5. Process for Administering the CASF Program

By ACR dated September 12, 2007, we solicited comments regarding the development of a process whereby applicants may qualify for funding to be used to deploy broadband in high cost areas that are not currently being served or that are underserved. In Appendix 3 of D.07-09-020, we presented a tentative process for administering CASF applications. In this decision, we finalize the process for administration of broadband deployment funding under the CASF program.

E. Schedule for Processing
of Applications

We hereby authorize eligible candidates applying for funding under the CASF program to submit proposals pursuant to the schedule and process below.

AT&T and Verizon propose setting a single deadline for the filing of all proposals rather than opening a 60-day window during which additional proposals could be filed. Verizon argues that opening a 60-day window would delay and complicate the process unnecessarily. Given the size of the more rural CBGs, Verizon believes that proposed funding projects within the same CBG may not overlap. Alternatively, Verizon suggests that the process be separated into a phase where interest in grants for particular CBGs be solicited. Where two or more parties express an interest in such a case, a filing timeline could be set such that parties submit simultaneous confidential proposals.

Sprint argues that the "single deadline" approach for filings is feasible only if the Commission clearly defines in advance what standards should apply to CASF requests, and delineates the areas in which funding will be supported. Otherwise, Sprint argues, the Commission could receive a "flurry" of proposals that are not actually comparable in any rational manner.

We hereby set a deadline of June 2, 2008, for the submission of initial proposals by parties seeking CASF funds. Proposals shall be submitted to the attention of the Director of the Communications Division. We shall post on the Commission's website the names of entities that have submitted a proposal for CASF funding, together with the location that is proposed to be served. All other information in the CASF submission shall be kept confidential. Interested parties shall have a 30-day period after notice of the proposals is posted on the website within which to make general responses to any CASF proposal. We shall provide a period of up to 45 days, however, for any party to make a response to a CASF proposal which presents a counteroffer to match an applicant's proposed deployment commitment, either under more favorable terms, or through a lower requested CASF award. Such counteroffers must provide requisite supporting information for comparison of its claims with those made by the original party Proposals made within each month after June 2, 2008 shall be treated as if made at the same time for evaluation purposes, and will be accepted until all of the funds allocated to the CASF have been designated or until December 2011. The Commission will begin an evaluation of the effectiveness of the initial awards under CASF no later than July 1, 2010.

CASF funding proposals will be reviewed based upon how well they meet the criteria for selection as set forth below, and, where applicable, compared with any competing claims to match the deployment offer under superior terms. Such criteria should be evaluated on a competitively neutral basis. As stated above, we shall first award CASF funds for projects covering unserved areas only. Only if CASF funds remain after unserved areas have been funded, we shall then consider awards for underserved areas. To the extent that the total amount of CASF funds requested exceeds the available pool of funds that we have allotted for this program, we shall award the funds based upon a ranking of applicants' projects. Those projects that are ranked the highest based upon our assessment of selection criteria will be awarded the available funds.

F. Requirements to Support Applications
for Broadband Funding

Clear and objective CASF program guidelines must be established so that applicants can understand the selection priorities under which applications will be reviewed and funds awarded.

AT&T proposes that project plans specify the type of facilities to be deployed, the geographic areas and estimated number of subscribers to be covered, total project cost, the amount of CASF support sought, and the amount of applicant's own funds to be used.

Verizon proposes that proposals for CASF money be required to meet specific criteria, with a "point value" assigned to each criterion, designed to measure those deployment projects that will maximize the benefits from awarding funding. Verizon points to features adopted in a similar grant process implemented last year by the State of Idaho47 as a possible model for consideration in designing the CASF program, including requirements for applicants to identify and document the following:

· source, amount, and availability of matching funds;

· number of potential new subscribers;

· marketing plan;

· detailed startup costs to be funded by the grant; and

· proposed budget

As a primary selection criterion for a CASF award, Verizon points to program cost per potential subscriber. In order to provide for consistent evaluation of multiple applications, Verizon notes that a standardized definition of the term "potential subscriber" is necessary. An inflated figure applied by an applicant for "potential subscribers" could skew a project comparison.

