Federal Register, Volume 79 Issue 151 (Wednesday, August 6, 2014)

[Federal Register Volume 79, Number 151 (Wednesday, August 6, 2014)]
[Rules and Regulations]
[Pages 45705-45728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18328]

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 14-58; FCC 14-98]

Connect America Fund, ETC Annual Reports and Certifications

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission
(Commission) finalizes decisions to use on a limited scale Connect
America funding for rural broadband experiments in price cap areas that
will deploy new, robust broadband to consumers. The Commission will use
these rural broadband experiments to explore how to structure the Phase
II competitive bidding process in price cap areas and to gather
valuable information about interest in deploying next generation
networks in high-cost areas.

DATES: Effective September 5, 2014, except for the application process
and reporting requirements that contain new or modified information
collection requirements that will not be effective until approved by
the Office of Management and Budget. The Commission will publish a
document in the Federal Register announcing OMB approval.

FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition
Bureau, (202) 418-7400 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order in WC Docket Nos. 10-90, 14-58; FCC 14-98, adopted on July
11, 2014 and released on July 14, 2014. The full text of this document,
including all appendices, 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://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0714/FCC-14-98A1.pdf. The Further Notice of Proposed Rulemaking
(FNPRM) that was adopted concurrently with the Report and Order will be
published elsewhere in the Federal Register.

I. Introduction

1. Today the Commission takes further steps to implement the
Connect America Fund to advance the deployment of voice and broadband-
capable networks in rural, high-cost areas, including extremely high-
cost areas, while ensuring that rural Americans benefit from the
historic technology transitions that are transforming our nation's
communications services. The Commission finalizes decisions to use on a
limited scale Connect America funding for rural broadband experiments
in price cap areas that will deploy new, robust broadband to consumers.
The Report and Order (Order) establishes a budget for these experiments
and an objective, clear cut methodology for selecting winning
applications, building on the record from the Tech Transitions FNPRM,
79 FR 11366, February 28, 2014. The Commission describes the
application process and announces that formal applications must be
submitted by 90 days from release of the Order. The Commission will use
these rural broadband experiments to explore how to structure the Phase
II competitive bidding process in price cap areas and to gather
valuable information about interest in deploying next generation
networks in high-cost areas.

II. Discussion

2. The Commission explained in the Tech Transitions Order, 79 FR
11327, February 28, 2014, that it must ``ensure that all Americans
benefit from the technology transitions, and that it gains 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.'' In the Order, the
Commission adopts certain parameters and requirements for the rural
broadband experiments that will assist us with accomplishing these
goals. The Commission expects these experiments to provide critical
information regarding which and what types of parties are willing to
build networks that will deliver services that exceed our current
performance standards for an amount of money equal to or less than the
support amounts calculated by the adopted Phase II Connect America Cost
Model. In addition to gathering information relevant to broader
questions implicated by technology transitions, the Commission expects
these experiments also will inform key decisions that the Commission
will be making in the coming months regarding the Connect America Fund.
The experiments will not delay implementation of Connect America Phase
II or further reforms for rate-of-return carriers. The Commission still
expects to implement the offer of model-based support to price cap
carriers in the coming months, and it will resolve how the Connect
America Fund will address the challenges of providing service to the
most remote, difficult to serve areas of the country. In addition, in
the coming months, the Commission expects to be considering near-term
reforms for rate-of-return carriers, based on the record it will
shortly receive in response to the recent Connect America Fund FNPRM,
79 FR 39196, July 9, 2014, while it continues to develop a Connect
America Fund for those carriers.
3. The Commission adopts a budget of $100 million for funding
experiments in price cap areas focused on bringing robust, scalable
broadband networks to residential and small business locations in rural
communities that are not served by an unsubsidized competitor that
offers voice and Internet access delivering at least 3 Mbps downstream/
768 kbps upstream. As explained in detail below, the funding will be
available to serve locations in both high-cost and extremely high-cost
areas, thereby advancing our implementation of both Phase II and the
Remote Areas Fund. The Commission also determines the objective
methodology for selecting projects among the applications it receives
for the experiments. Given the manner in which the Commission has
structured the budget and the selection criteria, it believes that it
will be able to fund a range of diverse projects throughout the
country. Finally, the Commission outlines the conditions that entities
participating in the experiments must meet in order to continue to
receive such support, including specific eligibility, build-out and
accountability requirements, and establish the measures to ensure
compliance with these conditions.
4. In the Technology Transitions Order, the Commission noted our
desire to work cooperatively with other governmental entities to
advance our shared objectives of ensuring access to broadband services.
The Commission noted that it was ``particularly interested in how
States, localities, Tribal governments, and other non-federal
governmental bodies can provide assistance, through matching

[[Page 45706]]

funds, in-kind contributions or other regulatory approvals and permits,
to improve the business case for deployment of next generation
networks.'' The Commission will be monitoring the progress of the
selected projects and hope that they may serve as case studies for best
practices in how coordinated governmental action can improve the
business case for the delivery of broadband services in rural, high-
cost areas. The Commission also seeks comment in the concurrently
adopted FNPRM regarding measures the Commission could take in the Phase
II competitive bidding process to create incentives for state and other
governmental entities to contribute funding to support the extension of
broadband-capable networks.

A. Budget

5. In the Tech Transitions FNPRM, the Commission sought comment on
the amount of support it should make available for the rural broadband
experiments. Here, the Commission adopts a budget of $100 million for
funding experiments. The Commission previously authorized two rounds of
$300 million Connect America Phase I funding to quickly bring broadband
to unserved communities in price cap territories. The Commission now
concludes it is appropriate to provide another round of funding in
price cap territories that will advance our swift implementation of
Phase II.
6. The Commission concludes that adopting a budget of $100 million
for these rural broadband experiments will best balance our priorities
and policy goals. Specifically, this budget should solicit meaningful
interest among a range of entities that will enable us to examine, on a
limited scale, key policy questions the Commission identified in the
Tech Transitions Order. The Commission intends to test on a limited
scale the use of a competitive bidding process to award support to
provide robust broadband to serve fixed locations using both wireline
and wireless technologies. Although many parties claim that the
Commission should maximize the number of experiments that get funding
and advocate adoption of a budget that exceeds the $100 million the
Commission adopts today, it notes that the Commission's goal is not to
fund as many experiments as possible, but rather to advance
implementation of the Connect America Fund. The Commission is mindful
of our commitment not to delay the implementation of Phase II. It could
be administratively burdensome to oversee the necessary steps to
authorize a large number of experiments, which likely would divert
Commission resources from resolving broader policy issues regarding
implementation of the Connect America Fund in both price cap and rate-
of-return areas. Instead, the Commission's goal is to quickly gather
data from submitted formal proposals about various technologies in
different geographic areas to inform our judgment as it addresses
important policy issues regarding how to maintain universal access in
rural areas during technology transitions. The Commission's expect that
what it learns from the formal applications and selection process will
inform our decisions in the coming months as to how to implement a
Phase II competitive bidding mechanism that will maximize the
participation of a variety of entities and use targeted funding to
expand efficiently the availability of voice and broadband-capable
infrastructure.
7. Source of Funds. As the Commission proposed in the Tech
Transitions FNPRM, the funding for the rural broadband experiments will
be drawn from the Connect America reserve account, which is projected
to have approximately $220 million in funding as of the third quarter
of 2014 that has not already been allocated to a specific program. The
Commission finds that using the reserve account to fund the experiments
will help achieve the goals the Commission set for the Connect America
Fund. Not only are the experiments themselves designed to encourage the
deployment of robust networks capable of offering voice and broadband
services to consumers in high-cost areas, the experiments will also
help the Commission design the Phase II competitive bidding process and
the Remote Areas Fund to efficiently achieve this goal throughout the
country. Using unallocated support from the reserve account will also
ensure that the Commission will not increase the size of the Universal
Service Fund or Connect America budget, that it will not increase the
contribution burden on consumers, and that it will not divert resources
from other universal service programs. The Commission will consider
appropriate treatment of any unallocated funds in the future.

B. Support Term

8. The Commission concludes that it will focus the experiments on
projects seeking 10 years of recurring support, rather than proposals
for projects seeking one-time support. In the Tech Transitions Order,
the Commission set a general framework for rural broadband experiments.
The Commission adopted a support term of ``up to ten years'' and
indicated that it would accept proposals for one-time or recurring
support. Subsequently, in April, the Commission adopted a support term
of 10 years for the competitive bidding process in the Connect America
Fund Order, 79 FR 39164, July 9, 2014. One of the Commission's primary
objectives for these experiments is to learn how to structure a
competitive bidding process for recurring support. The Commission
therefore concludes that soliciting proposals for projects with the
same 10-year term as will be available to bidders in Phase II will best
inform us regarding the level of interest among potential providers in
the Phase II competitive bidding process. Moreover, permitting entities
to define the length of their support terms would add to the complexity
of administering the experiments.

C. Eligibility

1. Eligible Areas
9. In the USF/ICC Transformation FNPRM, 76 FR 78384, December 16,
2011, the Commission proposed that census blocks should be the minimum
geographic areas for which support will be provided through the Phase
II competitive bidding process, and sought comment on whether using
census tracts, bidder-defined groups, or another approach would best
meet the needs of bidders in the competitive bidding process. A number
of commenters expressed a preference for using the same census blocks
that are subject to the offer of model-based support for the Phase II
competitive bidding process. In the Tech Transitions Order, the
Commission concluded that proposals for rural broadband experiments in
price cap territories would be entertained at the census tract level,
with funding provided only for locations in eligible census blocks as
determined by the Connect America Cost Model. The Commission did so
because it was concerned that making larger geographic areas, such as
counties, the minimum geographic area for an experimental proposal
potentially could deter participation in this experiment from smaller
providers. Census blocks where the model calculated an average cost
that exceeded the likely extremely high-cost threshold were not
excluded from eligibility, allowing applicants to submit proposals to
serve locations in these areas if they determined it was economically
feasible to do so with the assurance of support.
10. The rural broadband experiments, in addition to providing
robust last-mile broadband service to consumers in rural

[[Page 45707]]

communities, will be used to test a potential competitive bidding
process for Phase II, providing us the opportunity to make any
adjustments that may be necessary before full-scale implementation in
Phase II. Based on our review of the expressions of interest, the
Commission now concludes that these objectives will best be realized by
accepting rural broadband experiment proposals in price cap areas at
both the census tract level and the census block level. The Commission
recognizes that some parties may be able to submit cost-effective
proposals that would encompass all of the eligible census blocks within
a tract, and it continues to encourage these parties to file such
proposals. For entities whose current operations do not allow them to
design projects on this scale that make business sense, the Commission
waives the requirement to file proposals at the census tract level. By
accepting proposals at the census block level, the Commission hopes to
provide greater flexibility to parties and encourage a greater number
of entities to participate in the rural broadband experiments. For
example, smaller entities may not be able to serve areas as large as
census tracts, but would be interested in submitting proposals for
smaller neighborhoods that they may already be well positioned to
serve. Permitting applicants to aggregate census blocks themselves,
rather than having to work within the pre-defined framework of census
tracts, will encourage greater participation among these entities.
Moreover, this approach provides an opportunity for entities to engage
in an incremental expansion into neighboring areas, allowing parties to
leverage economies of scale to provide broadband in an efficient manner
that benefits consumers. Finally, allowing rural broadband experiment
proposals on the census block level will help us determine whether the
census block approach that the Commission proposed to use for the Phase
II competitive bidding process is administratively feasible and
straightforward for both Commission staff and applicants.
11. Proposals must be for census blocks eligible for funding in the
rural broadband experiments with a cost per location exceeding the
Connect America Phase II funding threshold ($52.50), but below the
extremely high-cost threshold ($207.81), and not served by an
unsubsidized competitor offering voice service and Internet access
providing 3 Mbps downstream/768 kbps upstream as identified by the
National Broadband Map. The Commission requires applicants to commit to
serving the total number of price cap locations in a given census
block. For instance, if a census block has 100 total locations, with 50
of those locations eligible for funding, an entity must commit to serve
100 locations, with the understanding that the support amount
determined by the cost model covers only those 50 eligible locations.
Entities also may choose to include additional locations in adjacent
census blocks where the average cost per location exceeds the extremely
high-cost threshold if they determine that it is economically feasible
to do so with the support they are requesting for the eligible census
block.
12. In the Tech Transitions FNPRM, the Commission sought comment on
whether to allow applicants to propose to serve partially-served census
blocks, which are not eligible for the offer of model-based support to
price cap carriers because they are also served by an unsubsidized
competitor. After reviewing the record, the Commission concludes that
the complexity of implementing such an approach would likely delay
implementation of the experiments. As NCTA notes, allowing entities to
bid on partially-served census blocks would likely substantially
increase the challenges of administering the experiments, given the
lack of a reliable source of data on broadband availability below the
census block level. Further, CenturyLink observes that allowing
partially-served blocks would require the Commission to adjust model-
based support amounts and conduct a challenge process. Because doing so
would add complexity and time, as well as divert Commission attention
and resources, the Commission declines to allow applicants to propose
to serve partially-served census blocks. Our focus for the experiments
at this point is to advance the deployment of next generation networks
to areas unserved by an unsubsidized competitor as quickly and
efficiently as possible and to understand how the Phase II competitive
bidding process should be best fashioned. Allowing applicants to bid on
partially-served census blocks would pose a number of administrative
burdens on Commission staff, and the potential obstacles to conducting
sub-census block challenges for these experiments outweigh the marginal
benefits.
13. The Commission also decides that it will accept rural broadband
experiment proposals only from entities that seek to provide service in
price cap territories. Over the coming months, the Commission will be
focused on reviewing the record it will shortly receive regarding near
term and longer term reforms to develop a Connect America Fund for
rate-of-return carriers. The Commission believes it is prudent to focus
our efforts on these issues, rather than confronting the many difficult
issues associated with the potential implementation of rural broadband
experiments in rate-of-return areas.
14. The Commission sought comment in the Tech Transitions FNPRM on
whether to adjust the offer of support for a Phase II state-level
commitment if rural broadband experiment funding is awarded prior to
the offer of model-based support to price cap carriers. A number of
commenters supported this proposal. The Commission adopts this
approach, concluding that it furthers our policy of not providing
duplicative support in a given area. Specifically, once winning bidders
are identified, the Wireline Competition Bureau (the Bureau) will
remove the relevant census blocks from the list of eligible census
blocks and make additional census blocks available by raising the
extremely high-cost threshold so as to maintain the overall the Phase
II budget. The Commission also determines that it will exclude any area
funded through the rural broadband experiments from the Phase II
competitive bidding process.
15. The Commission concludes that areas served by competitive
eligible telecommunications carriers (ETCs) will be eligible for
support in the rural broadband experiments. The Commission notes that
it received a number of expressions of interest from competitive
affiliates of rate-of-return carriers operating out of region in price
cap territories, and it recognizes that these carriers may be
interested in submitting rural broadband experiment proposals, alone or
in partnership with other entities. The Commission is interested in
learning the extent of interest among competitive ETCs to provide fixed
voice and broadband services to the home with recurring support, using
both wireline and wireless technologies.
16. The Commission has concluded that competitive ETCs awarded
support through the Phase II competitive bidding process will cease to
receive legacy phase-down support for those specific areas upon
receiving their Phase II support. This rule will apply to participants
in the rural broadband experiments, given the rural broadband
experiments represent the first step of implementing a competitive
bidding process for Phase II support in price cap territories. The
Commission believes it is important to implement the measures that the
Commission has already adopted for the Phase II competitive

