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GOVERNMENT SUPPORT AND SPECTRUM PROGRAMS

9 Months Ended

Sep. 30, 2021

GOVERNMENT SUPPORT AND SPECTRUM PROGRAMS

GOVERNMENT SUPPORT AND SPECTRUM PROGRAMS

9. GOVERNMENT SUPPORT AND SPECTRUM PROGRAMS

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”), and the Alaska Universal Service Fund (“AUSF”), a similar program managed by the Regulatory Commission of Alaska (the “RCA”). 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.

Both the USF and CAFII programs are subject to certain operational and reporting compliance requirements. The Company believes it is in compliance with these requirements as of September 30, 2021.

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


	Three months ended						Three months ended
	September 30, 2021						September 30, 2020

	US Telecom		International Telecom		Total		US Telecom		International Telecom		Total

High cost support	$	840	$	2,761	$	3,601	$	311	$	4,090	$	4,401
CAF II		5,710		—		5,710		1,899		—		1,899
Other Programs		4,449		—		4,449		2,197		—		2,197
Total	$	10,999	$	2,761	$	13,760	$	4,407	$	4,090	$	8,497


	Nine months ended						Nine months ended
	September 30, 2021						September 30, 2020

	US Telecom		International Telecom		Total		US Telecom		International Telecom		Total

High cost support	$	1,462	$	11,146	$	12,608	$	933	$	12,270	$	13,203
CAF II		9,508		—		9,508		5,696		—		5,696
Other Programs		8,368		—		8,368		6,576		—		6,576
Total	$	19,338	$	11,146	$	30,484	$	13,205	$	12,270	$	25,475

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 will be reduced again to $5.5 million for the annual period through June 2023. Thereafter, Viya will not receive High Cost Program support.

RDOF (“Rural Digital Opportunities Fund”)

Pending the FCC’s conclusion of the award process, the Company expects to receive approximately $20.1 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”).

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. As of December 31, 2020, the Company had been awarded approximately $16.8 million of such grants. The Company was awarded $6.5 million of additional grants in the nine months ended September 30, 2021. Of this $23.3 million of awards, the Company has completed its construction obligations on $14.0 million of these projects and $9.3 million of such construction obligations remain with completion deadlines beginning in July 2022. 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.

CARES Act

As of December 31, 2020, the Company had received $16.3 million of funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to construct network infrastructure within the Company’s US Telecom segment. During the nine months ended September 30, 2021, the Company received an additional $2.4 million of funding for the same purpose. The construction was completed as of September 30, 2021 and $18.4 million of the funding was recorded as a reduction to property, plant and equipment with a subsequent reduction to depreciation expense. The remaining $0.3 million was recorded as a reduction to operating expense in the nine months ended September 30, 2021.

CBRS Auction

During the third quarter of 2020, the Company participated in the FCC’s Citizens Broadband Radio Service (CBRS) auction for Priority Access Licenses (PALs) in the 3.5 GHz spectrum band. These PALs are licensed on a county-by-county basis and are awarded for a 10-year renewable term. The Company was a winning bidder for PALs located strategically throughout the United States at a total cost of approximately $20.4 million. In connection with the awarded licenses, the Company will have to achieve certain CBRS spectrum build out obligations. The Company currently expects to comply with all applicable requirements related to these licenses.