[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Rules and Regulations]
[Pages 44414-44454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14506]



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Vol. 81

Thursday,

No. 130

July 7, 2016

Part II





Federal Communications Commission





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47 CFR Parts 1 and 54





Connect America Fund, ETC Annual Reports and Certifications, Rural 
Broadband Experiments; Final Rule

  Federal Register / Vol. 81 , No. 130 / Thursday, July 7, 2016 / Rules 
and Regulations  

[[Page 44414]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1 and 54

[WC Docket Nos. 10-90, 14-58, 14-259; FCC 16-64]


Connect America Fund, ETC Annual Reports and Certifications, 
Rural Broadband Experiments

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) adopts rules to implement a competitive bidding process 
for Phase II of the Connect America Fund that will harness market 
forces to expand broadband in targeted rural areas. The Commission also 
adopts rules to establish the framework for the Remote Areas Fund 
auction to address those areas that receive no winning bids in the 
Phase II auction.

DATES: Effective August 8, 2016, except for the amendments to 
Sec. Sec.  1.21001(b)(6), 54.313(e)(2), 54.315, 54.316(a)(4), (b)(4) 
and (5), and (c)(2), 54.804 (b) through (d), and 54.806, which contain 
new or modified information collection requirements that will not be 
effective until approved by the Office of Management and Budget. The 
Federal Communications Commission will publish a document in the 
Federal Register announcing the effective date for those sections.

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

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in WC Docket Nos. 10-90, 14-58, 14-259; FCC 16-64, adopted on 
May 25, 2016 and released on May 26, 2016. The full text of this 
document is available for public inspection during regular business 
hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW., 
Washington, DC 20554, or at the following Internet address:https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-64A1.pdf.
    The Further Notice of Proposed Rulemaking (FNPRM) that was adopted 
concurrently with the Report and Order is published elsewhere in this 
issue of the Federal Register.

I. Introduction

    1. Over the last several years, the Commission has engaged in a 
modernization of its universal service regime to support networks 
capable of providing voice and broadband, including developing a new 
forward-looking cost model to calculate the cost of providing service 
in rural and high-cost areas. In 2015, 10 price cap carriers accepted 
an offer of Phase II support calculated by a cost model in exchange for 
a state-level commitment to deploy and maintain voice and broadband 
service in the high-cost areas in their respective states. With this 
Report and Order (Order), the Commission now adopts rules to implement 
a competitive bidding process for Phase II of the Connect America Fund.
    2. Specifically, building on decisions already made by the 
Commission, in this Order, the Commission:
     Adopt public interest obligations for recipients of 
support awarded through the Phase II competitive bidding process, that 
will be known in advance of the auction and that will continue for the 
duration of the term of support, recognizing that competitive bidding 
is likely to be more efficient if potential bidders know what their 
performance standards will be before bids are made. In particular, the 
Commission establishes four technology-neutral tiers of bids available 
for bidding with varying speed and usage allowances, all at reasonably 
comparable rates, and for each tier will differentiate between bids 
that would commit to either lower or higher latency.
    [cir] The Commission's minimum performance tier requires that 
bidders commit to provide broadband speeds of at least 10 Mbps 
downstream and 1 Mbps upstream (10/1 Mbps) and offer at least 150 
gigabytes (GB) of monthly usage.
    [cir] The Commission's baseline performance tier requires that 
bidders commit to provide at least 25 Mbps downstream and 3 Mbps 
upstream (25/3 Mbps) and offer a minimum usage allowance of 150 GB per 
month, or that reflects the average usage of a majority of fixed 
broadband customers, using Measuring Broadband America data or a 
similar data source, whichever is higher.
    [cir] The Commission's above-baseline performance tier requires 
that bidders commit to provide at least 100 Mbps downstream and 20 Mbps 
upstream (100/20 Mbps) and offer an unlimited monthly usage allowance.
    [cir] The Commission's Gigabit performance tier requires that 
bidders commit to provide at least 1 Gigabit per second (Gbps) 
downstream and 500 Mbps upstream and offer an unlimited monthly usage 
allowance.
    [cir] For each of the four tiers, bidders will designate one of two 
latency performance levels: (1) Low latency bidders will be required to 
meet 95 percent or more of all peak period measurements of network 
round trip latency at or below 100 milliseconds (ms), or (2) High 
latency bidders will be required to meet 95 percent or more of all peak 
period measurements of network round trip latency at or below 750 ms 
and, with respect to voice performance, demonstrate a score of four or 
higher using the Mean Opinion Score (MOS).
     Adopt the same interim service milestones for winning 
bidders in the Phase II auction as for price cap carriers that accepted 
Phase II model-based support.
     Finalize the Commission's decisions regarding areas 
eligible for the Phase II competitive bidding process.
     Establish a budget for the Phase II competitive bidding 
process of $215 million in annual support.
     Provide general guidance on auction design, with the 
specific details to be determined by the Commission at a future date in 
the Auction Procedures Public Notice, after further opportunity for 
comment. The Commission will use weights to account for the different 
characteristics of service offerings that bidders propose to offer when 
ranking bids. The Commission expresses its preference for a multi-round 
auction format and for setting the minimum biddable unit as a census 
block group containing any eligible census blocks. The Commission 
concludes that reserve prices will not exceed support amounts 
determined by the Connect America Cost Model (CAM).
     Adopt a two-step application process, similar to 
Commission spectrum auctions and the Mobility Fund Phase I and Tribal 
Mobility Fund Phase I auctions. In the pre-auction short-form 
application, a potential bidder will need to establish its baseline 
financial and technical capabilities in order to be eligible to bid. In 
the long-form review process, winning bidders will be required to 
provide additional information regarding their qualifications. They 
will be required to obtain an acceptable letter of credit and 
designation as an eligible telecommunications carrier (ETC) before 
funding is authorized.
     Establish a baseline forfeiture for bidders that default 
before funding authorization.
     Establish a 180-day post-auction deadline for winning 
bidders to submit proof of their ETC designation during long-form 
review and forbear from the section 214(e)(5) service area conformance 
requirements.
     Adopt reporting requirements that will enable the 
Commission to monitor

[[Page 44415]]

recipients' progress in meeting their interim deployment obligations, 
and a process by which the Wireline Competition Bureau (Bureau) or the 
Wireless Telecommunications Bureau will authorize the Universal Service 
Administrative Company (USAC) to draw on a letter of credit in the 
event of performance default.
     Adopt rules to establish the framework for the Remote 
Areas Fund, which will award support through a competitive bidding 
process to occur expeditiously after conclusion of the Phase II 
auction.

II. Public Interest Obligations

A. Performance Requirements

    3. Discussion. Consistent with the Commission's previous decisions 
on performance requirements and the record in this proceeding, the 
Commission now establishes technology-neutral standards for the Phase 
II auction as described below. The Commission will accept bids for four 
service tiers with varying speed and usage allowances, and for each 
tier will differentiate between bids that would offer either lower or 
higher latency. The Commission has already decided that 10/1 Mbps 
should not be the Commission's end goal for support recipients over a 
10-year term, and that is why it adopts a variety of service tiers for 
bids in the Phase II auction. The Commission is guided by the statutory 
goal in section 254 of ensuring that consumers in rural and high-cost 
areas of the country have access to advanced telecommunications and 
information services that are reasonably comparable to those services 
in urban areas, at reasonably comparable rates. The Commission expects 
and encourages participants to innovate and provide better service over 
the 10-year term.
    4. The following charts summarize the Commission's approach:

--------------------------------------------------------------------------------------------------------------------------------------------------------
             Performance tier                          Speed                                             Usage allowance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Minimum..................................  >=10/1 Mbps.................  >=150 GB.
Baseline.................................  >=25/3 Mbps.................  >=150 GB or U.S. median, whichever is higher.
Above Baseline...........................  >=100/20 Mbps...............  Unlimited.
Gigabit..................................  >=1 Gbps/500 Mbps...........  Unlimited.
--------------------------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                Latency                            Requirement
------------------------------------------------------------------------
Low Latency...........................  <=100 ms.
High Latency..........................  <=750 ms & MOS of >=4.
------------------------------------------------------------------------

    5. The tiers set forth below are grounded in prior Commission 
Orders setting performance obligations requirements for speed and 
usage, as well as latency, that together must be met for the receipt of 
high-cost universal service support, and reflect the diversity of 
broadband offerings in the marketplace today. The Commission wants to 
maximize the number of consumers served within its finite budget. At 
the same time, the Commission sees the value to consumers in rural 
markets of having access to service during the 10-year term of support 
that exceeds its baseline requirements. The Commission wants to ensure 
that rural America is not left behind, and the consumers in those areas 
benefit from innovation and advances in technology. All things 
considered, the Commission values higher speeds over lower speeds, 
higher usage allowances over lower usage allowances, and lower latency 
over higher latency. The Commission also sees the benefits to achieving 
its other universal service objectives if a Phase II service provider 
will be able to provide broadband adequate to meet the needs of the 
entire community, including schools, libraries and rural health care 
providers, potentially reducing the overall cost of USF to consumers.
    6. As discussed further below, all bids will be considered 
simultaneously, so that bidders that propose to meet one set of 
performance standards will be directly competing against bidders that 
propose to meet other performance standards. The Commission believes 
that this approach strikes a balance by providing sufficient 
granularity with respect to the performance characteristics of 
broadband offerings, while maintaining an auction design that will 
encourage a broad range of providers to participate in the auction. The 
Commission discusses its approach to ranking these service tiers below 
and seeks comment in the concurrently adopted Further Notice on auction 
procedures to assign weights to each tier and latency combination.
    7. The Commission recognizes that some commenters have expressed 
concerns that it is difficult to plan a network deployment not knowing 
the performance obligations that may exist at the end of the 10-year 
term. Competitive bidding is likely to be more efficient if potential 
bidders know what their performance standards will be before bids are 
made. The Commission finds that establishing the service requirements 
now is preferable to doing so after support has been awarded, as it 
will provide more certainty for potential bidders. Winning bidders that 
comply with the performance requirements the Commission establishes 
today for each tier of service for the duration of the 10-year term 
will be deemed in compliance even if the Commission subsequently 
establishes different standards in a later proceeding (e.g., the 
standards that will apply when it awards support through a Phase III 
auction after the six-year term of support for price cap carriers 
accepting the offer of model-based support).
    8. Minimum Performance Tier. As a minimum, the Commission will 
consider bids that will meet standards for speed consistent with those 
applicable to the price cap carriers that accepted the offer of model-
based support. Specifically, in the Phase II auction, the Commission 
will allow for bids that offer at least 10/1 Mbps speeds and offer at 
least 150 GB of monthly usage.
    9. The Commission does so in recognition that some bidders may not 
be able to meet the speed requirement it establishes below for baseline 
performance in some areas. For example, there may be some areas where 
wireline telecommunications carriers--either incumbents or competitive 
carriers--may extend fiber closer to the end user but will only be able 
to provide 10/1 Mbps service. Providing flexibility for bidders to 
relax the speed standard where necessary will enable a broader range of 
providers to participate in the Phase II competitive bidding process.
    10. The Commission is not persuaded to further roll back the 
minimum speed for Phase II to 4/1 Mbps, as WISPA and USTelecom have 
suggested. The Commission found ample basis in the record for revising 
the minimum speed requirement to 10/1 Mbps, when it did so in December 
2014, and the most recent data indicate that a majority of Americans 
subscribe to speeds today that are higher than 10/1 Mbps.
    11. The Commission recognizes that wireless and satellite providers 
have argued that a minimum usage allowance of even 100 GB is 
unrealistic for spectrum-based networks that have capacity limitations, 
and that the standards should be set at levels that do not exclude 
spectrum-based services.