[[Page 45708]]

bidding process to the extent possible in these experiments.
2. Applicant Eligibility
17. The Commission concluded in the Tech Transitions Order that it
would encourage participation in the rural broadband experiments from a
wide range of entities--including competitive local exchange carriers,
electric utilities, fixed and mobile wireless providers, WISPs, State
and regional authorities, Tribal governments, and partnerships among
interested entities. The Commission was encouraged to see the diversity
in the expressions of interest submitted by interested parties. Of the
more than 1,000 expressions of interest filed, almost half were from
entities that are not currently ETCs, including electric utilities,
WISPS, and agencies of state, county or local governments.
18. The Commission reminds entities that they need not be ETCs at
the time they initially submit their formal proposals for funding
through the rural broadband experiments, but that they must obtain ETC
designation after being identified as winning bidders for the funding
award. As stated in the Tech Transitions Order, the Commission expects
entities to confirm their ETC status within 90 days of the public
notice announcing the winning bidders selected to receive funding. Any
winning bidder that fails to notify the Bureau that it has obtained ETC
designation within the 90 day timeframe will be considered in default
and will not be eligible to receive funding for its proposed rural
broadband experiment. Any funding that is forfeited in such a manner
will not be redistributed to other applicants. The Commission concludes
this is necessary so that it can move forward with the experiments in a
timely manner. However, a waiver of this deadline may be appropriate if
a winning bidder is able to demonstrate that it has engaged in good
faith to obtain ETC designation, but has not received approval within
the 90-day timeframe.
19. The Commission sought comment in the Tech Transitions FNPRM on
whether to adopt a presumption that if a state fails to act on an ETC
application from a selected participant within a specified period of
time, the state lacks jurisdiction over the applicant, and the
Commission will address the ETC application. Multiple commenters
supported this proposal. The Commission now concludes that, for
purposes of this experiment, if after 90 days a state has failed to act
on a pending ETC application, an entity may request that the Commission
designate it as an ETC, pursuant to section 214(e)(6). Although the
Commission is confident that states share our desire to work
cooperatively to advance broadband, and it expects states to
expeditiously designate qualified entities that have expressed an
interest in providing voice and broadband to consumers in price cap
areas within their states, the Commission also recognizes the need to
adopt measures that will provide a pathway to obtaining ETC designation
in situations where there is a lack of action by the state.
3. Three Types of Experiments
20. The $100 million budget for the rural broadband experiments in
price cap territories will be divided into three separate categories:
$75 million for projects meeting very high performance standards; $15
million for projects meeting specified minimum performance standards
that exceed the Commission's current standards; and $10 million for
projects dedicated to serving extremely high-cost locations. Below, the
Commission outlines the performance standards that entities interested
in participating in the rural broadband experiments must meet or exceed
in order to be considered for funding in each category.
21. The Commission stated in the Tech Transitions Order that its
focus for the rural broadband experiments was to deploy robust,
scalable networks in rural areas not served by an unsubsidized
competitor offering voice service and Internet access that delivers 3
Mbps downstream/768 kbps upstream. To test whether providers are
willing and able to deliver services with performance characteristics
in excess of the current minimum standards that price cap carriers
accepting model-based support are required to offer to all funded
locations, the Commission will require all recipients of funding in the
rural broadband experiments to offer, at a minimum, at least one
standalone broadband service plan more robust that the Commission's
current standard of 4 Mbps downstream/1 Mbps upstream to all locations
within the selected census blocks, with a specific amount of usage at a
price no higher than the reasonable comparability benchmarks for voice
service and broadband service, and that meets defined quality
standards. The extent to which parties file formal proposals committing
to meet these standards in the rural broadband experiments might
provide information relevant for the decisions the Commission expects
to make in the coming months regarding proposals set forth in the
Connect America Fund FNPRM.
22. Given the number of providers that submitted expressions of
interest for projects of significant size to deploy fiber to the
premises, and to ensure that our budget permits the selection of
several such projects to ensure diversity, the Commission makes the
largest amount of funding--$75 million--available for projects seeking
to meet very high performance standards. These projects must propose to
deploy a network capable of delivering 100 Mbps downstream/25 Mbps
upstream, while offering at least one service plan that provides 25
Mbps downstream/5 Mbps upstream to all locations within the selected
census blocks. Recipients must provide usage and pricing that is
reasonably comparable to usage and pricing available for comparable
wireline offerings (i.e., those with similar speeds) in urban areas,
and latency no greater than 100 milliseconds (ms).
23. The Commission will make $15 million available for projects
where the provider would offer at least one service plan that provides
10 Mbps downstream/1 Mbps upstream to all locations within the selected
census blocks. This service plan also must offer at least a 100 GB
usage allowance, no more than 100 ms of latency, and meet the
reasonable comparability benchmarks for the pricing of voice and
broadband.
24. The Commission also is interested in learning more about the
extent of provider interest in serving extremely high-cost census
blocks, as defined by the Connect America Cost Model. The Commission
will make $10 million available for projects exclusively in such areas
that propose to offer services delivering 10 Mbps downstream/1 Mbps
upstream, with 100 GB of usage and a price that meets our reasonable
comparability benchmarks. Projects seeking funding in this category
must propose to serve all the locations within the extremely high-cost
block or blocks on which the applicant bids. These projects also must
propose to serve only extremely high-cost census blocks; a project will
not become eligible for this category if it proposes to serve one
extremely high-cost census block as part of a larger project to serve
other eligible census blocks. The Commission expects to receive a
number of creative proposals that will inform us as to the types of
technologies that entities can most efficiently deploy to serve
extremely high-cost areas, while still meeting the proposed minimum
performance standards. For example, the Commission hopes to learn more
about interest in the deployment of various fixed wireless solutions,

[[Page 45709]]

including broadband services using TV white space and/or hybrid
solutions that combine fiber and fixed wireless technologies to offer
broadband services in extremely high-cost areas.
25. Satellite providers that are interested in serving extremely
high-cost locations may submit proposals for participation in the rural
broadband experiments. The Commission recognizes, however, that these
providers may not be able to satisfy the 100 ms latency standard that
it establishes for the other two groups. Therefore, the Commission will
use other metrics for voice quality in the context of these
experiments. Specifically, any winning satellite provider may satisfy
our requirements for quality of voice service by demonstrating it can
provide voice service that meets a Mean Opinion Score (MOS) of four or
greater.

D. Selection Methodology and Bidding Process

1. Selection Criteria
26. In the Tech Transitions FNPRM, the Commission sought comment on
four types of selection criterion for the rural broadband experiments
and proposed that cost-effectiveness should be the primary criteria in
evaluating which applications to select. The Commission noted that one
potential measure of cost-effectiveness is whether the applicant
proposes to serve an area for an amount less than model-based support.
27. Based on further consideration and our review of the record,
the Commission concludes that it should select winning bidders based on
objective measures of cost-effectiveness, rather than using a more
complicated scheme of weighting or scoring applications on multiple
dimensions. Because the Commission has structured our selection process
to choose experiments from three separate categories, it expects to
select a diversity of projects in terms of geography and technologies.
Recognizing unique challenges in serving Tribal lands, the Commission
provides a bidding credit for entities that propose projects that will
serve only Tribal census blocks, which will have the effect of making
such projects more cost-effective relative to proposals from other
entities. Rather than using subjective criteria to evaluate the
financial and technical qualifications of each applicant before
selection, the Commission requires selected applicants to submit
additional information demonstrating that they have the technical and
financial qualifications to successfully complete their proposed
projects within the required timeframes.
28. The Commission concludes that it should use cost-effectiveness
to select applications, and it will calculate this measure in two ways
for different categories of applications. As detailed below, for those
applications proposing to serve census blocks identified by the Connect
America Cost Model as eligible for Phase II support, the Commission
will compare requested amounts to model-based support amounts. For
applications proposing to serve only census blocks the model identifies
as ``extremely high-cost,'' for which there is no model-determined
level of support, the Commission will select applications based on the
lowest-cost per location. The Commission finds that using these
objective, straightforward, and easily measurable criteria will best
meet our goals to efficiently distribute support in these experiments
and to test on a limited scale a competitive bidding process that can
be implemented quickly to inform our decisions regarding how to design
the Phase II competitive bidding mechanism. The Commission sought
comment in the Tech Transitions FNPRM on ways to leverage non-Federal
governmental sources of funding, but the record was insufficient for us
to determine how best to implement measures that would create
incentives for non-Federal governmental entities to assist in advancing
universal service. The Commission seeks more focused comment in the
concurrently adopted FNPRM on the use of bidding credits in the Phase
II competitive bidding process that will occur after the offer of
model-based support to price cap carriers.
29. Many commenters agree that cost-effectiveness should be the
primary, or even only, criterion in evaluating which applications to
select, although some commenters advocate for an approach that would
select winning bidders based on the lowest cost per location without
comparison to model-based support. The Commission concludes that it
should use cost-effectiveness--defined as requested dollars per
location divided by model-based support per location--to select
applications in categories one and two. The Commission recognizes that
it could potentially extend the availability of broadband-capable
networks to more locations if it were to use only lowest-cost per
location to select projects in all three groups. In addition to using
our limited budget for these rural broadband experiments efficiently,
however, the Commission also hopes to select projects in a variety of
geographic areas. Using lowest-cost alone would likely result in
selecting proposals for experiments with similar cost characteristics--
specifically, those areas that just barely meet the threshold for being
``high-cost.'' By selecting winning bidders based on the ratio of
requested support to support calculated by the cost model, the
Commission expects to award funding to projects in areas with varying
cost profiles, with greater geographic diversity, which will be
informative to our consideration of the impact of technology
transitions in different parts of the country. Moreover, comparing the
amounts bid to the model-determined support will enable us to test the
use of the cost model for purposes of setting reserve prices for future
implementation of the Phase II competitive bidding process.
30. Some commenters suggest that the Commission should measure
cost-effectiveness in relation to broadband speeds. The Commission
concludes that the approach it adopts today, however--setting aside the
largest portion of our budget for those projects proposing to meet very
high performance standards--is a more straightforward method of
encouraging the deployment of robust, scalable networks in areas that
would be eligible for Phase II support and testing the extent of
interest in deploying such networks in these areas. Directly including
robustness as a selection criterion would increase the complexity of
the competitive bidding process by requiring the Commission to
determine how much of a bidding credit should be provided for proposals
offering service at different speeds.
31. For purposes of evaluating cost-effectiveness in comparison to
the model, among applicants in each of the first two experiment
categories, the Commission will calculate the ratio of requested
support per location to model-based support per location in the census
blocks the applicant proposes to serve. First, the Commission will
divide the total amount of support requested for each proposal by ten
so it can compare proposals to annual model-based support amounts. Then
the Commission will calculate each proposal's requested support per
location and divide that number by the model-based support per
location. Using these ratios, the Commission will rank the proposals
from the lowest to highest in each category--where the lowest ratio
indicates the greatest cost-effectiveness--and select those projects
with the lowest ratio within the $75 million budget for the first
category of projects, and within the $15 million budget for the second
category of projects.

[[Page 45710]]

32. As discussed above, support recipients are required to offer
the requisite service to the total number of locations in the census
blocks that they propose to serve, but may choose to add some locations
in adjacent census blocks with costs above the extremely high-cost
threshold. The Commission anticipates that there may be areas in which
a provider can cost-effectively provide service in extremely high-cost
census blocks that are adjacent to funded census blocks. To encourage
entities to do so, the Commission will permit applicants that commit to
serve locations in extremely high-cost census blocks (which receive no
model-based support) to add these locations to the calculation of their
requested support per location for the project. The effect of including
these extremely high-cost locations would be to lower the support per
location of the project and improve the overall cost-effectiveness.
33. For purposes of evaluating proposals in category three, the
Commission will calculate the cost per location, and rank these
applications on a dollar requested per location basis, from lowest to
highest. The Commission will select projects based on the lowest cost
per location, until the budget is exhausted. Parties that submit
proposals for both category one or two along with a proposal for
category three may identify their category three proposal as contingent
on their being a winning bidder for a category one or two proposal. In
that case, a party that would otherwise be selected in category three
based on its cost-effectiveness score, but that fails to win for a
category one or two proposal, would not win; instead, the next most
cost-effective proposal in category three would be selected.
34. No census block will receive support from more than one
proposal. Accordingly, once a proposal has been selected, any other
proposals that would cover any of the census blocks in the selected
proposals will no longer be eligible. The Commission does not
anticipate that our evaluation criteria will result in ties among
winners, but if two or more applications result in identical rankings
of cost-effectiveness, the Commission will select the project that
proposes to serve the most locations if the budget would not permit
funding all the tied proposals. If more than one tied proposal includes
the same census block, the Commission would select the project that
proposes to serve the most locations. In the unlikely event that tied
and overlapping proposals serve the identical number of locations, the
Commission will select the supported project randomly.
2. Measures To Ensure Diversity of Projects
35. Given our interest in testing how a variety of entities use
Connect America funds in various geographic locations, and deploy
different types of technologies, the Commission finds that it will be
advantageous to award support to a diverse group of projects within the
$100 million budget. Below, the Commission adopts certain measures that
aim to ensure that the projects funded through the rural broadband
experiments bring robust broadband networks to the widest range of
price cap areas possible.
36. Funding Limits. There has been a wide variety in the funding
amounts requested by interested entities. To preclude one entity or one
project from exhausting the entire budget, the Commission places limits
on the amount of funding that each project and each entity can receive.
With these limits, the Commission balances our interest in permitting
multiple projects and entities to receive funding, with our interest in
learning from projects that request varying levels of support. By
adopting these per project and per entity limits and deciding to award
support based on cost-effectiveness compared to the model determined
support, the Commission expects that the projects that ultimately win
support will be geographically diverse.
37. First, the Commission adopts project limits for each experiment
category it adopts above to ensure that it awards support to multiple
projects within each category. The Commission places a limit of $20
million per project for those projects submitted to the very high
performance standards category, a limit of $7.5 million per project for
those projects submitted to the minimum performance standards category,
and a limit of $5 million per project for those projects submitted to
the extremely high-cost areas category. The Commission chooses these
numbers to ensure that it is able to select at least two projects in
each category, to provide greater diversity.
38. Second, the Commission adopts an overall limit of $20 million
per entity, including its affiliates. Each entity and its affiliates
will be precluded from being awarded more than $20 million in support
across all three experiment categories. This limit also applies in
situations where an entity is in more than one consortium.
39. Service to Tribal Lands. In the Tech Transitions FNPRM, the
Commission sought comment on including as a selection criterion whether
applicants propose to offer high-capacity connectivity to Tribal lands.
Rather than a separate selection criterion that the Commission would
have to measure against cost-effectiveness, it now concludes that using
a bidding credit is more consistent with the type of objective
selection criteria it is adopting for the experiments and the
Commission's precedent. This is consistent with our Connect America
Fund FNPRM, which sought comment on using bidding credits for service
to Tribal lands.
40. For the purposes of the rural broadband experiments, the
Commission adopts a 25-percent credit for those seeking support for
proposed experiments that serve only Tribal census blocks. The credit
will effectively reduce the bid amount of qualifying experiments by 25
percent for purpose of comparing it to other bids, thus increasing the
likelihood that experiments serving Tribal blocks will receive funding.
This credit will be available with respect to eligible census blocks
located within the geographic area defined by the boundaries of the
Tribal land. As noted above, the Commission directs the Bureau to
release the list of census blocks that will be eligible for this credit
in the rural broadband experiments within 15 days of releasing this
Order. Because the Commission is focused on swiftly implementing these
experiments, it will not entertain any proposals to modify this list.
3. Mechanics of the Bidding Process
41. To participate in the rural broadband experiments, entities
must submit a formal application to the Commission. The formal
application must be submitted no later than 90 days from the release of
the Order. As part of this formal application, entities will be
required to submit confidential bids requesting a certain amount of
support to serve specified census blocks. Additionally, entities will
be required to provide information regarding any agreements or joint
bidding arrangements with other parties, disclose any ownership
interests in or by Commission-regulated companies, declare whether
their project will serve only Tribal census blocks, submit a proposal
containing basic information that would be informative to the general
public and will be released publicly only if they win support, and
certify that they meet certain threshold requirements, including being
in compliance with all the statutory and regulatory requirements and
being financially and technically capable of meeting the required
public interest

