After adopting an Order in January establishing the framework for the Rural Digital Opportunity Fund (“RDOF”), the Federal Communications Commission (“FCC”) released a Public Notice yesterday requesting public input on the procedures to be used for the first Phase of the groundbreaking auction, which will commence on October 22, 2020 and offer up to $16 billion over the next decade to support high-speed broadband networks in rural America. The FCC proposes to adopt auction procedures that are similar to the successful Connect America Fund Phase II (“CAF II”) auction’s procedures, but with a few modifications, including proposals to:

• Prohibit the submission of more than one application by any commonly controlled entities and ban applicants from entering into any joint bidding arrangements, regardless of the states selected;

• Provide clarity on the operational questions listed in Appendix A of the Public Notice, which the FCC previously utilized in the CAF II auction and which would be used to establish an applicant’s eligibility to bid for the performance tier and latency combinations it selects on its application;

• Require applicants that submit audited financial statements to also submit a “clean” (i.e., unmodified) opinion letter instead of scoring applicants based on certain financial metrics;

• Set a maximum amount of implied support for which a bidder may bid in a round at 100 percent of the RDOF budget;

• Require all areas within a package bid to be bid at the same performance tier and latency weight;

• Consider bids submitted at the clock percentage of the previous round if bid processing procedures in the clearing round cannot assign the full budget to bids submitted in the clearing round; and

• Make publicly available certain additional bidding information during the auction.

Comments are due March 27, 2020, and reply comments are due April 10, 2020. After the FCC reviews the record, it will adopt final auction procedures.

Minimum Geographic Area

Having determined that support would be made available to specific eligible census blocks, the FCC seeks comment on whether to allow bidding on census block groups as it did in the CAF II auction or use census tracts containing eligible census blocks as the minimum biddable area. The FCC estimates that, prior to the completion of the limited challenge process adopted in the Order, there will be more than 66,000 census block groups containing eligible census blocks and more than 33,000 census tracts containing eligible census blocks.

Proposed Applicant Requirements

Consistent with the CAF II auction and the FCC’s standard spectrum auction procedures, and as adopted in the Order, the FCC will implement a two-stage application process. First, interested parties will be required to submit a short-form application to participate in the auction. Second, winning bidders will be required to submit a long-form application to receive support. In addition, prior to being authorized to receive support, a winning bidder will be required to demonstrate that it has been designated as an Eligible Telecommunications Carrier (“ETC”) and obtain a letter of credit.

Applicant and State Selections. The FCC proposes requiring an applicant to select in its short-form application each state in which it intends to bid for support. While applicants that were commonly controlled but selected different states were previously allowed to participate in the CAF II auction, the FCC proposes a blanket prohibition on the submission of more than one application by any commonly controlled entities. Similarly, the FCC proposes departing from the CAF II auction procedures by banning applicants from entering into any joint bidding arrangements, regardless of the states selected, which would render moot the FCC’s exception to the rule prohibiting certain communications for parties to a joint bidding arrangement.

Eligibility to Bid for Performance Tier and Latency Combinations. The FCC proposes to collect primarily the same information it collected from applicants seeking to participate in the CAF II auction to establish their eligibility to bid for the performance tier and latency combinations they selected on their applications, including responding to operational questions listed in Appendix A of the Public Notice. The FCC, however, proposes to amend the questions to improve clarity and provide examples of the types of information it is seeking. In addition, the FCC seeks comment on (i) the assumptions that an applicant will need to make regarding network usage and subscription rates when determining whether it can meet the public interest obligations associated with its performance tier and latency combinations; (ii) the spectrum bands—both licensed and unlicensed—that the FCC anticipates could be used by a winning bidder to satisfy its performance obligations, which are listed in Appendix B of the Public Notice and now include recently auctioned spectrum in the millimeter wave bands; and (iii) the collection of identifiers associated with information submitted to the FCC in other contexts (e.g., an applicant’s FCC Registration Number used to file FCC Form 477, associated Study Area Codes, FCC Form 499 filer identification numbers, etc.). Like in the CAF II auction, the FCC proposes to prohibit certain applicants from selecting certain performance tier and latency combinations based on the technologies they intend to use and to employ the same review process for evaluating performance tier and latency combinations.

Financial Qualifications. The FCC proposes to require applicants to submit financial statements consistent with its requirements in the CAF II auction. However, instead of requiring applicants to identify certain metrics from their financial statements and scoring applications based on those metrics, the FCC proposes to require applicants that submit audited financial statements to also submit a “clean” (i.e., unmodified) opinion letter. Those applicants that do not provide a clean opinion letter—and applicants that submit unaudited financial statements—would be subject to a review of the full set of financial statements submitted with their applications.

Long-Form Application Requirements. The FCC proposes to require each winning bidder to submit more in-depth information in its long-form application regarding the applicant’s ability to satisfy its performance obligations. Similar to the CAF II auction, winning bidders would have the opportunity to assign some or all of its winning bids to related operating companies during the long-form stage.

Proposed Bidding Procedures

The FCC intends to use a descending clock auction to assign RDOF support using the same bidding procedures as it did in the CAF II auction with a few proposed modifications to prioritize bids with lower performance tier and latency weights once the budget has cleared. A technical guide with additional details on bidding procedures and examples has also been released and is available here.

Bid Collection. The FCC proposes to use a clock percentage, which will be decremented for each round of bidding, to delimit the range of acceptable bid percentages across bidders. The clock percentage in each round will imply a total amount of annual support for each area available for bidding. The FCC would use an “implied support formula” similar to the formula in the CAF II auction to determine the implied support at any price point percentage. Unlike the CAF II auction, however, the FCC proposes to set a maximum amount of implied support for which a bidder may bid in a round at 100 percent of the RDOF budget. Bidders would be permitted to bid for a package of areas as well as submit proxy bidding instructions. However, the FCC proposes to require all areas within a package bid to be bid at the same performance tier and latency weight.

Bid Processing. Once a bidding round closes, the bidding system would consider the submitted bids to determine whether an additional round is needed to clear the budget. Once the budget clears, bidding would continue for areas that have not been assigned to resolve the competition. Bid processing would generally proceed similar to the CAF II auction. However, the FCC proposes that if bid processing procedures in the clearing round cannot assign the full budget to bids submitted in the clearing round, then the bidding system would proceed to consider bids submitted at the clock percentage of the previous round.

Closing Conditions. The auction would end once the overall budget has cleared if all areas that were bid at the round’s clock percentage were assigned during the bid processing of that round.

Availability of Auction-Related Conditions. The FCC proposes to limit the disclosure of bidding information during the auction as it did in the CAF II auction, but seeks comment on a modification that would make available (i) whether the number of bidders that placed bids at the previous round’s clock percentage was 0, 1, or 2 or more and (ii) information on the lowest performance tier and latency weight of any bid for each area in which there were 2 or more bids at the round’s clock percentage.