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The Commission notes, however, that winning bidders will be free to 
offer an array of service plans, not all of which would provide the 
minimum 150 GB usage allowance. The 150 GB plan could thus be one of 
several offerings. The Commission merely require that bidders must 
offer at least one service offering at a reasonably comparable rate 
that meets the minimum usage allowance.
    12. Similarly, the Commission is not persuaded that it should relax 
this requirement to permit bidders to provide only 50 GB of usage, as 
suggested by one commenter. Winning bidders will be receiving support 
that will enable them to offer a service plan with the required usage 
allowance, and they will be free to offer other service plans with a 
lower usage allowance at a lower price, which may well prove attractive 
to consumers in the marketplace. The Commission is requiring only that 
at least one offering in Phase II funded areas meets or exceeds all 
requirements.
    13. Baseline Performance Tier. The Commission now concludes that 
the baseline tier for the Phase II auction will be speeds of 25 Mbps 
downstream and 3 Mbps upstream. The Commission's decision to establish 
this baseline performance standard for Phase II based on the highest 
speed adopted by a majority of fixed broadband subscribers builds on 
the approach it adopted in December 2014.
    14. For usage, consistent with the approach recently adopted for 
rate-of-return carriers electing the voluntary path to the model, the 
Commission requires bidders in this baseline tier to offer over the 
course of the 10-year term a minimum usage allowance of 150 GB per 
month, or a usage allowance that reflects the average usage of a 
majority of fixed broadband customers, using Measuring Broadband 
America data or a similar data source, whichever is higher, at a price 
that is reasonably comparable to similar offerings in urban areas. The 
Commission concludes that this standard will ensure that rural 
consumers will have available an offering that enables them to utilize 
their broadband connections in ways similar to consumers in urban 
areas, where fixed broadband services are widely available, while its 
reasonable comparability benchmarks will ensure that usage allowance is 
provided at a price that is reasonably comparable to service offerings 
with similar usage allowances in urban areas.
    15. Above-Baseline Performance Tier. The Commission also recognizes 
that in some areas of the country, there may be bidders willing to 
deploy networks that will deliver performance that exceeds its baseline 
requirements for the Phase II auction. For a bid to qualify in this 
tier, the bidder must commit to deploying a network that is fully 
capable of offering speeds and usage allowances that exceed the 
baseline standards that the Commission establishes today for the Phase 
II auction to all locations. Consistent with proposals in the record, 
the Commission will accept bids from entities that propose to offer 100 
Mbps downstream and 20 Mbps upstream throughout the 10-year term and 
require these bidders to offer an unlimited monthly usage allowance.
    16. Gigabit Performance Tier. Finally, the Commission establishes a 
top performance tier for areas of the country in which there may be 
bidders willing to deploy networks that will deliver speeds that 
substantially exceed its baseline speed requirements for the Phase II 
auction. Specifically, the Commission will consider bids from entities 
that commit to offer 1 Gbps downstream and 500 Mbps upstream and an 
unlimited monthly usage allowance.
    17. Latency. For each tier described above, bidders will designate 
one of two latency performance levels: (1) Low latency or (2) high 
latency. Providing flexibility for bidders to designate their latency 
performance level for each of the given performance tiers set out above 
will enable a broader range of providers to participate in the Phase II 
competitive bidding process.
    18. Recently, the Commission adopted a minimum latency requirement 
that 95 percent or more of all peak period measurements of network 
round trip latency are at or below 100 milliseconds for rate-of-return 
carriers that elect the voluntary path to model support. That standard 
also applies to price cap carriers that accepted the Phase II offer of 
model-based support. The Commission requires bidders that wish to 
submit low-latency bids to meet the same 100 millisecond latency 
standard.
    19. However, the Commission recognizes that some bidders may not be 
able to meet that latency standard. For example high-earth orbit 
satellite providers cannot meet the latency requirement, but may be 
willing to offer higher speeds. After full consideration of the record, 
the Commission now concludes that bidders designating high latency 
performance will be required to meet a two-part standard for the 
latency of both their voice and broadband service: (1) Requirement that 
95 percent or more of all peak period measurements of network round 
trip latency are at or below 750 milliseconds, and (2) with respect to 
voice performance, the Commission requires high latency bidders to 
demonstrate a score of four or higher using the Mean Opinion Score 
(MOS), similar to the standard that the Commission adopted for one 
category of rural broadband experiments.
    20. The Commission is not persuaded that it should eliminate 
altogether any millisecond measure of latency for Phase II support 
recipients. Some parties have urged the Commission to adopt alternative 
measures of service quality for recipients of Connect America Fund 
support, such as requiring voice service to be provided with an ``R 
Factor'' score at or above a minimum threshold value, and a Web page 
loading time standard. The Commission declines to adopt an alternative 
approach that would only use a voice quality test for providers that 
cannot meet the 100 ms latency standard. The Commission finds that the 
better approach is to measure latency the same way for all providers, 
but for entities submitting high latency bids to set a higher benchmark 
and require a demonstration of MOS of four or higher.
    21. The Commission rejects arguments that a 100 ms latency 
designation should apply only to ``latency-sensitive traffic.'' Low 
latency, that is, shorter delays, is essential for most network-based 
applications and critical for others, such as VoIP and other 
interactive and highly interactive applications. Thus, requiring 
objectively measured latency performance standards is in line with 
network-based applications requirements and consumer-based perceptions 
of acceptable performance, particularly for voice services.
    22. At the same time, the Commission is willing to entertain bids 
from entities that can only provide high latency, in the interest of 
making this auction as competitive as possible. For those providers 
offering high latency services, the Commission emphasizes the 
importance of providing quality voice services. The Commission 
particularly welcomes solutions such as the terrestrial voice service 
suggested by ViaSat. While the Commission does not adopt the MOS 
scoring metric as a substitute for the milliseconds of latency 
requirement, it believes it can be used to help ensure quality voice 
service performance for bids designated high latency. Thus, as noted 
above, in addition to the metrics set forth above, the Commission 
requires that bidders that exhibit high latency must be prepared to 
demonstrate a MOS of four or higher throughout the term of support. The 
Commission recognizes

[[Page 44417]]

that the MOS metric is a measure of perceived quality, and requires 
entities taking advantage of this standard to be prepared to submit 
testing results that are specific to their CAF-funded areas. Recipients 
must provide this level of voice quality to all consumers in CAF-funded 
areas, not just to a subset of locations.
    23. Bidders in the Phase II competitive bidding process that seek 
to meet the higher latency standard will be free to bid on all areas 
that are eligible for Phase II competitive bidding; the Commission will 
not limit them to bidding on census blocks that the cost model has 
determined are extremely high-cost. The Commission does not want to 
preclude the possibility, however, of consumers in these areas gaining 
access to low latency service in the years ahead. The Commission also 
would have concerns if consumers were widely dissatisfied with the 
quality of voice service associated with a double hop call. For that 
reason, the Commission reserves the option of including such areas in 
the auction that will occur shortly before the end of the six-year term 
of support for the price cap carriers that accept model-based support 
(i.e., before the end of 2020), if subscription levels in CAF-funded 
areas are more than 35 percent lower than the national average at that 
time. The then-current recipient of support as well as other entities 
would be free to bid for support to meet whatever performance standards 
that will apply to that Phase III auction. Absent a decision by the 
Commission to include such areas in the Phase III auction, however, 
Phase II winning bidders that elect to provide high-latency service 
will receive support for a 10-year term.
    24. The Commission concludes that applicants seeking to deploy 
spectrum-based technologies that can meet the performance requirements 
will be eligible to bid in any tier. To ensure that these bidders have 
the capabilities to meet all standards, however, the Commission will 
require bidders proposing to use spectrum-based technologies to 
demonstrate that they have the proper authorizations or licenses, if 
applicable, and access to spectrum, to reach the fixed locations within 
the areas for which they seek support.
    25. The Commission does not agree with commenters who argue that 
setting performance standards that could potentially exclude certain 
technologies disserves the public interest because it conflicts with 
the principle of competitive neutrality. The principle of competitive 
neutrality does not preclude the Commission from meeting other 
reasonable regulatory objectives, including as discussed above, the 
statutory requirement to ensure reasonably comparable service. The 
adoption of these technology-neutral tiers of performance standards, 
which are designed to meet reasonable regulatory objectives, is not 
objectionable simply because some service providers cannot meet the 
standards for a particular tier.
    26. By soliciting bidders that make commitments to meet 
significantly higher performance standards, the Commission furthers the 
goal of providing access to advanced telecommunications and information 
services in all regions of the nation. By also entertaining bids from 
providers meeting service tiers that the Commission has previously 
established in other contexts, it helps ensure that services in rural 
and high-cost areas are reasonably comparable to those services 
provided in urban areas at reasonably comparable rates, and that 
consumers in these areas will not be left behind. Finally, the 
Commission emphasizes that to the extent there are eligible areas where 
there are no bidders willing to meet the standards for any of these 
tiers of service, it intends to take further action to ensure that 
those consumers are not left behind. As discussed below, the Commission 
will proceed expeditiously to conduct a subsequent Remote Areas Fund 
auction with further relaxed standards.

B. Interim Deployment Obligations

    27. Discussion. The Commission now adopts its proposal to set the 
same service milestones for recipients of Phase II support awarded 
through the competitive bidding process as those that apply to price 
cap carriers that accept a state-level commitment. The Commission 
requires deployment to be completed within six years of funding 
authorization. In particular, as shown in the chart below, the 
Commission requires the entities authorized to receive Phase II auction 
support to complete construction and commercially offer service to 40 
percent of the requisite number of locations in a state by the end of 
the third year of funding authorization, an additional 20 percent in 
the subsequent years, with 100 percent by the end of the sixth year. 
The Commission recognizes these interim deployment milestones may not 
be appropriate for non-terrestrial providers or providers that have 
already deployed the infrastructure they intend to use to fulfill their 
Phase II obligations. The Commission seeks further comment on this 
issue in the concurrently adopted Further Notice.

   Service Milestones for Phase II Support Recipients Awarded Through
                           Competitive Bidding
------------------------------------------------------------------------
                                                                 Percent
------------------------------------------------------------------------
Year 1........................................................        **
Year 2........................................................        **
Year 3........................................................        40
Year 4........................................................        60
Year 5........................................................        80
Year 6........................................................       100
------------------------------------------------------------------------

    28. When the Commission adopted a 10-year term for Phase II support 
awarded through competitive bidding in April 2014, it did not intend to 
suggest that it also would provide those recipients 10 years to meet 
their build-out obligations. Rather, the Commission provided for a 
longer term in order to provide additional support to those who 
competed for such support. Given the importance of the availability of 
broadband in the 21st century, one of the Commission's policy goals is 
to accelerate the deployment of broadband-capable networks. Spreading 
the service milestones over the entire 10-year term would slow the 
availability of new broadband infrastructure in these high-cost areas. 
Most winning bidders will likely undertake projects that are smaller in 
scale than the state-wide commitments undertaken by price cap carriers 
and so should be able to complete construction and commercially offer 
service well before the end of the sixth year. Therefore, the 
Commission does not believe it necessary to grant additional 
flexibility at this time.

C. Flexibility in Meeting Deployment Obligations

    29. Discussion. The Commission concludes that recipients of support 
through a competitive bidding process should similarly have some 
flexibility in their deployment obligations to address unforeseeable 
challenges to meeting those obligations. In adopting flexibility in 
deployment obligations for price cap carriers accepting model-based 
support, the Commission recognized that the ``facts on the ground'' 
when they are deploying facilities in a state may necessitate some 
flexibility regarding the number of locations. Similar issues may be 
faced by recipients of support awarded through a competitive process. 
Most commenters supported providing some flexibility in the number of 
required locations.
    30. The Commission finds that requiring deployment to at least 95 
percent of eligible locations is equally appropriate for recipients of 
Phase II support awarded through competitive

[[Page 44418]]

bidding. The Commission recognizes that for these Phase II recipients, 
as well as model-based support recipients, ``there may be a variety of 
unforeseen factors, after the initial planning stage, that can cause 
significant changes as a network is actually being deployed in the 
field.'' The Commission therefore will require recipients of Phase II 
support awarded through competitive bidding to deploy to at least 95 
percent of the funded locations in each state where they are receiving 
support. At the end of the support term, recipients that have deployed 
to at least 95 percent, but less than 100 percent, of the number of 
funded locations will be required to refund support based on the number 
of funded locations left unserved in that state. The amount refunded 
will not be based on average support, but on one-half the average 
support for the top five percent of the highest cost funded locations 
nationwide.
    31. The Commission notes that, consistent with the approach it 
adopted for the price cap carriers, compliance with the deployment 
obligations will be determined at the state-level for recipients of 
support through the competitive bidding process. Thus, the Commission 
will not be looking at whether 95 percent of the eligible locations in 
a census block have service, nor will it be looking at whether 95 
percent of the eligible locations in a given project within a state 
have service. Regardless of how a bidder chooses to place its bids for 
support, for administrative convenience, support will authorized on a 
state-level basis, and the geographic areas in a state that are funded 
will represent the service territory for the ETC that is awarded 
support through the competitive bidding process.
    32. The Commission is not persuaded by commenters who argued it 
should provide more flexibility than it provided price cap carriers 
accepting model-based support. Unlike the price cap carriers who are 
required to accept or decline the offer of model-based support at the 
state level, bidders in the Phase II competitive bidding process will 
be able to bid on smaller projects. Potential bidders are responsible 
for undertaking the necessary due diligence in advance of bidding to 
identify particularly problematic census blocks when they are preparing 
their bids and have the option of not including such blocks in their 
bids. Therefore, the Commission see no reason to provide greater 
leniency in deployment obligations for recipients of support through 
the competitive bidding process.
    33. Finally, the Commission remains open to the possibility of 
allowing Phase II recipients to substitute some number of unserved 
locations within partially served census blocks for locations within 
funded census blocks. In the December 2014 Connect America Order, 80 FR 
4446, January 27, 2015, the Commission noted that all parties 
potentially interested in receiving Phase II support have an interest 
in building economically efficient networks, and those networks do not 
neatly align with census blocks. The Commission will continue to 
explore this issue, and encourage all stakeholders interested in 
receiving Phase II support to work together to propose for future 
Commission consideration an administratively feasible method for 
ensuring that unserved consumers in partially served census blocks are 
not left behind.

D. Accelerated Payment for Early Deployment

    34. Discussion. After further considering the issue, the Commission 
declines to adopt an accelerated payment option for recipients of Phase 
II support awarded through the competitive bidding process. While a few 
commenters supported providing an option for accelerated payment, and 
the Commission agrees with the goal of encouraging faster deployment, 
it is not persuaded that it could implement this proposal within the 
annual available budget. The Commission is not convinced by ADTRAN's 
claim that the universal service fund should be no worse off, because 
the outlays will not increase, and could decrease slightly to the 
extent the Commission discounts the accelerated future payments to 
reflect the time value of money. Even if annual support amounts were 
discounted, ADTRAN fails to recognize the impact on the fund if a 
significant number of support recipients took advantage of an 
accelerated payment option in the same year. Although overall outlays 
over the 10-year term would not increase, if the Commission disburses 
an amount of Connect America funding that significantly exceeds its 
annual budget, it likely would have to increase the contribution factor 
and the burden on all ratepayers. In adopting the high-cost budget in 
the USF/ICC Transformation Order, 76 FR 73830, November 29, 2011, the 
Commission explicitly sought to avoid ``dramatic swings in the 
contribution factor.'' The Commission finds that the potential risk of 
considerably exceeding its budget in a single year outweighs the 
benefits of encouraging early deployment with an accelerated payment 
option. Moreover, continuing monthly payments over the full 10-year 
term provides the Commission with a means of addressing non-compliance 
by withholding payments until non-compliance is cured, as discussed 
below. The Commission notes that recipients will have other incentives 
to complete their deployment as quickly as possible, both to begin 
earning revenues from the new service offerings and to be in a position 
where they are no longer required to maintain a letter of credit, as 
discussed more fully below.

