[Federal Register Volume 79, Number 40 (Friday, February 28, 2014)]
[Rules and Regulations]
[Pages 11327-11336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-04313]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[GN Docket No. 13-5; WC Docket No. 10-90; FCC 14-5]


Technology Transitions; Connect America Fund

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) adopts an experiment to test how tailored economic 
incentives can advance the deployment of next generation networks, both 
wireline and wireless, in rural, high-cost areas of the country, 
including Tribal lands. In this experiment, Connect America funding 
will be available to entities to deploy high-speed, scalable, IP-based 
networks.

[[Page 11328]]


DATES: Effective March 31, 2014, except for Sec.  54.313(e)(1) through 
(3) which contain new or modified information collection requirements 
that will not be effective until approved by the Office of Management 
and Budget. The Federal Communications Commission will publish a 
document in the Federal Register announcing the effective date for 
those sections.

FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition 
Bureau, (202) 418-0428 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in WC Docket No. 10-90; FCC 14-5, adopted on January 30, 2014 
and released on January 31, 2014. The full text of this document is 
available for public inspection during regular business hours in the 
FCC Reference Center, Room CY-A257, 445 12th Street SW., Washington, DC 
20554. Or at the following Internet address: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-14-5A1.pdf. The Further Notice of 
Proposed Rulemakings (FNPRM's) that were adopted concurrently with the 
Report and Order are published elsewhere in this issue of the Federal 
Register.

I. Introduction

    1. The Commission's Orders, Report and Orders, Further Notices of 
Proposed Rulemaking, and Proposal for Ongoing Data Initiative (Order) 
kickstarts the process for a diverse set of experiments and data 
collection initiatives that will allow the Commission and the public to 
evaluate how customers are affected by the historic technology 
transitions that are transforming our nation's voice communications 
services--from a network based on time-division multiplexed (TDM) 
circuit-switched voice services running on copper loops to an all-
Internet Protocol (IP) network using copper, co-axial cable, wireless, 
and fiber as physical infrastructure. Americans have come to expect 
secure, reliable, and innovative communications services. The purpose 
of these experiments is to speed market-driven technological 
transitions and innovations by preserving the core statutory values as 
codified by Congress--public safety, ubiquitous and affordable access, 
competition, and consumer protection--that exist today. The experiments 
and initiatives will collect data that will permit service providers 
and their customers, and independent analysts and commentators--as well 
as the federal, State, local, and Tribal officials charged with 
oversight--to make data-driven decisions about these technology 
transitions. By using an open and deliberative process to identify and 
address challenges, all stakeholders will benefit as we together learn 
how we may ensure that our values flourish as providers implement new 
technologies at scale and, ultimately, seek to discontinue legacy 
services and facilities.

II. Experiments and Research Targeted to Network Values

    2. The Commission adopts a targeted experiment in it which will 
solicit proposals to bring advanced services to rural Americans, 
including residents of Tribal lands, with support from the Connect 
America Fund, which will allow the Commission to examine different 
approaches to ensuring universal access to these advanced services in 
an all-IP world.
    3. These targeted experiments will be guided by basic principles. 
They are not intended to resolve legal or policy questions arising from 
the transition. Rather, they are intended to help the Commission gather 
a factual record of information to inform such decisions. As the 
Commission pursues these initiatives, the Commission will work 
collaboratively with other governmental and non-governmental entities 
to leverage expertise and experience where appropriate. These processes 
will be transparent, open, and responsive. They will allow for broad 
public input from all interested parties and yield data and information 
that will be publicly available, subject to appropriate privacy 
protections.
    4. These efforts are not exhaustive. The Commission welcomes ideas 
from other interested parties on ways the Commission can engage in 
targeted experiments and cooperative research to learn about and 
anticipate the impacts of transitioning technologies.

A. Next Generation Network Experiments in Rural America (Report and 
Order in WC Docket No. 10-90)

    5. Preserving universal access to communications during these 
historic technology transitions is one of the Commission's core values. 
In the last several years, the Commission has undertaken major reforms 
to each of its universal service programs to modernize those programs 
in light of marketplace changes and technological advancements.
    6. The Commission recognizes that such reforms, along with ongoing 
efforts of existing providers in rural, high-cost areas, have already 
resulted in the deployment of new technologies and IP-based networks in 
some areas, and the Commission expects technology transitions will 
continue to occur organically. At the same time, consistent with the 
statutory principles set forth in section 254 of the Act, it is 
critical that the Commission takes steps to ensure that all Americans 
benefit from the technology transitions, and that the Commission gain 
data on the impact of technology transitions in rural areas, including 
Tribal lands, where residential consumers, small businesses and anchor 
institutions, including schools, libraries and health care providers, 
may not have access to advanced broadband services. As networks 
transition, the Commission needs to make sure that rural Americans are 
not left behind.
    7. The Commission recognizes that rural America poses particular 
challenges for the deployment of next generation communications 
services. By definition, rural areas are geographically dispersed, with 
lower population density. Often they are in areas with geological and 
topographical challenges; in addition, some rural areas experience 
particularly extreme seasonal and meteorological conditions. For 
various reasons, rural areas have lower broadband adoption rates than 
urban areas. For instance, rural areas have a higher percentage of 
elderly residents, who tend to have lower broadband adoption. Since the 
1960's, when poverty rates were first officially recorded, rural areas 
have been home to a disproportionate number of low-income Americans. In 
2012, 17.7 percent of the population, or about 8.5 million people, 
living in nonmetropolitan (nonmetro) areas were poor as compared to a 
poverty rate of 14.5 percent in metro areas. And this gap between 
nonmetro and metro poverty rates has widened in recent years, from 2.4 
percentage points in 2011 to 3.2 percentage points in 2012. All of 
these factors, taken together, can make the economics of building out 
broadband-capable infrastructure in rural areas more challenging.
    8. In addition, the circumstances described above are frequently 
exacerbated on Tribal lands. Tribal Nations face unique problems in 
acquiring communications services, with substantial barriers to 
deployment prevalent throughout Tribal lands. The resulting digital 
divide that persists between Tribal Nations and the rest of the country 
is well-documented.
    9. The Commission understands that some providers have proposed 
wireless products as the only service offering for some rural areas 
following the retirement of legacy PSTN services and facilities. The 
Commission notes that