Verizon suggests that applicants be able to apply for grants seeking less than a 50% matching of the project costs and calculate only the matching portion sought in the cost per potential subscriber.

Verizon argues that funding awards should not be made based upon the applicant's retail price per MBPS. Verizon argues that broadband pricing is not done on a standardized industry scale, but is a dynamic process that changes frequently based on regional or national considerations. Moreover, specific service features can vary between providers.

In addition, the Idaho program mandates that applicants who fail to deliver broadband services as specified in an approved project will be required to repay grant funds.

Any service provider seeking CASF funding shall be required to submit the following data to the Commission, for each proposed broadband project, subject to appropriate and mutually agreed upon confidentiality provisions consistent with the requirements below:

(1) Description of the service provider's current broadband infrastructure and map of current service area by census block group;

(2) Description of proposed broadband project plan for which CASF funding is being requested, including download and upload speed capabilities of proposed facilities. Minimum speed standards targeted should be 3 MBPS download and 1 MBPS upload.

(3) Geographic locations by census block group where broadband facilities will be deployed. Boundaries of the specific area to be served by the project, with map by census block group, along with a verifiable showing that the area is unserved or underserved;

(4) Estimated number of potential new broadband subscribers.

(5) Schedule for deployment, with commitment to complete build out within 24 months of the approval of the application. The schedule shall identify major construction milestones that can be verified by Commission staff.

(6) Proposed budget for the project, with a detailed breakdown of cost elements, and including source, amount, and availability of matching funds to be supplied by applicant, and the CASF funds requested. At least 60% matching funds must be supplied by applicant, or via some other funding source such as a grant from a foundation.

(7) Proposed retail price per MBPS for new broadband service.

(8) Minimum period of commitment to offer broadband services to all households within the service area of the project, and

(9) Financial qualifications to meet commitments.

We shall require a separate showing for each proposed broadband project. For this purpose, we define a single broadband project as deployment encompassing a single contiguous group of CBGs. Applicants may seek funding for more than one project within a single application, but must provide separate supporting documentation for each project.

We shall review CASF project proposals and make funding determinations based at least on the following factors: price per MBPS offered to customers, overall size of the request, matching funds, time for implementation, priority for unserved areas over underserved areas.

As a basis to develop a more definitive protocol for evaluating proposed projects to receive CASF funding, we direct staff to convene a technical workshop. The workshop will provide parties an opportunity to offer input on the relevant criteria and the related scoring to be assigned to each of the criteria. Upon the conclusion of the workshop, we shall finalize a template of criteria and related scoring to be used in the evaluation of CASF project proposals to be funded. We will adopt an explicit "point" scoring for evaluating specific criteria, as suggested by Verizon. We will qualitatively evaluate the various proposals in a relative ranking so that the available pool of CASF money is allocated to those projects expected to provide the greatest broadband deployment at affordable rates, providing the transmission speeds we have designated. Commission staff shall propose the scoring criteria prior to the workshop designed to evaluate the proposed scoring criteria. The Commission shall approve in a resolution the final proposed scoring criteria and proposal submission template.

Funding determinations shall be made based on how well applicants satisfy the final criteria ordered by the Commission. These criteria may include the price per MBPS offered to customers, overall size of the funding request, meeting the matching fund requirement, financial qualifications, meeting our minimum speed requirements, and time for implementation. We reiterate that broadband projects for unserved areas shall be evaluated and processed first before considering any proposals for underserved areas.

DRA argues that the CASF recipient should be required to offer a pricing commitment for broadband services on a stand-alone basis for a full five-year period. TURN likewise raises the concern that a CASF recipient could effectively raise the overall price of broadband service by creating bundles which combine broadband with other services. We believe that DRA and TURN raise a valid concern regarding the Commission's ability to monitor and/or enforce a CASF recipient's voluntary pricing commitments for broadband. Therefore, in order to ensure that CASF recipients can be held accountable for commitments regarding the affordability of broadband services, we shall require that any voluntary broadband pricing commitments be offered to customers on a standalone basis. We acknowledge that this Commission does not have jurisdiction over broadband rates; in no way does our action suggest that we are in any way setting or mandating a specific broadband price.