III. Eligible Areas

    35. In this section, the Commission finalizes decisions regarding 
the areas that will be subject to bidding in the Phase II auction. As a 
general matter, only census blocks lacking 10/1 Mbps service from any 
provider will be eligible for bidding, with two limited exceptions. The 
Commission directs the Bureau to release a preliminary list of eligible 
census blocks based on the most recent FCC Form 477 data and to conduct 
a streamlined challenge process to identify the final list of eligible 
census blocks for the Phase II competitive bidding process. The 
Commission also directs the Bureau to average costs at the census block 
level when generating the list of census blocks eligible for the Phase 
II competitive bidding process.
    36. One of the Commission's objectives is to ensure that as many 
consumers as possible lacking 4/1 Mbps Internet access service become 
served through implementation of Phase II. The Commission concludes it 
would not be an efficient use of the Phase II support to make eligible 
in the auction high-cost or extremely high-cost census blocks in the 
declined states where the price cap carrier already is providing 10/1 
Mbps or better service.

A. Updating Census Block Eligibility To Reflect More Recent Broadband 
and Voice Coverage Data

    37. Discussion. The coverage data used in the Phase II cost model 
for the offer of support to the price cap carriers reflects broadband 
coverage as it existed in June 2013, which now is nearly three years 
old. It would not be appropriate to place in the auction those areas 
that have become served through market forces in the intervening years. 
The Commission therefore concludes that the Commission will rely on 
current Form 477 voice and broadband deployment data to prepare a 
preliminary list of census blocks that will be eligible for the Phase 
II competitive bidding process. Certified Form 477 data that indicate 
an area is or is not served will supersede the conclusions reached in 
the Phase II

[[Page 44419]]

challenge process that the Bureau conducted for the offer of model-
based support.
    38. The Commission concludes that it will conduct a limited 
challenge process to ensure that support is not provided to overbuild 
areas where another provider already is providing voice and broadband 
service meeting the Commission's requirements. The Commission directs 
the Bureau to release a preliminary list of eligible census blocks 
based on June 2015 Form 477 data and to invite parties to comment 
within 21 days of publication if those areas have become served 
subsequent to the June 2015 Form 477 data collection with 10/1 Mbps or 
greater service, with a minimum usage allowance of 150 GBs at a rate 
meeting the Commission's reasonable comparability benchmark, with 
latency not exceeding 100 ms.
    39. The Bureau is not required to entertain challenges from parties 
seeking to establish that a block reported as served on a certified FCC 
Form 477 as of June 2015 or later is unserved. The Phase II challenge 
process was very time-consuming and administratively burdensome for all 
involved. The Commission found that it was difficult for the incumbent 
provider to prove a negative--that a competitor is not serving an area, 
and it expects that incumbents would face similar problems with 
challenging Form 477 data that indicate that a competitor serves an 
area. The Commission also observes that no party was able to 
demonstrate high latency by competitors in the Phase II challenge 
process, and very few providers prevailed in a challenge exclusively 
focused on a competitor's usage/price.
    40. The Commission has taken several steps that make the deployment 
data it collects through Form 477 data more reliable than the June 2013 
SBI data that was utilized in version 4.3 of the CAM for purposes of 
the offer of Phase II support to price cap carriers. Unlike SBI data, 
the submission of Form 477 data is mandatory for filers, and filers 
must certify that the data are accurate, thereby promoting the 
submission of complete and accurate data. Thus, entities should be 
making timely, accurate, and complete Form 477 filings as required by 
the Commission's rules; to the extent providers fail to indicate they 
serve a particular census block in FCC Form 477, there is no basis for 
protest if the Commission then determines such an area is unserved for 
purposes of the Phase II auction. Moreover, whereas SBI data were 
collected using varied methodologies by the states, Form 477 data are 
collected through a single, uniform process, which reduces the 
potential for inconsistent data from one state to the next. And while 
the SBI data were collected in pre-defined speed tiers, Form 477 filers 
offering fixed broadband service are required to report their 
advertised maximum speed for each technology they offer in each census 
block and distinguish between residential and nonresidential broadband, 
thereby allowing the Commission to more precisely determine which 
speeds are available in each census block. Finally, the use of Form 477 
data ensures consistency in the data used to determine the existence of 
voice and broadband in a given census block.
    41. Given the improvements in the data collection, the Commission 
concludes that it would not serve the public interest to entertain 
challenges from parties seeking to contest the reported status of a 
block as served for purpose of the Phase II competitive bidding 
process. Conducting a more resource-intensive challenge process would 
likely delay the implementation of the Phase II competitive bidding 
process. The Commission notes that it held the Phase II challenge 
process in 2014, and a number of parties took advantage of that 
opportunity to correct the SBI data. The Commission concludes in this 
instance it will be sufficient to rely on the certified FCC Form 477 
filings and solicit comment on updated coverage through a streamlined 
challenge process.
    42. While the Commission concludes that eligibility of areas for 
support in the Phase II competitive bidding process will be determined 
at the census block level, this does not mean that the census block 
will be the minimum geographic unit for purposes of bidding in the 
Phase II auction. As discussed below in its discussion of auction 
design, the Commission expects the minimum biddable unit to be a census 
block group containing one or more eligible census blocks.

B. Averaging Costs at the Census Block Level

    43. Discussion. The Commission now concludes that the CAM should no 
longer calculate costs at the sub-block level, except in very limited 
circumstances. This will simplify the administration and oversight of 
compliance with Phase II obligations for parties awarded support 
through the competitive process. The Commission therefore directs the 
Bureau to average costs at the census block level when generating the 
list of census blocks eligible for the Phase II competitive bidding 
process, except in the circumstance it describes below.
    44. For purposes of ongoing monitoring and oversight by the 
Commission, the relevant state commission, and the Tribal government, 
where applicable, it now concludes that it is preferable to require a 
winning bidder to serve all of the locations in a given census block, 
rather than some subset of those locations in a given block that are 
served by a given node to the extent possible. As a practical matter, 
bidders (and ultimate awardees of funding) may not know which locations 
in a given block are ``funded'' and therefore must be served, and which 
are not ``funded'' and do not have to be served. Accordingly, to 
simplify this issue for all parties concerned, the Commission directs 
the Bureau to determine which census blocks are eligible by averaging 
costs at the census block level, to the extent possible, so that if a 
given census block is eligible for funding, the deployment obligation 
applies to all the locations in that census block.
    45. For similar reasons, the Commission will not include in the 
Phase II auction those census blocks that are served by multiple price 
cap carriers and where at least one price cap carrier has accepted 
Phase II model-based support. It would be difficult for bidders to 
formulate a bid for a partial census block, as they would need to 
distinguish between locations that will be served by a price cap 
carrier that accepted Phase II model-based support and thus would be 
ineligible for Phase II auction support, and which locations will be 
served by price cap carriers that declined the support and thus would 
be eligible for Phase II auction support. Accordingly, for 
administrative simplicity, the Commission directs the Bureau not to 
include such census blocks in the list of census blocks that are 
eligible for the Phase II auction.
    46. The Commission also takes this opportunity to clarify that 
extremely high-cost locations that are located in census blocks where 
the price cap carrier has accepted Phase II model-based support will 
not be eligible for Phase II auction support. In concluding that 
extremely high-cost areas would be eligible for bidding the Phase II 
auction, the Commission did not intend to make eligible extremely high-
cost locations that are located within census blocks that are already 
receiving Phase II support. Rather, it intended to include in the 
auction those extremely high-cost census blocks that were not eligible 
for the Phase II offer of model-based support.

[[Page 44420]]

    47. As discussed above, the Commission has encouraged stakeholders 
to propose an administratively feasible method for ensuring that 
unserved consumers in partially served census blocks are not left 
behind. The Commission is open to addressing these relatively few cases 
after it determines which areas remain unserved after the Phase II 
auction, and who the neighboring providers are.

C. Eligibility of Census Blocks Served by Price Cap Carriers Offering 
Broadband at 10/1 Mbps Speeds or Higher

    48. Discussion. The Commission excludes census blocks that a price 
cap carrier already serves with speeds of at least 10/1 Mbps from the 
Phase II competitive bidding process. Given the Commission's finite 
budget and its objective of targeting support to areas that are 
unserved, the Commission finds that it furthers the public interest to 
exclude census blocks that are already served by price cap carriers at 
speeds that meet the Commission's current requirements. The Commission 
acknowledges that permitting competitive bidders to include such census 
blocks in their bids could encourage more providers to participate in 
the Phase II auction. But the Commission concludes on balance that to 
allow such entities to overbuild census blocks already served with 
broadband speeds of 10/1 Mbps would be an inefficient use of its finite 
budget. While the Commission recognizes that all locations in a census 
block may not be served by the price cap carrier with broadband at 
speeds of 10/1 Mbps, it prefers at this time to focus its finite budget 
on areas that lack any broadband provider that offers broadband at 
speeds that meet the Commission's requirements.
    49. The Commission declines to permit price cap carriers in the 
declined territories to identify areas where they do not need support 
to be excluded from the Phase II competitive bidding process. Such a 
process likely would delay the implementation of the Phase II 
competitive bidding process and would unfairly place a decision of 
whether an area goes to auction in the hands of the carrier that 
declined the offer of model-based support. The Commission concludes 
that the public interest is better served by distributing Phase II 
auction support as soon as possible so that unserved communities are 
able to receive broadband as quickly as possible.

D. Finalizing the List of Eligible Census Blocks

    50. Consistent with the foregoing decisions, and prior Commission 
decisions, the Commission directs the Bureau to take all necessary 
steps to determine the census blocks that will be eligible for the 
Phase II auction. In particular, the Bureau shall determine which 
census blocks are served by unsubsidized competitors according to 
certified Form 477 data and thus ineligible for the Phase II 
competitive bidding process. The Bureau also shall add to the list any 
census blocks to which price cap carriers accepting model-based support 
indicated by December 31, 2015 that they do not intend to deploy, and 
the census blocks included in non-winning rural broadband experiment 
bids submitted in category one by entities that met the Commission's 
financial and technical documentation submission requirements, to the 
extent FCC Form 477 data indicate that such blocks are unserved with 
10/1 Mbps broadband. To ensure that potential bidders are aware of the 
potential areas in the auction, the Commission directs the Bureau to 
publish expeditiously a preliminary list of eligible census blocks 
using the June 2015 Form 477 data. The Commission invites parties to 
notify the Bureau within 21 days of publication of this preliminary 
list if any of the census blocks on the preliminary list became served 
after June 30, 2015. The Commission delegates to the Bureau the task of 
conducting this streamlined challenge process.
    51. The Bureau may subsequently update that list to the extent any 
corrections are made to the June 2015 Form 477 data or to reflect more 
recent Form 477 data, if publicly available. To the extent rate-of-
return carriers identify census blocks that they will be unable to 
serve before the list is finalized, they also will be included. The 
Bureau shall publish a final list of eligible census blocks based on 
publicly available Form 477 data no later than three months prior to 
the deadline for submission of short-form applications for the Phase II 
auction.

IV. Budget

    52. Discussion. Now that the price cap carriers have responded to 
the offer of support, the Commission can establish the budget for the 
Phase II auction. Nearly $175 million in support was declined. To that 
figure, the Commission will add the nearly $35 million in support that 
was removed from the offer as described above. The Commission also adds 
the nearly $3 million associated with the served Missouri census blocks 
that was subtracted from the Phase II model-based support amount that 
CenturyLink accepted in Missouri. For simplicity, the Commission 
therefore now sets the Phase II auction budget at $215 million in 
annual support (rounding up the sum of nearly $175 million, nearly $35 
million, and nearly $3 million).