[[Page 11329]]

there are a range of fixed wireless offerings in the marketplace today, 
offering differing speeds and usage allowances at price points that are 
typically higher than what are available from wireline offerings. One 
of the critical questions the Commission seeks to explore is under what 
conditions will consumers prefer next generation wireless services over 
wireline alternatives. In addition, the Commission wants to better 
understand the viable business models that could support the deployment 
of fiber or other next generation wired technology in rural areas 
despite the challenges we have described. The Commission is committed 
to exploring ways to ensure that, as networks transition, the access of 
rural American customers, including customers living on Tribal lands, 
is not just preserved, but enhanced, in all areas of the country.
    10. The Commission welcomes ideas about how to structure 
experiments that will inform its policy decisions regarding the 
deployment of next generation networks in rural, high-cost areas. To 
this end, we plan to hold a workshop on rural broadband experiments in 
March 2014. The Commission welcomes innovative ideas that would 
coordinate actions across its various support programs, consistent with 
the statutory framework set forth in section 254. The Commission looks 
forward to an ongoing dialogue with a diverse group of interested 
stakeholders.
    11. The Commission adopted one possible experiment to test how 
tailored economic incentives can advance the deployment of next 
generation networks, both wireline and wireless, in rural, high-cost 
areas of the country, including Tribal lands. In this experiment, 
Connect America funding will be available to entities to deploy high-
speed, scalable, IP-based networks. The Connect America Fund is a key 
element of the Commission's universal service reforms to ensure that 
rural consumers, businesses, and anchor institutions have access to 
next generation networks. Consistent with the Commission's goals of 
bringing robust, scalable broadband networks to rural, high-cost 
communities across America, and gaining experience and data on how to 
ensure universal access as networks transition, this experiment is 
designed to help inform our policy decisions in various proceedings 
pending before the Commission. For example, it is important to 
understand what providers would be willing to offer what type of 
service in price cap areas in the event that a current incumbent 
Eligible Telecommunications Carrier (ETC) chooses not to participate in 
Connect America Phase II.
    12. Below, the Commission invites expressions of interest for such 
experiments in areas served by price cap carriers and areas served by 
rate-of-return carriers. The Commission's focus is on proposals to 
build robust last-mile broadband to offer service to a wide range of 
end users in rural communities, rather than proposals for middle mile 
projects. The Commission also is focused on conducting these 
experiments in rural areas lacking Internet access service that 
delivers 3 Mbps downstream/768 kbps upstream. For both types of 
territories, funding could be made available in 2014 for discrete 
technology transition experiments within the existing Connect America 
budget. In the Further Notice of Proposed Rulemaking (FNPRM) that 
accompanies this R&O, the Commission seeks comment on making available 
unallocated Connect America funding to support these structured 
technology transition experiments across a diverse cross section of 
rural America. The Commission could make a limited amount of funding 
available for such experiments without increasing the overall size of 
the Connect America Fund, and without increasing the contribution 
burden on consumers.
    13. Useful information that could be developed through such 
experiments will help address four sets of interrelated questions. 
First, from these experiments, the Commission seeks to test the 
assumption among certain providers that the geographic and demographic 
characteristics of certain rural areas, including Tribal lands, 
economically preclude the deployment of high-capacity fiber-based 
services that deliver higher speeds to those communities, absent some 
level of governmental support. The Commission seeks to address the 
extent of interest among non-incumbent service providers to deploy 
high-speed, scalable, IP-based networks to serve consumers, businesses, 
and community-based institutions such as schools, libraries and 
healthcare providers in rural areas where broadband is lacking, 
potentially with assistance from the Connect America Fund, and to learn 
what specific measures to streamline the ETC designation process will 
encourage such entry by non-incumbent providers. Likewise, the 
Commission seeks to learn whether providers are willing and able to 
deliver services with performance characteristics well in excess of the 
minimum standards that price cap carriers accepting model-based support 
are required to offer to all locations in funded areas, for the same 
amount or less support than that calculated by the forward-looking cost 
model. The Commission hopes these experiments will generate ``best 
practices'' that will allow others to replicate experimental successes 
in other rural areas. The Commission will explore how they can maximize 
the deployment of robust, future-proof networks most efficiently within 
our finite $4.5 billion Connect America budget.
    14. Second, based on the proposals submitted, the Commission seeks 
to develop a greater understanding of the geographic and demographic 
characteristics of areas where service providers (both incumbents and 
non-incumbents) would choose to offer wireless services at pricing 
reasonably comparable to urban wireline offerings. The Commission seeks 
to identify the likely features of such wireless services and the 
characteristics of wireless services that residential consumers would 
find to be an acceptable substitute for fiber-based broadband service.
    15. Third, the Commission seeks to develop a greater understanding 
through these targeted experiments of how these transitions will impact 
anchor institutions and the people they serve. The Commission is 
interested in learning more about the types of services that will be 
offered to schools, libraries, health care providers, and other anchor 
institutions that are served by next generation networks financed in 
part with Connect America support, and at what price. The Commission 
seeks to explore how the transitions will best ensure the provision of 
high quality broadband connectivity appropriate to the needs of rural 
health care providers and enable remote health monitoring at home, 
which is critical to consumers in rural areas who otherwise would have 
to travel great distances to have access to health care. The Commission 
seeks to examine whether and how the business case for deployment in 
rural areas, including Tribal lands, can be improved by securing the 
participation of anchor institutions to serve as key customers of the 
next generation networks. Through these experiments, the Commission 
hopes to identify strategies to ensure that community-based 
institutions in rural areas, such as schools, libraries and health care 
providers, have access to next generation services.
    16. Finally, the Commission seeks to work cooperatively with other 
governmental agencies to advance our shared objectives of ensuring that 
consumers, businesses and anchor institutions have access to next 
generation services. Under section 254, universal service is a joint 
federal and