In developing and ranking criteria on a point-scoring system, DRA also argues that priority should be given to projects to serve areas in which there is demand for high-speed broadband, but which is less likely to be served through market forces alone. DRA believes that demographic measures should be used to identify whether an area is considered "uneconomic" and thus less likely to be served without public funding. We consider this issue to be appropriate for consideration in the workshop that is to be convened for the development of a scoring system for the ranking of projects by relevant criteria. We direct staff to include consideration of this criterion in the workshop agenda to develop a scoring system for evaluating proposed broadband projects eligible for CASF funding.

A reasonable amount of funding may be distributed at various stages of construction upon completion of specific milestones, as explained further in Sec. M below. The recipient must show full completion of the project in order to obtain full funding.

G. "Telephone Corporation"
Eligibility Requirements

AT&T, Verizon, and SureWest argue that recipients of CASF money should be limited to entities that qualify as "telephone corporations" under Sec. 234, excluding those telephone corporations (i.e., the "small LECs") whose broadband deployment costs are subject to rate-of-return regulation. AT&T argues that such companies can already recover their broadband deployment costs by including such deployment costs in their rate base as authorized by the Commission.

CCTA/Time Warner argue that in order to promote competitive neutrality, eligibility to participate in the CASF program should be extended to all entities offering broadband services, not just "telephone corporations."

In order to administer the program within the statutory framework we adopt herein and maximize the effectiveness of Commission oversight, CASF funding shall be limited to a "telephone corporation" as defined under Pub. Util. Code § 234.48 Certain parties object to restricting CASF awards only to "telephone corporations" with a CPCN, arguing that such a restriction unfairly excludes potential recipients that could offer broadband, but are not "telephone corporations." We consider the CPCN requirement necessary in order to ensure that the Commission has jurisdiction to control against waste, fraud, and abuse in our administration of the CASF program. Thus, we shall retain the requirement that CASF funding be limited to "telephone corporations" with a CPCN.

If an entity has an application pending for approval of a CPCN to provide service as a "telephone corporation," we shall permit the entity to submit a proposal for CASF funding subject to subsequent approval of the CPCN to provide service as a "telephone corporation." CASF funding may be provided to a consortium as long as the lead financial agent for the consortium is an entity with a CPCN.

The certificated entity awarded CASF funding will be held responsible for compliance with all Commission requirements set forth as conditions of receiving CASF funding. Thus, even if the certificated entity relies upon one or more affiliates to carry out its commitments for the deployment of broadband facilities and services, the certificated entity shall remain legally responsible for any failure of its affiliates to fully meet those commitments.

We recognize that providers of wireless telecommunications services within California are not required to obtain a CPCN with the Commission, but are still subject to "Wireless Identification Registration". (See D.94-10-032, Ordering Paragraphs 1 and 4). We shall consider wireless carriers registered with the Commission to be eligible to seek CASF funding on the same basis as other telecommunications carriers with an active CPCN. In any event, by accepting CASF funding, any carrier comes under the Commission's jurisdiction with respect to monitoring and enforcement of any conditions attached to approval of the CASF funding.

Funding not directed for use for broadband deployment by January 1, 2010, may be used to fund advanced broadband services at download speeds greater than 3 MBPS. The CASF program may well serve as a precursor to a reverse auction process which we are exploring as a possible way to meet our universal service goals on a forward-looking basis.

H. Requirement to Offer
Residential Voice Service

Under the Commission's current definition of "basic residential service," adopted in D.96-10-066, however, providers of wireless service or broadband VoIP would be excluded from participation in the CASF program. AT&T and Sprint both argue that the current definition of "basic service" is too restrictive and is not technology-neutral. Sprint argues that CASF eligibility should not require provision of "basic residential service" as currently defined, but should simply require that any CASF-funded broadband service be capable of supporting "voice" service.

DRA supports a more inclusive definition that is more reflective of today's technology and competitive environment.