V. Phase II Auction

A. Basic Guidance on Auction Process

    53. Discussion. Here the Commission provides some basic guidance on 
choosing an auction design that will further its objectives for Connect 
America Phase II competitive bidding.
    54. The Commission has already adopted competitive bidding rules 
that allow for the subsequent determination of specific final auction 
procedures based on additional public input during the pre-auction 
process. Those competitive bidding rules together with the additional 
rules the Commission adopts today to establish Phase II winning 
bidders' performance obligations, eligible areas, and post-auction 
obligations and oversight establish the framework needed for the 
Commission to develop detailed auction procedures in the pre-auction 
process, including specific procedures for ranking bids based on 
bidders' performance requirement commitments, auction format, package 
bidding to enable bidders to aggregate eligible areas, and reserve 
prices. The Commission's decisions today are intended to narrow the 
scope of issues so that interested parties can focus constructively on 
the remaining details, while preserving its ability to make adjustments 
if circumstances or the record developed in the pre-auction process 
support such changes to assure that the auction will take place in a 
timely manner and fulfill the goals it establishes in this Order.
    55. Ranking bids. The Commission now adopts an auction design in 
which bidders committing to different performance levels will compete 
head to head in the auction, with weights to take into account its 
preference for higher speeds over lower speeds, higher usage over lower 
usage allowances, and low latency over high latency. A number of 
commenters support a framework that provides an absolute preference to 
bidders deploying future proof networks, while other commenters 
disagree. After consideration of the record, the Commission is not 
persuaded that one type of bid should be processed separately from 
another type, or that one type of bid should

[[Page 44421]]

automatically be selected over another, regardless of the bid amount. 
Rather, all bids will be considered simultaneously, so that bidders 
that propose to meet one set of performance standards will be directly 
competing against bidders that propose to meet other performance 
standards. The Commission concludes that the bids for entities 
committing to meet significantly higher speeds and/or usage than the 
baseline should be adjusted because it sees the value to consumers in 
rural markets of having access to service during the 10-year term of 
support that significantly exceeds the Commission's baseline 
requirements. Likewise, the Commission sees value to rural consumers of 
having access to speeds and usage that meet its baseline requirements, 
rather than the minimum. The Commission would prefer, to the extent 
possible, to ensure that consumers living in high-cost areas receive 
the level of universal service that it establishes as its baseline 
expectation. The Commission also would prefer consumers having access 
to low latency services over high latency services. The Commission also 
notes that when structuring the Phase II auction, it will keep in mind 
the Commission's objective of bringing service to as many consumers 
lacking 4/1 Mbps Internet access service as possible through the 
implementation of Phase II. The Commission seeks comment on the 
assignment and specific level of the weights in the concurrently 
adopted Further Notice.
    56. Bids will be scored relative to the reserve price for the areas 
subject to the bid with lower bids selected first, taking into accounts 
the weights, on which the Commission seeks comment in the concurrently 
adopted Further Notice. The Commission concludes that this approach is 
more likely to ensure winning bidders across a wide range of states 
than selecting bids based on the dollar per location, which could 
result in support disproportionately flowing to those states where the 
cost to serve per location is, relatively speaking, lower than other 
states. The Commission declines to adopt an approach that would select 
bids on a dollar per location basis.
    57. Appropriate Phase II Funding Across States. The Commission 
recognizes the concerns that have been raised by states about the need 
for an efficient and equitable allocation of Phase II funds, 
particularly for those states in which a substantial amount of the 
offer of Phase II support was declined. That an incumbent carriers 
declined the offer of support does not diminish its universal service 
obligation to connect consumers in areas that would have been reached 
had the offer been accepted and to provide sufficient universal service 
funds to do so. Accordingly, one of the Commission's objectives is to 
address these concerns. The Commission seeks comment on how best to 
design the Phase II auction in the concurrently adopted Further Notice. 
In addition, the Commission recognizes and applauds state-based 
initiatives to advance broadband deployment. In the concurrently 
adopted Further Notice, the Commission also seeks comment on how best 
to coordinate with such initiatives to achieve its universal service 
goals.
    58. Tribal lands. The Commission recognizes its historic 
relationship with federally recognized Tribal Nations, has a 
longstanding policy of promoting Tribal self-sufficiency and economic 
development, and has developed a record of helping ensure that Tribal 
Nations and their members obtain access to communications services. 
Telecommunications deployment on Tribal lands has historically been 
poor due to the distinct challenges in bringing connectivity to these 
areas. The Commission has observed that communities on Tribal lands 
have historically had less access to telecommunications services than 
any other segment of the population, and that greater financial support 
therefore may be needed in order to ensure the availability of 
broadband on Tribal lands. Accordingly, the Commission seeks to adopt 
mechanisms to advance broadband deployment on Tribal lands. The 
Commission seeks comment in the concurrently adopted Further Notice on 
measures that it could take in the Phase II auction to further that 
objective.
    59. Auction format for collecting bids. The record is mixed on 
whether to conduct a single or multi-round bid auction. USTelecom, 
WISPA, and UTC propose a multiple-round format, while ACA urges a 
single-round sealed bid auction. The Commission prefers a multi-round 
auction format for the Phase II auction, but it has not settled on the 
specific details of such an auction format. The Commission notes that 
when adopting the rules for the Mobility Fund Phase I and Tribal 
Mobility Fund Phase I auctions in the USF/ICC Transformation Order, the 
Commission observed that the question of whether to conduct multiple 
rounds of bidding is typically resolved in the auction procedures 
process. Similarly, here, the specific auction design details will be 
adopted in a future Auction Procedures Public Notice, after the 
opportunity for further comment. Based on the information currently 
available to the Commission, the Commission expects that a multiple-
round bid auction would enable bidders, better than a single-round bid 
auction, to make adjustments in their bidding strategies to facilitate 
a viable aggregation of geographic areas in which to construct networks 
and enable competition to drive down support amounts.
    60. Minimum geographic area for bidding. The Commission expects 
that the minimum geographic area for bidding will be a census block 
group containing one or more eligible census blocks, although it 
reserves the right to select census tracts when it finalizes the 
auction design if necessary to limit the number of discrete biddable 
units. The Commission concludes that defining bidding units based on 
census-determined areas is preferable to an approach that is grounded 
in the network topology of a particular type of service provider. The 
Commission concludes generally that it is desirable to ensure that all 
interested bidders, including small entities, have flexibility to 
design a network that matches their business model and the technologies 
they intend to use. The Commission is not persuaded that adopting a 
larger geographic unit, such as a county, would be the appropriate 
minimum unit for purposes of bidding. Such an approach could preclude 
entities that intend to construct a smaller network or that intend to 
bid to expand their existing networks. The Commission also expects that 
as the size of the minimum geographic unit increases, the more 
challenges providers may face in putting together a bidding strategy 
that aligns with their intended network construction or expansion.
    61. Reserve prices. The Commission will use the CAM to set reserve 
prices for the Phase II auction. The reserve price for a minimum 
biddable unit will be no greater than the CAM-calculated support amount 
for that area, with a cap in the amount of support per location 
provided to extremely high cost census blocks. The record supports the 
Commission's proposal to utilize the CAM to establish reserve prices, 
although some commenters suggest that the reserve price should be 
higher. For example, ITTA argues that the reserve price should be set 
based on a model-derived amount plus an additional percentage because 
the cost of deploying is likely to be more where the price cap carrier 
did not elect the statewide commitment. The Commission's experience 
with the rural broadband experiments, however, indicates that there are 
providers willing to deploy broadband for support amounts less than the 
model-based

[[Page 44422]]

amount. As with the auction design, the specific reserve prices will be 
adopted in a future Auction Procedures Public Notice, after the 
opportunity for further comment.

B. Application Process

    62. Discussion. Consistent with the Commission's approach in 
Mobility Fund Phase I and Tribal Mobility Fund Phase I, the Commission 
adopts a two-stage application filing process for participants in the 
Phase II competitive bidding process. Specifically, in the pre-auction 
``short-form'' application, a potential bidder will need to establish 
its eligibility to participate, providing, among other things, basic 
ownership information and certifying to its qualifications to receive 
support. After the auction, the Commission would conduct a more 
extensive review of the winning bidders' qualifications to receive 
support through ``long-form'' applications. Such an approach balances 
the need to collect essential information with administrative 
efficiency, and will provide the Commission with assurance that 
interested entities are qualified to meet the terms and conditions of 
the Phase II competitive bidding process if awarded support. The 
Commission notes that each potential bidder has the sole responsibility 
to perform its due diligence research and analysis before proceeding to 
participate in the Phase II auction.
    63. Once the long-form application has been approved, a public 
notice will be released announcing that the winning bidder is ready to 
be authorized. At that time, the winning bidder will be required to 
submit, within a specified number of days, at least one letter of 
credit and an opinion letter from counsel that meets the Commission's 
requirements as described below. After those documents are approved, a 
public notice will be released authorizing the winning bidder to begin 
receiving Phase II auction support.
    64. Below, the Commission discusses the requirements it adopts for 
the short-form and the long-form applications for the Phase II 
competitive bidding process. Consistent with the approach the 
Commission took for the rural broadband experiments last year, it 
directs the Wireline Competition Bureau and the Wireless 
Telecommunications Bureau (Bureaus) to adopt the format and deadlines 
for the submission of documentation for the short-form and long-form 
applications, that are consistent with the Commission's universal 
service competitive bidding rules and Part 54 of the Commission's 
rules.
1. Short-Form Application Process
    65. Discussion. The Commission requires all applicants for the 
Phase II competitive bidding process to provide basic information in 
their short-form applications that will enable the Commission to review 
each application to assess before an entity commits time and resources 
to participating in the auction whether the applicant is eligible to 
participate in the auction. In addition to making the financial and 
technical certification adopted in the April 2014 Connect America 
Order, 79 FR 39164, July 9, 2014, the Commission's universal service 
competitive bidding rules will apply so that applicants will be 
required to provide information that will establish their identity, 
including disclosing parties with ownership interests and any 
agreements the applicant may have relating to the support to be sought 
through the Phase II competitive bidding process.
    66. The Commission will also require all applicants to indicate the 
type of bids that they plan to make and describe the technology or 
technologies that will be used to provide service for each bid. 
Applicants will also be required to submit with their short-form 
applications any information or documentation required to establish 
their eligibility for any bidding weights or preferences that the 
Commission ultimately adopts. To the extent that an applicant plans to 
use spectrum to offer its voice and broadband services, it must 
disclose whether it currently holds licenses for or leases spectrum. 
The applicant must demonstrate it has the proper authorizations, if 
applicable, and access to operate on the spectrum it intends to use, 
and that the spectrum resources will be sufficient to cover peak 
network usage and meet the minimum performance requirements to serve 
all of the fixed locations in eligible areas. Moreover, all applicants 
will be required to certify that they will retain their access to the 
spectrum for at least 10 years from the date of the funding 
authorization.
    67. The Commission does not expect that these requirements will 
impose an unreasonable burden on potential bidders. The Commission had 
similar requirements for bidders in the rural broadband experiments, 
and it is not aware of any applicants having difficulty providing such 
baseline information. The Commission anticipates that as they prepare 
to participate in the auction, applicants will already have firm plans 
for where they will bid and the technologies they will use to provide 
service to the areas for which they will bid. Unlike the applicants 
participating in the Mobility Fund auctions, participants will likely 
be proposing to use a wide variety of technologies to provide service 
meeting the Commission's requirements. Because not all participants 
will have ETC designations to provide service in their relevant service 
areas, it will be useful for the Commission to have some insight into 
the types of technologies that bidders intend to use to meet their 
obligations prior to the auction. The project descriptions are intended 
to provide the Commission with some assurance that the applicant has 
thought through how it intends to provision service if awarded support.
    68. To provide additional assurance to the Commission that the 
entities that intend to bid in the auction have some experience 
operating networks or are otherwise financially qualified, it adopts 
several alternative prequalification requirements. First, the 
Commission adopts a requirement that applicants certify in their short-
form application that they have provided voice, broadband, and/or 
electric distribution or transmission services for at least two years 
and specify the number of years they have been operating, or they are 
the wholly-owned subsidiary of an entity that meets these requirements. 
Applicants that have provided voice or broadband services must also 
certify that they have filed FCC Form 477s as required during that time 
period. Recognizing the electric utilities also have significant 
experience building and operating networks, the Commission also will 
accept certifications from entities that have provided electric 
distribution or transmission services for at least two years (or their 
wholly-owned subsidiaries). Applicants that have operated only an 
electric distribution or transmission network must submit qualified 
operating or financial reports for the relevant time period that they 
have filed with the relevant financial institution along with a 
certification that the submission is a true and accurate copy of the 
forms that were submitted to the relevant financial institution. The 
Commission will accept the Rural Utilities Service (RUS) Form 7, 
Financial and Operating Report Electric Distribution; the RUS Form 12, 
Financial and Operating Report Electric Power Supply; the National 
Rural Utilities Cooperative Finance Corporation (CFC) Form 7, Financial 
and Statistical Report; the CFC Form 12, Operating Report; or the 
CoBank Form 7; or the functional replacement of one

[[Page 44423]]

