May 26, 2016–The FCC has decided to grant some flexibility to winning bidders in its Connect America Fund Phase II auction to serve less than 100% of funded locations if they refund support for the unserved locations, to designate bidders qualified for the CAF Phase II auction as automatically qualified for the subsequent Remote Area Fund auction, and to seek input on a variety of means by which it could ensure that states for which price cap carriers declined CAF Phase II funding could be made substantially whole. Comments on the further notice of proposed rulemaking adopted yesterday along with a report and order will be due 30 days after publication in the “Federal Register,” and reply comments will be due 15 days later, according to the text of the 164-page item released today in Wireline Competition dockets 10-90, 14-58, and 14-259.
As previously reported, the order establishes a framework for the CAF Phase II auction to allocate $215 million in annual high-cost support, for a total of roughly $2 billion over 10 years, and designates four technology-neutral service tiers from which providers can choose when bidding for support. The four service tiers adopted in the order are (1) a minimum performance tier of 10 megabits per second downstream and 1 Mbps upstream, with at least 150 gigabytes of data usage per month included; (2) a baseline performance tier of 25 Mbps/3 Mbps, with a minimum usage allowance of the higher of 150 GB per month or the average usage of a majority of fixed broadband customers nationwide according to Measuring Broadband America data; (3) an above-baseline performance tier of 100 Mbps/20 Mbps, with an unlimited monthly data allowance; and (4) a gigabit performance tier, with 1 Gbps/500 Mbps and an unlimited monthly data allowance.
“For each of the four tiers, bidders will designate one of two latency performance levels: (1) Low latency bidders will be required to meet 95 percent or more of all peak period measurements of network round trip latency at or below 100 milliseconds (ms), or (2) High latency bidders will be required to meet 95 percent or more of all peak period measurements of network round trip latency at or below 750 ms and, with respect to voice performance, demonstrate a score of four or higher using the Mean Opinion Score (MOS),” the FCC said.
“We recognize that wireless and satellite providers have argued that a minimum usage allowance of even 100 GB is unrealistic for spectrum-based networks that have capacity limitations, and that the standards should be set at levels that do not exclude spectrum-based services. We note, however, that winning bidders will be free to offer an array of service plans, not all of which would provide the minimum 150 GB usage allowance. The 150 GB plan could thus be one of several offerings. We merely require that bidders must offer at least one service offering at a reasonably comparable rate that meets the minimum usage allowance,” the order says.
With regard to the process for challenging the status of a particular census block as unserved, the order adopts “a limited challenge process to ensure that support is not provided to overbuild areas where another provider already is providing voice and broadband service meeting the Commission’s requirements. We direct the Bureau to release a preliminary list of eligible census blocks based on June 2015 Form 477 data and to invite parties to comment within 21 days of publication if those areas have become served subsequent to the June 2015 Form 477 data collection with 10/1 Mbps or greater service, with a minimum usage allowance of 150 GBs at a rate meeting the Commission’s reasonable comparability benchmark, with latency not exceeding 100 ms.”
It adds, “The Bureau is not required to entertain challenges from parties seeking to establish that a block reported as served on a certified FCC Form 477 as of June 2015 or later is unserved. The Phase II challenge process was very time-consuming and administratively burdensome for all involved. We found that it was difficult for the incumbent provider to prove a negative—that a competitor is not serving an area, and we expect that incumbents would face similar problems with challenging Form 477 data that indicate that a competitor serves an area. We also observe that no party was able to demonstrate high latency by competitors in the Phase II challenge process, and very few providers prevailed in a challenge exclusively focused on a competitor’s usage/price.”
As part of the short-form application process, “[t]o provide additional assurance to the Commission that the entities that intend to bid in the auction have some experience operating networks or are otherwise financially qualified, we adopt several alternative prequalification requirements. First, we adopt a requirement that applicants certify in their short-form application that they have provided voice, broadband, and/or electric distribution or transmission services for at least two years and specify the number of years they have been operating, or they are the wholly-owned subsidiary of an entity that meets these requirements. Applicants that have provided voice or broadband services must also certify that they have filed FCC Form 477s as required during that time period,” the order says.
Winning bidders will be required to submit proof of ETC (eligible telecommunications carrier) designation by a state utility commission or by the FCC for all states for which they will receive support within 180 days of being announced as a winning bidder.