The purpose of the B fund is "to provide for transfer payments to telephone corporations providing local exchange services in high cost areas in the state to create fair and equitable local rate structures." In D.96-10-066, (the universal service decision), the Commission established the B fund. The Commission made a commitment to ensure that basic residential telephone service be made available throughout California and that the rates for such service remain affordable. The decision adopted rules pertaining to how universal service was to be carried out in California as the local exchange telephone markets were opened to competing carriers pursuant to changes contained in the Telecommunications Act of 1996.

In D.96-10-066, the Commission limited the scope of the CHCF-B to carriers providing residential local exchange service in high-cost areas. (See D.96-10-066, Ordering Paragraphs 7 and 8.) The Commission has entertained the issue whether to expand the definition on basic residential service to include broadband services in the past, but declined to expand the definition at that time. For example, the Commission noted in D.95-07-050, that one potential problem with developing incentives to promote the deployment of advanced technologies is that this Commission's jurisdiction is limited to public utilities. Many of the advanced services being developed and offered today require hardware, software, and other components, in addition to the information that is provided to the end user. The Commission can formulate incentives with respect to the telecommunication services that are utilized, but cannot order incentives or impose assessments on the other non-regulated companies that are coming together to offer these services.

Because the CASF is created to ensure the continued availability of voice communications throughout California, we shall require that eligible recipients also make available a basic voice service to customers within the service area of the broadband deployment subject to the CASF award. We agree that the definition of basic service needs to be modified for purposes of the CASF program to include any form of voice-grade service, including that offered by a wireless or VoIP provider. At least within the context of eligibility for awards of CASF money, we hereby adopt such modification, expanding the definition of qualifying "basic service"49 to include any form of voice-grade service, including that offered through a wireless or VoIP service. At a minimum, however, we shall require that any form of voice grade service offered to satisfy CASF requirements must at least meet FCC standards for E-911 service and battery back-up power supply.

At present, we apply this redefinition of "basic service" only in the context of carriers seeking to qualify for CASF funding. We recognize that the possible redefinition of "basic service" within the context of the B-Fund program is also before us as in Phase II of this rulemaking. As we address how to redefine basic service to provide for participation in the B-Fund program on a technology-neutral basis, we shall consider any implications of the expanded definition of basic service being adopted in this order.

I. Broadband "Project" Definition

As a basis for supporting an application for CASF support for a broadband project, parameters must be specified regarding what actually constitutes a separate "project." Verizon suggests, for example, that contiguous census block groups (CBGs) served by a single switching facility could be deemed to constitute a single "project" unless an applicant could demonstrate some economies of scale achieved in combining a group of CBGs that include more than a single switching center. Alternatively, Verizon suggests that applicants could identify another rationale for grouping CBGs (e.g., installation of required transport facilities).

We decline to adopt a project definition based upon CBGs served by a single switch. We conclude that a more technology-neutral approach is to define a project in terms of CBGs. A single broadband project shall consist of a group of contiguous CBGs, or applicable portions of a CBG, in which service is to be offered. We recognize that service may be feasible for only a portion of a CBG since broadband networks may not match CBG boundaries. Accordingly, we shall permit proposed broadband service areas to cover only certain designated portions of a CBG. The funding proposal must be specific, however, as to what portions of a CBG will be served by the broadband project, so that we may verify that any broadband service commitments are honored.

J. Minimum Broadband
Speed Eligibility Standards

In D.07-09-020, we solicited comments on a CASF award process whereby priority would be given first to areas not served by facilities capable of providing 3 MBPS download and 1 MBPS upload speeds, and second, to underserved areas (defined as areas with only one facilities-based provider capable of providing those speeds to all customers).

Verizon argues, however, that it is unclear that a minimum speed requirement of 3MBPS downstream and 1 MBPS upstream is an appropriate threshold for prioritizing applicants' funding proposals. Verizon argues that providing 3 MBPS service to customers served by long loops will require costly upgrades, and that a slower speed threshold would expand the potential subscriber base for CASF funding, thus reducing the cost per potential subscriber in more rural areas with lower population density.