[[Page 11330]]

State responsibility. The Commission is particularly interested in how 
States, localities, Tribal governments, and other non-federal 
governmental bodies can provide assistance, through matching funding, 
in-kind contributions or other regulatory approvals and permits, to 
improve the business case for deployment of next generation networks.
    17. The Commission's intention here is not to delay any decisions 
regarding implementation of any universal service reforms, but rather 
to leverage whatever knowledge can be developed quickly through such 
experiments to inform our judgment on an ongoing basis as the 
Commission addresses critically important policy issues in several of 
our pending universal service rulemaking dockets. Implementation of 
Phase II of the Connect America Fund will not be delayed by these 
experiments. Work on the forward-looking cost model that will be used 
to determine Phase II support amounts to be offered to price cap 
carriers is nearing completion, and the Commission expects the Wireline 
Competition Bureau will be in a position to implement the Phase II 
challenge process and finalize the list of eligible census blocks in 
the months ahead. The Commission expects to implement the offer of 
model-based support to price cap carriers before the end of 2014. The 
Commission also is committed to resolving by the end of 2014 how the 
Connect America Fund will address the challenges of providing service 
to the most remote, difficult to serve areas of the country.
1. Connect America Phase II Experiments
    18. One critical step to advancing technology transitions in rural 
America, including on Tribal lands, is to implement Phase II of the 
Connect America Fund. In the USF/ICC Transformation Order, 76 FR 73830, 
November 29, 2011, the Commission concluded it would use a competitive 
bidding mechanism for Phase II of the Connect America Fund to award 
support in price cap territories in those areas where price cap 
carriers decline to make a state-level commitment in exchange for 
model-based support, and it sought comment on how to design this 
mechanism. At various points in the Connect America proceeding, a 
number of parties have suggested that we implement a market-based 
mechanism in the form of a competitive application process as opposed 
to a reverse auction. Others have focused on the mechanics and design 
of a reverse auction. To date, the Commission has implemented one 
reverse auction and shortly will conduct another.
    19. The Commission reaffirms its commitment to using competitive 
bidding to award support to the extent the price cap carriers decline 
to accept the offer of model-based support. That bi-partisan decision 
was the culmination of efforts over a decade to reform universal 
service, and the Commission remains firmly committed to completing 
implementation of the universal service reform framework previously 
adopted by the Commission.
    20. One of the key questions remaining in the Connect America 
proceeding, however, is the specific form of the competitive bidding 
mechanism that will occur to the extent price cap carriers decline to 
elect model-based support: A reverse auction or some other form of 
competitive bidding. The Commission does not resolve that question in 
the R&O.
    21. The Commission concluded that it would be desirable to test, on 
a limited scale, the use of an application-based competitive bidding 
process with objective selection criteria on a limited scale before 
finalizing decisions regarding the competitive bidding mechanism for 
full-scale implementation in WC Docket No. 10-90 to award support in 
price cap territories where the incumbent declines the offer of model-
based support. The Commission fully recognizes that conducting 
nationwide competitive bidding--whatever form it ultimately takes--to 
award recurring support to preserve voice service and expand broadband 
service is a significant undertaking that has never been implemented in 
this country. The Commission takes seriously its fundamental obligation 
to preserve and advance universal service. Even though the Commission 
has solicited multiple rounds of comment on issues relating to 
competitive bidding mechanisms, there is no substitute for real world 
experience to inform our policy decisions. Service to potentially 
millions of consumers, businesses and anchor institutions may be 
impacted by the particular design of the competitive bidding process. 
For that reason, the Commission wishes to gain experience and data by 
experimenting with an application-based competitive bidding process 
with defined selection criteria that could inform our judgment 
regarding how to structure the Phase II competitive bidding mechanism. 
The Commission therefore adopted a Phase II experiment and describes 
below the application process for this experiment.
    22. The Commission concluded that soliciting and reviewing 
applications in the near term as a part of this Phase II experiment 
will assist it in making critical decisions in a future order regarding 
the objective evaluative criteria that should be applied more broadly 
in the competitive bidding process for Connect America Phase II, such 
as whether funding should be awarded solely based on cost per location, 
or whether the Commission should give additional weight or bidding 
credits in defined circumstances. The Commission agreed with commenters 
that a competitive bidding process will be most successful if it is 
focused on clear goals, is transparent, and is based on objective, 
relatively straightforward, well-defined, and measurable criteria. In 
short, the Commission expects this experiment will help it design a 
more effective nationwide competitive bidding mechanism, whether that 
ultimately takes the form of a reverse auction or some other form of 
competitive bidding with a limited number of objective, defined 
selection criteria. This experiment also will provide an opportunity to 
consider how better to ensure that all of universal service programs 
are working together effectively to ensure that residential consumers, 
small businesses, and anchor institutions have access to evolving 
services delivered over scalable networks.
a. Application Process
    23. To assist entities willing to conduct experiments to deploy 
high-speed, scalable, IP-based networks, using either wireline or 
wireless technologies, or a combination of technologies, in rural, 
high-cost areas (including on Tribal lands) with Connect America 
funding, the Commission describes in further detail elements of 
proposals that would assist the Commission in learning from these 
experiments. The technology transitions proposals that invited in the 
R&O are not limited to proposals from incumbent providers. The 
Commission encourages proposals from a wide range of entities and 
consortia of entities, including State and regional authorities, 
research and education networks, municipalities, Tribal governments, 
cable operators, competitive local exchange carriers, incumbent local 
exchange carriers, fixed and mobile wireless providers, wireless 
Internet service providers, utilities, and others.
    24. The Commission's invitation for Phase II experiment proposals 
will be conducted in two stages: A non-binding expression of interest 
stage and a formal proposal stage. The Commission requests expressions 
of interest to be