The order adopts “a base forfeiture of $50,000 for any entity that certifies in its short-form application that it will submit audited financials in its long-form application, but then ultimately defaults by failing to submit audited financial statements as required.”
“Winning bidders that comply with the performance requirements we establish today for each tier of service for the duration of the 10-year term will be deemed in compliance even if the Commission subsequently establishes different standards in a later proceeding (e.g., the standards that will apply when we award support through a Phase III auction after the six-year term of support for price cap carriers accepting the offer of model-based support),” the order says.
The Commission declined to adopt an option for providers to obtain accelerated payments if they deploy more quickly than required. “While a few commenters supported providing an option for accelerated payment, and we agree with the goal of encouraging faster deployment, we are not persuaded that we could implement this proposal within the annual available budget,” the order says.
“A winning bidder may be awarded support in more than one state and the auction procedures may permit more than one bid in a state, but as discussed below, compliance with the build-out obligations will be measured on a statewide basis,” the order says.
As it did with respect to CAF Phase II support for price cap carriers, the Commission ruled that recipients of support awarded through the upcoming auction will have the flexibility to deploy to at least 95% but less than 100% of the funded locations in each state where they receive support, and to refund support based on the unserved locations. “The amount refunded will not be based on average support, but on one-half the average support for the top five percent of the highest cost funded locations nationwide,” the order says.
“Finally, we remain open to the possibility of allowing Phase II recipients to substitute some number of unserved locations within partially served census blocks for locations within funded census blocks. … We will continue to explore this issue, and encourage all stakeholders interested in receiving Phase II support to work together to propose for future Commission consideration an administratively feasible method for ensuring that unserved consumers in partially served census blocks are not left behind,” the order says.
“The forthcoming Auction Comment PN will seek comment on other auction procedures that must be resolved in order to conduct the auction, such as the number of rounds during which bids may be submitted, package bidding, and what information will be disclosed to participants during the bidding process,” the order says.
Regarding the Remote Area Fund, the order concludes that RAF support will be awarded “through a competitive bidding process, with providers receiving support to serve defined areas that remain unserved with broadband service meeting the Commission’s public interest obligations, determined based on the most recent publicly available FCC Form 477 data available prior to the opening of the filing window for short-form applications.”
The order adds, “Our goal is to commence the Remote Areas Fund auction within a year of the close of the Phase II Auction. The specific dates and deadlines will be announced in a Remote Areas Fund Auction Procedures Public Notice after the Phase II auction.”
“Bidders qualified to bid in the Phase II auction will be able automatically to participate in this subsequent [RAF] auction without having to file another short-form application, so long as there is no material change in any information filed in their Phase II short-form application,” it says. Participants need not be ETCs at the start of the RAF auction, but winning bidders must obtain ETC designation if they do not already have it.
“We delegate authority to the Bureaus to adjust the format and timing of the Remote Areas Fund applications based on experience gained with the implementation of the Phase II auction. Our goal is to conduct the Remote Areas Fund auction generally utilizing the same format and procedures adopted for the Phase II auction, although we recognize that some adjustments may need to be made,” the order says.
The accompanying further notice of proposed rulemaking (FNPRM) seeks comment “on three discrete sets of issues relating to the process for determining winning bidders: (1) how to apply weights to the different levels of performance adopted in the Order above; (2) measures to achieve the public interest objective of ensuring appropriate support for all of the states; and (3) measures to achieve the public interest objective of expanding broadband on Tribal lands.”
Regarding the weighting of bids to provide service at the different tiers or with different latency requirements, the FNPRM proposes “to adopt procedures for weights that would take into account the relative benefits to consumers of the various service tiers.”
“We seek comment on whether weights should be set relative to the baseline service tier, or relative to the minimum requirements for this auction. We also seek comment on what specific value of weights should be applied to low and high latency designations for each of the four tiers. In particular, how should those tier weights be adjusted in light of low and high latency designations? Should a weight for latency be applied in the same fashion across all of the speed/usage tiers? Ultimately, we seek to establish weights that provide rural consumers with the highest quality service while making efficient use of universal service funds. In designing weights to achieve this goal, we do not predetermine which bidder will win if competing head to head with another bidder for a given area. We instead intend to provide a means for numerically comparing the bids received based on the value to rural consumers of having access to different service levels using the finite budget of this auction,” the FNPRM says.
