In recognition that broadband access is no longer a luxury, but critical for all Americans, the Federal Communications Commission (“FCC”) has released a Notice of Proposed Rulemaking proposing to establish a fund – the Rural Digital Opportunity Fund (“RDOF”) – that would commit at least $20.4 billion over the next decade to support high-speed broadband networks in rural America. Building on the success of the recent Connect America Fund Phase II (“CAF II”) auction, the proposed RDOF framework would:

• Target support to areas that lack access to broadband service with speeds of at least 25 megabits per second (“Mbps”) downstream and 3 Mbps upstream (“25/3 Mbps”);

• Allocate support under two phases: (i) Phase I would make available at least $16 billion in support to areas that are wholly unserved; and (ii) Phase II would make available the remaining $4.4 billion in support to areas that are partially served, as determined by the FCC’s new Digital Opportunity Data Collection, and any areas that are not won in Phase I;

• Conduct a multi-round, descending clock auction to award the support and open the auction to all types of providers, including rural telephone companies, small cable providers, fixed wireless companies, and electric cooperatives;

• Allow bidders to select similar performance tiers and latency as in the CAF II auction, but, unlike the CAF II auction, would set the minimum broadband speed at 25/3 Mbps instead of 10/1 Mbps;

• Establish bidding weights with a greater preference for faster speeds and lower latency such as Gigabit service; and

• Employ the same service milestones and non-compliance measures as implemented for the CAF II auction.

Comments and reply comments on the proposed framework are due 30 days and 60 days, respectively, after the Notice is published in the Federal Register. Once a framework is adopted and auction procedures are developed, the FCC expects to conduct an auction for RDOF support in 2020. The RDOF represents the largest effort the FCC has taken thus far to close the digital divide and bring affordable, high-speed broadband to rural communities.  

Connect America Fund. The CAF II auction offered up to $1.98 billion over ten years to build and maintain broadband-capable networks in high-cost areas, including remote Tribal areas. To be eligible, a census block could not have been served with voice and broadband of at least 10/1 Mbps by an unsubsidized competitor or price cap carrier. The CAF II auction concluded on August 21, 2018 and will provide $1.488 billion in universal support over ten years to build high-speed broadband service to over 700,000 households and small businesses in 45 states.

Budget and Term of Support. Recognizing that more than 10 million households and small businesses in price cap areas still lack access to critical broadband services that offer speeds of at least 25/3 Mbps in unserved census blocks, including more than 7 million in rural areas, the FCC proposes to offer at least $20.4 billion over the next ten years under the RDOF. Of this budget, the FCC proposes to make available at least $16 billion in Phase I for areas that are wholly unserved with broadband speeds of 25/3 Mbps. The remaining $4.4 billion, as well as any unawarded funds from Phase I, would be made available in Phase II for areas that are partially served and any areas that are not won in Phase I. 

Eligible Areas and Reserve Price. The FCC proposes to conduct a challenge process for Phase I consistent with the process used for the CAF II auction, releasing a preliminary list and map of initially eligible census blocks based on the most recent publicly available FCC Form 477 data.  After the challenge process is complete, a list of final eligible areas would be published along with the reserve price (i.e., the maximum acceptable per-unit bid amount) for each eligible area.  Areas eligible for Phase II funding would be determined using new, more granular data being developed through the FCC’s proposed Digital Opportunity Data Collection, the details on which the FCC has separately requested input.

Distribution of Support. Similar to the CAF II auction, the FCC proposes to use a multi-round, descending clock auction to identify the providers that will be eligible to receive support. 

Performance Tiers and Latency. The FCC proposes to permit bids for three different performance tiers: Baseline, Above Baseline, and Gigabit. Unlike the CAF II auction, the FCC would raise the standard for broadband deployment by proposing not to include a Minimum performance tier, which required broadband speeds of at least 10/1 Mbps. The FCC also proposes to allow bidders to place low latency or high latency bids meeting the same requirements as the CAF II auction.    

Weights. As in the CAF II auction, and in recognition that terrestrial fixed networks may serve as a backbone for 5G deployments, the FCC proposes to weight bidders’ bids to reflect its preference for higher speeds, higher usage allowances, and low latency.  

Service Milestones. The FCC proposes to adopt the same service milestones as it adopted for the CAF II auction. Authorized support recipients would have the flexibility to use any fixed broadband technology to meet the required performance obligations and service milestones, so long as they offer at least one standalone voice plan and one service plan that provides broadband at the relevant performance tier and latency requirements at rates that are reasonably comparable to rates offered in urban areas.  

Non-Compliance. The FCC proposes to apply the same non-compliance measures and support reductions that are generally applicable to high-cost support recipients. As in the CAF II auction, the Universal Service Administrative Company would be authorized to draw on a letter of credit provided by a support recipient to recover all of the support that has been disbursed in the event that a support recipient fails to fulfill its obligations.

Tribal Bidding Credit. The FCC seeks comment on including a Tribal bidding credit to incentivize parties to bid on and serve Tribal census blocks.

Application to Participate. Similar to the CAF II auction, the FCC would require a pre-auction short-form application to establish eligibility to participate in the auction, relying primarily on ownership disclosures and applicant certifications. Leveraging lessons learned from the CAF II auction, the FCC seeks comment on whether to require less technical and financial information at the short-form stage from applicants that are existing providers or that were qualified to participate in the CAF II auction.

Application for RDOF Support. The FCC would perform a more extensive, post-auction review of winning bidders’ qualifications based on a long-form application. Consistent with the CAF II auction, each winning bidder would be required to submit in its long-form application information about its qualifications, funding, and the network it intends to use to meet its obligations. In addition, prior to being authorized to receive RDOF support, each winning bidder would be required to demonstrate that it has been designated as an eligible telecommunications carrier in the area(s) for which it is a winning bidder and obtain a letter of credit from a bank meeting the FCC’s eligibility requirements. 

Transition Issues. Finally, the FCC seeks comment on two transitions that may occur as a result of the RDOF: (i) the transition of incumbent price cap carriers from legacy high-cost support in areas where RDOF support is awarded; and (ii) the transition of price cap carriers from CAF II model-based support in areas where RDOF support is awarded.