[[Page 11331]]

filed by letter in WC Docket No. 10-90 by March 7, 2014, although the 
Commission also will consider additional expressions of interest on a 
rolling basis after that date. All expressions of interest must be 
filed electronically. Information to be included in an expression of 
interest might include, but not be limited to:
     The nature of the submitting entity or entities (e.g., 
incumbent LEC, municipality, utility, cable operator, wireless 
provider)
     Identification of the proposed service area for the 
experiment, including census block number, with any relevant 
information regarding the number of locations that could be served, 
including schools, libraries, and other anchor institutions
     The broadband technology or technologies to be deployed
     Contemplated service offerings (e.g., description of voice 
service, broadband speed tiers, nature of video service, if any) and 
pricing of such offerings
     If known, expected State and/or local or Tribal 
governmental participation in and/or support for the project (e.g., 
expedited permitting, access to rights of way, matching funds, etc.)
     Whether the proposal is expected to require one-time or 
continuing funding and a high-level estimate of the amount of funding 
requested
    25. The formal proposal stage will follow the expression of 
interest stage. Submitting an expression of interest is not a 
precondition for submitting a formal proposal in the second stage.
    26. The USF/ICC Transformation Order adopted a goal of ``ensur[ing] 
universal availability of modern networks capable of providing voice 
and broadband service to homes, businesses, and community anchor 
institutions'' and adopted a framework for the Connect America Fund to 
achieve these goals by extending broadband to millions of unserved 
locations over a five-year period, including connecting community 
anchor institutions. The Commission directed the Wireline Competition 
Bureau to invite input on the unique needs of community anchor 
institutions as it developed the forward-looking model, and it included 
reporting obligations on incumbent LECs to track the number of 
community anchor institutions that were connected. In seeking comment 
in the FNPRM on the competitive bidding process to be implemented, to 
the extent price cap carriers declined to make a state-level commitment 
for model-based support, the Commission sought comment on how to 
leverage the budget to achieve these goals and ``extend[] services to 
as many consumers, businesses, and community anchor institutions as 
possible.''
    27. The Commission is particularly interested in projects that 
achieve the goals of the USF/ICC Transformation Order and demonstrate 
whether, and how, the competitive bidding process under Phase II of the 
Connect America Fund might be structured. The Commission also is 
interested in learning how to best leverage the support available from 
all of the Commission's universal service programs to comprehensively 
serve the needs of rural communities, including their educational and 
health care needs. Experiments to fund modern networks in rural, high-
cost areas from the Connect America Fund may serve to provide important 
information on the potential benefits and burdens of the technology 
transitions on health care providers and their patients, and on 
educational institutions and their patrons, in rural areas, while 
informing the Commission's policy decisions in implementing the Phase 
II competitive bidding process and more broadly, as well.
    28. The Commission plans to adopt a budget for these rural 
broadband experiments and will announce the selection criteria prior to 
the solicitation of formal proposals. In the FNPRM, the Commission 
seeks comment on what amount of Connect America funding should be made 
available for this experiment and the objective selection criteria for 
the experiments. The Commission anticipates that once the Commission 
takes action in response to the FNPRM, applications will be due within 
a relatively short time frame, such as 60 days. The Commission 
therefore encourages potential applicants to consider how they might 
begin to structure their proposals early in the process. The Commission 
expects a relatively small number of projects, reflecting a diversity 
of technologies (both wireline and wireless) in different geographic 
areas, will be selected for funding.
b. Geographic Areas Eligible for Support
    29. In the USF/ICC Transformation FNPRM, 76 FR 78384, December 16, 
2011, the Commission proposed to use the same areas that are identified 
by the Connect America cost model as eligible for support in the 
competitive bidding process. It proposed to use census blocks as the 
minimum size geographic unit as eligible for competitive bidding and 
sought comment on whether to adopt a rule that would aggregate eligible 
census blocks into census tracts for bidding, or to allow bidder-
defined aggregation of census blocks.
    30. The Commission concluded that proposals in this rural broadband 
experiment in price cap territories will be entertained at the census 
tract level. Making a county the minimum geographic area for an 
experimental proposal potentially could deter participation in this 
experiment from smaller providers. The Commission therefore concludes 
that the minimum geographic area to be made available in the Phase II 
experiment is the census tract, with funding provided only for 
locations in eligible census blocks within that census tract. The 
Commission concludes any census blocks lacking broadband where the 
average cost per location is equal to or exceeds the likely funding 
threshold in the forward-looking cost model should be eligible for the 
rural broadband experiment. The Commission thus does not exclude from 
eligibility those census blocks where the average cost, as calculated 
by the model, exceeds the likely extremely high cost threshold. In 
other words, potential applicants should be free to seek funding to 
serve census tracts that contain census blocks where the average cost 
per location, as determined by the forward-looking cost model, exceeds 
the extremely high-cost threshold. The Commission makes this decision 
recognizing that the actual cost for a particular provider to serve the 
area may vary from the cost estimated by the cost model. To the extent 
parties can economically serve areas that fall above the extremely 
high-cost threshold with terrestrial voice and broadband with the 
assistance of support, the Commission does not want to preclude those 
areas from being eligible in the Phase II experiment. The Commission 
hopes that this experiment will provide the Commission with useful data 
that could inform future decisions regarding the treatment of hard-to-
serve remote areas of the country.
    31. As noted above, one of the Commission's objectives in 
conducting this experiment is to determine how the Commission can use 
targeted funding most efficiently to expand the availability of voice 
and broadband-capable infrastructure within the defined $4.5 billion 
budget for the Connect America Fund. For purposes of the experiment, 
the Commission expects that the amount of funding to be made available 
for any applicant will not exceed the amount of model-calculated 
support associated with the relevant geographic area, either a census 
tract or aggregation of census tracts. This will enable us to test in 
the experiment the use of the cost model for purposes of

