Introduction

The FCC has aggregated USF funds into a proposed $20.6 billion Rural Development Opportunity Fund (RDOF) that it proposes be made available under two auctions to deliver broadband services to areas lacking fixed broadband at 25/3 Mbps. Up to $16 billion ($1.6 billion/year for 10 years) will be made available under the Phase I auction and $4.4 billion, plus remaining funds from the Phase I auction ($440 billion/year for ten years) will be made available under the Phase II auction.

The FCC’s apparent goal is to conduct the Phase 1 auction in late 2020 or early 2021 as the 2015 statewide model-based offers that provided approximately $1.7 billion annually to the price cap ILECs, which will expire in 2021. A tentative schedule for the Phase II auction has not been established.

Ten Points

1. With one major exception, eligible areas in the Phase I auction will be based on data compiled from the Form 477 Report which includes the widely criticized reporting instruction: if one location in the census block is served with broadband at 25/3 Mbps, the entire census block is deemed served (and not eligible to be included in the Phase I auction). Relying on data from improved broadband reporting and mapping procedures that will be developed in a related FCC proceeding, the Phase II auction is intended to reach all remaining unserved locations(those not served with 25/3 Mbps).

2. The four most important categories of the proposed eligible areas for the Phase I auction include:

   • All areas in the 2015  price cap ILECs’ statewide offers (“model-based support areas”) in which neither the price cap ILEC nor any other entity offers service at the fixed benchmark of 25/3 Mbps. The most recent map of the model-based support areas is available here.^[1]

   • All areas eligible for the CAF II auction, but not included in winning bids.

   • All unserved locations in the model-based support areas in which the ILEC is the only entity offering 25/3 Mbps service. The FCC is relying on HUBB Portal data filed by the price cap ILECs to identify the served locations. (This is the major exception noted in # 1, above.) 

   • All unserved census blocks whose average cost of service (under the Connect America Cost Model (CAM)) is less than the high-cost threshold of $52.50 ($39.98 in tribal areas). The FCC estimates there are 6.3 million unserved locations in these low-cost census blocks.

3. For the Phase I auction, the FCC proposes the reserve price per census block will equal the difference between the high-cost threshold of $52.50 ($39.98 in tribal areas) and the CAM-estimated cost of deployment for the census block up to a $200 cap ($212.52 in tribal areas).

   • The high-cost threshold is the monthly charge the FCC believes end-users can pay for the service.

   • The cost of deployment equals the CAM-estimated cost for all locations in the census block divided by (÷) the number of locations in the census block.

   • The FCC seeks comment on how to set a reserve price for the low cost, unserved census blocks.

     • As compared to the CAF II auction, many areas with the same mix of locations (high-cost and extremely high-cost) will have a higher reserve price in the Phase I auction.

4. The FCC proposes to adopt three performance tiers (download/upload speeds), each with minimum monthly usage allowances, and two latency metrics—high and low. These are identical to those used in the CAF II auction except that the 10/1 Mbps below baseline tier is deleted. Thus, the FCC is proposing a total of six “T&L” weight combinations with 90 points separating the 25/3 Mbps/high latency T/L weight combination from the Gigabit/low latency T&L combination. Some interested parties may advocate to eliminate the high latency metric.

5. The FCC likely will adopt the CAF II multi-round, descending clock auction procedures for the Phase I auction, although it is requesting comment on whether the minimum bidding areas should be changed from census block groups to census block tracts or counties and whether a Tribal bidding credit should be established.

6. For the Phase I auction, the FCC is requesting comment on modest changes to the short-form application such as requiring less information from qualified CAF II bidders and persons that have filed Form 477 Reports for several years.

7. Winning bidders will be obligated to secure eligible telecommunications carrier (ETC) authorizations from state commissions or the FCC. Winning bidders must offer wireline voice service in combination with fixed broadband, or on a standalone basis at rates equal to or less than the average rate per the FCC’s annual urban area rate survey.

8. Significantly, the FCC requests comment on replacing the letter of credit with a less costly alternative that would still “minimize risk to public funds.”

9. For Phase I winning bidders, the FCC proposes to maintain the current six-year deployment milestones and add a subscription milestone increasing to 70% by year six to be maintained through the year.

10. A downside to the CAF II bidding procedures is that 25% or $500 million of the$1.98 billion CAF II budget was not assigned because bidders continued to bid in multiple rounds after the clearing round as the available support was declining. Unfortunately, the FCC looks favorably on this “competitive” process and expects that a substantial amount of the $16 billion Phase I budget will not be assigned for the same reason. As noted above, these unassigned funds will be available for the Phase II auction.

[1] This map is not intended to depict the areas in which 25/3 Mbps is or is not currently available. The FCC will publish a final list of eligible areas prior to the Phase I auction.  However, it provides a reasonable approximation of the areas that may be included in the Phase I auction.