GOVERNMENT SUPPORT AND SPECTRUM MATTERS

6 Months Ended

Jun. 30, 2023

GOVERNMENT SUPPORT AND SPECTRUM MATTERS

GOVERNMENT SUPPORT AND SPECTRUM MATTERS

9. GOVERNMENT SUPPORT AND SPECTRUM MATTERS

Universal Service Fund and Connect America Fund Phase II Programs

The Company recognizes revenue from several government funded programs including the Universal Service Fund (“USF”), a subsidy program managed by the Federal Communications Commission (“FCC”), the Alaska Universal Service Fund (“AUSF”), a similar program managed by the Regulatory Commission of Alaska (the “RCA”), and the Emergency Connectivity Fund (“ECF”), a program to help schools and libraries support remote learning in underserved communities. USF funds are disbursed to telecommunication providers through four programs: the High Cost Program; the Low Income Program (“Lifeline Program”); the Schools and Libraries Program (“E-Rate Program”); and the Rural Health Care Support Program.  

The Company also recognizes revenue from the Connect America Fund Phase II program (“CAF II”) which offers subsidies to carriers to expand broadband coverage in designated areas. Under CAF II, the Company’s US Telecom segment will receive an aggregate of $27.7 million annually through December 2025 and an aggregate of $8.0 million annually from January 2026 through July 2028.

All of the programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with these requirements as of June 30, 2023.  Revenue recognized from the USF and CAFII programs is recognized as revenue from government grants.  Revenue from other programs is recognized in accordance with ASC 606.

RDOF (“Rural Digital Opportunities Fund”)

The Company expects to receive approximately $22.7 million over 10 years to provide broadband and voice coverage to over 10,000 households in the United States (not including Alaska) under the 2020 Rural Digital Opportunity

Fund Phase I Auction (“RDOF”). Revenue recognized from the RDOF program is recognized as revenue from government grants.  

The Company recorded the amounts below as communication services revenue for the reported periods:    

	Three months ended						Three months ended
	June 30, 2023						June 30, 2022
	US Telecom		International Telecom		Total		US Telecom		International Telecom		Total
High cost support	$	2,222	$	1,397	$	3,619	$	989	$	2,761	$	3,750
CAF II		6,815		—		6,815		6,822		—		6,822
RDOF		608		—		608		478		—		478
Other Programs		14,368		5		14,373		6,167		22		6,189
Total	$	24,013	$	1,402	$	25,415	$	14,456	$	2,783	$	17,239

	Six months ended						Six months ended
	June 30, 2023						June 30, 2022
	US Telecom		International Telecom		Total		US Telecom		International Telecom		Total
High cost support	$	4,716	$	2,795	$	7,511	$	2,045	$	5,522	$	7,567
CAF II		13,630		—		13,630		13,644		—		13,644
RDOF		1,216		—		1,216		956		—		956
Other Programs		30,028		9		30,037		11,228		37		11,265
Total	$	49,590	$	2,804	$	52,394	$	27,873	$	5,559	$	33,432

In 2018, the FCC initiated a proceeding to replace the High Cost Program support received by Viya in the US Virgin Islands with a new Connect USVI Fund. On November 16, 2020, the FCC announced that Viya was not the recipient of the Connect USVI Fund award and authorized funding to be issued to the new awardee in June 2021. Pursuant to the terms of the program and effective in July 2021, Viya’s annual USF support was reduced from $16.4 million to $10.9 million. In July 2022, this support was reduced to $5.5 million for the annual period through June 2023. In April of 2023, the FCC issued an order extending the high cost support in the US Virgin Islands at the current $5.5 million per year received from July 2023 through December 31, 2025. In connection with this order, the FCC requires that the Company maintain its current footprint for voice and broadband services in the US Virgin Islands.

Construction Grants

The Company has also been awarded construction grants to build network connectivity for eligible communities. The funding of these grants, used to reimburse the Company for its construction costs, is distributed upon completion of a project. Completion deadlines begin in September 2023 and once these projects are constructed, the Company is obligated to provide service to the participants. The Company expects to meet all requirements associated with these grants, with the exception of grants the Company has transferred to third parties, as described below.  A roll forward of the Company’s grant awards is below (in thousands).

	Amount
Grants awarded, December 31, 2022	$	80,197
New grants		38,824
Construction complete		(5,075)
Transferred grants		(6,269)
Grants awarded, June 30, 2023	$	107,677

In addition, the Company partners with tribal governments to obtain grants under the Tribal Broadband Connectivity Program ("TBCP"). The TBCP is a program administered by the National Telecommunications and Information Administration to deploy broadband connectivity on tribal lands. The Company was identified as a sub recipient of TBCP grants totaling $139.0 million as of June 30, 2023.

Replace and Remove Program

On July 15, 2022, the Company was notified that it was an approved participant in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of communications services for reasonable costs incurred in the required removal, replacement, and disposal of covered communications equipment or services, that have been deemed to pose a national security risk, from their networks.  Pursuant to the Replace and Remove Program, the Company was allocated up to approximately $207 million in reimbursement amounts to cover documented and approved costs to remove and securely destroy all ZTE communications equipment and services in its U.S. networks and replace such equipment. The Replace and Remove Program requires that the Company complete the project no later than one year from submitting its initial reimbursement request, or July 2024. At this time, the Company anticipates that it will be able to meet the deadlines and requirements of the program. At June 30, 2023, the Company established a receivable, included in accounts receivable on the balance sheet, for $21.0 million of costs for which it expects to be reimbursed under the program.