On July 14, 2021, the FCC released a Third Report and Order (“Third R&O”) adopting revised rules for the Secure and Trusted Communications Networks Reimbursement Program, aka “rip and replace” (“Program”). The Third R&O implements part of the 2021 Consolidated Appropriations Act, which appropriated $1.9 billion for the FCC to reimburse providers of advanced communications services for costs of removing, replacing, and disposing of network equipment that poses national security risks.
The Third R&O makes several changes to the Program initially adopted in the 2019 Supply Chain Order. In particular:
- eligibility for funds is expanded to providers of advanced communications services with ten million or fewer customers (from those with two million or fewer customers).
- Reimbursable equipment and services now include all communications equipment and services produced or provided by the Chinese companies Huawei or ZTE.
- June 30, 2020 is now the last date by which a provider must have obtained covered equipment and services in order to be eligible for reimbursement.
The Third R&O also establishes a scheme to prioritize reimbursements if the costs of “rip and replace” exceed the $1.9 billion appropriation. Specifically, providers with two million or fewer customers will receive first funding priority; educational and healthcare institutions and libraries providing broadband service will receive second priority; and, finally, funding will be disbursed to all other entities deemed eligible under the Program. If the funding would be depleted before it meets all demand in a given prioritization category, then the FCC will allocate funding proportionately to all eligible recipients within that category.
The Third R&O also clarifies that certain network equipment upgrades – such as the upgrade of a mobile network to 4G technology - will be considered a reimbursable replacement cost under the Program. The additional costs of a fiber replacement upgrade – such as a replacement of a wireless microwave backhaul link with fiber backhaul or a wireless microwave link with fiber-to-the-premises -- are not reimbursable. A provider deploying a fiber upgrade, however, may obtain reimbursement for the reasonable costs of a non-fiber replacement network based on vendor price quotes. Similarly, the replacement of older subscriber mobile device equipment with devices are that are VoLTE capable is not reimbursable.
The FCC's Wireline Competition Bureau will establish and announce a filing window for eligible entities to submit applications for reimbursement. Under certain circumstances, the Bureau may grant extensions of the filing time. Funding recipients will have one year from the date they receive the initial Program disbursement to remove, replace, and dispose of covered equipment.