[[Page 45711]]

obligations in each area they seek support.
42. The Commission requires all entities submitting proposals to
utilize a FCC Registration Number (FRN) to ensure that each application
has a unique identifier. Any entity that currently does not have a FRN
must first register with the Commission's ``Commission Registration
System'' (CORES), upon which it will be assigned a FRN. In the case of
multiple entities forming a partnership to submit a single bid, the
Commission requires only one entity in the partnership to be registered
with a FRN.
43. Entities must specify the type of project for which they are
submitting a proposal (i.e., very high performance, minimum
performance, or extremely high-cost). Entities may choose to submit
multiple proposals in the same category, as well as different proposals
in multiple categories. However, in determining who is the winning
bidder for funding in each category, proposals will only be compared to
proposals in the same category, i.e., a proposal to serve census blocks
with very high performance service will only be compared against other
proposals in that category if the applicant chose not to submit the
proposal in another category. Proposals that do not meet the criteria
for selection in one category will not be automatically considered in
another group. For example, if an entity proposes to serve certain
census blocks with very high performance service, but is not a winning
bidder for funding in that category, that project will not be
considered for funding in the minimum performance category, even if it
might be a winning bidder for that category.
44. Entities must provide the census block IDs for each census
block they propose to serve, the number of eligible locations
determined by the model in each of those blocks, and the total amount
of support they request. The Commission notes that, even if an entity
is proposing to serve the entire census tract, it must list the IDs of
all the census blocks within that tract. As noted above, the Bureau
will release the list of eligible census blocks, the associated number
of locations eligible for funding in each block, and the associated
amount of support by block. The amount of funding made available for
any experiment will not exceed the amount of model-calculated support
for the given geographic area. Applications with a total request for
funding that exceeds the model-based support calculation will not be
considered. Therefore, the Commission expects entities to consult the
list released by the Bureau to ensure that bids on any group of census
blocks do not exceed the amount of support calculated by the model to
serve those census blocks.
45. The formal proposal should include background information on
the applicant and its qualifications to provide voice and broadband
service; a description of the proposed project, service area, planned
voice and broadband service offerings, and technology to be used; and
the number of locations, including community anchor institutions,
within the project area. As the Commission noted in the Tech
Transitions Order, rural areas are home to a higher proportion of low-
income Americans. The Commission seeks to learn how providers intend to
serve low-income consumers if they receive rural broadband experiment
support. Thus, the formal proposal should include a description of what
Lifeline services the applicant intends to offer if awarded support,
whether it will have a broadband offering for low-income consumers, and
whether it will permit qualifying consumers to apply the Lifeline
discount to bundled voice and data services.
46. The information in the formal proposal will not be used to
select winning bidders; as discussed above, winning bidders will be
selected solely on their numerical score. All bids for the rural
broadband experiments will be considered confidential, and bidders
should not disclose their bids to other bidders. However, once the
Bureau has issued a public notice listing the winning bidders, the
winning bidders' proposals will be released to the public. The
Commission concludes that making the winning bidders' proposals public
will provide an increased level of transparency and enable parties
outside the process to hold winning bidders publicly accountable for
not fulfilling the requirements of the experiments. However, all other
proposals will remain confidential, pending the completion of the Phase
II competitive bidding process, in order to prevent these proposals
from affecting a potential bidder's behavior in the Phase II
competitive bidding process.
4. Post-Selection Review
47. The Bureau will issue a public notice identifying the winning
bidders, as specified above, that may be authorized to receive support
and the list of census blocks included in their proposed projects,
which are presumptively unserved by an unsubsidized competitor. As the
Commission determined in the Tech Transitions Order, the Bureau then
will conduct a challenge process similar to the process it used for
determining eligible areas for model-based support. To the extent that
a challenge is granted in whole or in part, funding for those locations
will be adjusted proportionately.
48. Technical and Financial Review. The Bureau will determine
whether each selected applicant has demonstrated that it has the
technical and financial qualifications to successfully complete the
proposed project within the required timeframes and is in compliance
with all statutory and regulatory requirements for the universal
service support that the applicant seeks. Commission staff will perform
a review to ensure that the selected applicants meet our expectations
for technical and financial capability to conduct an experiment before
any support is provided.
49. The Commission has recognized network security as an imperative
in technology transitions. For broadband networks across the nation to
be considered advanced, robust, and scalable, they must also be secure
and resilient in the face of rapidly evolving cybersecurity threats.
Here, the Commission seeks to promote the sustainability of rural
broadband through early planning to incorporate effective cybersecurity
risk management measures. The Commission commits to support entities
selected for these rural broadband experiments with training resources
and guidance to that end. Incorporating adequate security early in the
design and throughout the deployment of broadband networks is more
effective than addressing security problems retrospectively, and
ultimately lowers costs by hardening networks against preventable
outages and catastrophic failures that could threaten the viability of
smaller and/or new market entrants in rural broadband. Small providers
in diverse service areas play a key role because any point of weakness
in today's interconnected broadband ecosystem may introduce risk into
the entire network of interconnected service providers. Security
improvements reduce risk to all interconnected service providers, their
customers and the nation as a whole. The support that the Commission
commits in this Order to provide to selected applicants is limited to
sharing information and resources regarding cybersecurity risk
management measures that the selected applicants may find beneficial as
they plan their deployments. No applicant will be required to make
changes to its network design or infrastructure based on such measures,
nor will any applicant be rejected for not addressing cyber risk
management best practices in

[[Page 45712]]

its proposal. The Commission's engagement with selected entities should
help inform CSRIC's ongoing efforts to remove cybersecurity barriers
for small companies competing in the broadband services market, but the
Commission will not share any applicant's proprietary or sensitive
information related to cybersecurity, or any cybersecurity information
that would identify the applicant, with CSRIC or other companies or
government agencies.
50. Within 10 business days of public notice of winning bidders,
the Commission requires all winning bidders to provide the most recent
three consecutive years of audited financial statements, including
balance sheets, net income, and cash flow, and to submit a description
of the technology and system design used to deliver voice and broadband
service, including a network diagram, which must be certified by a
professional engineer. Winning bidders proposing to use wireless
technologies also must provide a description of spectrum access in the
areas for which the applicant seeks support. Within 60 days of public
notice of winning bidders, the Commission requires all winning bidders
to submit a letter from an acceptable bank committing to issue an
irrevocable stand-by original letter of credit (LOC) to that entity.
Finally, each selected applicant is required to provide within 90 days
of public notice of winning bidders appropriate documentation of its
ETC designation in all the areas for which it will receive support and
certify that the information submitted is accurate. Once the Bureau has
determined that the entity is financially and technically qualified to
receive experiment support and that the LOC commitment letter is
sufficient, it will release a public notice stating that the entity is
ready to be authorized for support. Within 10 business days of this
public notice, the Commission requires that the winning bidder submit
an irrevocable stand-by original LOC that has been issued and signed by
the issuing bank along with the opinion letter from legal counsel that
it describes below. Once the Universal Service Administrative Company
(USAC) has verified the sufficiency of the LOC and the opinion letter,
the Bureau will issue a public notice authorizing the entity to receive
its first disbursement.
51. Requirements for Letters of Credit. The Commission requires a
winning bidder to secure an irrevocable stand-by original LOC for its
winning project before support will be disbursed. The Commission's
decision to require entities to obtain a LOC is consistent with the
requirements it has adopted for other competitive bidding processes the
Commission has conducted to distribute Connect America funds, where
both existing providers and new entrants were required to obtain LOCs.
The LOC must be issued in substantially the same form as set forth in
the model LOC provided in Appendix A of this Order, by a bank that is
acceptable to the Commission. As explained below, if an entity fails to
meet the terms and conditions of the rural broadband experiments after
it begins receiving support, including the build-out milestones and
performance obligations the Commission adopts in this Order, and fails
to cure within the requisite time period, the Bureau will issue a
letter evidencing the failure and declaring a default, which letter,
when attached by USAC to a LOC draw certificate, shall be sufficient
for a draw on the LOC to recover all support that has been disbursed to
the entity. Once the recipient's support term has ended, the LOC must
remain open and renewed to secure the amount of support disbursed for
120 days to allow time to validate that the rural broadband experiment
recipients have met the experiment's public service obligations and
build-out milestones.
52. As the Commission found when it established Mobility Fund Phase
I, LOCs are an effective means of securing our financial commitment to
provide Connect America support. LOCs permit the Commission to protect
the integrity of universal service funds that have been disbursed and
immediately reclaim support that has been provided in the event that
the recipient is not using those funds in accordance with the
Commission's rules and requirements to further the objectives of
universal service. Moreover, LOCs have the added advantage of
minimizing the possibility that the support becomes property of a
recipient's bankruptcy estate for an extended period of time, thereby
preventing the funds from being used promptly to accomplish our goals.
These concerns are relevant to both new entrants and established
providers.
53. While our existing accountability measures help ensure that
Connect America funds are being used to deploy or sustain broadband and
voice-capable networks, the Commission concludes that additional
measures are necessary to protect the ability of the Commission to
recover support from parties that fail to perform. The Commission
required winners of the Mobility Fund Phase I and Tribal Mobility Phase
I auctions to obtain LOCs, and it sees no reason to depart from this
practice for the rural broadband experiments. The Commission continues
to view them as beneficial and our experience has shown that winning
bidders are able to obtain LOCs.
54. LOC Opinion Letter. Consistent with our requirements for
Mobility Fund Phase I and Tribal Mobility Fund Phase I, winning bidders
must also submit with their LOCs an opinion letter from legal counsel.
That opinion letter must clearly state, subject only to customary
assumptions, limitations, and qualifications, that in a proceeding
under the Bankruptcy Code, the bankruptcy court would not treat the LOC
or proceeds of the LOC as property of the account party's bankruptcy
estate, or the bankruptcy estate of any other rural broadband
experiment recipient-related entity requesting issuance of the LOC
under section 541 of the Bankruptcy Code.
55. Issuing Bank Eligibility. The LOCs for winning bidders must be
obtained from a domestic or foreign bank meeting the requirements
adopted here for purposes of the rural broadband experiments. The
criteria the Commission adopts are largely the same as the requirements
the Commission adopted for Mobility Fund Phase I and Tribal Mobility
Fund Phase I, although it adopts several modifications to enlarge the
potential pool of eligible banks for purposes of these experiments.
First, the Commission requires that for U.S. banks, the bank must be
among the 100 largest banks in the U.S. (determined on the basis of
total assets as of the end of the calendar year immediately preceding
the issuance of the LOC) and must be insured by the Federal Deposit
Insurance Corporation (FDIC) and for non-U.S. banks, the bank must be
among the 100 largest non-U.S. banks in the world (determined on the
basis of total assets as of the end of the calendar year immediately
preceding the issuance of the LOC, determined on a U.S. dollar
equivalent basis as of such date). The Commission expands the pool of
eligible banks from the top 50 to the top 100 banks for purposes of
these rural broadband experiments because it expects the projects to be
small in scale, and thus drawing on the LOC is unlikely to exhaust the
assets of any bank in the top 100. The Commission has also seen through
our experience with Mobility Fund Phase I and Tribal Mobility Fund
Phase I that entities have used a number of banks. Because the
Commission expects that a number of smaller entities will be winning
bidders and may not have established relationships with some of the
largest banks, for purposes of these experiments it finds that it is
beneficial

[[Page 45713]]

to increase the number of options from which they can choose. The
Commission also requires that the selected U.S. bank have a credit
rating issued by Standard & Poor's of BBB- or better (or the equivalent
from a nationally recognized credit rating agency). For non-U.S. banks,
the Commission requires that the bank has a branch in the District of
Columbia or other agreed-upon location in the United States, has a
long-term unsecured credit rating issued by a widely-recognized credit
rating agency that is equivalent to an BBB- or better rating by
Standard & Poor's, and that it issues the LOC payable in United States
dollars. By allowing banks to have a BBB- rating instead of an A-
rating, the Commission will enlarge the pool of eligible issuing banks,
without significantly increasing risk to the universal service fund.
56. To provide more flexibility, the Commission also concludes that
winning bidders for the rural broadband experiments may obtain a LOC
from agricultural credit banks in the United States that serve rural
utilities and are members of the United States Farm Credit System
(which is modeled after the FDIC). The Commission finds that Farm
Credit System Insurance Corporation (FCSIC) insurance provides
protection that is equivalent to those indicated by holding FDIC-
insured deposits. Thus, the agricultural credit bank must have its
obligations insured by the FCSIC. The agricultural credit bank must
also meet the other requirements that the Commission has adopted for
U.S. banks, including that they have a long-term unsecured credit
rating issued by Standard & Poor's of BBB- or better (or an equivalent
rating from another nationally recognized credit rating agency), and
that their total assets are equal to or exceed the total assets of any
of the 100 largest United States banks. This will permit rural
broadband experiment recipients to obtain LOCs from, for example,
CoBank, a bank with which many small rural carriers have a
relationship.
57. If a recipient has been issued a LOC from a bank that is no
longer able to honor the letter of credit at any point during its
support term, that recipient will have 60 days to secure a LOC from
another issuing bank that meets our eligibility requirements. The
Commission also reserves the right to temporarily cease disbursements
of monthly support until the recipient submits to us a new LOC that
meets our requirements.
58. Value of LOC. When a winning bidder first obtains a LOC, it
must be equal to the amount of the first disbursement. Before the
winning bidder can receive additional disbursements, it must modify or
renew its LOC to ensure that it is valued at the total amount of money
that has already been disbursed plus the amount of money that is going
to be provided for the next disbursement. To reduce administrative
costs, a recipient may choose to renew its LOC on an annual rather than
monthly basis so that it is valued at the amount of money to be
disbursed in the coming year plus the total disbursements it has
received so far.
59. Procedure for Drawing on LOC. As described below, the Bureau
will notify an entity that it has failed to comply with the terms and
conditions of the rural broadband experiments, including public
interest obligations and build-out milestones, and will provide an
opportunity for cure before issuing a finding of default. Once the
Bureau has determined that the entity has defaulted, the Bureau Chief
will send a letter to the entity to notify it of the default. USAC will
then issue the form letter attached as Appendix A of this Order to the
issuing bank with the Bureau Chief's letter attached, initiating the
draw on the LOC.
60. Costs of Obtaining LOCs. Now that the Commission has experience
with LOCs in the Mobility Fund Phase I and Tribal Mobility Fund Phase I
auction, it is confident that winning bidders will be able to secure
LOCs. The Commission notes that no winning bidders defaulted in
Mobility Fund Phase I and Tribal Mobility Fund Phase I auctions because
they were unable to secure a LOC. The Commission recognizes that banks
charge fees for obtaining LOCs and also may charge renewal fees. But
the Commission finds that the advantages of LOCs in ensuring that
Connect America support can quickly be reclaimed to protect the
Universal Service Fund, and that the support is protected from being
included in a bankruptcy estate, outweigh the potential costs of LOCs
for the winning bidders. And as the Commission noted in the USF/ICC
Transformation Order, 76 FR 73830, November 29, 2011, LOCs are
regularly used in the course of business, and companies that use
existing lenders are able to use multiple forms of financing. Moreover,
requiring that winning bidders obtain LOCs that only secure the sum of
money that has been (and soon will be) disbursed will help alleviate
the cost of the LOCs. The Commission also notes that applicants can
factor in the costs of LOCs when submitting their bids.
61. Applicability to All Winning Bidders. The Commission's
paramount objective is to establish strong safeguards to protect
against misuse of the Connect America Fund. The Commission concludes
that requiring all entities to obtain a LOC is a necessary measure to
ensure that it can recover support from any recipient that cannot meet
the build-out obligations and public service obligations of the rural
broadband experiments. The Commission also agrees with those commenters
that argue that requiring all recipients to obtain a LOC will ensure
that all recipients are subject to the same default process if they do
not comply with the experiments' terms and conditions.
62. The Commission is not persuaded by arguments that it should
only require certain entities to obtain LOCs, particularly recipients
that have not met the Commission's rules in the past or cannot meet a
specified financial threshold. Compliance with existing universal
service rules has no bearing on whether an entity necessarily is
financially qualified to undertake the obligations of the rural
broadband experiments. Moreover, it is possible that some of the
winning bidders for the rural broadband experiments may not have
participated in Commission programs before. The Commission finds that a
LOC provides the safeguard of allowing the Commission to immediately
take back support if it turns out that the recipient fails to meet the
requirements. The requirement will also impress upon all entities
participating in the experiments the significant undertaking to which
they are committing.
63. Tribal Nations and Tribally-Owned Applicants. Based on the
Commission's experience in implementing LOCs for Mobility Fund Phase I
and Tribal Mobility Fund Phase I, it recognizes there may be a need for
greater flexibility regarding LOCs for Tribally-owned or -controlled
winning bidders. In many situations, requiring a LOC from Tribally-
owned entities may be impractical because Tribal Nations are subject to
various somewhat unique economic challenges, including the inability to
levy income taxes on their citizenry and to collateralize their lands.
When title to Tribal lands is vested in the United States or such lands
are subject to trust restrictions against encumbrances, Tribal Nations
are not in a position to provide them as collateral for such a letter
of credit. The Commission finds that such situations with respect to
Tribal Nations are best handled on a case-by-case basis through the
waiver process.