of these reports. The Commission concludes that if an entity can 
certify that it has provided voice, broadband, and/or electric 
distribution or transmission services for at least two years or that it 
is a wholly-owned subsidiary of such an entity, that will provide the 
Commission with sufficient assurance before the auction that an entity 
has at a minimum level demonstrated that it has the ability to build 
and maintain a network.
    69. Entities that meet the foregoing requirements will also submit 
audited financial statements from the prior fiscal year, including 
balance sheets, net income and cash flow, that have been audited by an 
independent certified public accountant with their short-form 
application. The Commission is not persuaded that it should permit 
applicants to submit reviewed financial statements in lieu of audited 
financial statements. While the Commission acknowledges that it 
collects in the section 54.313 annual report reviewed financial 
statements from privately held rate-of-return ETCs that are not RUS 
borrowers and are not audited in the normal course of business, the 
Commission concludes that the better approach for the Phase II auction 
is to require a financial audit. A financial review is a less fulsome 
review of an entity's financial health because it does not generally 
require the auditor to develop a detailed understanding of the internal 
controls environment and conduct more in-depth testing of individual 
transactions posted to the general ledger. The need to ensure that 
every Phase II auction recipient is in good financial health is 
critical. Authorized Phase II recipients will be required to take on 
obligations with defined timelines, so it is important that the 
Commission has insight into an entity's financial health to assess its 
ability to meet such obligations if awarded support. The Commission 
concludes that the additional cost of obtaining audited financial 
statements is outweighed by the importance of assuring the financial 
health of Phase II auction recipients.
    70. However, the Commission concludes that to the extent an entity 
that otherwise meets these eligibility requirements does not already 
obtain an audit of its financial statements in the ordinary course of 
business, the Commission will permit that entity to wait until after it 
is announced as a winning bidder to submit audited financial 
statements. The Commission will require such entities that do not 
already have audited financial statements to certify that they will 
submit the prior fiscal year's audited financial statements by the 
deadline during the long-form application process. The Commission 
acknowledges that some potential bidders, particularly small entities, 
may be reluctant to bid in the Phase II auction because they do not 
want to pay the upfront costs of obtaining audited financial statements 
prior to finding out if they are winning bidders. Because such entities 
will be required to demonstrate that they have provided a voice, 
broadband, or electric distribution or transmission service for two 
years, the Commission concludes that this will give it reasonable 
assurance of an entity's financial health for permitting that entity to 
participate in the auction. The Commission concludes that on balance, 
its interest in maximizing participation in the Phase II auction 
outweighs the potential risk of qualifying an experienced entity to 
participate in the Phase II auction without reviewing that bidder's 
audited financial statements, particularly given that it will have the 
opportunity to scrutinize the bidder's audited financial statements at 
the long-form application stage before authorizing that entity to begin 
receiving support.
    71. The Commission requires winning bidders that take advantage of 
this option to submit their audited financials no later than the 
deadline for submitting their proof of ETC designation (which is within 
180 days of public notice announcing winning bidders). The Commission 
concludes that requiring winning bidders to submit their audited 
financials within the same timeframe as the ETC designations will help 
prevent unreasonable delays in authorizing Phase II auction support so 
that winning bidders can begin deploying broadband to unserved 
consumers. The Commission expects that bidders will take steps to 
prepare for an audit once they have submitted their short-form 
application so that they can immediately start the process upon being 
named a winning bidder. If the audit process takes longer than 180 
days, winning bidders will have the option of seeking a waiver of this 
deadline. In considering such waiver requests, the Commission directs 
the Bureau to determine whether an entity demonstrated in its waiver 
petition that it took steps to prepare for an audit prior to being 
named a winning bidder and that it took immediate steps to obtain an 
audit after being announced as a winning bidder.
    72. The Commission concludes that it is appropriate to adopt a base 
forfeiture of $50,000 for any entity that certifies in its short-form 
application that it will submit audited financials in its long-form 
application, but then ultimately defaults by failing to submit audited 
financial statements as required. Such forfeiture would also be subject 
to adjustment upward or downward as appropriate based on the criteria 
set forth in the Commission's forfeiture guidelines. The Commission 
finds that imposing such a forfeiture will create an incentive for 
bidders to certify truthfully in their short-form applications that 
they will obtain audited financial statements if announced as a winning 
bidder and will also create an incentive for winning bidders to 
actually go out and obtain those audited financial statements rather 
than default.
    73. The Commission is not persuaded that it should adopt the 
alternative proposals suggested by ACA and WISPA including (1) 
requiring entities that are not audited in the ordinary course of 
business to make an upfront payment or deposit of $25,000 or (2) 
imposing a maximum forfeiture of $25,000 if an entity does not submit 
its audited financial statements as required. First, the Commission 
concludes that managing and tracking escrow arrangements would be too 
administratively burdensome and could potentially delay the auction. 
Second, the Commission finds that imposing a $25,000 upfront payment or 
maximum forfeiture would permit an entity to conduct a cost-benefit 
analysis that could encourage gaming. For example, an entity may decide 
it would be willing to pay $25,000 if it could preclude others from 
being winning bidders in certain areas and then default, or an entity 
may decide it is willing to pay $25,000 to default if it is ultimately 
unhappy with its winning bid. Instead, the Commission concludes that 
adopting a $50,000 base forfeiture rather than a maximum forfeiture 
will make it more difficult for an entity to perform such a strict 
cost-benefit analysis because the forfeiture may be increased if it is 
determined that such gaming has taken place. According to some 
commenters, the costs of a financial statement audit can vary and 
generally start at $25,000. The Commission finds that adopting a base 
forfeiture of $50,000 rather than $25,000 will further reduce the 
incentives for gaming. The Commission also concludes a base forfeiture 
of $50,000 is large enough to create an incentive for bidders take 
their obligation to get audited financial statements seriously given 
that it will be relying upon the winning bidders' certifications in the 
short-form application in permitting those bidders to participate in 
the Phase II auction.
    74. Recognizing that the foregoing requirements would preclude from 
participating in the Phase II auction

[[Page 44424]]

entities that have less than two years of experience operating a voice, 
broadband and/or electric distribution or transmission network, the 
Commission adopts an alternative pathway for those entities to be 
deemed qualified to bid in the auction. If an interested bidder cannot 
make the above certification that it has filed FCC Form 477 data as a 
voice or broadband provider for the previous two years or the 
identified alternative operating or financial forms for electric 
distribution or transmission providers, it may instead submit (1) 
audited financial statements for that entity from the three most recent 
consecutive fiscal years, including balance sheets, net income, and 
cash flow, and (2) a letter of interest from a qualified bank with 
terms acceptable to the Commission that the bank would provide a letter 
of credit to the bidder if the bidder were selected for bids of a 
certain dollar magnitude.
    75. For the latter group of potential bidders, the Commission 
concludes that its interest in having a level of insight into the 
financial health of a potential Phase II auction bidder over a longer 
period of time is a necessary prequalification to bid, particularly 
because this subset of bidders will not able to demonstrate that they 
have operated and maintained a voice, broadband and/or electric 
distribution or transmission network for at least two years.
    76. The Commission also expects that a letter of interest from the 
bank will provide the Commission with an independent basis for some 
additional assurance regarding the financial status of the entity. The 
Commission does not anticipate that this requirement will be onerous. 
The Commission expects that interested bidders will already be 
considering which banks they will use to meet the letter of credit 
requirement described below, and that they will have to find a bank 
that will be willing to issue them a letter of credit in order to 
ultimately be authorized to begin receiving support. But the Commission 
cautions potential bidders that it will carefully scrutinize such 
letters and reserve the right not to allow such applicants to bid if 
the letter of interest is too vague to assess the likelihood of a 
future bank commitment.
    77. The Commission recognizes that by adopting these requirements, 
it is potentially precluding interested bidders that have not been in 
operation long enough to meet these requirements or that are unable to 
meet these requirements for other reasons. By adopting alternative 
types of pre-qualification requirements, the Commission will implement 
a more narrowly tailored approach that balances maximizing 
participation in the auction with furthering the statutory principles 
of providing access to advanced services to all regions in the county 
and ensuring that those living in rural, insular and high-cost areas 
have access to reasonably comparable services. As stewards of the 
public's funding, it is the Commission's responsibility to implement 
safeguards to ensure that these funds are being used efficiently and 
effectively, and to protect consumers in rural and high-cost areas 
against being stranded without a service provider in the event a 
winning bidder defaults when another qualified competing bidder could 
have won the support instead.
    78. Finally, the Commission will also require interested bidders to 
identify in their short-form applications if they have already been 
designated as ETCs in the areas they intend to bid. Consistent with the 
Commission's decision to permit bidders to wait until they have been 
announced as winning bidders to obtain their ETC designation, 
interested bidders will also be required to certify in their short-form 
applications that they acknowledge they must be designated as an ETC 
for the areas in which they will receive Phase II support before they 
are authorized to begin receiving such support.
2. Post-Auction Long-Form Application Process
    79. Discussion. Building on lessons learned from Mobility Fund 
Phase I, Tribal Mobility Fund Phase I, and the rural broadband 
experiments, the Commission now adopts a number of requirements for the 
long-form and post-auction review process that will apply generally to 
recipients of Phase II and Remote Areas Fund support.
a. Financial and Technical Requirements
    80. Like the Mobility Fund Phase I and Tribal Mobility Fund Phase I 
auctions, the Commission will require that winning bidders submit a 
self-certification regarding their financial and technical 
qualifications with their long-form applications. They must also submit 
a certification that specifies that they will be able to meet all of 
the applicable public interest obligations for the relevant tiers, 
including the requirement that they offer service at rates that are 
equal or lower to the Commission's reasonable comparability benchmarks 
for fixed wireline services offered in urban areas. Due to the varying 
types of technologies that entities may use to fulfill their Phase II 
competitive bidding process obligations, the Commission finds that it 
is also reasonable to require winning bidders to submit a description 
of the technology and system design they intend to use to deliver voice 
and broadband service, including a network diagram which must be 
certified by a professional engineer. The professional engineer must 
certify that the network is capable of delivering, to at least 95 
percent of the required number of locations in each relevant state, 
voice and broadband service that meets the requisite performance 
requirements. There must be sufficient capacity to meet customer demand 
at or above the prescribed levels during peak usage periods. Entities 
proposing to use wireless technologies also must provide a description 
of their spectrum access in the areas for which they seek support and 
demonstrate that they have the required licenses to use that spectrum 
if applicable. This documentation will enable Commission staff to have 
assurance from a licensed engineer that the proposed network will be 
able to fulfill the service obligations to which the bidders will have 
to commit. The Commission reminds potential applicants that filing 
deadlines will be strictly enforced, and that bidders should not 
presume that they may obtain a waiver absent extraordinary 
circumstances.
    81. The Commission notes that it required provisionally selected 
bidders in the rural broadband experiments to submit similar technical 
documentation, and the vast majority of provisionally selected bidders 
in the rural broadband experiments were able to meet these 
requirements. Similarly, the Commission is aware that RUS requires loan 
applicants to submit detailed network information as part of its 
application process. The Commission expects that potential bidders for 
the Phase II competitive bidding process will need to have already 
developed a network plan when making a decision about whether to 
participate in the auction. Accordingly, on balance the Commission 
concludes that its interest in assessing, before an entity is 
authorized to receive support, whether that entity is likely able to 
fulfill Phase II obligations outweighs any potential burdens this 
requirement may impose on bidders.
    82. Similar to the requirements for Mobility Fund Phase I and 
Tribal Mobility Fund Phase I, the Commission will require that winning 
bidders certify that they have available funds for all project costs 
that will exceed the amount of support that will be received from the 
Phase II auction authorization for the first two years of their support

[[Page 44425]]

term and that they will comply with program requirements, including 
service milestones. The Commission anticipates that many bidders will 
need to obtain a loan or rely upon other sources of funding to cover 
the cost of building the network, with the ongoing support used to 
repay those construction loans. It therefore is imperative that winning 
bidders have a well-developed plan regarding financing for construction 
upon which they are ready to execute once the auction closes. Unlike 
Mobility Fund Phase I, where one time support was disbursed in 
conjunction with meeting deployment milestones, Phase II support will 
be provided over a 10-year period. Therefore, the Commission will also 
require that winning bidders describe in their long-form application 
how the required construction will be funded and include financial 
projections that demonstrate that they can cover the necessary debt 
service payments over the life of the loan. The Commission also expects 
that prior to issuing a letter of credit, an issuing bank will be 
performing its own financial review of the winning bidder, which will 
provide an added assurance that it is financially qualified. And, as 
noted above, prior to funding authorization, winning bidders that are 
not required to submit audited financial statements in the short-form 
application will be required to submit the prior fiscal year's 
financial statements that have been audited by an independent certified 
public accountant.
    83. Finally, as discussed more fully below, in the Phase II 
competitive bidding process, participants will be subject to a defined 
forfeiture if they fail to meet within defined time periods the 
Commission's requirements to be authorized to receive support. The 
Commission expects that subjecting bidders to such a forfeiture payment 
if they are unable to get a letter of credit or meet the Commission's 
other requirements will underscore the requirement that bidders must do 
their own due diligence about their financial capability to meet their 
obligations before they participate in the Phase II competitive bidding 
process.
b. Letters of Credit
    84. Discussion. The Commission adopts a letter of credit 
requirement for all winning bidders. In the long-form application 
filing, it will require each winning bidder to submit a letter from a 
bank as described below committing to issue a letter of credit. The 
winning bidder will be required to have its letter of credit in place 
before it is authorized to receive support. The Commission's decision 
to require recipients to obtain a letter of credit is consistent with 
the requirements the Commission has adopted for other competitive 
bidding processes it has conducted to distribute Connect America funds, 
where both existing providers and new entrants were required to obtain 
letters of credit. In response to what the Commission learned in the 
rural broadband experiments, however, it makes some adjustments to 
these requirements in an effort to reduce some of the cost associated 
with obtaining a letter of credit.
    85. In the USF/ICC Transformation Order and in the Rural Broadband 
Experiments Order, 79 FR 45705, August 6, 2014, the Commission 
explained why letters of credit are an effective means for 
accomplishing its role as stewards of the public's funds by securing 
the Commission's financial commitment to provide Connect America 
support in the auction context. The Commission also explained why it 
did not adopt other approaches suggested in the record, such as relying 
on its existing accountability measures or adopting alternative methods 
of securing Connect America funds, for example performance or 
construction bonds, field inspections, or denials of certification. The 
Commission concludes that the same rationale applies here. Letters of 
credit permit the Commission to immediately reclaim support that has 
been provided in the event the recipient is not furthering the 
objectives of universal service by complying with the Commission's 
rules or requirements. They also 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 the Commission's 
goals. The Commission finds that commenters that have renewed requests 
for alternatives based on their experience with the rural broadband 
experiments, such as requiring a performance bond, placing money in 
escrow, or submitting financial statements in lieu of a letter of 
credit or considering an entity's history of receiving high-cost 
support or performance, have not demonstrated that their suggested 
alternatives offer the same level of protection of ratepayers' 
contributions to the universal service fund.
    86. Additionally, the Commission reminds bidders to become familiar 
with the letter of credit requirements it adopts below and consider 
potential issuing banks in a timely fashion. To the extent that a 
bidder is the recipient of a loan or grant from RUS, it should consult 
with RUS regarding the need to obtain a letter of credit if it is 
authorized to receive support before it submits a short-form 
application. The Commission notes that RUS' regulations generally 
require that recipients of RUS support obtain a first lien on the 
assets that are secured by certain broadband and telecommunications 
loan programs. If a bank determines that it will need a first lien on 
an entity's assets as collateral for issuing a letter of credit, RUS 
and that bank will need to negotiate acceptable arrangements, such as 
an intercreditor agreement with that bank to share RUS' first lien 
status. RUS has set forth a number of standards that an intercreditor 
agreement will have to meet including having the bank impose specific 
obligations on the Phase II auction recipient, in order for RUS to sign 
on to an intercreditor agreement. To the extent required, it is in the 
best interest of entities to contact RUS and become familiar with those 
standards as soon as possible. In the event that the bidder's chosen 
issuing bank requires a first lien to issue a letter of credit, the 
bidder should ensure that it can comply with the additional obligations 
and that the issuing bank will be able to agree to those terms by the 
time the bidder will be required to submit a letter of credit 
commitment letter as described below.
    87. Requirements for Letters of Credit. Once the Commission has 
conducted its post-auction financial and technical review, it will 
require winning bidders to secure an irrevocable stand-by letter of 
credit before support will be authorized for disbursement. For each 
state which they are awarded support, winning bidders must submit a 
letter of credit or multiple letters of credit that cover all of the 
bids in that state. The letter of credit must be issued in 
substantially the same form as set forth in the model letter of credit 
provided in Appendix B of this Order, by a bank that is acceptable to 
the Commission, as described in more detail below. If an entity fails 
to meet the required service milestones after it begins receiving 
support, then fails to cure within the requisite time period, and is 
unable to repay the support that is associated with its default in a 
timely manner, the Bureau will issue a letter evidencing the failure 
and declaring a default.
    88. In response to concerns raised about the cost of maintaining a 
letter of credit for the entire support period, the Commission will 
require that the letter of credit only remain open until the recipient 
has certified that it has deployed broadband and voice service meeting 
the Commission's requirements to 100 percent of the required number of 
locations, and USAC has validated

