GOVERNMENT SUPPORT AND SPECTRUM MATTERS

3 Months Ended

Mar. 31, 2025

GOVERNMENT SUPPORT AND SPECTRUM MATTERS

GOVERNMENT SUPPORT AND SPECTRUM MATTERS

8. GOVERNMENT SUPPORT AND SPECTRUM MATTERS

Universal Service Fund and Other Domestic Funding Programs

The Company recognizes revenue from several government funded programs including but not limited to, as follows:

● The Company receives federal USF support under the Alaska Connect Fund (“ACF”). Beginning January 1, 2025, the Company began receiving $25.6 million per year and expects such annual funding to continue until December 31, 2028. Beginning in 2029 and continuing through 2034, the amount of ACF support will be determined by FCC staff taking into consideration broadband deployment funded through the Broadband Equity Access and Deployment Program. The ACF replaced the $19.7 million per year that the Company had previously received in Connect America Fund II support in Alaska;

● As part of the Enhanced Alternative Connect America Model funding available to the Company’s operations in the southwest, we are estimated to receive approximately $109 million over the next 14 years, through 2038, with approximately $9 million annually through 2030 before a gradual step down to $6 million annually in 2038;

● The Company receives $8.0 million per year in Connect America Fund II support in the rural southwest until July 2028;

● The Company receives $5.5 million annually in the US Virgin Islands through December 31, 2025, subject to the requirement to enhance network resiliency and operations in those markets;

● The Company was awarded $2.3 million annually in the western United States through December 31, 2031 as part of the Rural Digital Opportunity Fund Phase I (“RDOF”) auction. In exchange for this support, we committed to deploy voice and broadband service to covered areas within six years and to provide service in those areas for ten years.  In 2024, we transferred $1.3 million of the annual awards to other providers and returned $0.3 million of the annual awards to the FCC; and

● The Company receives state USF support in Alaska of approximately $2.5 million annually.

As of March 31, 2025, the Company was in compliance in all material respects with its requirements associated

with such funding.

Additionally, the Company recognized revenue from the FCC’s Affordable Connectivity Program (“ACP”) and the Emergency Connectivity Fund (“ECF”) in 2024 that expired in the second quarter of 2024. The Company has a liability of $4.9 million accrued related to transferring its RDOF awards as of March 31, 2025. The Company expects to complete the transfers in the second half of 2025.

Revenue recognized from the USF High Cost Program, including the CAF II, ACF, E-ACAM, and RDOF programs, is recognized as revenue from government grants.  Revenue from other programs is recognized in accordance with ASC 606.

The Company recorded the amounts below as communication services revenue for the reported periods (in thousands):    

	Three months ended
	March 31, 2025
	US Telecom		International Telecom		Total
High cost support	$	3,115	$	1,312	$	4,427
CAF II		8,170		—		8,170
RDOF		75		—		75
RHC		4,363		—		4,363
Other		1,636		5		1,641
Total	$	17,359	$	1,317	$	18,676

	Three months ended
	March 31, 2024
	US Telecom		International Telecom		Total
High cost support	$	3,455	$	1,393	$	4,848
CAF II		6,787		—		6,787
RDOF		145		—		145
ECF		6,813		—		6,813
RHC		3,437		—		3,437
Other		6,701		315		7,016
Total	$	27,338	$	1,708	$	29,046

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 generally distributed upon completion of a project. Completion deadlines begin in 2025 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.  A roll forward of the Company’s grant awards is below (in thousands).

		Amount
Grants awarded, December 31, 2024	$	150,189
New grants		14,520
Construction complete		(8,610)
Transferred grants		(879)
Grants awarded, March 31, 2025	$	155,220

In addition, the Company partners with tribal governments to obtain grants under various government grant programs including, but not limited to, the Tribal Broadband Connectivity Program ("TBCP") and the Rural Development Broadband ReConnect Program (“ReConnect”). These programs are administered by United States government agencies to deploy broadband connectivity in certain underserved areas. The Company was identified as a sub recipient of grants under these programs totaling $237 million as of March 31, 2025. Under these grants the Company expects to enter into agreements to construct and operate the networks for the grant recipient. Once construction is complete the Company will hold a long-term lease to operate the network. The operating agreement will require the Company to meet certain minimum service requirements. Through March 31, 2025, the Company has received $23.2 million of funding under these programs and spent $22.2 million on construction obligations. These amounts are recorded as operating cash flows in the Company’s statement of cash flows.

Replace and Remove Program

In July 2022, the Company was approved to participate in the Federal Communication Commission’s Secure and Trusted Communications Networks Reimbursement Program (the “Replace and Remove Program”), designed to reimburse providers of advanced communications services for reasonable costs incurred in the required removal, replacement, and disposal of communications equipment and services in their networks that has been deemed to pose a national security risk. Pursuant to the Replace and Remove Program, our eligible subsidiaries were initially allocated up to approximately $207 million to replace, remove and securely destroy such communications equipment and services in the Company’s networks in the western United States and in the US Virgin Islands, however, in December 2024 this program was fully funded for an increased allocation to the Company of an aggregate amount of approximately $517 million. The Replace and Remove Program requires each of the Company’s participating subsidiaries to complete the project no later than a specified deadline, which was recently extended to the second quarter of 2026.

A summary of the amounts spent and reimbursed under the Replace and Remove Program is below (in thousands):

	Capital		Operating		Total
Total spend, December 31, 2024	$	140,949	$	27,446	$	168,395
Amounts spent		11,051		2,625		13,676
Total spend, March 31, 2025	$	152,000	$	30,071	$	182,071
Total reimbursements, December 31, 2024	$	(103,540)	$	(27,181)	$	(130,721)
Reimbursements received		(16,211)		(2,890)		(19,101)
Total reimbursements, March 31, 2025	$	(119,751)	$	(30,071)	$	(149,822)
Amount pending reimbursement	$	32,249	$	-	$	32,249

	Capital		Operating		Total
Total spend, December 31, 2023	$	49,262	$	15,126	$	64,388
Amounts spent		11,734		4,568		16,302
Total spend, March 31, 2024	$	60,996	$	19,694	$	80,690
Total reimbursements, December 31, 2023	$	(12,773)	$	(4,354)	$	(17,127)
Reimbursements received		(8,586)		(5,843)		(14,429)
Total reimbursements, March 31, 2024	$	(21,359)	$	(10,197)	$	(31,556)
Amount pending reimbursement	$	39,637	$	9,497	$	49,134

At March 31, 2025, $19.5 million of the capital expenditures spent under the Replace and Remove Program were accrued and unpaid. The Company expects to be reimbursed, within the next twelve months, for all amounts spent to date. Amounts identified as capital are recorded as investing cash flows and amounts identified as operating are recorded as operating cash flows in the Company’s statement of cash flows.