[[Page 45714]]

64. If any Tribal Nation or Tribally-owned or -controlled applicant
for the rural broadband experiments is unable to obtain a LOC, it may
file a petition for a waiver of the LOC requirement. Waiver applicants
must show that the Tribal Nation is unable to obtain a LOC because of
limitations on the ability to collateralize its real estate, that rural
broadband experiment support will be used for its intended purposes,
and that the funding will be used in the best interests of the Tribal
Nation and will not be wasted. Tribal applicants could establish this
showing by providing, for example, a clean audit, a business plan
including financials, provision of financial and accounting data for
review (under protective order, if requested), or other means to assure
the Commission that the rural broadband experiment is a viable project.
Given the number of expressions of interest filed by Tribally-owned or
-controlled entities to serve areas within price cap territories, the
Commission concludes that it will be manageable to address this
situation on a waiver basis if such entities become winning bidders.
65. Due Process Concerns. By virtue of entering into a LOC, the
recipient has notice that the Bureau may choose to draw on the LOC if
it finds that the recipient has defaulted on its rural broadband
experiment obligations or it fails to timely replace an expiring LOC.
Because the experiments are purely voluntary, participants that find
that these terms and conditions are too burdensome can choose not to
participate. By filing an application to be authorized for support with
the Commission, an applicant knowingly accepts that the Bureau can
exercise its right to recover distributed support by drawing on the LOC
in the event of non-compliance. The Commission also adopts a process
whereby recipients will have the opportunity for cure if they later
come into compliance with the terms and conditions of the rural
broadband experiments.
66. Instead of having to bring a legal action against the recipient
if the rural broadband experiment obligations are not met after the
time for cure has passed, the LOC allows the Bureau immediately to
reclaim the support. A LOC merely shifts the risk associated with non-
compliance from the Commission to the recipient. To the extent that
recipients believe that the Bureau has unnecessarily drawn on their
LOC, they will have the opportunity to take recourse through the
regular Commission review process.
67. Moreover, the Commission is not persuaded that LOCs raise due
process concerns. For a LOC, USAC must present the proper draw
documentation to the issuing bank demonstrating, inter alia, that the
terms and conditions of the rural broadband experiments have not been
met. The issuing bank will then provide USAC with a sum of money equal
to the value of the LOC. As the Commission discusses above, the Bureau
will release a letter finding default before USAC draws on the LOC.
Providing for a lengthy process that would permit recipients to dispute
the Bureau's findings of default prior to seeking recovery would
unnecessarily hold up the process of recovering support disbursed for
these rural broadband experiments.

E. Conditions for Rural Broadband Experiment Support

68. In the Tech Transitions Order the Commission stated that
funding for the rural broadband experiments will be ``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 relevant
rulemaking proceedings. . .'' The Commission also sought comment on
whether it should adopt any rules or requirements specific to the rural
broadband experiments. Here, the Commission adopts several conditions
that winning bidders must meet to receive rural broadband experiment
support. The conditions the Commission adopts for the purposes of these
limited experiments are tailored for ensuring that experiment funds are
used for their intended purpose of deploying robust networks to high-
cost areas; detecting waste, fraud, and abuse; and permitting us to
quickly gather data and other information about the experiments that
the Commission can leverage when making key policy decisions regarding
both universal service and technology transitions.
1. Build-Out Requirements
69. The Commission requires winning bidders to meet certain build-
out requirements during their support term. Consistent with the build-
out requirements the Commission has already adopted for the Connect
America Fund, it finds that establishing clearly defined build-out
requirements will ensure that recipients remain on track to meet their
public service obligations and that Connect America funds are being
used to deploy robust networks consistent with their intended purpose.
70. Build-Out Requirements for all Recipients. As the Commission
discusses above, all recipients of rural broadband support will receive
support in 120 equal monthly disbursements over a 10-year support term,
consistent with the support term it has adopted for the Phase II
competitive bidding process. The support term will begin with the first
disbursement of support after the entities have been notified that they
are the winning bidders and that they have met the requirements
outlined above. During this support term, the recipients will be
required to meet interim build-out requirements consistent with the
build-out requirements the Commission has adopted generally for
recipients of Connect America Phase II funding. By the end of the third
year, the recipients must offer service meeting the public service
obligations the Commission adopted for the relevant experiment category
to at least 85 percent of the number of required locations and submit
the required certifications and evidence. By the end of the fifth year,
the recipients must offer service meeting the public service
obligations the Commission adopted for the relevant experiment category
to 100 percent of the number of required locations and submit the
required certifications and evidence. Recipients must comply with the
terms and conditions of rural broadband experiment support for the full
10-year support term.
71. Accelerated Disbursement Option. Although the Commission adopts
the above build-out requirements for recipients of the rural broadband
experiments to conform to our existing requirements for Phase II, based
on our review of the expressions of interest, it appears that some
entities may be in a position to complete deployment in the 18 to 24
month timeframe. To provide an additional incentive for parties to
build out their projects quickly so that the Commission can learn from
these deployments and leverage that knowledge when making policy
decisions regarding technology transitions, it also provides the option
of accelerating disbursement of support for winning bidders in the
experiments for those entities that commit to deploying to at least 25
percent of the requisite number of locations within the first 15
months. Entities will be required to indicate whether they are electing
this option when they submit their application. If parties elect this
option, the Commission will advance 30 percent of their support
upfront, at the time they are first authorized to receive funding; the
remaining 70 percent will be provided in 120 equal monthly installments
over the 10-year term. Parties that elect this option will be

[[Page 45715]]

required to obtain a LOC for the 30 percent advance payment before
funding is authorized. To ensure that these funds are being used in
accordance with the objectives of the rural broadband experiments, the
Commission requires that recipients choosing this option deploy to 25
percent of the number of required locations and submit the required
certifications and evidence within 15 months of their first
disbursement of support. These recipients then must meet the same
build-out obligations that are required of all recipients of rural
broadband experiment support (i.e., 85 percent of locations within
three years and 100 percent of locations within five years).
2. Accountability Requirements
72. In the Tech Transitions Order, the Commission noted that rural
broadband experiment support will be conditioned on complying with all
relevant universal service fund rules including reporting requirements
and audits. Here, the Commission provides more details regarding the
framework for accountability that it adopts for recipients of the rural
broadband experiments. The reports, certifications, and other
accountability measures the Commission adopts serve a dual purpose.
First, a framework for accountability ``is critical to ensure
appropriate use of high-cost support'' and allows the Commission to
detect and deter waste, fraud, and abuse. Second, the framework the
Commission adopts below will permit us to quickly gather data about how
the experiment funds are being put to use, which will inform policy
decisions it ultimately makes for Phase II and our other universal
service programs.
73. Annual Reports. All recipients of Connect America support are
required to file an annual report pursuant to Sec. 54.313 of the
Commission's rules by July 1st of each year. This requirement also
applies to recipients of support in the rural broadband experiments.
The Commission finds there is good cause, however, to waive on our own
motion Sec. 54.313(a)(1) of the Commission's rules for recipients of
rural broadband experiment support. Because the Commission adopts other
requirements for the rural broadband experiments recipients that will
ensure that it will be kept apprised of their build-out progress, the
Commission finds that it is unnecessary to require these entities to
file a five-year service quality plan.
74. As the Commission requires of price cap carriers accepting
model-based support, it also requires participants in the rural
broadband experiments to demonstrate that the services they offer in
their project areas meet the Commission's latency standard. The
participants must submit a certification with each annual report
certifying that 95 percent or more of all peak period measurements
(also referred to as observations) of network round trip latency are at
or below 100 ms. Recipients may use the approach adopted in the
Bureau's Phase II Service Obligations Order, 78 FR 70881, November 27,
2013, to measure latency.
75. In addition, because these rural broadband experiments
represent the first implementation of Phase II of the Connect America
Fund, the Commission requires participants in the experiments to comply
with the existing requirement for Phase II recipients of providing in
their annual reports the number, names, and addresses of community
anchor institutions to which the recipients newly began providing
access to broadband service in the preceding year. The Commission
concludes this requirement will be a valuable way to monitor how the
experiment recipients are engaging with community anchor institutions,
and learn how the networks supported by the experiments will impact
anchor institutions and the communities they serve.
76. The Commission will also require recipients to file build-out
information with their reports. This requirement will enable us to
gather data faster on how the geographic and demographic
characteristics of certain rural areas affect how experiment recipients
build their networks. This requirement will also help us monitor
recipients' progress toward meeting their build-out requirements and
that experiment funds are being used for their intended purpose.
Specifically, the Commission requires all recipients of the rural
broadband experiments to file with their annual reports evidence
demonstrating to which locations they have deployed facilities. This
information must be current as of the June 1st immediately preceding
the July 1st deadline. Recipients must also submit evidence with the
report that demonstrates they are meeting the relevant public service
obligations. For instance, recipients may submit marketing materials
with their reports that show the voice and broadband packages that are
available to each location that meet the relevant public service
obligations. The materials must at least detail the pricing, offered
broadband speed, and data usage allowances available in the relevant
geographic area.
77. To ensure that rural broadband experiment funds are being used
for their intended purposes, the Commission also finds that it would be
helpful to monitor the recipients' progress in deploying their networks
prior to the deadline for the first annual report, which it anticipates
will be July 2016. Thus, the Commission will require all recipients to
file an interim report on the November 1st after they receive their
first disbursement. This report will only be filed this one time and
must describe the status of their project (i.e., whether vendors have
been hired, permits have been obtained, construction has begun) and
include evidence demonstrating which locations (if any) that the
recipients have built out to in their project areas where the recipient
is offering at least one voice service and one broadband service that
meets the public service obligations adopted above for the relevant
experiment category. To the extent locations are newly served by the
time of this interim report, recipients must also submit evidence with
the report as described above that demonstrates they are meeting the
relevant public service obligations, including a certification that
demonstrates the service they offer complies with the Commission's
latency requirements. This information should be current as of the
September 30th immediately preceding the November 1st deadline. Because
this is information that recipients will already need to collect to
certify compliance with their build-out requirements, the value to the
Commission in being able to gather this data on a more frequent basis
outweighs the burden that one additional report will impose on
experiment recipients.
78. Certifications. Like all recipients of Connect America support,
all rural broadband experiment recipients that have been designated as
ETCs by the Commission are required to file an annual certification
pursuant to Sec. 54.314 of the Commission's rules stating that ``all
federal high-cost support provided to such carrier was used in the
preceding calendar year and will be used in the coming calendar year
only for the provision, maintenance, and upgrading of facilities and
services for which the support is intended.'' If an entity selected for
a rural broadband experiment is designated an ETC by a state, that
state must file this certification on behalf of the entity.
79. The Commission also requires experiment recipients to certify
when they have met the build-out requirements defined above. All
recipients must submit a certification to the Commission by the end of
their third year of support that they offer service to at least 85
percent of their required number of locations with the required level
of service and will need

[[Page 45716]]

to submit a certification by the end of their fifth year of support
that they offer service to 100 percent of their required number of
locations with the required level of service. Additionally, recipients
that opt to receive 30 percent of their support upfront must submit a
certification to the Commission stating that they have met their 25
percent build-out requirement within 15 months of the first
disbursement. With these certifications, all recipients must present
the same build-out information that must be included in their annual
reports that the Commission describes above: evidence demonstrating
that they have deployed facilities to the required number of locations
and evidence that demonstrates compliance with the relevant public
service obligations, including a certification demonstrating compliance
with the Commission's latency requirement. The Commission expects to
use a variety of methods to verify that recipients of support are in
fact meeting the terms and conditions of the rural broadband
experiments, including verification of the build-out evidence that they
will submit with their annual reports and certifications.
80. Compliance Reviews. The Commission reiterates that all
recipients of rural broadband experiment support are subject to
compliance reviews and other investigations so that it can detect and
deter waste, fraud, and abuse, and ensure that rural broadband
experiment support is being used for its intended purpose.
81. Record Retention. The Commission also reiterates that rural
broadband experiment recipients are subject to the 10 year record
retention requirement adopted in the USF/ICC Transformation Order. This
requirement will ensure that documents related to the experiments are
available to facilitate USAC audits and other oversight measures.
3. Data Gathering
82. When adopting the service-based experiments, the Commission
noted that ``[t]he need for quality data regarding the effect on
customers of adopting next generation technologies is perhaps greater
now than ever before,'' and held that it intended that the service-
based experiments would be ``open data'' experiments. In the Tech
Transitions Order, the Commission sought comment on whether issues
discussed in the context of the service-based experiments should also
be addressed in the rural broadband experiments. The Commission finds
that collecting data from the rural broadband experiments would
similarly help them answer some of the key policy questions they
identified in the Tech Transitions Order. The Commission therefore
requires that as a condition of receiving funding in the rural
broadband experiments, recipients cooperate with the Commission in any
efforts to gather data that may help inform future decisions regarding
the impact of technology transitions on achievement of our universal
access objectives.
83. As the Bureau reported at the Commission's open meeting on June
13, 2014, a competitive procurement process is underway to select a
third party data evaluator to assist the Commission in collecting and
analyzing data in connection with service-based experiments and other
technology transitions contexts. This third party will be working with
the Bureau to develop a research methodology using, among other things,
surveying techniques. The Commission believes surveys could be useful
in the context of the rural broadband experiments. For example, the
issues to be surveyed might include consumer purchasing decisions,
speed of adoption of new broadband services, service usage, and
customer satisfaction with fixed wireless compared to alternatives,
both landline and satellite. To minimize the burden on rural broadband
experiment recipients, the Commission expects that they would need only
to provide information that will permit the third party data evaluator
to identify the locations to survey or certain metrics related to their
services, including customer purchase options and service usage. This
information might include customer contact information, when the
recipient expects such locations might be offered service, and other
specifics about the locations served. The Commission notes that when
recipients submit data to the Commission or its designated third party
data evaluator, they should ensure that their submission protects
customer privacy consistent with applicable privacy laws and
regulations.