[[Page 44426]]

that the entity has fully deployed its network. The Commission 
concludes that such an approach will help alleviate the costs of 
obtaining a letter of credit, particularly for entities that are able 
to build out their networks faster than the six year build-out period, 
while still protecting the Commission's ability to recover the funds in 
the event that the entity is not building out its network as required. 
This approach is consistent with the approach used for Mobility Fund 
Phase I and Tribal Mobility Fund Phase I, where an entity is required 
to maintain a letter of credit valued at the support that had been 
disbursed until the Commission verifies that the build-out has been 
completed.
    89. The Commission does not adopt the proposals that would reduce 
the amount of the letter of credit to cover only the support that is 
disbursed for the first two years unless an entity fails to meet the 
first service milestone or that would cover only the support that is 
disbursed in the coming year. Both of these approaches would not permit 
the Commission to recover a significant portion of the public's funds 
that are disbursed to an entity in the event that the entity is not 
using the support for its intended purposes. The Commission recognizes 
that some entities may continue to operate partially-built networks 
even in the event of a default. However, as described below, the 
Commission will only authorize USAC to draw on the letter of credit for 
the entire amount of the letter of credit if the entity does not repay 
the Commission for the support associated with its compliance gap. If 
the entity fails to pay this support amount, the Commission concludes 
that the risk that the entity will be unable to continue to serve its 
customers or may go into bankruptcy is more likely, and thus it is 
necessary to ensure that the Commission can recover the entire amount 
of support that it has disbursed.
    90. Letter of Credit Opinion Letter. Consistent with the 
Commission's requirements for Mobility Fund Phase I, Tribal Mobility 
Fund Phase I, and the rural broadband experiments, winning bidders must 
also submit with their letter(s) of credit 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 letter of credit or proceeds of the letter of credit as 
property of the account party's bankruptcy estate, or the bankruptcy 
estate of any other Phase II competitive bidding process recipient-
related entity requesting issuance of the letter of credit under 
section 541 of the Bankruptcy Code.
    91. Issuing Bank Eligibility. The letters of credit for winning 
bidders must be obtained from a domestic or foreign bank meeting the 
requirements adopted herein. The record suggests that entities, 
especially small entities, lack established relationships with banks 
that met the requirements the Commission adopted for the rural 
broadband experiments, which can make it costly for such entities to 
obtain a letter of credit. Moreover, some entities may intend to bid on 
smaller projects, and larger banks that met the Commission's 
requirements for the rural broadband experiments may be unwilling to 
issue letters of credit below a certain threshold. Because these 
obstacles are also faced by rural broadband experiment participants and 
could potentially constrain participation in the Remote Areas Fund, the 
Commission concludes that it serves the public interest to expand the 
pool of banks that are eligible to issue letters of credit for all 
recipients of support authorized through competitive bidding to serve 
fixed locations, while maintaining objective criteria that will provide 
sufficient assurance that letters of credit issued by such banks will 
be honored.
    92. Specifically, the Commission requires generally that, for U.S. 
banks, the bank must be insured by the Federal Deposit Insurance 
Corporation (FDIC) and have a Weiss bank safety rating of B- or higher. 
This will expand the number of eligible U.S. banks from fewer than 70 
banks to approximately 3,600 banks. Whereas banks that intend to 
participate in the commercial markets obtain credit ratings, Weiss 
rates all banks that report sufficient data for Weiss to analyze. 
Importantly, Weiss is a subscription service and is not compensated by 
the banks that it rates. Weiss offers an independent and objective 
perspective of the safety of the banks it rates based on 
capitalization, asset quality, profitability, liquidity, and stability 
indexes. By requiring that the banks have a rating of at least B-, the 
Commission ensures that the bank has a rating that at a minimum 
demonstrates that the bank ``offers good financial security and has the 
resources to deal with a variety of adverse economic conditions.'' And 
by requiring that U.S. issuing banks also be FDIC-insured, the 
Commission has the added benefit of relying on the oversight of the 
FDIC and its protections. The Commission concludes that this approach 
achieves an appropriate balance between encouraging the participation 
in the auction, particularly of small entities, and protecting the 
public funds. The Commission expands the eligibility of banks to lower 
barriers to participation in the auction for entities that may not 
otherwise be able to obtain a letter of credit from a smaller pool of 
banks, while also ensuring that it puts in place adequate controls to 
protect the Fund by adopting alternative eligibility criteria that give 
the Commission independent assurance of the safety and the soundness of 
the bank issuing a letter of credit.
    93. In lieu of obtaining a letter of credit from a U.S. bank that 
meets these requirements, the Commission will also permit entities to 
obtain letters of credit from CoBank or the National Rural Utilities 
Cooperative Finance Corporation (CFC) as long as these two entities 
retain assets that place them among the top 100 U.S. banks, and they 
maintain a credit rating of BBB- or better from Standard & Poor's (or 
the equivalent from a nationally-recognized credit rating agency). 
These entities are not traditional banks in that they do not accept 
deposits from members of the public. Thus, these entities do not have a 
Weiss bank safety rating and are not FDIC-insured. However, the 
Commission finds that CFC and CoBank can be considered banks in the 
context of the Commission's program because they use their capital 
resources to make loans.
    94. CoBank has met the more stringent issuing bank eligibility 
requirements for the Mobility Fund and rural broadband experiments, and 
has issued a number of letters of credit for these programs. Although 
CoBank is not FDIC-insured, it is insured by the Farm Credit System 
Insurance Corporation, which the Commission found provides protections 
that are equivalent to those indicated by holding FDIC-insured 
deposits. As long as CoBank retains its standing with assets equivalent 
to a top 100 U.S. bank and a qualified credit rating, the Commission 
sees no reason to exclude CoBank from eligibility simply because it is 
not rated by Weiss.
    95. CFC's assets also make it comparable to commercial depository 
banks that are in the top 100 based on total assets and it has a credit 
rating from Standard & Poor's of A. But because CFC is not a depository 
institution and it is not part of the Farm Credit System, it is not 
FDIC or FCSIC-insured. Nevertheless, the Commission concludes that CFC 
is uniquely situated and should be made eligible to the extent it 
retains its standing with assets equivalent to a top 100 U.S. bank and 
a qualified credit rating. CFC is ``owned by, and exclusively serves'' 
rural utility providers, and CFC manages and funds

[[Page 44427]]

its affiliate, the Rural Telephone Finance Cooperative (RTFC), which 
lends primarily to telecommunications providers and affiliates across 
the nation. As the largest non-governmental lender for rural utilities, 
CFC has specialized institutional knowledge regarding the types of 
entities that the Commission expects will participate in universal 
service competitive bidding to serve fixed locations and has 
demonstrated that it has significant and long-term experience in 
financing the deployment of rural networks. A number of entities that 
participated in the rural broadband experiments and entities that have 
expressed interest in participating future competitive bidding have 
indicated that they have an established relationship with CFC. This 
unique and longstanding role in rural network deployment coupled with 
CFC's significant participation in other rural federal government 
programs, its substantial assets, and its sustained credit rating, 
provides the Commission with sufficient assurance that CFC has the 
qualifications to assess the financial health of potential bidders and 
honor the letters of credit that it issues at the request of these 
bidders, without the need for the independent oversight of CFC's safety 
and soundness that would be offered by FDIC or FCSIC insurance or a 
Weiss safety rating. The Commission concludes that based on the 
totality of these circumstances, CFC is eligible to issue letters of 
credit despite the fact that it does not meet the FDIC and Weiss rating 
requirements. The Commission notes that it is not adopting alternative 
eligibility requirements that would permit banks that are not FDIC or 
FCSIC-insured or that do not have a Weiss bank safety rating to issue 
letters of credit. Instead the Commission is concluding that, for 
purposes of providing security for winning bidders, a letter of credit 
from CFC provides assurances that are equivalent to those provided by 
banks meeting the Commission's general criteria, due to CFC's uniquely 
extensive experience in financing rural networks, its significant 
participation in other federal government programs, and its long-
standing relationship with a class of potential auction bidders.
    96. For non-U.S. banks, the Commission retains the same eligibility 
requirements that it adopted for the rural broadband experiments. 
Accordingly, for non-U.S. banks, the Commission requires that the bank 
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 letter of credit, determined on a U.S. 
dollar equivalent basis as of such date). The bank must also have a 
branch in the District of Columbia or other agreed-upon location in the 
United States, have a long-term unsecured credit rating issued by a 
widely-recognized credit rating agency that is equivalent to a BBB- or 
better rating by Standard & Poor's, and must issue the letter of credit 
payable in United States dollars.
    97. The Commission is not persuaded that it should further expand 
the bank eligibility requirements to include all banks that are 
federally-insured. If the Commission were to permit entities to use any 
bank that is federally-insured, it would need to conduct a 
comprehensive review of every bank to determine whether it has adequate 
safety and soundness. Because the Commission lacks the expertise to 
conduct such a review and it would delay the authorization of winning 
bidders, it concludes that expanding the number of eligible U.S. banks 
to banks that are FDIC-insured and have a Weiss bank safety rating of 
B- or higher addresses the concerns of small entities while also using 
an objective and administratively feasible method to judge the 
financial security of a bank. The Commission also finds that relying on 
an independent evaluation of the safety and soundness of a bank that 
uses a rating based on a number of financial indices provides a more 
comprehensive view of a bank's financial viability than other proposals 
submitted in the record that would rely solely on the size of the bank 
or its capitalization.
    98. The Commission notes that winning bidders have flexibility in 
how they structure their letter of credit arrangements with issuing 
banks and may choose to obtain multiple letters of credit over the 
build-out period. Entities may negotiate all the terms of their letter 
of credit with the issuing bank, including the length of the letter of 
credit, so long as the letter of credit is available to USAC for the 
entire duration of the build-out period and it is at a minimum an 
annual letter of credit that follows the terms and conditions of the 
Commission's model letter of credit. If a recipient has been issued a 
letter of credit from a bank that expires during the build-out period, 
that recipient must notify USAC immediately and an approved replacement 
letter of credit must be put in place before the letter of credit 
expires. If a bank fails so that it is no longer able to honor a letter 
of credit or if the bank no longer meets the eligibility requirements 
the Commission adopts herein, the recipient must notify USAC and will 
have 30 days to secure a letter of credit from another issuing bank 
that meets the Commission's eligibility requirements. The Commission 
also reserves the right to temporarily cease disbursements of monthly 
support until a recipient submits to the Commission a new letter of 
credit that meets its requirements and note that winning bidders will 
be subject to non-compliance measures if they fail to obtain a new and 
acceptable letter of credit.
    99. Letter of Credit Commitment Letter. As the Commission required 
for the Mobility Fund Phase I, Tribal Mobility Fund Phase I, and the 
rural broadband experiments, winning bidders will be required to submit 
a letter from an acceptable bank committing to issue an irrevocable 
stand-by letter of credit, in the required form, to that entity as part 
of the long-form process. The commitment letter will at a minimum 
provide the dollar amount of the letter of credit and the issuing 
bank's agreement to follow the terms and conditions of the Commission's 
model letter of credit, found in Appendix B.
    100. Value of Letter of Credit. When a winning bidder first obtains 
a letter of credit, it must be at least equal to the first year of 
authorized support. Before the winning bidder can receive its next 
year's support, it must modify, renew, or obtain a new letter of credit 
to ensure that it is valued at a minimum at the total amount of money 
that has already been disbursed plus the amount of money that is going 
to be provided in the next year. The Commission concludes that 
requiring recipients to obtain a letter of credit on at least an annual 
basis will help minimize administrative costs for USAC and the 
recipient rather than having to negotiate a new letter of credit for 
each disbursement.
    101. Recognizing that the risk of a default will lessen as a 
recipient makes progress towards building its network, the Commission 
finds that it is appropriate to modestly reduce the value of the letter 
of credit in an effort to reduce the cost of maintaining a letter of 
credit as the recipient meets certain service milestones. Specifically, 
once an entity meets the 60 percent service milestone that entity may 
obtain a new letter of credit or renew its existing letter of credit so 
that it is valued at 90 percent of the total support amount already 
disbursed plus the amount that will be disbursed the next year. Once 
the entity meets the 80 percent service milestone that entity may 
obtain a new letter of credit valued at 80 percent of the total support 
amount already