[[Page 11332]]

setting reserve prices for future implementation of the Phase II 
competitive bidding process.
    32. The Commission is focused on using this experiment to deploy 
robust, scalable networks in rural areas lacking Internet access that 
delivers 3 Mbps downstream/768 kbps upstream. In the USF/ICC 
Transformation Order, the Commission adopted a policy that support not 
be provided to areas served by an unsubsidized competitor. The 
Commission remains committed to ensuring that Connect America funding 
is not used in areas where other providers are offering voice and 
broadband meeting the Commission's requirements. The Commission does 
not think it would be efficient to conduct a challenge process to the 
eligibility of census blocks within a census tract when formal 
proposals are initially submitted; depending on the volume of proposals 
received, that could place a burden both on outside parties and 
Commission staff. Rather, the Commission concludes that challenges to 
the eligibility of areas proposed for experiments are more 
appropriately entertained after the project has otherwise been 
tentatively selected for funding. To the extent a challenge is granted 
in whole or in part, funding for those locations would be adjusted 
appropriately. The Commission expects that the Wireline Competition 
Bureau and the Wireless Telecommunications Bureau to conduct the 
challenge process in a fashion similar to the process that the Wireline 
Competition Bureau has adopted, but not yet implemented, for 
determining eligible areas for model-based support.
    33. The Commission recognizes that there may be situations where 
the extent of competitive overlap for broadband services in a proposed 
project is de minimis. If a particular applicant proposes to serve an 
area where a current recipient of high cost support already provides 
broadband, the Commission would need to understand specifically why a 
deviation from its general policy of not supporting two or more 
providers in an area is justified and in the public interest. Likewise, 
to the extent an applicant proposes to include in its project locations 
that are served by an unsubsidized competitor, the Commission would be 
interested in why deviation from its policy is justified and in the 
public interest. The Commission seeks comment in the FNPRM on how to 
define a de minimis overlap and what measures the Commission should 
implement in the experiment to ensure that funds in the experiment are 
focused on unserved areas.
c. Provider Eligibility Requirements
    34. In the USF/ICC Transformation FNPRM, the Commission proposed to 
require applicants for support to be designated an ETC at the time they 
applied to participate in the competitive bidding process, with a 
limited exception for Tribally-owned or controlled entities. The 
Commission proposed that all applicants be required to certify that 
they are financially and technically capable of providing the required 
service within the relevant geographic area. The Commission indicated 
that it anticipated that price cap ETCs that decline model-determined 
support would be eligible to participate in the competitive bidding 
process, and it sought comment on the advantages and disadvantages of 
such an approach.
    35. The Commission seeks to encourage the participation in this 
experiment from as many different entities as possible. The Commission 
emphasizes that they welcome applications from a wide range of 
entities, including cable operators, incumbent price cap carriers, 
competitive local exchange carriers, affiliates of neighboring 
incumbent providers, utilities, fixed and mobile wireless providers, 
wireless Internet service providers, State and regional authorities, 
research and education networks, municipalities, Tribal governments, 
and others.
    36. Timing of ETC Designation. The Commission concludes that 
entities selected to receive funding in an experiment must obtain ETC 
designation from either a State commission pursuant to section 
214(e)(2) or the Commission pursuant to section 214(e)(6) of the Act. 
Therefore, entities must offer voice telephony service at reasonably 
comparable rates as part of the experiment. The Commission declines at 
this time to adopt the suggestion of certain parties that it either 
forbears from ETC designation requirements, or that it preempts States 
from issuing ETC designations. Rather, the Commission adopts a more 
liberal process for the timing of ETC designation. The Commission's 
experience in implementing this rule in the Phase II experiment will 
help it determine whether other measures are necessary regarding the 
ETC designation process when implementing the Connect America Phase II 
competitive bidding process more broadly.
    37. The Commission concludes that potential applicants in this 
rural broadband experiment need not be ETCs at the time they initially 
apply for funding at the Commission. Rather, the Commission is 
persuaded that they should permit entities to obtain ETC designation 
after being selected for the award of Connect America funding, which 
the Commission believes will encourage greater participation in the 
experiment by a wider range of entities. ETC status must be confirmed 
before funding awarded through the experiment is disbursed. The 
Commission expects this confirmation would occur within 90 days of 
funding award.
    38. The Commission recognizes that the Commission declined to take 
that approach for the Mobility Fund Phase I and Tribal Mobility Fund 
Phase I, instead requiring entities to have obtained an ETC designation 
prior to filing the short form application, with an exception for 
Tribally-owned or controlled entities if they had an ETC application 
pending. Those requirements were adopted in part to ensure that 
applicants filing to participate in the auction were serious bidders. 
Based on our experience with the Mobility Fund Phase I and our review 
of the record, the Commission now concludes that it would be 
appropriate to allow Connect America Phase II experiment applicants to 
obtain ETC designation after a preliminary determination has been made 
to award funding, rather than before filing an application with the 
Commission. The Commission assumes that applicants that submit formal 
proposals would seek to demonstrate their financial and technical 
capabilities throughout their application and will submit well-
developed proposals that could be implemented quickly if selected. 
Based on the Commission's experience with the experiment, it can 
revisit this decision if necessary before implementing a competitive 
bidding process for Connect America Phase II more generally.
    39. In the Mobility Fund Phase I, the Commission expressly 
permitted potential bidders to obtain conditional ETC designation prior 
to filing the short-form application. Given the Commission's decision 
to permit entities to seek ETC designation after notification of 
tentative selection for funding award, the Commission does not 
anticipate many parties would seek conditional ETC designation prior to 
applying for funding through this experiment. To the extent a party 
chooses to do so, however, and a State or this Commission issues a 
conditional ETC designation prior to selection for funding, the 
Commission expects that the ETC designation in such situations will be 
finalized quickly as a pro forma