F. Measures To Ensure Compliance

84. In the Tech Transitions Order, the Commission stated that
support for the rural broadband experiments would be conditioned on
``complying with all relevant universal service rules that the
Commission has adopted or may adopt in the future in relevant
rulemaking proceedings, including . . . enforcement mechanisms for non-
compliance with rules.'' Here, the Commission adopts specific measures
to ensure participants meet the terms and conditions of the rural
broadband experiments.
85. The Commission has previously held that funds that are
disbursed from the high-cost program in violation of a Commission rule
that ``implements the statute or a substantive program goal'' should be
recovered from the recipient. Thus, here the Commission adopts a
process to recover support from recipients that do not comply with the
terms and conditions of the rural broadband experiments after they
begin receiving support. The Commission also notes that it intends to
enforce the terms and conditions vigorously. Such measures uphold the
integrity of the Fund by ensuring that recipients of high-cost support
are using those funds for the purposes for which they are provided.
86. Trigger for Performance Default. A performance default will
occur if the winning bidder begins receiving support and then fails to
meet the terms and conditions of the rural broadband experiments. For
example, if the winning bidder has failed to meet the build-out
obligations adopted above, or the winning bidder failed to keep open
and renew its LOC as required above, it will be a performance default.
A performance default will also occur if the winning bidder does not
offer service to the required number of locations that meet the public
interest obligations the Commission has adopted for the experiments,
including speed, latency, data usage, and reasonably comparable
pricing. The Commission expects to verify that recipients of support
are in fact meeting the terms and conditions of the rural broadband
experiments by verifying the build-out evidence that they will submit
with their annual reports and certifications.
87. For purposes of the rural broadband experiments, a Connect
America recipient can demonstrate compliance with the speed, latency,
data usage, and pricing requirements if it has met the build-out
milestones by deploying robust networks that are capable of meeting the
required public interest obligations, and its annual reports,
certifications, and marketing materials demonstrate that the recipient
is offering at least one package to the eligible locations at the
required speeds, with a data usage allowance that meets the
requirements for these experiments at reasonably comparable prices.
88. Support Reductions and Recovery of Support. If a recipient
begins receiving support, and the Bureau subsequently determines that
it fails to meet the terms and conditions of its experiment, the Bureau
will issue a letter evidencing the default, and USAC will begin
withholding support. For the first six months that the entity is not in

[[Page 45717]]

compliance, USAC will withhold five percent of the entity's total
monthly support. For the next six months that the entity is not in
compliance, USAC will withhold 25 percent of the entity's total monthly
support. If at any point during the year that the support is being
withheld the winning bidder comes into compliance, the Bureau will
issue a letter to that effect; the entity then will be entitled to have
its full support restored and will be able to recover all the support
that USAC withheld.
89. If at the end of this year period, the entity is still not in
compliance, the Bureau will issue a letter to that effect, and USAC
will draw on the entity's LOC for the recovery of all support that has
been authorized. If after USAC recovers the support under the LOC, the
winning bidder is able to demonstrate that it has come into compliance
with the experiment's terms and conditions at any time before the
support period ends, it will be entitled to have its past support
restored and will be eligible for any remaining disbursements of
authorized support. But if the winning bidder is unable to demonstrate
compliance at any point during the support term after its support has
been recovered by the Bureau, the entity will not be eligible to have
any of its recovered support restored or to receive any remaining
disbursements. An entity may only exercise this cure opportunity once.
The recovered support, along with the remaining authorized support that
has not yet been disbursed, will not be authorized for another
experiment.
90. Forfeiture. To further impress upon recipients the importance
of complying with the rural broadband experiments' terms and
conditions, the Commission notes that it will enforce these
requirements vigorously. The Enforcement Bureau may initiate an
enforcement proceeding in the event of a default or after the Bureau
issues a letter evidencing the recipient's default. In proposing any
forfeiture, consistent with the Commission's rules, the Enforcement
Bureau shall take into account the nature, circumstances, extent, and
gravity of the violations.
91. Waiver. In the event a recipient is unable to meet the terms
and conditions of the rural broadband experiments due to circumstances
beyond its control (e.g., a severe weather event), that entity may
petition for a waiver of the relevant terms and conditions prior to the
relevant build-out milestone pursuant to Sec. 1.3 of the Commission's
rules. The petitioning entity will then have the cure period described
above to meet the terms and conditions of the experiment. The
Commission encourages entities that submit petitions for waiver to
continue to work diligently towards meeting the terms and conditions of
their experiments while their petitions are pending. If the petitioning
entity is unable to meet the terms and conditions during the relevant
cure period, and no decision has been issued on the waiver petition,
the Bureau will issue a letter finding default, USAC will draw on the
LOC, and the Enforcement Bureau may initiate forfeiture proceedings. If
the waiver subsequently is granted, the petitioning entity will have
all of the funds that have been recovered restored and will be entitled
to receive its subsequent disbursements. The Commission notes that a
winning bidder's inability to secure the proper permits and other
permissions to build its network would not constitute grounds for
waiver and will be considered a default if the winning bidder is unable
to meet its build-out and public interest obligations due to its
inability to secure such permits. The Commission expects that entities
choosing to participate in the rural broadband experiments will do
their due diligence and determine which permits and other permissions
will be required and what steps they will need to take to obtain such
permissions before submitting their applications.
92. Other Consequences for Non-Compliance. Recipients of funding in
the rural broadband experiments will be subject to the Commission's
rules related to reductions in support in the event that they fail to
meet reporting and certification deadlines. Recipients may also be
subject other sanctions for non-compliance with the terms and
conditions of the rural broadband experiments or the Commission's
rules, including, but not limited to, potential revocation of ETC
designation and disqualification from future competitive bidding for
universal service support.

III. Procedural Matters

A. Paperwork Reduction Analysis

93. The Report and Order contains new and modified information
collection requirements subject to the Paperwork Reduction Act of 1995
(PRA). It will be submitted to the Office of Management and Budget
(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, it previously sought
specific comment on how the Commission might further reduce the
information collection burden for small business concerns with fewer
than 25 employees. The Commission describes impacts that might affect
small businesses, which includes most businesses with fewer than 25
employees, in the Final Regulatory Flexibility Analysis (FRFA) in
Appendix B, infra.

B. Final Regulatory Flexibility Analysis

94. As required by the Regulatory Flexibility Act of 1980 (RFA), as
amended, an Initial Regulatory Flexibility Analyses (IRFA) was
incorporated in the Further Notice of Proposed Rulemaking (USF/ICC
Transformation FNPRM). The Commission sought written public comment on
the proposals in the USF/ICC Transformation FNPRM, including comment on
the IRFA. The Commission also invited parties to file comments on this
IRFA in the Tech Transitions FNPRM. The Commission did not receive any
relevant comments on the USF/ICC Transformation FNPRM IRFA. This Final
Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

A. Need for, and Objectives of the Report and Order

95. The Commission explained in the Tech Transitions Order that the
Commission must ``ensure that all Americans benefit from the technology
transitions, and that it gains 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.'' In this Order, the Commission adopts certain
parameters and requirements for the rural broadband experiments that
will assist us with accomplishing these goals. The Commission expects
these experiments to provide critical information regarding which and
what types of parties are willing to build networks that will deliver
services that exceed our current performance standards for an amount of
money equal to or less than the support amounts calculated by the
adopted Phase II Connect America Cost Model. In addition to gathering
information relevant to broader questions implicated by technology
transitions, the Commission expects these experiments also will inform
key decisions that the Commission will be making in the coming months
regarding the Connect America Fund.
96. The Commission adopts a budget of $100 million for funding
experiments in price cap areas focused on bringing

[[Page 45718]]

robust, scalable broadband networks to residential and small business
locations in rural communities that are not served by an unsubsidized
competitor that offers voice and Internet access delivering at least 3
Mbps downstream/768 kbps upstream. The funding will be available to
serve locations in both high-cost and extremely high-cost areas,
thereby advancing our implementation of both Phase II and the Remote
Areas Fund. Applications will be due 90 days from the release of this
Order. The Commission also determines the objective methodology for
selecting projects among the applications it receives for the
experiments. Given the manner in which the Commission has structured
the budget and the selection criteria, it believes that it will be able
to fund a range of diverse projects throughout the country. Finally,
the Commission outlines the conditions that entities participating in
the experiments must meet in order to continue to receive such support,
including specific eligibility, build-out and accountability
requirements, and establish the measures to ensure compliance with
these conditions.

B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA

97. There were no relevant comments filed that specifically
addressed the rules and policies proposed in the USF/ICC Transformation
FNPRM IRFA.

C. Description and Estimate of the Number of Small Entities to Which
the Rules Will Apply

98. The RFA directs agencies to provide a description of, and where
feasible, an estimate of the number of small entities that may be
affected by the rules adopted herein. The RFA generally defines the
term ``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.
99. Small Businesses. Nationwide, there are a total of
approximately 28.2 million small businesses, according to the SBA.
100. Wired Telecommunications Carriers. The SBA has developed a
small business size standard for Wired Telecommunications Carriers,
which consists of all such companies having 1,500 or fewer employees.
According to Census Bureau data for 2007, there were 3,188 firms in
this category, total, that operated for the entire year. Of this total,
3144 firms had employment of 999 or fewer employees, and 44 firms had
employment of 1000 employees or more. Thus, under this size standard,
the majority of firms can be considered small.
101. Local Exchange Carriers (LECs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to local exchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees. According to Commission data, 1,307 carriers reported
that they were incumbent local exchange service providers. Of these
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and
301 have more than 1,500 employees. Consequently, the Commission
estimates that most providers of local exchange service are small
entities that may be affected by the rules and policies proposed in the
Order.
102. Incumbent Local Exchange Carriers (incumbent LECs). Neither
the Commission nor the SBA has developed a size standard for small
businesses specifically applicable to incumbent local exchange
services. The closest applicable size standard under SBA rules is for
Wired Telecommunications Carriers. Under that size standard, such a
business is small if it has 1,500 or fewer employees. According to
Commission data, 1,307 carriers reported that they were incumbent local
exchange service providers. Of these 1,307 carriers, an estimated 1,006
have 1,500 or fewer employees and 301 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of incumbent
local exchange service are small businesses that may be affected by
rules adopted pursuant to the Order.
103. The Commission has included small incumbent LECs in this
present RFA analysis. As noted above, a ``small business'' under the
RFA is one that, inter alia, meets the pertinent small business size
standard (e.g., a telephone communications business having 1,500 or
fewer employees), and ``is not dominant in its field of operation.''
The SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent LECs are not dominant in their field of operation because any
such dominance is not ``national'' in scope. The Commission has
therefore included small incumbent LECs in this RFA analysis, although
it emphasizes that this RFA action has no effect on Commission analyses
and determinations in other, non-RFA contexts.
104. Competitive Local Exchange Carriers (competitive LECs),
Competitive Access Providers (CAPs), Shared-Tenant Service Providers,
and Other Local Service Providers. Neither the Commission nor the SBA
has developed a small business size standard specifically for these
service providers. The appropriate size standard under SBA rules is for
the category Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 1,442 carriers reported that they were
engaged in the provision of either competitive local exchange services
or competitive access provider services. Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. In addition, 17 carriers have reported that they are
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500
or fewer employees. In addition, 72 carriers have reported that they
are Other Local Service Providers. Of the 72, seventy have 1,500 or
fewer employees and two have more than 1,500 employees. Consequently,
the Commission estimates that most providers of competitive local
exchange service, competitive access providers, Shared-Tenant Service
Providers, and Other Local Service Providers are small entities that
may be affected by rules adopted pursuant to the Order.
105. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to interexchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees. According to Commission data, 359 companies reported
that their primary telecommunications service activity was the
provision of interexchange services. Of these 359 companies, an
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500
employees. Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected
by rules adopted pursuant to the Order.
106. Prepaid Calling Card Providers. Neither the Commission nor the
SBA has developed a small business size standard specifically for
prepaid calling card providers. The appropriate size

[[Page 45719]]

standard under SBA rules is for the category Telecommunications
Resellers. Under that size standard, such a business is small if it has
1,500 or fewer employees. According to Commission data, 193 carriers
have reported that they are engaged in the provision of prepaid calling
cards. Of these, an estimated all 193 have 1,500 or fewer employees and
none have more than 1,500 employees. Consequently, the Commission
estimates that the majority of prepaid calling card providers are small
entities that may be affected by rules adopted pursuant to the Order.
107. Local Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 213 carriers have reported
that they are engaged in the provision of local resale services. Of
these, an estimated 211 have 1,500 or fewer employees and two have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of local resellers are small entities that may be affected by
rules adopted pursuant to the Order.
108. Toll Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 881 carriers have reported
that they are engaged in the provision of toll resale services. Of
these, an estimated 857 have 1,500 or fewer employees and 24 have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of toll resellers are small entities that may be affected by
rules adopted pursuant to the Order.
109. Other Toll Carriers. Neither the Commission nor the SBA has
developed a size standard for small businesses specifically applicable
to Other Toll Carriers. This category includes toll carriers that do
not fall within the categories of interexchange carriers, operator
service providers, prepaid calling card providers, satellite service
carriers, or toll resellers. The closest applicable size standard under
SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 284 companies reported that their primary
telecommunications service activity was the provision of other toll
carriage. Of these, an estimated 279 have 1,500 or fewer employees and
five have more than 1,500 employees. Consequently, the Commission
estimates that most Other Toll Carriers are small entities that may be
affected by the rules and policies adopted pursuant to the Order.
110. 800 and 800-Like Service Subscribers. Neither the Commission
nor the SBA has developed a small business size standard specifically
for 800 and 800-like service (toll free) subscribers. The appropriate
size standard under SBA rules is for the category Telecommunications
Resellers. Under that size standard, such a business is small if it has
1,500 or fewer employees. The most reliable source of information
regarding the number of these service subscribers appears to be data
the Commission collects on the 800, 888, 877, and 866 numbers in use.
According to our data, as of September 2009, the number of 800 numbers
assigned was 7,860,000; the number of 888 numbers assigned was
5,588,687; the number of 877 numbers assigned was 4,721,866; and the
number of 866 numbers assigned was 7,867,736. The Commission does not
have data specifying the number of these subscribers that are not
independently owned and operated or have more than 1,500 employees, and
thus are unable at this time to estimate with greater precision the
number of toll free subscribers that would qualify as small businesses
under the SBA size standard. Consequently, the Commission estimates
that there are 7,860,000 or fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer
small entity 877 subscribers; and 7,867,736 or fewer small entity 866
subscribers.
111. Wireless Telecommunications Carriers (except Satellite). Since
2007, the SBA has recognized wireless firms within this new, broad,
economic census category. Prior to that time, such firms were within
the now-superseded categories of Paging and Cellular and Other Wireless
Telecommunications. Under the present and prior categories, the SBA has
deemed a wireless business to be small if it has 1,500 or fewer
employees. For this category, census data for 2007 show that there were
1,383 firms that operated for the entire year. Of this total, 1,368
firms had employment of 999 or fewer employees and 15 had employment of
1000 employees or more. Similarly, according to Commission data, 413
carriers reported that they were engaged in the provision of wireless
telephony, including cellular service, Personal Communications Service
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these,
an estimated 261 have 1,500 or fewer employees and 152 have more than
1,500 employees. Consequently, the Commission estimates that
approximately half or more of these firms can be considered small.
Thus, using available data, the Commission estimates that the majority
of wireless firms can be considered small.
112. Broadband Personal Communications Service. The broadband
personal communications service (PCS) spectrum is divided into six
frequency blocks designated A through F, and the Commission has held
auctions for each block. The Commission defined ``small entity'' for
Blocks C and F as an entity that has average gross revenues of $40
million or less in the three previous calendar years. For Block F, an
additional classification for ``very small business'' was added and is
defined as an entity that, together with its affiliates, has average
gross revenues of not more than $15 million for the preceding three
calendar years. These standards defining ``small entity'' in the
context of broadband PCS auctions have been approved by the SBA. No
small businesses, within the SBA-approved small business size standards
bid successfully for licenses in Blocks A and B. There were 90 winning
bidders that qualified as small entities in the Block C auctions. A
total of 93 small and very small business bidders won approximately 40
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the
Commission re-auctioned 347 C, E, and F Block licenses. There were 48
small business winning bidders. In 2001, the Commission completed the
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35
winning bidders in this auction, 29 qualified as ``small'' or ``very
small'' businesses. Subsequent events, concerning Auction 35, including
judicial and agency determinations, resulted in a total of 163 C and F
Block licenses being available for grant. In 2005, the Commission
completed an auction of 188 C block licenses and 21 F block licenses in
Auction 58. There were 24 winning bidders for 217 licenses. Of the 24
winning bidders, 16 claimed small business status and won 156 licenses.
In 2007, the Commission completed an auction of 33 licenses in the A,
C, and F Blocks in Auction 71. Of the 14 winning bidders, six were
designated entities. In 2008, the Commission completed an auction of 20
Broadband PCS licenses in the C, D, E and F block licenses in Auction
78.
113. Advanced Wireless Services. In 2008, the Commission conducted
the auction of Advanced Wireless Services