AT&T argues that the 3 MBPS/1MBPS speeds may provide capabilities useful in the future, but are currently well beyond those available to or needed by most Californians. AT&T argues that a much slower speed threshold should be used which reflects the current competitive market offerings.

Sprint argues that unless there is incontrovertible evidence of a market failure, the Commission should let the market decide, rather than intervening with a subsidy program that picks winners and losers through government subsidies.

We shall adopt the 3 MBPS/1MBPS (3/1) speed standards as the benchmark for evaluating proposals. We believe that such speeds provide a minimum necessary to effectively work from home. We adopt these speeds to help ensure telecommuting is an option in all areas of the state.50 Both faster and slower standards have been argued for by parties. We find compelling the arguments that a minimum upload speed of 1 MPBS is necessary for effective telecommuting. While we decline to establish our initial benchmark at the higher level, a speed greater than the 1 MBPS minimum should be the goal for California. We note that the goal set by the Governor is for California to do nothing less than lead the nation in broadband deployment. Further, we note that in California, Verizon uses 1 MB and 3 MB files to show on-line comparisons between dial-up and different broadband speeds.51

While we are sympathetic to arguments that we adopt significantly faster speed benchmarks,52 we believe that the 3/1 standards represent a reasonable balance at the onset of this program. As a majority of the state has some level of broadband service available to it, we are designing this program to reach those areas of the state that have dial-up internet connectivity, and then to the extent feasible those areas that do not meet the 3/1 benchmark. A slower speed benchmark would not challenge providers nor would it be a significant improvement to California consumers. A faster speed may prove to be unachievable without significantly more support. We believe that the 3/1 benchmark provides a reasonable balance of technology, engineering, and cost.

In addition, proposals for the same area that offer a higher speed than the 3/1 benchmark minimums will be weighted more favorably, while those offering slower speeds will be ranked lower relative to competing applications for funding, but may be funded. We think this method addresses the arguments of commenting parties for flexibility.

In ranking requests for funding, however, we define an area as "unserved" if no facilities-based provider already offers any level of broadband service such that internet connectivity can only be achieved through a dial-up service.

K. Timing Requirements for
Build-out of Broadband Facilities

AT&T argues that the applicant should state the expected (and maximum) period of time anticipated for deployment, long with specific milestones which must be verified by Commission staff. AT&T agues that all deployments should be required to be completed within two years of approval, subject to extension based on a showing that uncontrollable factors were involved.

Verizon proposes that up to an 18-month period be allowed from the date of a CASF award to the completion of a broadband deployment project, with additional flexibility for circumstances beyond the carrier's control. Verizon argues that such a timing criteria is necessary in order to attract a sufficient number of applicants. Verizon argues that the degree of complexity built into the application process and Commission regulation of the deployment process will impact the number of applicants and the timing required for deployment.

We shall generally expect applicants to provide a commitment of no longer than 24 months within which to complete a given broadband deployment project. Where two applicants are competing for CASF funding with projects that are otherwise similar, preference will be given to the project that commits to a more rapid completion schedule.

In the case of authorization for granting video franchises for broadband projects pursuant to DIVCA, we required that an applicant must provide an expected date of deployment for the entirety of each noncontiguous grouping or region included in its proposed video service area footprint. In similar fashion, we shall require that CASF applicants provide a separate schedule for deployment for each noncontiguous grouping or region that constitutes a separate "project." The Commission believes providing incentives for broadband facilities in a more rapid time frame serves the goals of deploying broadband facilities sooner and in a more comprehensive manner to unserved and underserved areas.

L. Matching Funds Requirements

Parties generally agree that some level of matching funds must be provided by applicants as a condition of receiving a CASF award. Sprint proposes that CASF recipients be required to provide at least 80% of the funds for any CASF project. AT&T and Verizon suggest a requirement of at least 50% matching funding by each CASF recipient.