“We seek comment on whether, and, if so, how, the Commission should consider subscribership data for broadband services of varying performance levels and expected costs per subscribed location in establishing weights for the Phase II auction. For example, we seek comment on potentially using the Commission’s Form 477 data to inform our decision regarding weights in the Phase II auction. Should national market share data, based on the Commission’s Form 477 data, inform our setting of weights?” it continues.
“We recognize, however, that these national market shares are a function of both availability and consumer preferences for certain services, and that more recent data may show different trends. For that reason, national shares would not necessarily reflect subscribership of these services where they are actually the only broadband choice deployed. Of course, the eligible areas in the Phase II auction are, by definition, those areas lacking 10 Mbps/1 Mbps service. We seek comment on whether, and, if so, how, to account for both variation in deployment across geographic areas and consumer tastes in setting procedures for weights used to compare bids,” it says.
The FNPRM notes that various parties proposed specific weighting schemes in their comments. “For example, WISPA proposed that ‘[b]idders would begin the auction process with 100 points’ and ‘could gain additional points, or bidding credits’ by exceeding baseline performance criteria. Hughes suggested specific weights for different services levels, with no weight applied to a 10/1 speed tier, and higher weights for faster speeds and usage that exceeded baseline requirements. It proposed a 25 percent weight for low-latency offerings. The Utilities Technology Council and National Rural Electric Cooperative Association proposed weights that would translate into a weight of 50 for the gigabit service tier, a weight of 35 for the above-baseline service tier, no weight for the baseline service tier, and a negative 25 weight for the minimum service tier, as well as a negative 25 weight for high-latency offerings. We seek comment on these proposals in light of the specific performance obligation tiers and latency framework we adopt in the Order and our decision to use weights to adjust the cost-effectiveness score of individual bids. We also seek comment on any alternative weighting proposals,” it says.
“We do not intend to adopt auction procedures that would apply an additional weight to the bid depending on the percentage of available funds bid in a census block, as suggested by one commenter. We already have decided that bids will be compared in the first instance based on the ratio of the bid amount divided by the reserve price. The weighting system that we seek comment on today would effectively adjust that bid price for purposes of comparison,” it adds.
“With respect to equitable distribution among states, we first seek comment on establishing weights that would provide a preference to such declined states or other auction design procedures for the comparison of bids to ensure equitable funding to such states. We also seek comment on adopting weights to provide a preference for those states that have made a meaningful commitment to advance broadband,” the FNPRM says.
“Second, we seek comment on creating a ‘backstop’ of funds that could be used, if necessary, to ensure an equitable distribution of funding to declined states. For example, the Commission could conduct the Phase II auction initially with $1.75 billion of the total $2.15 billion Phase II budget. If a state falls short of winning aggregate bids that total to a set percentage of the amount previously declined in the state by the incumbent price cap carrier, the remaining $400 million could be allocated to the remaining next-in-line bidders in just those states, on a lowest bid score basis. If the Commission were to adopt such an approach, what percentage of the declined amount should be used as the trigger amount? Should we adopt an 80 percent trigger? Or a higher or lower trigger? Alternatively, should next-in-line bidders in those specific states be selected on a lowest cost basis?” it asks.
It also asks about the possibility of reserving support under the RAF “in direct proportion to any shortfall between the funding declined in the statewide election process and the amount allocated in the Phase II auction.”
“Fourth, we seek comment on setting a ceiling for the aggregate total of winning bids in any given state to prevent a substantial redistribution of Phase II funds among states,” the FNPRM says.
Regarding tribal lands, it seeks comment on adopting “a Tribal-specific weight in the Phase II auction and how such a weight should be designed to further our objective of advancing broadband deployment on Tribal lands.”
As reported previously, the proposals regarding specials provisions for state-by-state or tribal area allocations proposals drew criticism from Commissioner Mike O’Rielly, who said that the agency should focus on the most efficient allocation of support nationwide, without singling out particular states, groups, or communities.
The FNPRM also seeks comment on “issues relating to interim deployment milestones for non-terrestrial providers or providers that have already deployed the infrastructure they intend to use to fulfill their Phase II obligations.” —Lynn Stanton, lynn.stanton@wolterskluwer.com
Courtesy TRDaily