[[Page 45720]]

(``AWS'') licenses. This auction, which as designated as Auction 78,
offered 35 licenses in the AWS 1710-1755 MHz and 2110-2155 MHz bands
(AWS-1). The AWS-1 licenses were licenses for which there were no
winning bids in Auction 66. That same year, the Commission completed
Auction 78. A bidder with attributed average annual gross revenues that
exceeded $15 million and did not exceed $40 million for the preceding
three years (``small business'') received a 15 percent discount on its
winning bid. A bidder with attributed average annual gross revenues
that did not exceed $15 million for the preceding three years (``very
small business'') received a 25 percent discount on its winning bid. A
bidder that had combined total assets of less than $500 million and
combined gross revenues of less than $125 million in each of the last
two years qualified for entrepreneur status. Four winning bidders that
identified themselves as very small businesses won 17 licenses. Three
of the winning bidders that identified themselves as a small business
won five licenses. Additionally, one other winning bidder that
qualified for entrepreneur status won 2 licenses.
114. Narrowband Personal Communications Services. In 1994, the
Commission conducted an auction for Narrowband PCS licenses. A second
auction was also conducted later in 1994. For purposes of the first two
Narrowband PCS auctions, ``small businesses'' were entities with
average gross revenues for the prior three calendar years of $40
million or less. Through these auctions, the Commission awarded a total
of 41 licenses, 11 of which were obtained by four small businesses. To
ensure meaningful participation by small business entities in future
auctions, the Commission adopted a two-tiered small business size
standard in the Narrowband PCS Second Report and Order, 65 FR 35843,
June 6, 2000. A ``small business'' is an entity that, together with
affiliates and controlling interests, has average gross revenues for
the three preceding years of not more than $40 million. A ``very small
business'' is an entity that, together with affiliates and controlling
interests, has average gross revenues for the three preceding years of
not more than $15 million. The SBA has approved these small business
size standards. A third auction was conducted in 2001. Here, five
bidders won 317 (Metropolitan Trading Areas and nationwide) licenses.
Three of these claimed status as a small or very small entity and won
311 licenses.
115. Paging (Private and Common Carrier). In the Paging Third
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed
a small business size standard for ``small businesses'' and ``very
small businesses'' for purposes of determining their eligibility for
special provisions such as bidding credits and installment payments. A
``small business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues not exceeding $15
million for the preceding three years. Additionally, a ``very small
business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues that are not more
than $3 million for the preceding three years. The SBA has approved
these small business size standards. According to Commission data, 291
carriers have reported that they are engaged in Paging or Messaging
Service. Of these, an estimated 289 have 1,500 or fewer employees, and
two have more than 1,500 employees. Consequently, the Commission
estimates that the majority of paging providers are small entities that
may be affected by our action. An auction of Metropolitan Economic Area
licenses commenced on February 24, 2000, and closed on March 2, 2000.
Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies
claiming small business status won 440 licenses. A subsequent auction
of MEA and Economic Area (``EA'') licenses was held in the year 2001.
Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-
two companies claiming small business status purchased 3,724 licenses.
A third auction, consisting of 8,874 licenses in each of 175 EAs and
1,328 licenses in all but three of the 51 MEAs, was held in 2003.
Seventy-seven bidders claiming small or very small business status won
2,093 licenses. A fourth auction, consisting of 9,603 lower and upper
paging band licenses was held in the year 2010. Twenty-nine bidders
claiming small or very small business status won 3,016 licenses.
116. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service
has both Phase I and Phase II licenses. Phase I licensing was conducted
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized
to operate in the 220 MHz band. The Commission has not developed a
small business size standard for small entities specifically applicable
to such incumbent 220 MHz Phase I licensees. To estimate the number of
such licensees that are small businesses, the Commission applies the
small business size standard under the SBA rules applicable to Wireless
Telecommunications Carriers (except Satellite). Under this category,
the SBA deems a wireless business to be small if it has 1,500 or fewer
employees. The Commission estimates that nearly all such licensees are
small businesses under the SBA's small business size standard that may
be affected by rules adopted pursuant to the Order.
117. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service
has both Phase I and Phase II licenses. The Phase II 220 MHz service is
subject to spectrum auctions. In the 220 MHz Third Report and Order, 62
FR 15978, April 3, 1997, the Commission adopted a small business size
standard for ``small'' and ``very small'' businesses for purposes of
determining their eligibility for special provisions such as bidding
credits and installment payments. This small business size standard
indicates that a ``small business'' is an entity that, together with
its affiliates and controlling principals, has average gross revenues
not exceeding $15 million for the preceding three years. A ``very small
business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues that do not exceed
$3 million for the preceding three years. The SBA has approved these
small business size standards. Auctions of Phase II licenses commenced
on September 15, 1998, and closed on October 22, 1998. In the first
auction, 908 licenses were auctioned in three different-sized
geographic areas: three nationwide licenses, 30 Regional Economic Area
Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908
licenses auctioned, 693 were sold. Thirty-nine small businesses won
licenses in the first 220 MHz auction. The second auction included 225
licenses: 216 EA licenses and 9 EAG licenses. Fourteen companies
claiming small business status won 158 licenses.
118. Specialized Mobile Radio. The Commission awards small business
bidding credits in auctions for Specialized Mobile Radio (``SMR'')
geographic area licenses in the 800 MHz and 900 MHz bands to entities
that had revenues of no more than $15 million in each of the three
previous calendar years. The Commission awards very small business
bidding credits to entities that had revenues of no more than $3
million in each of the three previous calendar years. The SBA has
approved these small business size standards for the 800 MHz and 900
MHz SMR Services. The Commission has held auctions for geographic area
licenses in the 800 MHz and 900 MHz

[[Page 45721]]

bands. The 900 MHz SMR auction was completed in 1996. Sixty bidders
claiming that they qualified as small businesses under the $15 million
size standard won 263 geographic area licenses in the 900 MHz SMR band.
The 800 MHz SMR auction for the upper 200 channels was conducted in
1997. Ten bidders claiming that they qualified as small businesses
under the $15 million size standard won 38 geographic area licenses for
the upper 200 channels in the 800 MHz SMR band. A second auction for
the 800 MHz band was conducted in 2002 and included 23 BEA licenses.
One bidder claiming small business status won five licenses.
119. The auction of the 1,053 800 MHz SMR geographic area licenses
for the General Category channels was conducted in 2000. Eleven bidders
won 108 geographic area licenses for the General Category channels in
the 800 MHz SMR band qualified as small businesses under the $15
million size standard. In an auction completed in 2000, a total of
2,800 Economic Area licenses in the lower 80 channels of the 800 MHz
SMR service were awarded. Of the 22 winning bidders, 19 claimed small
business status and won 129 licenses. Thus, combining all three
auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR
band claimed status as small business.
120. In addition, there are numerous incumbent site-by-site SMR
licensees and licensees with extended implementation authorizations in
the 800 and 900 MHz bands. The Commission does not know how many firms
provide 800 MHz or 900 MHz geographic area SMR pursuant to extended
implementation authorizations, nor how many of these providers have
annual revenues of no more than $15 million. One firm has over $15
million in revenues. In addition, the Commission does not know how many
of these firms have 1,500 or fewer employees. The Commission assumes,
for purposes of this analysis, that all of the remaining existing
extended implementation authorizations are held by small entities, as
that small business size standard is approved by the SBA.
121. Broadband Radio Service and Educational Broadband Service.
Broadband Radio Service systems, previously referred to as Multipoint
Distribution Service (``MDS'') and Multichannel Multipoint Distribution
Service (``MMDS'') systems, and ``wireless cable,'' transmit video
programming to subscribers and provide two-way high speed data
operations using the microwave frequencies of the Broadband Radio
Service (``BRS'') and Educational Broadband Service (``EBS'')
(previously referred to as the Instructional Television Fixed Service
(``ITFS'')). In connection with the 1996 BRS auction, the Commission
established a small business size standard as an entity that had annual
average gross revenues of no more than $40 million in the previous
three calendar years. The BRS auctions resulted in 67 successful
bidders obtaining licensing opportunities for 493 Basic Trading Areas
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small
business. BRS also includes licensees of stations authorized prior to
the auction. At this time, the Commission estimates that of the 61
small business BRS auction winners, 48 remain small business licensees.
In addition to the 48 small businesses that hold BTA authorizations,
there are approximately 392 incumbent BRS licensees that are considered
small entities. After adding the number of small business auction
licensees to the number of incumbent licensees not already counted, the
Commission finds that there are currently approximately 440 BRS
licensees that are defined as small businesses under either the SBA or
the Commission's rules. The Commission has adopted three levels of
bidding credits for BRS: (i) A bidder with attributed average annual
gross revenues that exceed $15 million and do not exceed $40 million
for the preceding three years (small business) is eligible to receive a
15 percent discount on its winning bid; (ii) a bidder with attributed
average annual gross revenues that exceed $3 million and do not exceed
$15 million for the preceding three years (very small business) is
eligible to receive a 25 percent discount on its winning bid; and (iii)
a bidder with attributed average annual gross revenues that do not
exceed $3 million for the preceding three years (entrepreneur) is
eligible to receive a 35 percent discount on its winning bid. In 2009,
the Commission conducted Auction 86, which offered 78 BRS licenses.
Auction 86 concluded with ten bidders winning 61 licenses. Of the ten,
two bidders claimed small business status and won 4 licenses; one
bidder claimed very small business status and won three licenses; and
two bidders claimed entrepreneur status and won six licenses.
122. In addition, the SBA's Cable Television Distribution Services
small business size standard is applicable to EBS. There are presently
2,032 EBS licensees. All but 100 of these licenses are held by
educational institutions. Educational institutions are included in this
analysis as small entities. Thus, the Commission estimates that at
least 1,932 licensees are small businesses. Since 2007, Cable
Television Distribution Services have been defined within the broad
economic census category of Wired Telecommunications Carriers; that
category is defined as follows: ``This industry comprises
establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or
lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies.'' The SBA
defines a small business size standard for this category as any such
firms having 1,500 or fewer employees. The SBA has developed a small
business size standard for this category, which is: all such firms
having 1,500 or fewer employees. According to Census Bureau data for
2007, there were a total of 955 firms in this previous category that
operated for the entire year. Of this total, 939 firms had employment
of 999 or fewer employees, and 16 firms had employment of 1000
employees or more. Thus, under this size standard, the majority of
firms can be considered small and may be affected by rules adopted
pursuant to the Order.
123. Lower 700 MHz Band Licenses. The Commission previously adopted
criteria for defining three groups of small businesses for purposes of
determining their eligibility for special provisions such as bidding
credits. The Commission defined a ``small business'' as an entity that,
together with its affiliates and controlling principals, has average
gross revenues not exceeding $40 million for the preceding three years.
A ``very small business'' is defined as an entity that, together with
its affiliates and controlling principals, has average gross revenues
that are not more than $15 million for the preceding three years.
Additionally, the Lower 700 MHz Band had a third category of small
business status for Metropolitan/Rural Service Area (``MSA/RSA'')
licenses, identified as ``entrepreneur'' and defined as an entity that,
together with its affiliates and controlling principals, has average
gross revenues that are not more than $3 million for the preceding
three years. The SBA approved these small size standards. The
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band
licenses (one license in each of the 734 MSAs/RSAs and one license in
each of the six Economic Area Groupings (EAGs)). Of