We shall require that applicants provide a minimum of 60% matching funds as a prerequisite to consideration of their application for CASF funds. By requiring matching funding of at least 60% of the project cost, we provide an appropriate incentive for applicants to seek CASF money only for projects that are economically viable. To the extent that an applicant commits to provide greater than a 60% share of the budget for the proposed broadband project, that applicant's proposal will receive a higher preference in being granted a CASF award.

M. Geographic Area(s) Eligible
for CASF Project Funding

In D.07-09-020, we sought comments on the use of CBGs for identifying the geographic scope of a broadband project eligible for CASF funding. Verizon argues that because CBGs vary in size and more rural CBGs tend to be quite large, funded projects cannot necessarily be expected to extend broadband throughout a given CBG. Moreover, service areas may bisect CBGs. For these reasons, Verizon argues that CBG boundaries should not serve as project boundaries.

Verizon argues that funding should target only areas where broadband does not currently exist, where opportunities for funding and cooperative partnerships are maximized, and where funds will have the greatest impact. Verizon argues that areas that already have wireline broadband availability, even if service is offered at speeds below 3 MBPS, should not be eligible for funding.

To assist in researching unserved area characteristics, various parties propose making available to applicants that the maps of broadband availability that are being constructed as part of the California Broadband Task Force efforts. CCTA/Time Warner states that it is unknown at this time as to how many unserved areas exist within the service territories of the major ILECs. AT&T, CCTA/Time Warner, SureWest, Verizon, and DRA all recommend waiting for the results from the Governor's Broadband Task Force before determining the parameters of the CASF program.

By identifying unserved areas utilizing the mapping from the Broadband Task Force, Verizon argues, the Commission could then assess projects at the appropriate level of detail to evaluate competing proposals. DRA likewise argues that without such mapping data, valid questions can be raised as to whether there is actually a need to subsidize broadband infrastructure.

Verizon argues that applicants should not be expected to make a verifiable showing that an area under consideration for CASF subsidies is "unserved." Sprint argues that if an applicant seeks funding based on its belief that an area is "unserved," however, competing carriers should have at least 60 days in which to demonstrate that an area currently is being served.

AT&T proposes that "unserved areas" be defined as areas where service is not currently available at 200 Kbps in either direction (or alternatively, a standard of 500 Kbps could be send based on the minimum reporting speed used in the California Task Force). AT&T proposes that the CASF not subsidize deployment in areas where there is already at least one provider.

DRA asks the Commission to clarify what constitutes an "unserved" area. DRA questions whether an area is to be deemed "unserved" only by considering the services and service providers applicable for a CASF subsidy. Should the unserved areas only be those designated as "uneconomic" or currently classified as "high cost" areas? AT&T disagrees with restricting CASF funding only to those areas that are currently designated as "high cost" under the B-Fund program. AT&T argues that currently designated "high cost" areas are based on an outdated analysis of basic service costs under a definition that excludes broadband service.

We shall require that each service provider requesting CASF funding shall bear the responsibility to assess whether a proposed project is in an area that is currently not being served by any level of broadband. In the event that an applicant erroneously asserts that a proposed project will cover an area that is currently unserved, opposing parties will have the opportunity to challenge such assertions in filing responses to the proposal, as discussed above, and to refute such claims with their own data as to other broadband service that may already be available in the service area.

Priority in granting applications shall be directed first to awarding CASF funds to projects in areas not served by any level of broadband facilities. We shall consider as a secondary priority, awarding funds to projects targeting an underserved area (e.g., an area with no facilities-based provider capable of providing broadband at speeds of at least 3 MBPS download and 1 MBPS upload).

We agree that an "unserved" area should only be defined as pertaining to broadband services and service providers applicable for a CASF subsidy. CASF funding will not be restricted only to those areas currently designated as "high cost" for purposes of basic service support. Such "high cost" designations are based upon outdated data that was compiled over 10 years ago, based upon legacy wireline technology.

We shall not restrict the eligible areas for CASF funding only to the major ILEC service territories currently covered by the B-Fund. We shall also permit CASF applications that seek to deploy broadband in areas served by the Small LECs within their incumbent service territories, assuming other requirements are met.