[[Page 11333]]

matter after notification of selection for funding. The Commission's 
experience with the experiments will inform its ultimate decisions of 
whether additional federal rules are necessary to ensure that the ETC 
designation process does not erect unnecessary barriers to competitive 
entry.
    40. The Commission also addresses the role of ETC designation in 
situations where there is a multi-stakeholder group working together to 
bring broadband-capable infrastructure to unserved communities. The 
Commission welcomes participation in the Connect America Phase II 
experiment from a wide variety of entities, including partnerships or 
consortia of entities that may include service providers, vendors, 
governmental agencies, and others. Indeed, in other contexts, the 
Commission has recognized the value of consortia bulk purchasing in 
driving down service rates, increasing bandwidth, and reducing 
administrative overhead.
    41. For the Connect America Phase II experiment, the Commission 
concludes that the requirement to be an ETC is met if one entity that 
is part of the group, partnership or consortia obtains ETC designation 
from the relevant State or this Commission. Thus, for instance, the 
entity that is designated as the ETC could be a competitive local 
exchange carrier that offers the telecommunications services eligible 
for support pursuant to section 254(c)(1) of the Act in partnership 
with another entity that constructs and operates the broadband-capable 
network. Comparable to the requirements adopted by the Commission for 
consortia leaders in the Healthcare Connect Fund, the Commission 
requires that the ETC be legally and financially responsible for 
providing the section 254(c)(1) supported telecommunications service; 
serve as the point of contact for the Commission, USAC, the relevant 
State, and Tribal governments, as appropriate; be responsible for 
submitting required forms and certifications to the Commission, USAC, 
the relevant State, and Tribal governments, as appropriate; receive 
funding disbursements; and be responsible for recordkeeping and 
coordinating any audits for members of the group.
d. Term of Support
    42. In the USF/ICC Transformation FNPRM, the Commission proposed 
that the term of support for the Phase II competitive bidding process 
would be the same as that adopted for providers that accept the state-
level model-determined support, but it also sought comment on whether a 
longer time period, such as ten years, would be appropriate for 
recipients of support awarded through a competitive bidding process.
    43. The Commission solicits proposals in this Phase II experiment 
from entities seeking either one-time support or recurring support. The 
Commission previously offered two rounds of Phase I incremental support 
to price cap carriers to extend broadband-capable infrastructure in 
unserved areas. The Commission now wishes to explore the possibility of 
providing one-time support on a competitive basis to extend broadband-
capable networks in areas where providers expect to cover their ongoing 
operating costs with end user and other sources of revenue. The 
experiment will help the Commission determine the extent to which 
parties may be willing to build out broadband in certain areas with 
one-time rather than recurring support.
    44. The Commission concludes that support provided through the 
Phase II experiment may be provided for up to ten years, subject to 
existing requirements and the availability of funds. The Commission is 
persuaded that it is appropriate to provide support for up to ten years 
to those providers that commit to deploy high-speed, scalable, IP-based 
networks that will provide residential consumers, small businesses and 
anchor institutions with an evolving level of service. The Commission 
acknowledges the possibility that over time marketplaces may change, 
and it is possible that some funded areas may see new competitors at 
some point in the future. At the same time, the Commission also 
recognizes that some entities may be unwilling to make the necessary 
long-term investments to build robust future-proof networks in areas 
that are uneconomic to serve absent continued support beyond a five-
year term.
    45. The Commission is not persuaded by those who argue that the 
term of support should be the same for all recipients of Connect 
America support, regardless of whether they receive support based on 
the forward-looking cost model or through competitive bidding. There is 
no inherent reason that the terms of the competitive offer need to be 
identical to the offer of model-based support. Indeed, having different 
terms of support in different areas may provide us with valuable 
information regarding the impact of different rules that will help 
inform future policy decisions regarding universal service reforms. In 
particular, in those areas where price cap carriers elect model-based 
support for a term of five years, the Commission will need to decide 
whether and if so how recurring support should be provided after the 
end of the five-year period. By allowing parties submitting proposals 
for the rural broadband experiment to indicate the length of time (up 
to ten years) for which they seek, the Commission hopes to gain real 
world experience that will enable the Commission to evaluate whether 
providers are more willing to deploy future-proof infrastructure when 
assured of a funding stream over a ten-year period as opposed to a 
five-year period. As is true for all high-cost recipients, ETCs that 
receive Phase II support for ten years will be subject to annual 
reporting, including updates on their progress towards meeting their 
planned targets, as well as audits, allowing the Commission to monitor 
the projects during the term. Balancing these considerations, the 
Commission concludes that providing a longer term of support in the 
experiment could provide the Commission with valuable information 
regarding how to elicit greater participation in the Connect America 
Phase II competitive bidding process in price cap territories, which 
will help ensure that funding is targeted efficiently to expand 
broadband-capable infrastructure throughout the country.
e. Other Considerations
    46. The Commission remains committed to the principle of not 
providing duplicative funding in a given geographic area. In the FNPRM, 
the Commission seeks comment on how the selection of projects through 
the competitive bidding experiment should affect the inclusion of those 
areas in the offer of model-based support to price cap carriers or in 
the Connect America Phase II competitive bidding process and can ensure 
that public funds do not substitute for private capital.
    47. The availability of Connect America funding for technology 
transition experiments is subject to the applicable requirements of 
sections 214 and 254 of the Act and will be conditioned on complying 
with all relevant universal service rules that the Commission has 
adopted or may adopt in the future in the relevant rulemaking 
proceedings, including but not limited to ETC requirements to the 
extent that they apply to recipients of high-cost and Lifeline support, 
reporting requirements, audits, and enforcement mechanisms for non-
compliance with rules. In the FNPRM, the Commission seeks comment on 
any additional rules or requirements the Commission should adopt in the 
context of such experiments.

[[Page 11334]]