[[Page 45722]]

the 740 licenses available for auction, 484 licenses were sold to 102
winning bidders. Seventy-two of the winning bidders claimed small
business, very small business or entrepreneur status and won a total of
329 licenses. The Commission conducted a second Lower 700 MHz Band
auction in 2003 that included 256 licenses: 5 EAG licenses and 476
Cellular Market Area licenses. Seventeen winning bidders claimed small
or very small business status and won 60 licenses, and nine winning
bidders claimed entrepreneur status and won 154 licenses. In 2005, the
Commission completed an auction of 5 licenses in the Lower 700 MHz
Band, designated Auction 60. There were three winning bidders for five
licenses. All three winning bidders claimed small business status.
124. In 2007, the Commission reexamined its rules governing the 700
MHz band in the 700 MHz Second Report and Order, 72 FR 48814, August
24, 2007. The 700 MHz Second Report and Order revised the band plan for
the commercial (including Guard Band) and public safety spectrum,
adopted services rules, including stringent build-out requirements, an
open platform requirement on the C Block, and a requirement on the D
Block licensee to construct and operate a nationwide, interoperable
wireless broadband network for public safety users. An auction of A, B
and E block licenses in the Lower 700 MHz band was held in 2008. Twenty
winning bidders claimed small business status (those with attributable
average annual gross revenues that exceed $15 million and do not exceed
$40 million for the preceding three years). Thirty three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years). In 2011, the Commission conducted Auction 92,
which offered 16 Lower 700 MHz band licenses that had been made
available in Auction 73 but either remained unsold or were licenses on
which a winning bidder defaulted. Two of the seven winning bidders in
Auction 92 claimed very small business status, winning a total of four
licenses.
125. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and
Order, the Commission revised its rules regarding Upper 700 MHz band
licenses. In 2008, the Commission conducted Auction 73 in which C and D
block licenses in the Upper 700 MHz band were available. Three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years).
126. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order,
65 FR 17594, April 4, 2000, the Commission adopted a small business
size standard for ``small businesses'' and ``very small businesses''
for purposes of determining their eligibility for special provisions
such as bidding credits and installment payments. A ``small business''
is an entity that, together with its affiliates and controlling
principals, has average gross revenues not exceeding $40 million for
the preceding three years. Additionally, a ``very small business'' is
an entity that, together with its affiliates and controlling
principals, has average gross revenues that are not more than $15
million for the preceding three years. An auction of 52 Major Economic
Area (MEA) licenses commenced on September 6, 2000, and closed on
September 21, 2000. Of the 104 licenses auctioned, 96 licenses were
sold to nine bidders. Five of these bidders were small businesses that
won a total of 26 licenses. A second auction of 700 MHz Guard Band
licenses commenced on February 13, 2001 and closed on February 21,
2001. All eight of the licenses auctioned were sold to three bidders.
One of these bidders was a small business that won a total of two
licenses.
127. Cellular Radiotelephone Service. Auction 77 was held to
resolve one group of mutually exclusive applications for Cellular
Radiotelephone Service licenses for unserved areas in New Mexico.
Bidding credits for designated entities were not available in Auction
77. In 2008, the Commission completed the closed auction of one
unserved service area in the Cellular Radiotelephone Service,
designated as Auction 77. Auction 77 concluded with one provisionally
winning bid for the unserved area totaling $25,002.
128. Private Land Mobile Radio (``PLMR''). PLMR systems serve an
essential role in a range of industrial, business, land transportation,
and public safety activities. These radios are used by companies of all
sizes operating in all U.S. business categories, and are often used in
support of the licensee's primary (non-telecommunications) business
operations. For the purpose of determining whether a licensee of a PLMR
system is a small business as defined by the SBA, the Commission uses
the broad census category, Wireless Telecommunications Carriers (except
Satellite). This definition provides that a small entity is any such
entity employing no more than 1,500 persons. The Commission does not
require PLMR licensees to disclose information about number of
employees, so the Commission does not have information that could be
used to determine how many PLMR licensees constitute small entities
under this definition. The Commission notes that PLMR licensees
generally use the licensed facilities in support of other business
activities, and therefore, it would also be helpful to assess PLMR
licensees under the standards applied to the particular industry
subsector to which the licensee belongs.
129. As of March 2010, there were 424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands below 512 MHz. The Commission
notes that any entity engaged in a commercial activity is eligible to
hold a PLMR license, and that any revised rules in this context could
therefore potentially impact small entities covering a great variety of
industries.
130. Rural Radiotelephone Service. The Commission has not adopted a
size standard for small businesses specific to the Rural Radiotelephone
Service. A significant subset of the Rural Radiotelephone Service is
the Basic Exchange Telephone Radio System (BETRS). In the present
context, the Commission will use the SBA's small business size standard
applicable to Wireless Telecommunications Carriers (except Satellite),
i.e., an entity employing no more than 1,500 persons. There are
approximately 1,000 licensees in the Rural Radiotelephone Service, and
the Commission estimates that there are 1,000 or fewer small entity
licensees in the Rural Radiotelephone Service that may be affected by
the rules and policies proposed herein.
131. Air-Ground Radiotelephone Service. The Commission has not
adopted a small business size standard specific to the Air-Ground
Radiotelephone Service. The Commission will use SBA's small business
size standard applicable to Wireless Telecommunications Carriers
(except Satellite), i.e., an entity employing no more than 1,500
persons. There are approximately 100 licensees in the Air-Ground
Radiotelephone Service, and the Commission estimates that almost all of
them qualify as small under the SBA small business size standard and
may be affected by rules adopted pursuant to the Order.
132. Aviation and Marine Radio Services. Small businesses in the
aviation and marine radio services use a very high frequency (VHF)
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator
transmitter. The Commission has not developed a small business size

[[Page 45723]]

standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business
size standard for the category Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Most applicants for recreational licenses are individuals.
Approximately 581,000 ship station licensees and 131,000 aircraft
station licensees operate domestically and are not subject to the radio
carriage requirements of any statute or treaty. For purposes of our
evaluations in this analysis, the Commission estimates that there are
up to approximately 712,000 licensees that are small businesses (or
individuals) under the SBA standard. In addition, between December 3,
1998 and December 14, 1998, the Commission held an auction of 42 VHF
Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and
161.775-162.0125 MHz (coast transmit) bands. For purposes of the
auction, the Commission defined a ``small'' business as an entity that,
together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $15 million
dollars. In addition, a ``very small'' business is one that, together
with controlling interests and affiliates, has average gross revenues
for the preceding three years not to exceed $3 million dollars. There
are approximately 10,672 licensees in the Marine Coast Service, and the
Commission estimates that almost all of them qualify as ``small''
businesses under the above special small business size standards and
may be affected by rules adopted pursuant to the Order.
133. Fixed Microwave Services. Fixed microwave services include
common carrier, private operational-fixed, and broadcast auxiliary
radio services. At present, there are approximately 22,015 common
carrier fixed licensees and 61,670 private operational-fixed licensees
and broadcast auxiliary radio licensees in the microwave services. The
Commission has not created a size standard for a small business
specifically with respect to fixed microwave services. For purposes of
this analysis, the Commission uses the SBA small business size standard
for Wireless Telecommunications Carriers (except Satellite), which is
1,500 or fewer employees. The Commission does not have data specifying
the number of these licensees that have more than 1,500 employees, and
thus is unable at this time to estimate with greater precision the
number of fixed microwave service licensees that would qualify as small
business concerns under the SBA's small business size standard.
Consequently, the Commission estimates that there are up to 22,015
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the
microwave services that may be small and may be affected by the rules
and policies adopted herein. The Commission notes, however, that the
common carrier microwave fixed licensee category includes some large
entities.
134. Offshore Radiotelephone Service. This service operates on
several UHF television broadcast channels that are not used for
television broadcasting in the coastal areas of states bordering the
Gulf of Mexico. There are presently approximately 55 licensees in this
service. The Commission is unable to estimate at this time the number
of licensees that would qualify as small under the SBA's small business
size standard for the category of Wireless Telecommunications Carriers
(except Satellite). Under that SBA small business size standard, a
business is small if it has 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Thus, under this category and the associated small business size
standard, the majority of firms can be considered small.
135. 39 GHz Service. The Commission created a special small
business size standard for 39 GHz licenses--an entity that has average
gross revenues of $40 million or less in the three previous calendar
years. An additional size standard for ``very small business'' is: an
entity that, together with affiliates, has average gross revenues of
not more than $15 million for the preceding three calendar years. The
SBA has approved these small business size standards. The auction of
the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8,
2000. The 18 bidders who claimed small business status won 849
licenses. Consequently, the Commission estimates that 18 or fewer 39
GHz licensees are small entities that may be affected by rules adopted
pursuant to the Order.
136. Local Multipoint Distribution Service. Local Multipoint
Distribution Service (LMDS) is a fixed broadband point-to-multipoint
microwave service that provides for two-way video telecommunications.
The auction of the 986 LMDS licenses began and closed in 1998. The
Commission established a small business size standard for LMDS licenses
as an entity that has average gross revenues of less than $40 million
in the three previous calendar years. An additional small business size
standard for ``very small business'' was added as an entity that,
together with its affiliates, has average gross revenues of not more
than $15 million for the preceding three calendar years. The SBA has
approved these small business size standards in the context of LMDS
auctions. There were 93 winning bidders that qualified as small
entities in the LMDS auctions. A total of 93 small and very small
business bidders won approximately 277 A Block licenses and 387 B Block
licenses. In 1999, the Commission re-auctioned 161 licenses; there were
32 small and very small businesses winning that won 119 licenses.
137. 218-219 MHz Service. The first auction of 218-219 MHz spectrum
resulted in 170 entities winning licenses for 594 Metropolitan
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the small
business size standard was an entity that, together with its
affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2
million in annual profits each year for the previous two years. In the
218-219 MHz Report and Order and Memorandum Opinion and Order, 64 FR
59656, November 3, 1999, the Commission established a small business
size standard for a ``small business'' as an entity that, together with
its affiliates and persons or entities that hold interests in such an
entity and their affiliates, has average annual gross revenues not to
exceed $15 million for the preceding three years. A ``very small
business'' is defined as an entity that, together with its affiliates
and persons or entities that hold interests in such an entity and its
affiliates, has average annual gross revenues not to exceed $3 million
for the preceding three years. These size standards will be used in
future auctions of 218-219 MHz spectrum.
138. 2.3 GHz Wireless Communications Services. This service can be
used for fixed, mobile, radiolocation, and digital audio broadcasting
satellite uses. The Commission defined ``small business''

[[Page 45724]]

for the wireless communications services (``WCS'') auction as an entity
with average gross revenues of $40 million for each of the three
preceding years, and a ``very small business'' as an entity with
average gross revenues of $15 million for each of the three preceding
years. The SBA has approved these definitions. The Commission auctioned
geographic area licenses in the WCS service. In the auction, which was
conducted in 1997, there were seven bidders that won 31 licenses that
qualified as very small business entities, and one bidder that won one
license that qualified as a small business entity.
139. 1670-1675 MHz Band. An auction for one license in the 1670-
1675 MHz band was conducted in 2003. The Commission defined a ``small
business'' as an entity with attributable average annual gross revenues
of not more than $40 million for the preceding three years and thus
would be eligible for a 15 percent discount on its winning bid for the
1670-1675 MHz band license. Further, the Commission defined a ``very
small business'' as an entity with attributable average annual gross
revenues of not more than $15 million for the preceding three years and
thus would be eligible to receive a 25 percent discount on its winning
bid for the 1670-1675 MHz band license. One license was awarded. The
winning bidder was not a small entity.
140. 3650-3700 MHz band. In March 2005, the Commission released a
Report and Order and Memorandum Opinion and Order that provides for
nationwide, non-exclusive licensing of terrestrial operations,
utilizing contention-based technologies, in the 3650 MHz band (i.e.,
3650-3700 MHz). As of April 2010, more than 1270 licenses have been
granted and more than 7433 sites have been registered. The Commission
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the
Commission estimates that the majority of these licensees are Internet
Access Service Providers (ISPs) and that most of those licensees are
small businesses.
141. 24 GHz--Incumbent Licensees. This analysis may affect
incumbent licensees who were relocated to the 24 GHz band from the 18
GHz band, and applicants who wish to provide services in the 24 GHz
band. For this service, the Commission uses the SBA small business size
standard for the category ``Wireless Telecommunications Carriers
(except satellite),'' which is 1,500 or fewer employees. To gauge small
business prevalence for these cable services the Commission must,
however, use the most current census data. Census data for 2007, which
supersede data contained in the 2002 Census, show that there were 1,383
firms that operated that year. Of those 1,383, 1,368 had fewer than 100
employees, and 15 firms had more than 100 employees. Thus under this
category and the associated small business size standard, the majority
of firms can be considered small. The Commission notes that the Census'
use of the classifications ``firms'' does not track the number of
``licenses''. The Commission believes that there are only two licensees
in the 24 GHz band that were relocated from the 18 GHz band, Teligent
and TRW, Inc. It is our understanding that Teligent and its related
companies have less than 1,500 employees, though this may change in the
future. TRW is not a small entity. Thus, only one incumbent licensee in
the 24 GHz band is a small business entity.
142. 24 GHz--Future Licensees. With respect to new applicants in
the 24 GHz band, the size standard for ``small business'' is an entity
that, together with controlling interests and affiliates, has average
annual gross revenues for the three preceding years not in excess of
$15 million. ``Very small business'' in the 24 GHz band is an entity
that, together with controlling interests and affiliates, has average
gross revenues not exceeding $3 million for the preceding three years.
The SBA has approved these small business size standards. These size
standards will apply to a future 24 GHz license auction, if held.
143. Satellite Telecommunications. Since 2007, the SBA has
recognized satellite firms within this revised category, with a small
business size standard of $15 million. The most current Census Bureau
data are from the economic census of 2007, and the Commission will use
those figures to gauge the prevalence of small businesses in this
category. Those size standards are for the two census categories of
``Satellite Telecommunications'' and ``Other Telecommunications.''
Under the ``Satellite Telecommunications'' category, a business is
considered small if it had $15 million or less in average annual
receipts. Under the ``Other Telecommunications'' category, a business
is considered small if it had $25 million or less in average annual
receipts.
144. The first category of Satellite Telecommunications ``comprises
establishments primarily engaged in providing point-to-point
telecommunications services to other establishments in the
telecommunications and broadcasting industries by forwarding and
receiving communications signals via a system of satellites or
reselling satellite telecommunications.'' For this category, Census
Bureau data for 2007 show that there were a total of 512 firms that
operated for the entire year. Of this total, 464 firms had annual
receipts of under $10 million, and 18 firms had receipts of $10 million
to $24,999,999. Consequently, the Commission estimates that the
majority of Satellite Telecommunications firms are small entities that
might be affected by rules adopted pursuant to the Order.
145. The second category of Other Telecommunications ``primarily
engaged in providing specialized telecommunications services, such as
satellite tracking, communications telemetry, and radar station
operation. This industry also includes establishments primarily engaged
in providing satellite terminal stations and associated facilities
connected with one or more terrestrial systems and capable of
transmitting telecommunications to, and receiving telecommunications
from, satellite systems. Establishments providing Internet services or
voice over Internet protocol (VoIP) services via client-supplied
telecommunications connections are also included in this industry.''
For this category, Census Bureau data for 2007 show that there were a
total of 2,383 firms that operated for the entire year. Of this total,
2,346 firms had annual receipts of under $25 million. Consequently, the
Commission estimates that the majority of Other Telecommunications
firms are small entities that might be affected by our action.
146. Cable and Other Program Distribution. Since 2007, these
services have been defined within the broad economic census category of
Wired Telecommunications Carriers; that category is defined as follows:
``This industry comprises establishments primarily engaged in operating
and/or providing access to transmission facilities and infrastructure
that they own and/or lease for the transmission of voice, data, text,
sound, and video using wired telecommunications networks. Transmission
facilities may be based on a single technology or a combination of
technologies.'' The SBA has developed a small business size standard
for this category, which is: all such firms having 1,500 or fewer
employees. According to Census Bureau data for 2007, there were a total
of 955 firms in this previous category that operated for the entire
year. Of this total, 939 firms had employment of 999 or fewer
employees, and 16 firms had employment of 1000 employees or more. Thus,
under this

