The FCC has adopted changes to rules governing letters of credit to relieve administrative and financial burdens on broadband providers receiving high-cost support from the Commission’s Universal Service Fund (USF). Officials say the approved changes will increase the number of banks qualified to issue letters of credit and ultimately free up capital for deployment.
To ensure the money it gives out goes to broadband buildouts, the FCC “has historically required that carriers receiving certain funds for service in high-cost areas secure a letter of credit from a qualified bank. This protects the integrity of our programs and helps ensure our ability to recoup support in the event of default,” said FCC Chairwoman Jessica Rosenworcel.
But over time, she said, the agency has found that aspects of its letter of credit requirements “are so stringent that they can get in the way of building better broadband.” That’s why it’s updating those rules.
To receive high-cost support authorized through one of the Commission’s competitive processes, eligible telecommunications carriers must obtain and maintain a letter of credit from a qualified financial institution. The FCC says this requirement protects USF integrity and ensures that the Commission can recoup previously disbursed funds if a provider defaults.
Over time, the number of banks that qualify to give out letters of credit under the current standard has significantly decreased, raising concerns of increased costs and administrative burdens on support recipients.
The Report and Order that commissioners approved 5-0 changes the FCC’s rules to allow U.S. banks that are well capitalized to issue letters of credit to high-cost support recipients, which will increase the number of banks qualified to issue letters of credit. This change applies to participants in Connect America Fund Phase II (Auction 903), the Rural Digital Opportunity Fund (Auction 904), the 5G Fund, the Bringing Puerto Rico Together Fund, and the Connect USVI Fund. The action also changes the letter of credit rules for Connect America Fund Phase II and the Rural Digital Opportunity Fund, to allow providers to reduce the value of their letter of credit after meeting certain deployment milestones, allowing support recipients to free up capital and accelerate their broadband deployment.
By Leslie Stimson, Inside Towers Washington Bureau Chief
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