[[Page 44428]]

disbursed plus the amount that will be disbursed the next year. The 
Commission concludes that the benefit to recipients of potentially 
decreasing the cost of the letter of credit as it becomes less likely 
that a recipient will default outweighs the potential risk that if a 
recipient does default and is unable to cure, the Commission will be 
unable to recover a modest amount of support.
    102. The Commission is not persuaded, however, that it should 
further reduce the value of the letter of credit so that it only covers 
50 percent of the total of support disbursed throughout the build-out 
period. The Commission concludes that the approach it adopts is better 
calibrated to the potential risk of default because it takes into 
account the substantial performance of the recipient. While the 
Commission acknowledges that reducing the value of the letter of credit 
to 50 percent of the amount of support disbursed would further reduce 
the costs for some recipients, it finds that on balance accomplishing 
the Commission's duty as stewards of the public's funds by ensuring 
that it can recover a substantial percentage of the support the 
Commission disburses in the event that an entity is not using the 
support for its intended use outweighs the potential costs for 
participants.
    103. Applicability to All Winning Bidders. The Commission is not 
persuaded that it should exempt existing ETCs that already receive 
high-cost support from the letter of credit requirement. As the 
Commission concluded in the Rural Broadband Experiments Order, 
requiring all entities to obtain a letter of credit is a necessary 
measure to ensure that it can recover support from any recipient that 
cannot meet the build-out obligations for the Phase II competitive 
bidding process. Compliance with existing universal service rules does 
not necessarily guarantee that an entity is financially qualified to 
undertake the obligations of the Phase II competitive bidding process. 
Moreover, requiring all winning bidders to obtain a letter of credit 
ensures that all bidders are subject to the same default process if 
they do not meet the required service milestones.
    104. Costs of Letters of Credit. The Commission continues to 
believe that the advantages of letters of credit in ensuring that 
Connect America support can be quickly reclaimed to protect ratepayers' 
contribution to the universal service fund, and that the support is 
protected from being included in a bankruptcy estate, outweigh the 
potential costs of obtaining letter of credit. While the Commission 
understands that the requirement will impose costs on participants, it 
expects that all entities will factor the cost of letters of credit 
into their bids. Moreover, the Commission anticipates that its decision 
to tailor the requirement so that the letter of credit will remain open 
for only the build-out period and modestly reduce the value of the 
letter of credit as the recipient meets certain service milestones will 
lessen the cost of maintaining a letter of credit. The Commission also 
expects that by expanding the pool of eligible issuing U.S. banks to 
approximately 3,600 and also permitting entities to obtain a letter of 
credit from CFC, a bank that has an established relationship with a 
number of small entities, will potentially further reduce the costs of 
obtaining a letter of credit.
    105. Tribal Nations and Tribally-Owned Applicants. For the same 
reasons the Commission articulated in the Rural Broadband Experiments 
Order, the Commission recognizes there may be a need for greater 
flexibility regarding letters of credit for Tribally-owned and -
controlled winning bidders. Thus, if any Tribal Nation or Tribally-
owned and -controlled applicant for the Phase II competitive bidding 
process is unable to obtain a letter of credit, it may file a petition 
for a waiver of the letter of credit requirement. Waiver applicants 
must show, with evidence acceptable to the Commission, that the Tribal 
Nation is unable to obtain a letter of credit because of limitations on 
the ability to collateralize its real estate, that Phase II 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 firm financials with 
projections of how construction will be funded, provision of financial 
and accounting data for review (under protective order, if requested), 
or other means to assure the Commission that the winning project is a 
viable project.
c. ETC Designation Documentation
    106. Consistent with the Commission's decision to require winning 
bidders to obtain ETC designation from the relevant states or the 
Commission as applicable, as discussed more fully below the Commission 
will also require entities to submit appropriate documentation in their 
long-form application of their ETC designation in all areas for which 
they will receive support within 180 days of being announced as a 
winning bidder. In addition to submitting the relevant state or 
Commission orders, each winning bidder should provide documentation 
showing that the designated areas (e.g., census blocks, wire centers, 
etc.) cover its winning bid areas so that it is clear that the 
applicant has ETC status in each winning bid area. For example, the 
obligation may be satisfied by providing maps of the recipient's ETC 
designation area, map overlays of the winning bid areas, or charts 
listing designated areas. Additionally, the Commission will require 
winning bidders to submit a letter with their documentation from an 
officer of the company certifying that their ETC designation for each 
state covers the relevant areas where the winning bidders will receive 
support. These requirements will help the Commission verify that each 
winning selected bidder is authorized to operate in the areas where it 
will be receiving support. The Commission does not anticipate that this 
requirement will impose an unreasonable burden on winning bidders given 
that it expects they will conduct their own due diligence review to 
ensure that their existing or new ETC designations cover their awarded 
areas.
3. Forfeiture
    107. Discussion. The Commission concludes that any entity that 
files a short-form application to participate in the Phase II 
competitive bidding process will be subject to a forfeiture in the 
event of a default before it is authorized to begin receiving support. 
The Commission will impose a forfeiture in lieu of a default payment. 
Specifically, the Commission concludes that a base forfeiture per 
violation of $3,000, subject to adjustment based on the criteria set 
forth in the Commission's forfeiture guidelines, is appropriate in 
these circumstances given that the failure to supply the required 
information will prevent the Bureau from assessing a winning bidder's 
qualifications. A $3,000 base forfeiture amount is equivalent to the 
base forfeiture that is imposed for failing to file required forms or 
information with the Commission. While, as the Commission explains 
below, not all defaults will relate to the failure to submit the 
required forms or information, it concludes that for administrative 
simplicity and to provide bidders with certainty as to the base 
forfeiture that will apply for all pre-authorization defaults, it is 
reasonable to subject all bidders to the same $3,000 base forfeiture 
per violation.
    108. An entity will be considered in default and will be subject to 
forfeiture if it fails to timely file a long-form

[[Page 44429]]

application or meet the document submission deadlines outlined above or 
is found ineligible or unqualified to receive Phase II support by the 
Bureaus on delegated authority, or otherwise defaults on its bid or is 
disqualified for any reason prior to the authorization of support. The 
Commission notes that a winning bidder will be subject to the base 
forfeiture for each separate violation of the Commission's rules. For 
purposes of the Phase II competitive bidding process, the Commission 
defines a violation as any form of default with respect to the minimum 
geographic unit eligible for bidding. In other words, there shall be 
separate violations for each geographic unit subject to a bid. That 
will ensure that each violation has a relationship to the number of 
consumers affected by the default, but is not unduly punitive. Such an 
approach will also ensure that the total forfeiture for a default is 
generally proportionate to the overall scope of the winning bidder's 
bid. To ensure that the amount of the base forfeiture is not 
disproportionate to the amount of an entity's bid, the Commission also 
limits the total base forfeiture to five percent of the bidder's total 
bid amount for the support term. For the Mobility Fund and Tribal 
Mobility Fund, the Bureaus found that five percent of the total bid 
amount provided sufficient incentive for auction participants to fully 
inform themselves of the obligations associated with participation in 
the auctions without being unduly punitive.
    109. The Commission finds that by adopting such a forfeiture, it 
will impress upon recipients the importance of being prepared to meet 
all of the Commission's requirements for the post-selection review 
process and emphasize the requirement that they conduct a due diligence 
review to ensure that they are qualified to participate in the Phase II 
competitive bidding process and meet its terms and conditions.

VI. ETC Designation

    110. In this section, the Commission adopts more specific details 
related to the implementation of the ETC designation requirement for 
the Phase II competitive bidding process. First, the Commission 
requires winning bidders in the Phase II competitive bidding process to 
submit proof of their ETC designation within 180 days of the public 
notice announcing them as winning bidders. Second, the Commission 
concludes that forbearance from the section 214(e)(5) service area 
conformance requirement for recipients of the Phase II competitive 
bidding process is appropriate and in the public interest.

A. ETC Designation Timing

    111. Discussion. As noted above, the Commission will require 
winning bidders for the Phase II competitive bidding process to submit 
proof of their ETC designation as part of the long-form application 
process. Such proof must be submitted within 180 days of the public 
notice announcing them as winning bidders. Failure to obtain ETC status 
and submit the required documentation by the deadline is an event of 
default.
    112. In the rural broadband experiments, the Commission learned 
that while states have diligently pursued resolution of the ETC 
designation applications filed by rural broadband experiment 
provisionally selected bidders, a number of states were unable to make 
a final decision on an ETC designation within a 90-day timeframe, often 
due to state-specific procedural requirements or because the 
application was contested. Of the 18 provisionally selected bidders 
that have been authorized or are still undergoing post-selection 
review, only nine were able to submit documentation of their ETC 
designations for all of their proposed service areas within the 90-day 
timeframe, and several of these entities had existing ETC designations 
that already covered their proposed service areas. The Commission 
therefore concludes that it would not be appropriate to adopt a 
rebuttable presumption that a state commission lacks jurisdiction over 
a potential recipient of support merely because the state has failed to 
complete an ETC proceeding within 90 days of initiating such a 
proceeding.
    113. The Commission notes that only a limited number of 
provisionally selected bidders were selected for the rural broadband 
experiments. In the Phase II competitive bidding process, there may be 
situations where there are multiple winning bidders in each state that 
do not already have an ETC designation, and the Commission expects that 
states will need to have more time to address multiple petitions. On 
balance, the Commission concludes that 180 days should provide states 
with enough time to consider ETC designation applications, without 
unreasonably delaying the authorization of Phase II support and 
commencement of broadband deployment to consumers lacking service.
    114. In the event the bidder is unable to obtain the necessary ETC 
designations within 180 days, the Commission finds that it would be 
appropriate to waive the 180-day timeframe if the bidder is able to 
demonstrate that it has engaged in good faith efforts to obtain an ETC 
designation, but the proceeding is not yet complete. A waiver of the 
180-day deadline would be appropriate if, for example, an entity has an 
ETC application pending with a state and the state's next scheduled 
meeting at which it would consider the ETC application will occur after 
the 180-day window. This is consistent with the general approach the 
Commission took in the rural broadband experiments.
    115. The Commission declines to adopt a hard rule requiring a 
winning bidder to file an ETC application within a specified amount of 
time to be considered acting in good faith, because, as it found in the 
rural broadband experiments, there were various circumstances impacting 
the ability of individual bidders to file their ETC applications. The 
Commission expects that winning bidders will have an incentive to file 
their ETC applications expeditiously so that they can meet the 
requirements to begin receiving support as soon as possible. Instead, 
based on what the Commission observed in the rural broadband 
experiments, when considering waivers of the 180-day timeframe for 
obtaining ETC designation, the Commission will presume that an entity 
will have acted in good faith if the entity files its ETC application 
within 30 days of the release of the public notice announcing that it 
is a winning bidder.
    116. The Commission is not persuaded that it needs to take the 
further step of adopting a rebuttable presumption that a state lacks 
jurisdiction in the event that the ETC does not act on a petition 
within a certain amount of time or does not make a final decision on a 
petition within a certain amount of time. A number of state commenters 
explained that they need varying amounts of time to handle ETC 
petitions based on their available resources, the complexity of the 
application, and whether it is contested. The Commission has found 
through its experience with the rural broadband experiments that while 
some states may need more time to initiate action and make a decision 
on applications, they are committed to acting diligently within the 
framework of their existing state processes to act on ETC requests to 
expand voice and broadband-capable networks to their residents. The 
Commission saw no situations in the rural broadband experiments where a 
state refused to initiate action on a petition, took an unreasonable 
amount of time to declare that it did not have jurisdiction over a 
particular carrier, or

[[Page 44430]]

delayed making a decision on an application for no legitimate reason. 
And the Commission notes that any circumstances where a state will need 
more time due to procedural requirements or resource issues can be 
dealt with through the waiver process outlined above. Accordingly, to 
preserve the primary role that Congress gave the states in designating 
ETCs, the Commission reaffirms that it will act on an ETC designation 
petition pursuant to section 214(e)(6) ``only in those situations where 
the carrier can provide the Commission with an affirmative statement 
from the state commission or a court of competent jurisdiction that the 
carrier is not subject to the state commission's jurisdiction.''
    117. Due to the Commission's experience with the rural broadband 
experiments, the Commission also continues to conclude that there is 
nothing in the record before the Commission concerning the designation 
of ETCs that would warrant changing the existing framework by adopting 
rules requiring states to streamline their review of ETC petitions, or 
adopting a rebuttable presumption that states do not have jurisdiction 
over certain types of providers for purposes of the Phase II 
competitive bidding process. The rural broadband experiments have shown 
the Commission that obtaining an ETC designation from a state 
commission generally has not been too burdensome for most entities. 
Instead, most of the wide variety of entities that submitted bids and 
were provisionally selected did not face unreasonable delays in 
obtaining ETC designations. The Commission notes that a number of 
states acted on ETC applications that were submitted by WISPs, and only 
two states concluded that they lacked jurisdiction over particular 
providers, two that are WISPs that would provide VoIP service and one 
that is an electric company. Accordingly, the Commission is not 
persuaded that it should disturb the statutory construction giving 
states primary jurisdiction in designating ETCs. The Commission also 
notes that requiring that all entities seek ETC designation from the 
relevant states first rather than going straight to the Commission will 
ensure that all participants in the Phase II competitive bidding 
process must follow the same procedural requirements for submitting an 
application to obtain an ETC designation.
    118. The Commission also declines to automatically grant petitions 
after they have been pending with the states for a certain amount of 
time. Determining whether an entity is qualified to become an ETC is a 
fact-intensive inquiry, and the more complex and contested petitions 
are likely to take more time. It would be adverse to the public 
interest to forgo this inquiry into an entity's qualifications simply 
because an application is taking more time to review.