[[Page 45725]]

size standard, the majority of firms can be considered small and may be
affected by rules adopted pursuant to the Order.
147. Cable Companies and Systems. The Commission has developed its
own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving 400,000 or fewer subscribers, nationwide. Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that, of 7,208 systems nationwide,
6,139 systems have under 10,000 subscribers, and an additional 379
systems have 10,000-19,999 subscribers. Thus, under this second size
standard, most cable systems are small and may be affected by rules
adopted pursuant to the Order.
148. Cable System Operators. The Act also contains a size standard
for small cable system operators, which is ``a cable operator that,
directly or through an affiliate, serves in the aggregate fewer than 1
percent of all subscribers in the United States and is not affiliated
with any entity or entities whose gross annual revenues in the
aggregate exceed $250,000,000.'' The Commission has determined that an
operator serving fewer than 677,000 subscribers shall be deemed a small
operator, if its annual revenues, when combined with the total annual
revenues of all its affiliates, do not exceed $250 million in the
aggregate. Industry data indicate that, of 1,076 cable operators
nationwide, all but ten are small under this size standard. The
Commission notes that it neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore it is unable to
estimate more accurately the number of cable system operators that
would qualify as small under this size standard.
149. Open Video Services. The open video system (``OVS'') framework
was established in 1996, and is one of four statutorily recognized
options for the provision of video programming services by local
exchange carriers. The OVS framework provides opportunities for the
distribution of video programming other than through cable systems.
Because OVS operators provide subscription services, OVS falls within
the SBA small business size standard covering cable services, which is
``Wired Telecommunications Carriers.'' The SBA has developed a small
business size standard for this category, which is: all such firms
having 1,500 or fewer employees. According to Census Bureau data for
2007, there were a total of 955 firms in this previous category that
operated for the entire year. Of this total, 939 firms had employment
of 999 or fewer employees, and 16 firms had employment of 1000
employees or more. Thus, under this second size standard, most cable
systems are small and may be affected by rules adopted pursuant to the
Order. In addition, the Commission notes that it has certified some OVS
operators, with some now providing service. Broadband service providers
(``BSPs'') are currently the only significant holders of OVS
certifications or local OVS franchises. The Commission does not have
financial or employment information regarding the entities authorized
to provide OVS, some of which may not yet be operational. Thus, again,
at least some of the OVS operators may qualify as small entities.
150. Internet Service Providers. Since 2007, these services have
been defined within the broad economic census category of Wired
Telecommunications Carriers; that category is defined as follows:
``This industry comprises establishments primarily engaged in operating
and/or providing access to transmission facilities and infrastructure
that they own and/or lease for the transmission of voice, data, text,
sound, and video using wired telecommunications networks. Transmission
facilities may be based on a single technology or a combination of
technologies.'' The SBA has developed a small business size standard
for this category, which is: all such firms having 1,500 or fewer
employees. According to Census Bureau data for 2007, there were 3,188
firms in this category, total, that operated for the entire year. Of
this total, 3144 firms had employment of 999 or fewer employees, and 44
firms had employment of 1000 employees or more. Thus, under this size
standard, the majority of firms can be considered small. In addition,
according to Census Bureau data for 2007, there were a total of 396
firms in the category Internet Service Providers (broadband) that
operated for the entire year. Of this total, 394 firms had employment
of 999 or fewer employees, and two firms had employment of 1000
employees or more. Consequently, the Commission estimates that the
majority of these firms are small entities that may be affected by
rules adopted pursuant to the Order.
151. Internet Publishing and Broadcasting and Web Search Portals.
Our action may pertain to interconnected VoIP services, which could be
provided by entities that provide other services such as email, online
gaming, web browsing, video conferencing, instant messaging, and other,
similar IP-enabled services. The Commission has not adopted a size
standard for entities that create or provide these types of services or
applications. However, the Census Bureau has identified firms that
``primarily engaged in 1) publishing and/or broadcasting content on the
Internet exclusively or 2) operating Web sites that use a search engine
to generate and maintain extensive databases of Internet addresses and
content in an easily searchable format (and known as Web search
portals).'' The SBA has developed a small business size standard for
this category, which is: all such firms having 500 or fewer employees.
According to Census Bureau data for 2007, there were 2,705 firms in
this category that operated for the entire year. Of this total, 2,682
firms had employment of 499 or fewer employees, and 23 firms had
employment of 500 employees or more. Consequently, the Commission
estimates that the majority of these firms are small entities that may
be affected by rules adopted pursuant to the Order.
152. Data Processing, Hosting, and Related Services. Entities in
this category ``primarily . . . provid[e] infrastructure for hosting or
data processing services.'' The SBA has developed a small business size
standard for this category; that size standard is $25 million or less
in average annual receipts. According to Census Bureau data for 2007,
there were 8,060 firms in this category that operated for the entire
year. Of these, 7,744 had annual receipts of under $24,999,999.
Consequently, the Commission estimates that the majority of these firms
are small entities that may be affected by rules adopted pursuant to
the Order.
153. All Other Information Services. The Census Bureau defines this
industry as including ``establishments primarily engaged in providing
other information services (except news syndicates, libraries,
archives, Internet publishing and broadcasting, and Web search
portals).'' Our action pertains to interconnected VoIP services, which
could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant
messaging, and other, similar IP-enabled services. The SBA has
developed a small business size standard for this category; that size
standard is $7.0 million or less in average annual receipts. According
to Census Bureau data for 2007, there were 367 firms in this category
that operated for the entire year. Of these, 334 had

[[Page 45726]]

annual receipts of under $5.0 million, and an additional 11 firms had
receipts of between $5 million and $9,999,999. Consequently, the
Commission estimates that the majority of these firms are small
entities that may be affected by our action.

D. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements

154. In the Order, the Commission establishes three experiment
types for which it will accept applications. The Commission allocates
$75 million to projects that must propose to deploy a network capable
of delivering 100 Mbps downstream/5 Mbps upstream while offering at
least one service plan that provides 25 Mbps downstream/5 Mbps upstream
to all locations within the selected census blocks, with no more than
100 milliseconds (ms) of latency. Recipients must provide usage and
pricing that is reasonably comparable to usage and pricing available
for comparable wireline offerings (i.e., those with similar speeds in
urban areas). The Commission also makes $15 million available for
projects that would offer at least one service plan that provides 10
Mbps downstream/1 Mbps upstream to all locations within the selected
census blocks. This service plan must offer at least 100 GB of usage,
no more than 100 ms of latency, and meet the reasonable comparability
benchmarks for the pricing of voice and broadband. Finally, the
Commission makes $10 million available for projects in extremely high-
cost census blocks that propose to offer at least one service plan that
provides 10 Mbps downstream/1 Mbps upstream, and 100 GB of usage at a
rate that meets the reasonably comparable pricing benchmarks, with
latency of 100 ms, or, in the case of satellite providers, a Mean
Opinion Score of four or better. If an entity wins support for one of
these categories, it will be required to meet these public service
obligations, or will be found in default and subject to certain
compliance measures as described in the Order.
155. To participate in the rural broadband experiments, entities
must submit a formal application to the Commission by no later than 90
days from the release of the Order. Entities will be required to submit
confidential bids requesting a certain amount of support to serve
specified census blocks (including the census block ID for each census
block they propose to serve, the number of eligible locations
determined by the model in each of those blocks, and the total amount
of support they request). They will also be required to provide
information regarding any agreements or joint bidding arrangements with
other parties, disclose any ownership interests in Commission-regulated
companies, declare whether their project will serve only Tribal census
blocks, submit a proposal containing basic information that will be
made public if they win (e.g., background information on the applicant
and its qualifications to provide voice and broadband service, a
description of the proposed project, service area, planned service
offerings including offerings to low-income consumers, and technology
to be used; and the number of locations, including community anchor
institutions, within the project area), and certify that they meet
certain threshold requirements, including being in compliance with all
the statutory and regulatory requirements to receive support and being
financially and technically capable of meeting the required public
interest obligations in each area they seek support. All entities
submitting proposals must also utilize a FCC Registration Number and
identify the type of project for which they are submitting a proposal.
156. Winning bidders will be required to demonstrate that they have
the technical and financial qualifications to successfully complete
their proposed projects within the required timeframes and that they
are in compliance with all the statutory and regulatory requirements
for the universal service support they seek. The Commission staff will
perform a review to ensure that the applications meet our expectations
for technical and financial capability. Within 10 business days of
public notice of winning bidders, the winning bidders will be required
to submit three consecutive years of audited financial statements
(including balance sheets, net income, and cash flow), a description of
the technology and system design used to deliver voice and broadband
service, including a network diagram certified by a professional
engineer, and a description of spectrum access in the areas for which
applicants seek support for wireless technologies. Within 60 days of
public notice of winning bidders, the winning bidders must submit a
letter from an acceptable bank committing to issue an irrevocable
stand-by original LOC. That LOC must remain open and renewed until 120
days after the end of the tenth year of the support term. Within 90
days of public notice of winning bidders, the winning bidders must
provide appropriate documentation of their eligible telecommunications
carrier (ETC) designation in all areas for which they will receive
support and certify that the information submitted is accurate.
157. Once a winning bidder has been found to have met the
Commission's technical and financial requirements and has secured the
required ETC designation and LOC commitment letter, the Bureau will
release a public notice stating that the entity is ready to be
authorized to receive support. Within 10 business days of this public
notice, the entity must submit an irrevocable stand-by original LOC
that has been issued and signed by the issuing bank along with an
opinion letter from legal counsel. Once USAC has verified the
sufficiency of the LOC, the Bureau will issue a public notice
authorizing the entity to begin receiving support.
158. The winning bidders must meet several conditions to receive
rural broadband experiment support. First, like all recipients of
Connect America support, they must meet certain build-out requirements.
Recipients must deploy to 85 percent of the required number of their
locations within three years of their first disbursement and 100
percent of the required number of their locations within five years of
their first disbursement with service meeting the service obligations
required by the relevant experiment category. Entities that choose to
receive 30 percent of their support upfront must meet an additional
build-out requirement of 25 percent of the required number of their
locations within 15 months of the first disbursement, and then must
meet the same build-out requirements as recipients not requesting
upfront support (85 percent of locations within three years and 100
percent within five years). All recipients must submit a certification
that they have met these milestones, accompanied by evidence. The
evidence may include the evidence that they submit with their November
1st build-out report, as described below.
159. Second, the Commission requires that recipients comply with
several accountability measures. Like all recipients of Connect America
support, they must file annual reports by July 1st of each year
pursuant to Sec. 54.313(a) of the Commission's rules, starting the
first July after the year in which they begin receiving support. These
reports must also include a certification regarding their compliance
with the Commission's latency standard, or Mean Opinion Score, as
applicable; the number, names, and addresses of the community anchor
institutions to which they newly began providing access to broadband
service in the preceding year; and build-out information including
evidence

[[Page 45727]]

demonstrating which locations they have built out to in their project
areas where the recipient is offering services that meet the public
service obligations adopted for the relevant experiment category along
with evidence that demonstrates they are meeting the public service
obligations (e.g., marketing materials that detail the pricing, offered
broadband speed, and data usage allowances available in the relevant
geographic area).
160. To ensure that the Commission is able to monitor how
experiment recipients are using their funds for their intended
purposes, it also requires them to file a one-time report on November
1st of the year they begin receiving support. This report must describe
the status of their project (such as whether vendors have been hired,
permits have been obtained, and construction begun) and include
evidence demonstrating which locations (if any) to which they have
built out to in their project areas where they are offering services
that meet the public service obligations for the relevant experiment
category, along with evidence that the public service obligations are
being met (e.g., marketing materials and a latency certification).
161. Like all recipients of Connect America support, all rural
broadband experiment recipients that have been designated as ETCs by
the Commission are required to file an annual certification pursuant to
Sec. 54.314 of the Commission's rules. If an entity selected for a
rural broadband experiment is designated an ETC by a state, that state
must file this certification on behalf of the entity selected for the
rural broadband experiment. The Commission also requires recipients to
certify when they have met the build-out requirements defined above.
With these certifications, they must submit the same build-out
information that must be included in their annual reports: Evidence
demonstrating that they have built facilities to serve the required
number of locations and evidence that demonstrates compliance with the
relevant public service obligations, including a certification
demonstrating compliance with the Commission's latency or alternative
service quality requirement. All recipients are also subject to random
compliance reviews, and will be subject to verification of their build-
out compliance. Moreover, recipients are subject to a 10-year record
retention requirement.
162. Finally, rural broadband recipients are required to cooperate
with the Commission in any efforts to gather data that may help inform
future decisions regarding the impact of technology transitions on
achievement of our universal access objectives.

E. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered

163. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its approach, which may
include the following four alternatives, among others: (1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities.
164. The Commission adopts a streamlined application process to
encourage a wide variety of entities, including small entities, to
participate so that it can learn from the applications that are
submitted. The Commission struck a balance between requiring enough
information to prompt bidders to take appropriate steps to determine
that their projects are financially viable before submitting bids, but
also minimizing the resources that entities need to spend upfront in
case they do not win support. The Commission does not require that
entities undergo a full scale technical and financial review and obtain
a LOC and ETC designation until they have been announced as winning
bidders. Even after they have been announced winning bidders, the
information the Commission requires to conduct such a review is
information it expects winning bidders will already have on hand (e.g.,
audited financial statements) or will have developed as a result of
planning their project (e.g., a network diagram certified by an
engineer and a description of spectrum access).
165. The Commission recognizes that some entities, including small
entities, may not be able to submit proposals at the census tract
level, but would be interested in submitting proposals for smaller
neighborhoods that they may already be well positioned to serve. The
Commission waives this requirement for those entities, and permit them
to submit proposals on the census block level. Recipients also have the
choice of receiving 30 percent of their support upfront. This option
provides the flexibility to all participating entities, including small
entities, to receive more support upfront, or to receive their support
spread out over a longer period time if they are unable to meet the 15-
month interim build-out deadline.
166. The Commission also adopts a bidding credit for entities, many
of which may be small entities, who propose projects that will serve
only Tribal census blocks. This 25 percent bidding credit will increase
the likelihood that these entities will receive funding. And
recognizing the unique challenges that Tribally-owned or -controlled
entities may face in obtaining LOCs, the Commission also provides a
waiver process for those entities that are unable to obtain a LOC.
167. The accountability measures the Commission adopts are also
tailored to ensuring that rural broadband experiment support is used
for its intended purpose and so that it can quickly gather data to
inform our policy decisions. The measures the Commission adopts are
largely the same measures that are required of all recipients of
Connect America support, including annual reports and certifications.
And the Commission finds that ensuring that all recipients are
accountable in their use of rural broadband experiment support,
including small entities, outweighs the burden of filing an extra
build-out report on November 1st of their first funding year and of
submitting evidence such as marketing materials to demonstrate
compliance with public interest obligations with their annual reports,
their November 1st build-out report, and with build-out certifications.
Recipients are likely to have such information available to them as a
regular course of business.

F. Report to Congress

168. The Commission will send a copy of the Report and Order,
including this FRFA, in a report to be sent to Congress and the
Government Accountability Office pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996. In addition, the
Commission will send a copy of the Report and Order, including this
FRFA, to the Chief Counsel for Advocacy of the Small Business
Administration. A copy of the Report and Order (or a summary thereof)
will also be published in the Federal Register.

IV. Ordering Clauses

169. Accordingly, it is ordered that, pursuant to sections 1, 2,
4(i), 4(j), 214, 218-220, 251, 254 and 303(r) 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), 154(j), 214, 218-220, 251, 254,
303(r), 1302 the Report

[[Page 45728]]

and Order in WC Docket No. 10-90 and WC Docket No. 14-58 is adopted,
effective September 5, 2014, except for the application process and
reporting requirements that contain new or modified information
collection requirements that will not be effective until approved by
the Office of Management and Budget. The Commission will publish a
document in the Federal Register announcing OMB approval.
170. It is further ordered, that pursuant to Sec. 1.3 of the
Commission's rules, 47 CFR 1.3, the Commission waives on its own motion
Sec. 54.313(a)(1) of the Commission's rules, 47 CFR 54.313(a)(1) for
all recipients of the rural broadband experiments.
171. It is further ordered, that the Commission shall send a copy
of the Report and Order in WC Docket No. 10-90 and WC Docket No. 14-58
to Congress and the Government Accountability Office pursuant to the
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).
172. It is further ordered, that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of the Report and Order in WC Docket No. 10-90 and WC Docket No.
14-58, including the Further Regulatory Flexibility Analysis, to the
Chief Counsel for Advocacy of the Small Business Administration.

Federal Communications Commission.
Gloria J. Miles,
Federal Register Liaison.
[FR Doc. 2014-18328 Filed 8-5-14; 8:45 am]
BILLING CODE 6712-01-P