    48. To the extent applicants believe compliance with a specific 
requirement is not necessary in the context of an experiment, they 
should identify with specificity those rules that should be waived or 
modified. Funding also may be conditioned on compliance with any 
additional commitments made by the applicant in conjunction with its 
application to participate in the Phase II experiment.
2. Next Generation Rural Broadband Experiments in Areas Where the 
Incumbent Is a Rate-of-Return Carrier
    49. The Commission welcomes experiments regarding technology 
transitions in areas served by incumbent rate-of-return carriers as 
well as price cap carriers, as such experiments would provide us with 
valuable information from a variety of geographic areas. As a 
complement to experiments in price cap territories, the Commission 
therefore invites proposals on a competitive basis in geographic areas 
where the incumbent provider is a rate-of-return carrier. The 
Commission intends to implement rural broadband experiments in areas 
served by rate-of-return carriers before the end of 2014, which will 
provide a potential pathway to longer term reforms regarding support 
for broadband-capable infrastructure in such areas.
    50. The Commission recognizes that historically the Commission has 
implemented different universal service mechanisms for the larger price 
cap carriers than for the smaller companies, which are typically rate-
of-return regulated carriers. In the USF/ICC Transformation Order, the 
Commission recognized that smaller rate-of-return carriers ``operate in 
many of the country's most difficult and expensive areas.'' The 
Commission largely preserved the existing support mechanisms, with some 
modifications, rather than implementing the same reforms for both price 
cap carriers and rate-of-return carriers. Instead of the approach 
adopted for price cap carriers--which are required to serve 100 percent 
of locations in specific census blocks deemed eligible for support--it 
implemented a more flexible approach under which rate-of-return 
carriers are required to offer broadband service meeting the initial 
requirement of at least 4 Mbps downstream and 1 Mbps upstream upon 
reasonable request, in recognition of ``the economic challenges of 
extending service in the high-cost areas of the country served by rate-
of-return carriers.''
    51. At the same time, the Commission also concluded that ``all 
universal service high-cost support should ultimately be distributed 
through [Connect America Fund] for all recipients.'' A number of 
parties have specifically urged the Commission to adopt a Connect 
America Fund to support the expansion of broadband in areas served by 
rate-of-return carriers. The Commission wishes to explore the 
possibility of making funding available in such areas in a way that 
would assist the Commission in deciding how to provide targeted and 
efficient support over the longer term. Such a mechanism could 
functionally replace a high-cost mechanism that the Commission decided 
to eliminate and phase out in the USF/ICC Transformation Order, safety 
net additive, which was originally adopted to encourage new investment 
in modern networks. These experiments would not prejudge any future 
actions regarding modifications to the current universal service 
mechanisms available to incumbent rate-of-return carriers.
    52. In implementing any experiments in areas served by rate-of-
return carriers, the Commission recognizes the statute expressly 
contemplates a different process for ETC designation in areas served by 
rate-of-return carriers than it does in areas served by incumbent price 
cap carriers. Section 214(e)(2) specifies that before designating an 
additional eligible telecommunications carrier for an area served by a 
rural telephone company, the State commission shall find that the 
designation is in the public interest. The relevant State and the 
Commission must agree on any service area redefinition that would 
create a service territory for a new ETC that is different than the 
incumbent's service area. In implementing Phase I of the Mobility Fund, 
the Commission adopted a limited forbearance from requiring that the 
service area of an ETC conform to the service area of any rural 
telephone company serving the same area, but only with respect to 
conditional ETC designations for participating in the Mobility Fund 
Phase I auction. The Commission concluded that forbearance in that 
situation advanced ``the Act's and the Commission's goals of promoting 
access to mobile service over current and next generation wireless 
networks in areas currently without such service by reducing barriers 
to participation in Phase I of the Mobility Fund.''
    53. The Commission is interested in assessing the level of interest 
among rate-of-return carriers in participating in a rural broadband 
experiment, but also are interested in expressions of interest from 
others as well. As with the Phase II experiment, interested parties may 
file a letter in WC Docket No. 10-90 no later than March 7, 2014, 
expressing their interest in conducting a rural broadband experiment in 
rate-of-return territories with Connect America funding. The Commission 
also will consider additional expressions of interest on a rolling 
basis after that date. All expressions of interest must be filed 
electronically. Consistent with the approach adopted for experiments in 
price cap territories, experimental funding would only be provided to 
entities in rate-of-return areas that are ETCs, and therefore to the 
extent a non-ETC is tentatively selected for the award of funding, it 
would then need to obtain ETC designation. As an ETC, it would be 
required to provide the supported service--voice telephony--at rates 
reasonably comparable to rates for similar services in urban areas.
    54. The Commission emphasizes that participation in this experiment 
will not alter existing universal service obligations and receipt of 
support by current rate-of-return ETCs, regardless of whether a 
competitive ETC receives experimental support in the same service area. 
Any Connect America funding awarded in such a rural broadband 
experiment would be additive to current support for ETCs.
    55. The Commission seeks comment in the FNPRM on a number of 
issues, including whether to implement a staggered implementation 
schedule for formal proposals in rate-of-return areas and whether to 
modify the process for experiments in rate-of-return study areas 
compared with how the Commission implements experiments in price cap 
territories.
3. Non-Substantive Rule Amendments
    56. The Commission now amends the Code of Federal Regulations to 
eliminate current section 54.309 (which described the non-rural support 
mechanism that the Commission eliminated in the USF/ICC Transformation 
Order) and replace that section with a new section 54.309 and 54.310 to 
address Phase II. The new rule sections codify decisions previously 
made by the Commission in the USF/ICC Transformation Order regarding 
the offer of model-based support to price cap carriers, the deployment 
schedule for Phase II, and the Phase II service obligations.

III. Procedural Matters

1. Paperwork Reduction Analysis

    57. The Report and Order contains modified information collection 
requirements subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. It will be submitted to the Office of Management and 
Budget

[[Page 11335]]

(OMB) for review under section 3507(d) of the PRA. OMB, the general 
public, and other Federal agencies are invited to comment on the new or 
modified information collection requirements contained in this 
proceeding. In addition, the Commission notes that pursuant to the 
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), we previously sought specific comment on how the 
Commission might further reduce the information collection burden for 
small business concerns with fewer than 25 employees.
    58. In this present document, the Commission has assessed the 
effects of modifying reporting rules, and find that doing so does not 
change the burden on small businesses with fewer than 25 employees.

2. Congressional Review Act

    59. The Commission will send a copy of this Report and Order to 
Congress and the Government Accountability Office pursuant to the 
Congressional Review Act.

