of rural fixed and mobile broadband and voice through universal service is budgeted at $4.5 billion.

The announcement was hailed by phone companies, but was met with disappointment by the smaller cable operators who typically provide services in the areas targeted by the fund.

And that’s the crux of their disappointment. The majority of the money in the first round of the Connect America Fund went to phone companies who often initiated projects to build in areas that already had broadband provided by local cable operators.

Patricia Jo Boyers, president and CEO at Boycom Cablevision (Poplar Bluff, Mo.), and a board member of the The American Cable Association (ACA), summed up the objection in testimony earlier this year before the Senate Commerce Committee, “When we spend our own capital to bring broadband and other services to communities, there is absolutely no reason for the government to step in and aid others. Not only does this discourage private investment, it is a waste of taxpayer dollars,” Boyers said.

The rules governing how Connect America Fund awards are disbursed have not been changed for Phase II, leading cable operators to fear that the fund will again be more frequently misused to create competition, and again will less frequently be used to fulfill the programs goal: connecting unserved and underserved citizens.  

ACA president and CEO Matthew M. Polka said in a statement, “Last year’s Phase I program was a blunt instrument, designed to jump start broadband in the most unserved areas but without determining the precise amount of funding needed to serve each eligible location.  This shortcoming, while significant, could be tolerated because Phase I was portrayed as a one-time program with a limited budget.”

“But now, with this new order, the FCC has given another year of life to this troubled program.  The program’s new version suffers from the same problem as last year’s, but made worse in that it is now less focused on serving the most unserved areas and funded at a significantly higher level.  The FCC should have struck a better deal for consumers and competitors.”

The Telecommunications Industry Association (TIA), president Grant Seiffert meanwhile, commented, “The Commission’s action ends the uncertainly that has been delaying needed broadband investment in rural and hard to serve areas.  TIA commends the FCC for making up to $485 million in Connect America funding available for new broadband capital expenditure by price-cap carriers.”