N. Commitment to Serve

AT&T proposes that the applicant should commit to offer the supported broadband service upon completion of the deployment to all households within the area defined by the application, for a minimum period specified by the Commission, such as five years. AT&T also proposes that the applicant should also make a voluntary commitment as to the price of supported services. AT&T argues, however, that the Commission should not impose a price cap or pricing schedule, as such a requirement would be a step backward from the deregulatory direction adopted in the URF proceeding.

We shall impose a requirement that as a condition of receiving a CASF award, the recipient must make a commitment for a five-year period from the date construction is completed to offer broadband service to any residential household or small commercial business within the service territory covered by the deployment. Should a recipient accept the funding and then fail to offer service throughout the proposed service area, the Commission shall recover the CASF funding in proportion to the area that was not actually served. The Commission shall also investigate whether a Rule 1.1 violation occurred. We agree that it would inappropriate for the Commission to impose any price caps on broadband services given our recent URF decision and the traditionally unregulated broadband market place. We will, however, evaluate funding requests by considering the prices at which applicants propose to offer broadband service. Those with lower prices pledged for a particular time frame on a voluntary basis will receive more favorable consideration. Affordability of broadband service is a key factor as to the Digital Divide, particularly for low-income, disadvantaged, senior, and disability communities. Thus, we believe that affordability is an appropriate criterion to apply in ranking the projects as a basis for selecting projects to be allocated CASF money. We shall require recipients to honor the voluntary pricing commitments set forth in their proposals as a condition of receiving funding.

O. Cost Categories Eligible for Funding

Verizon believes that the CASF should be limited to funding capital deployment, not the cost of operating and maintaining the broadband network. We agree with this limitation. Funding awards will be limited only to capital funding. The disbursement of CASF funds will only be provided for authorized capital spending on approved broadband deployment projects, and shall not be used to pay for any operating or maintenance expenses.

P. Financial Qualifications to Complete
Broadband Commitments

We shall require applicants to provide financial statements demonstrating their fitness and ability to provide the requisite share of funds necessary to construct and deploy the broadband facilities being proposed. As specified in Rule 2.3 of the Commission's Rules of Practice and Procedure, applicant shall provide a balance sheet as of the latest available date, together with an income statement covering period from close of last year for which an annual report has been filed with the Commission to the date of the balance sheet attached to the application.

Applicants may also propose to post a performance bond, if deemed necessary to provide requisite assurance that applicant has the financial resources to complete the broadband project. While a performance bond may be necessary in certain cases, such as for a new provider with no financial track record, AT&T argues that the requirement for a performance bond be reduced or eliminated for carriers with established service records or credit ratings.

On a case-by-case basis, an evaluation will be made of the need to require an applicant to post a bond to provide adequate financial safeguards, and reasonable certainty that the broadband project can be completed, or that funds can be retrieved from the applicant in event of nonperformance.

We note that under DIVCA, local governmental entities are tasked with determining the "time, place, and manner" of a state video franchise holder's use of the local rights-of-way.53 In overseeing time, place and manner of this use, local entities may issue rights-of-way permits, and these local permits may require further security instruments to ensure that a state video franchise holder fulfills locally regulated obligations.54 Locally required security instruments can best take into account size and scope of a state video franchise holder's local construction and operations. Similar considerations apply to the CASF proposals that we will evaluate. In any event, a performance bond may be required for recipients if deemed necessary to provide adequate assurance that CASF funds will be properly spent.

Q. Disbursement of CASF Awards

Once a CASF application is approved, we shall delegate the administration of disbursements of funds to the Commission Staff. CASF disbursements shall be made on an installment basis, corresponding with the degree of progress toward completion of the approved broadband project. An initial disbursement of 25 % of the total CASF award shall be made upon Applicant's submission to Commission staff of a progress report, with supporting documentation showing that Applicant has completed 25 % of the total approved broadband project. Supporting documentation shall be provided in the form of invoices, and other relevant documentation, showing the expenditures incurred for the project. Staff reserves the option to require additional supporting information or verification from the applicant as a basis for authorizing any disbursement of CASF funds.

