The Federal Communications Commission (FCC) is funding rural broadband builds again with its 2020 Rural Digital Opportunity Fund (RDOF). And VoIP will play a role in making that happen as offering phone is a requirement for winners.
Here we go again
The Connect America Fund II (CAF II) Auction closed in August 2019 and awarded $1.5 billion to over 100 service providers for 713,176 locations in 45 states. With RDOF, the FCC will provide the next wave of funding for fixed broadband service to address the digital divide. After collecting input from the broadband ecosystem the FCC approved RDOF in January 2020.
The FCC is planning to grant $20.4 billion over 10 years to areas that currently lack broadband using a two-phased approach: the first auction will be for completely unserved areas, followed by an auction for partially served areas. The application process and auction format look to be the same as CAF II, including a weighting system that favors fiber broadband; the greater the bandwidth and the lower the latency, the more favorable a bid would be treated. Unlike the CAF II approach, all service providers will be competing together for RDOF dollars: incumbent telcos, cable operators, electric cooperatives, WISPs and other independent ISPs.
Winning bidders need to provide speeds of at least 25/3 Mbps. Like CAF II, winners must deploy service to locations in the census block groups they win: 40% of the census block area by year three, increasing by an additional 20% each year and ending with 100% coverage by year six.
Applicants must demonstrate two years of experience providing a voice, broadband, and/or electric distribution or transmission service. Small telcos, cable companies, rural electric cooperatives, and satellite and wireless ISPs are expected to participate just like the CAF II auction.
The first phase of the Rural Digital Opportunity Fund will begin later this year and target census blocks that are wholly unserved with fixed broadband at speeds of at least 25/3 Mbps.
RDOF Phone Service Requirement
Like CAF II, there’s a requirement for service providers taking the funding to offer “standalone voice service and offer voice and broadband services at rates that are reasonably comparable to rates offered in urban areas.” Winning providers will need to be designated an eligible telecommunications carrier (ETC) by the state PUC if they are not already one. In taking funding, service providers must adhere to a coverage requirement that applies to broadband as well as phone service:
Why is the FCC marrying a service that is over a century old to broadband? People and businesses still want, need and use wireline phones, especially VoIP. Plus, there are good business reasons for it.
Business Drivers for VoIP Service Offerings
While the FCC doesn’t mandate that the phone service be VoIP, we’d expect it will be unless it’s an established telco eking out the useful life of its central office equipment. Here’s why offering VoIP makes sense along with broadband:
- Substantial addressable market – the FCC reports over 116 million phone lines in the U.S. and VoIP lines have grown 39% since 2013; while landlines overall decline, VoIP is still growing.
- Bundles produce results – Leichtman Research Group reports that 64% of broadband households subscribe to a bundle (not necessarily phone). Based on industry norms and our experience, broadband providers can expect 20-40% take rates for VoIP. There’s still value in home phone.
- Business demand – most SMBs are stuck on antiquated phone systems (the average portion of SMBs with a legacy phone solution ranges from 64-94% depending on the employee size); we’ve also heard businesses are less likely to switch broadband providers without a phone service bundle
- Revenue boost – Expect to be able to command pricing ranging from $15-35/month/home for residential and $20-50/month/seat for business services. The exact price will be informed by the market competition and the strategy you want to employ: maximizing for adoption vs. revenue.
- ROI Impact – With 60%+ gross margins from phone services, this revenue also helps accelerate the payback period on that broadband build-out.
In these rural areas where RDOF funded service providers will offer service, the most likely option is an outdated, expensive POTS line. VoIP is perfect to disrupt that and provide a modern, more convenient, lower-cost communication service to customers. With these new rural broadband deployments, VoIP will be available in areas not previously been offered.
Our eBook “Got Fiber? You Need VoIP!” also outlines the business case for offering phone services for new ISPs.
Want to learn more about launching VoIP? We can help and make it easy with our cloud-based solution. Already offer phone, but need a new solution to power your growth? Let’s talk!
Note: this blog was orginally published in November 2019 and updated after the FCC announcement.