Connect America Fund (CAF): The CAF is the new umbrella program that will govern the disbursement of federal universal service funding aimed at increasing access to voice and broadband services in rural and remote areas. The CAF replaces the current High Cost program. It will (a) provide support to areas that are not served by an unsubsidized competitor, (b) require funding recipients to build broadband-capable networks, and (c) eliminate the rule that funds competitive providers at the same per-line rate that the ILEC in an area receives (the “identical support” rule). Total CAF funding will be capped at $4.5 billion annually. Of this, $500 million will be dedicated to the new Mobility Fund (discussed below). The remaining $4 billion will fund wireline voice and broadband services. The overall $4.5 billion cap is intended to be permanent (although of course the FCC may modify it in the future). Individual carriers may petition for relief from the cap.

The first phase of CAF implementation involves freezing current support at 2011 funding levels, and phasing in a requirement that funding recipients offer broadband services. During this phase, current recipients will have an annual option to accept additional funds (referred to as “incremental” funding) in exchange for additional broadband build-out obligations.

All broadband build-out obligations will apply to areas in which no “unsubsidized competitor” offers service, called “unserved areas.” The FCC has defined “unsubsidized competitors” as being limited to providers of fixed, terrestrial broadband services that meet minimum speed, usage and latency requirements. Fixed wireless service may qualify if the provider guarantees that it will meet these minimum requirements, but the FCC does not expect to revisit its focus on wireline-based broadband services to determine if an area is unserved for “the next few years.”