Subsequent CASF disbursements shall be made upon Applicant's subsequent submissions of documentation showing completion of 50%, 75% and 100%, respectively, of the total project. A project completion report shall be required in order for the final payment installment to be made. If an applicant fails to complete the broadband project in accordance with the terms of approval granted by the Commission, the applicant may be required to forfeit some or all CASF funds that it has received.

R. Requirements for Audit, Verification
of Proper Use of Funds

CASF recipients will be subject to specific audit or related verification requirements to verify that funds are spent in accordance with Commission requirements. AT&T argues that any audits should be conducted after completion of projects, or at defined intervals, such as fiscal year-end, so that the recipient can plan its schedule in advance. AT&T argues that the Commission should adopt procedures for recovery of funds that are disbursed in violation of any provision under Commission rules or applicable state or federal law.

Verizon proposes that applicants awarded CASF funding be required to submit a project completion report at the conclusion of the project. This report would ensure that the broadband-capable facilities were installed and that the CBG could be reclassified as one offering broadband. Verizon argues that extensive audit, verification, and other requirements are unnecessary given the nature of competitive markets and the fact that applicants will be matching at least 50% of the project costs.

We reserve the right to conduct any necessary audit, verification, and discovery as deemed necessary to ensure that CASF funds are spent in accordance with any Commission authorizations, and as a basis to promote compliance and enforcement of Commission directives.

47 The "Rural Broadband Investment Program," under which $5 million was made available for rural broadband project pursuant to Senate Bill 1498, was enacted by the Idaho Legislature and signed into law on April 12, 2006.

48 See, Pub. Util. Code §§ 233 and 234.

49 We do not modify "basic service" as adopted in D.96-10-066, at this time, to include broadband (as we do not evaluate whether broadband is essential for participation in society; substantial majority, 65%, of residential customers subscribe to the service based on availability, promotion of the service, customer education, and marketing and use; whether the benefits outweigh the costs; and need for Commission intervention). We do note that the 9.4 million broadband connections reported by the FCC appears to translate to approximately 7.3 million residential connections in California (59% of the households in the state). (See, D.06-08-030, mimeo. at p.254, FOF 43 (broadband is available to most Californians).) As the existing "basic service" requirements are met in all COLR service areas, the services and applications required under the CASF are additive to the overall communication offerings within the state and do not reduce the level of service to any consumer.

50 Telecommuting has special significance for residents of remote areas or workers constrained by child or elder care needs. National Academy of Sciences 2002 Report at 117. Telecommunications can reduce and even eliminate barriers imposed by distance. These distance barriers not only contribute to travel costs but also to the time required to cover even short distances. Telecommuting also eliminates further contributions to air pollution as staying at home consumes three times less energy than commuting to work. See, Broadband Services: Economic and Environmental Benefits by Joseph P. Fuhr Jr. and Stephen B. Pociask (rel. Oct. 31, 2007), (suggests that if broadband adoption became widespread, there could be a significant reduction in greenhouse gas emissions, equaling 1 billion tons over the course of 10 years.) available at http://www.aci-citizenresearch.org/Final%20Green%20Benefits.pdf.

51 See Verizon Speed Comparison, available at http://www22.verizon.com/content/consumersdsl/explore/speed+comparison/speed+comparison.htm.

52 See, e.g., TURN Comments on Interim Opinion Implementing California Advanced Services Fund at pp. 6-9.

53 Cal. Pub. Util. Code § 5840(e)(1)(C) (providing that a state video franchise holder must comply with "all lawful city, county, or city and county regulations regarding the time, place, and manner of using the public rights-of-way, including, but not limited to, payment of applicable encroachment, permit, and inspection fees"). See also id. at § 5885(a) ("The local entity shall allow the holder of a state franchise under this division to install, construct, and maintain a network within public rights-of-way under the same time, place, and manner as the provisions governing telephone corporations under applicable state and federal law, including, but not limited to, the provisions of Section 7901.1.").

54 Id. at § 5840(e)(1)(C) (recognizing that state video franchise holders must abide by lawful local regulations regarding "the time, place, and manner of using the public rights-of-way").

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