3. Final Regulatory Flexibility Certification

    60. The Regulatory Flexibility Act (RFA) requires that agencies 
prepare a regulatory flexibility analysis for notice-and-comment 
rulemaking proceedings, unless the agency certifies that ``the rule 
will not have a significant economic impact on a substantial number of 
small entities.'' The RFA generally defines ``small entity'' as having 
the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' In addition, 
the term ``small business'' has the same meaning as the term ``small 
business concern'' under the Small Business Act. A small business 
concern is one which: (1) Is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) satisfies any 
additional criteria established by the SBA.
    61. This Report and Order codifies rules adopted by the Commission 
in USF/ICC Transformation Order. This action does not create any 
burdens, benefits, or requirements that were not addressed by the Final 
Regulatory Flexibility Analysis attached to USF/ICC Transformation 
Order. Therefore, we certify that the action taken in this Report and 
Order will not have a significant economic impact on a substantial 
number of small entities. The Commission will send a copy of the Order, 
including a copy of this final certification, in a report to Congress 
pursuant to SBREFA. In addition, the Report and Order and this 
certification will be sent to the Chief Counsel for Advocacy of the 
SBA, and will be published in the Federal Register.

IV. Ordering Clauses

    62. Accordingly, it is ordered, that pursuant to the authority 
contained in sections 1, 2, 4(i), 201-206, 214, 218-220, 251, 252, 254, 
256, 303(r), 332, 403 of the Communications Act of 1934, as amended, 
and section 706 of the Telecommunications Act of 1996, 47 U.S.C. 151, 
152, 154(i), 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 
403, and 1302, and sections 1.1 and 1.421 of the Commission's rules, 47 
CFR 1.1, 1.421, this Report and Order in WC Docket No. 10-90 is 
adopted, effective thirty (30) days after publication of the text or 
summary thereof in the Federal Register, except for those rules and 
requirements involving Paperwork Reduction Act burdens, which shall 
become effective immediately upon announcement in the Federal Register 
of OMB approval, and except for the solicitation of non-binding 
expressions of interest in rural broadband experiments specified in 
paras. 24 and 53, which are effective upon release. It is our intention 
in adopting these rules that, if any of the rules that we retain, 
modify or adopt today, or the application thereof to any person or 
circumstance, are held to be unlawful, the remaining portions of the 
rules not deemed unlawful, and the application of such rules to other 
persons or circumstances, shall remain in effect to the fullest extent 
permitted by law.
    63. It is further ordered, that part 54 of the Commission's rules, 
47 CFR part 54, is amended as set forth in Appendix A of the order, and 
such rule amendments shall be effective March 31, 2014, except Sec.  
54.313(e)(1) through (3) which contain new or modified information 
collection requirements that will not be effective until approved by 
the Office of Management and Budget. The Federal Communications 
Commission will publish a document in the Federal Register announcing 
the effective date for those sections.
    64. It is further ordered, that the Commission shall send a copy of 
this Report and Order in WC Docket No. 10-90 to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    65. It is further ordered, that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order in WC Docket No. 10-90, including the 
Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Reporting and recordkeeping 
requirements, Telecommunications, Telephone.

Federal Comunications Commission.
Marlene H. Dortch,
Secretary.

Final Rule

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation for part 54 continues to read as follows:

    Authority: Sections 1, 4(i), 5, 201, 205, 214, 219, 220, 254, 
303(r), and 403 of the Communications Act of 1934, as amended, and 
section 706 of the Communications Act of 1996, as amended; 47 U.S.C. 
151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403, and 
1302 unless otherwise noted.


0
2. Revise Sec.  54.309 to read as follows:


Sec.  54.309  Connect America Fund Phase II Public Interest 
Obligations.

    (a) A price cap carrier electing Phase II model-based support is 
required to provide broadband service at actual speeds of at least 4 
Mbps downstream/1 Mbps upstream, with latency suitable for real-time 
applications, including Voice over Internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonable comparable to rates for comparable 
offerings in urban areas.
    (b) In addition, a price cap carrier electing Phase II model-based 
support is required to provide broadband service with actual speeds of 
at least 6 Mbps downstream to a specified number of locations, and 
upstream speeds of at least 1.5 Mbps to a specified number of 
locations, as determined by the Wireline Competition Bureau.

0
3. Add Sec.  54.310 to read as follows:


Sec.  54.310  Connect America Fund for Price Cap Territories--Phase II

    (a) Geographic areas eligible for support. Connect America Phase II 
support may be made available for census blocks or other areas 
identified as eligible by public notice. The number of supported 
locations will be identified for each area eligible for support will be 
identified by public notice.
    (b) Term of support. Connect America Phase II model-based support 
shall be provided to price cap carriers that elect

[[Page 11336]]

to make a state-level commitment for five years.
    (c) Deployment schedule. Recipients of Phase II funding must 
complete deployment to 85% of supported locations within three years of 
notification of Phase II support authorization and to 100% of supported 
locations within five years of notification of Phase II support 
authorization. For purposes of meeting the obligation to deploy to the 
requisite number of supported locations, incumbent price cap carriers 
accepting a state-level commitment may serve locations in census blocks 
with costs above the extremely high-cost threshold instead of locations 
in eligible census blocks, provided that they meet the public interest 
obligations set forth in Sec.  54.309 for those locations, and provided 
that the total number of locations covered is greater than or equal to 
the number of locations in the eligible census blocks for which the 
state-level commitment is made.
    (d) Disbursement of Phase II funding. An eligible 
telecommunications carrier will be advised by public notice when it is 
authorized to receive support. The public notice will detail how 
disbursements will be made.

0
4. In Sec.  54.313, revise paragraphs (e)(1), (e)(2) and (e)(3) 
introductory text to read as follows:


Sec.  54.313  Annual reporting requirements for high-cost recipients

* * * * *
    (e) * * *
    (1) In the calendar year no later than three years after 
notification of authorization of CAF Phase II funding, a certification 
that the recipient is providing broadband meeting the requisite public 
interest obligations specified in Sec.  54.309 to 85% of its supported 
locations.
    (2) In the calendar year no later than five years after 
notification of authorization of CAF Phase II funding, a certification 
that the recipient is providing broadband meeting the requisite public 
interest obligations specified in Sec.  54.309 to 100% of its supported 
locations.
    (3) In the calendar year after the filing of its initial five-year 
service quality improvement plan, and every year thereafter, a progress 
report on the company's five-year service quality improvement plan, 
including the following information:
* * * * *
[FR Doc. 2014-04313 Filed 2-27-14; 8:45 am]
BILLING CODE 6712-01-P