On January 26, 2017, the FCC issued an Order that makes available $170.4 million in Connect America Fund (“CAF”) Phase II support to applicants selected in New York’s state broadband grant program, the “New NY Broadband Program.” New York had filed a petition for waiver of CAF Phase II rules, requesting that the FCC make these funds available after Verizon declined CAF support throughout the state.

The FCC’s decision is significant because it represents a decision to effectively delegate to the states the task of distributing $170.4 million to bidders in New York rather than keep those funds under the same reverse auction program that will be used throughout the rest of the country. As we discussed in a previous alert, the competitive bidding framework will award CAF II support to competitive carriers that commit to building out and providing qualifying broadband service for the least possible cost. Instead, the FCC determined that the money would be better put to use when coupled with the additional funds available through the New NY Broadband Program. Under the new NY Broadband Program, $500 million in state funds will be disbursed to qualifying broadband providers through a state-run competitive bidding process. Significantly, New York commits to utilizing CAF II support only in unserved locations specifically designated by the FCC as eligible for CAF II support. Thus, the risk of overbuilds to existing providers is low. Following the FCC’s decision, winning bids in this auction that include CAF-eligible census blocks will receive CAF II support in addition to New York state support to “promote the rapid deployment of advanced broadband services to unserved areas” in New York.

The FCC’s decision is significant because it represents a decision to effectively delegate to the states the task of distributing $170.4 million to bidders in New York rather than keep those funds under the same reverse auction program that will be used throughout the rest of the country.

Massachusetts has expressed a similar desire to have the FCC release the CAF II support declined by the incumbent to the state, but it is unclear whether the FCC will consider additional state requests. New York’s request presented a unique opportunity with an established framework that combines federal, state, and private capital to meet defined broadband deployment obligations within a set time frame. The FCC’s decision even states that “New York appears to be uniquely situated among states to coordinate with the Commission for purposes of the Connect America Phase II auction.” Chairman Pai’s decision to allocate CAF II funds to New York represents a marked contrast from the previous administration, and may signal his approach to administering USF funds by delegating certain responsibilities to state and local authorities.