B. Forbearance From Service Area Redefinition Process

    119. Discussion. The Commission now concludes that forbearance from 
the section 214(e)(5) service area conformance requirement for 
recipients of the Phase II competitive bidding process is appropriate 
and in the public interest. As the Commission discusses in more detail 
below, the Commission has decided that it is a more efficient use of 
Connect America support to provide support to only one provider in a 
given geographic area in exchange for that provider's commitment to 
offer service that meets the Commission's requirements throughout the 
funded area. If the rural telephone affiliate of a price cap carrier 
declines the offer of support and another entity is selected as the 
winning bidder to serve a portion of its area through the competitive 
bidding process, the incumbent will be replaced by the Phase II 
competitive bidding recipient in those areas, and the incumbent's 
legacy service area will no longer be a relevant consideration in 
determining where the winning bidder should be designated as an ETC.
    120. Accordingly, for those entities that obtain ETC designations 
as a result of being selected as winning bidders for the Phase II 
competitive bidding process, the Commission forbears from applying 
section 214(e)(5) of the Act and section 54.207(b) of its rules, 
insofar as those sections require that the service area of such an ETC 
conform to the service area of any rural telephone company serving an 
area eligible for Phase II support. The Commission notes that 
forbearing from the service area conformance requirement eliminates the 
need for redefinition of any rural telephone company service areas in 
the context of the Phase II competitive bidding process. However, if an 
existing ETC seeks support through the Phase II competitive bidding 
process for areas within its existing service area, this forbearance 
will not have any impact on the ETC's pre-existing obligations with 
respect to other support mechanisms and the existing service area.
    121. The Commission concludes that forbearance is warranted in 
these limited circumstances. As the Commission noted above, its 
objective is to distribute support to winning bidders as soon as 
possible so that they can begin the process of deploying new broadband 
to consumers in those areas. Case-by-case forbearance would likely 
delay its post-selection review of entities once they are announced as 
winning bidders. The Act requires the Commission to forbear from 
applying any requirement of the Act or its regulations to a 
telecommunications carrier if the Commission determines that: (1) 
Enforcement of the requirement is not necessary to ensure that the 
charges, practices, classifications, or regulations by, for, or in 
connection with that telecommunications carrier or telecommunications 
service are just and reasonable and are not unjustly or unreasonably 
discriminatory; (2) enforcement of that requirement is not necessary 
for the protection of consumers; and (3) forbearance from applying that 
requirement is consistent with the public interest. The Commission 
concludes each of these statutory criteria is met for winning bidders 
of the Phase II competitive bidding process.
    122. Just and Reasonable. The Commission concludes that compliance 
with the service area conformance requirement of section 214(e)(5) of 
the Act and section 54.207(b) of the Commission's rules is not 
necessary to ensure that the charges, practices, and classifications of 
carriers designated as ETCs in areas for which support is authorized 
through the Phase II competitive bidding process are just and 
reasonable and not unjustly or unreasonably discriminatory. As 
discussed below, the Commission finds that the three factors 
traditionally taken into account by the Commission and the states when 
reviewing a potential redefinition of a rural service area pursuant to 
section 214(e)(5) of the Act no longer apply in the context of 
designating ETCs in areas for which support is authorized through a 
Phase II competitive bidding process. Moreover, all ETCs--whether rural 
ETCs or other entities designated as ETCs in areas eligible for Phase 
II competitive bidding support in order to receive such support--will 
continue to be subject to the requirements of the Act and of the 
Commission's rules that consumers have access to reasonably comparable 
services at reasonably comparable rates. In fact, as the Commission 
discusses below, the expansion of voice and broadband-capable networks 
into these unserved Phase II areas may expand the choice of 
telecommunications services for consumers living in areas located near 
the Phase II funded areas. The resulting competition is likely to help 
ensure just, reasonable, and nondiscriminatory offerings of services.

[[Page 44431]]

For these reasons, the Commission finds that the first prong of section 
10(a) is met.
    123. Consumer Protection. The Commission also concludes that it is 
not necessary to apply the service area conformance requirement to a 
winning bidder in the Phase II competitive bidding process to protect 
consumers. Forbearance from the service area conformance requirement in 
these limited circumstances will not harm consumers currently served by 
the rural telephone companies in the relevant service areas. To the 
contrary, these consumers will benefit because an entity that replaces 
the incumbent rural telephone company as the only ETC receiving support 
to serve the area will be required to use its Phase II competitive 
bidding process support to expand voice and broadband-capable networks 
with service quality that meets the Commission's requirements. 
Moreover, Phase II recipients, like all ETCs, will be required to 
certify that they will satisfy applicable consumer protection and 
service quality standards in their service areas. For these reasons, 
the Commission finds that the second prong of section 10(a) is met.
    124. Public Interest. The Commission concludes that it is in the 
public interest to forbear from the service area conformance 
requirement in these limited circumstances. As the Commission explained 
above, by deciding to distribute Phase II support through a competitive 
bidding mechanism and eliminating the identical support rule, the 
Commission has set up a system under which only one ETC will receive 
support to serve Phase II eligible areas. In circumstances where the 
incumbent declines the offer and does not win support (either because 
it does not bid, or is outbid by another provider), the Commission has 
decided that the competitive winner will replace the incumbent as the 
only provider that will be required to provide supported services in 
that area in exchange for receiving support. The Commission notes that 
if the incumbent price cap carrier chooses not to bid or loses in the 
competitive bidding process and is replaced by the Phase II auction 
winning bidder, it will no longer have the federal ETC obligation to 
provide voice service in that area and it can apply for permission to 
discontinue its provision of voice service through the section 214(a) 
discontinuance process, and relinquish its ETC designation for those 
areas pursuant to section 214(e)(4). Thus, a rural telephone carrier's 
service area is no longer a relevant consideration in determining where 
a Phase II competitive bidding process recipient should be designated 
as an ETC.
    125. Accordingly, the analysis that the relevant state and the 
Commission historically undertook when deciding whether to redefine a 
rural telephone carrier's service area is not applicable to the Phase 
II competitive bidding process. Past concerns that an ETC serving only 
a relatively low cost portion of a rural carrier's service area might 
cream skim by receiving per line support based on the rural carrier's 
cost of serving the entire area are not relevant to Phase II support, 
which will be awarded through a competitive process. The incumbent 
rural telephone company will no longer be receiving support to serve 
the area won by another entity, the Phase II recipient's support will 
be based on the amount it bids to serve the area, and the Phase II 
recipient will be required to use its support to serve areas that the 
marketplace will not serve absent those subsidies. Because the service 
area redefinition analysis is not relevant to Phase II, it no longer 
serves the public interest for the states and the Commission to work 
together to define the service area of Phase II recipients serving 
rural telephone companies' service areas. The Commission notes that the 
actions it takes today do not otherwise impact the state's primary role 
in designating ETCs.
    126. Similarly, the concerns about protecting rural carriers and 
avoiding the imposition of additional administrative burden on such 
carriers that led to the adoption of the service area conformance 
requirement nearly two decades ago are not applicable in these limited 
circumstances. First, the Commission notes that the affected incumbent 
rural telephone companies are affiliated with price cap holding 
companies, which typically serve both rural and urban areas. Second, 
each incumbent rural telephone company will not be automatically 
replaced by a competitive provider. Each price cap carrier holding 
company had the opportunity to accept model-based support and be the 
sole Connect America-supported provider throughout its territory. The 
price cap carrier holding company will also have the opportunity to 
compete so that Connect America support is provided to the most 
efficient provider. Only if the price cap carrier holding company 
chooses not to participate in the Phase II competitive bidding process 
or loses to a competitive carrier will it be replaced by a competitive 
provider as the sole recipient of Connect America support. Finally, the 
Commission notes that its decision to grant forbearance in these 
limited circumstances does not impose any additional administrative 
requirements on rural telephone companies.
    127. The Commission also notes that requiring each Phase II 
recipient to conform its service areas to those of the rural telephone 
companies in the states they seek to serve could result in lengthy 
redefinition proceedings, which may delay the Commission's post-
selection review of winning bidders and consequently delay its 
distribution of support and the deployment of advanced voice and 
broadband-capable networks. Some rural broadband experiment 
provisionally selected bidders found that it was time-consuming to 
obtain ETC designations in circumstances where the incumbent rural 
telephone company challenged their ETC petitions. The Commission 
expects that the forbearance it provides here will help accelerate the 
ETC designation process when applications are challenged because the 
state commission will not need to seek the Commission's agreement 
through a service redefinition process or wait 90 days for the service 
redefinition to be automatically granted if the Commission is unable to 
act within 90 days.
    128. Finally, the Commission concludes that the forbearance in 
these limited circumstances will not harm competitive market 
conditions. If anything, forbearance may enhance competition by 
introducing new service providers to the market. Price cap carriers 
that have an existing network and customers in the areas won by another 
entity may choose to continue to operate in those areas, albeit without 
subsidies. And as the Phase II recipient is building a network in its 
funded areas, it may also find that it has a business case to build its 
network and provide service to customers in surrounding areas, thereby 
increasing competition and providing more options for consumers.

VII. Accountability and Oversight

    129. In this section the Commission adopts measures for ensuring 
that recipients of Connect America support to serve fixed locations 
awarded through a competitive bidding process use their support for its 
intended purposes. First, the Commission adopts reporting requirements 
that will enable the Commission to monitor recipients' progress in 
meeting their deployment obligations. Second, the Commission explains 
how the letter of credit requirement it adopts above will work with the 
existing support reduction framework it adopted in the December 2014 
Connect America Order to

[[Page 44432]]

calibrate support reductions to the extent of a recipient's non-
compliance with its build-out obligations. Finally, the Commission 
clarifies that for the section 54.314 certification, the relevant 
states or ETCs may certify that support was used for its intended 
purpose for a given year if it is set aside in an account dedicated 
specifically for upgrades necessary to meet the relevant requirements.

A. Monitoring Progress in Meeting Deployment Obligations

    130. Discussion. The Commission concludes that the public interest 
will be served by adopting reporting requirements for recipients of 
support to serve fixed locations awarded through a competitive bidding 
process comparable to that adopted for price cap carriers accepting 
model-based support and rate-of-return carriers. These reporting 
obligations will enhance the Commission's ability to monitor the use of 
Connect America support and ensure that it is being used for its 
intended purposes. Specifically, the Commission requires such 
recipients of support to submit annually the number and list of the 
geocoded locations to which they are offering broadband meeting the 
requisite requirements with Connect America support in the prior 12-
month period. Because the Commission anticipates that recipients will 
use a variety of technologies and it would be useful to understand what 
types of networks ETCs are deploying so that it can monitor the use of 
Connect America support, it also requires that the list specify the 
types of technology (e.g., fixed wireless, fiber) that is being used to 
offer service to each location.
    131. The first location list will be due by the last business day 
of the second calendar month following the one-year anniversary of 
support authorization and must reflect the number and list of geocoded 
locations (if any) where the recipient already was offering service 
meeting the Commission's requirements and all new locations (if any) 
where the recipient was offering service meeting the requisite 
requirements by the end of the first year. Phase II auction recipients 
will then be required to submit a list of locations where they are 
newly offering service by the last business day of the second calendar 
month following each subsequent support year until they have met the 
final service milestone. Phase II auction recipients will be free--and 
indeed, encouraged--to submit information on a rolling basis throughout 
the year to the online portal, as soon as service is offered, so as to 
avoid filing all of their locations at the deadline. A best practice 
would be to submit the information no later than 30 days after service 
is initially offered to locations in satisfaction of deployment 
obligations, to avoid any potential issues with submitting large 
amounts of information at year end.
    132. The Commission will also require that Phase II auction 
recipients file certifications that they have met their interim service 
milestones and are meeting the requisite public interest obligations by 
the last business day of the second calendar month following each 
relevant service milestone. As noted above, if an entity is able to 
build out its network more quickly to offer service and close-out its 
letter of credit before the final build-out deadline, it may notify the 
Commission at any time that it has met its final service milestone, and 
submit its final build-out certification and location list at that 
time. This notification will trigger USAC's verification that the 
build-out has been completed.
    133. The Commission finds that collecting this information from 
recipients of support to serve fixed locations awarded through the 
competitive bidding process serves the public interest for the same 
reasons as collecting this information from price cap carriers and 
rate-of-return carriers accepting model-based support. As recommended 
by the Government Accountability Office, the Commission and USAC will 
analyze the data and determine how Connect America support is being 
used to ``improve broadband availability, service quality, and 
capacity.'' As the Commission has already decided, these data will also 
be made publicly available at a granular level and in a user friendly 
manner. The Commission finds that the benefits in collecting this 
information outweigh any potential burdens on the recipients in 
reporting these data, given that the Commission expects that recipients 
will be already collecting such data for their own business purposes, 
to certify that they have met service milestones, and to be prepared to 
respond to compliance reviews that it directs USAC to undertake. These 
auction recipients that fail to file their location lists and build-out 
certifications by the required deadline will be subject to the support 
reduction scheme in section 54.316(c) of the Commission's rules.
    134. The Commission will also require these auction support 
recipients to certify each year after they have met their final service 
milestone that the network they operated in the prior year meets the 
Commission's performance requirements. Phase II auction recipients will 
continue to receive support after they have met their service 
milestones. This requirement will ensure that the Commission is able to 
monitor that Phase II auction recipients are continuing to use their 
Phase II auction support for its intended use, and they are continuing 
to offer service meeting the relevant minimum requirements. Because at 
this point in their support terms, Phase II auction recipients will no 
longer be filing their build-out certifications and locations lists, 
the Commission concludes that it is reasonable to collect this 
certification in recipients' annual section 54.313 reports due July 1st 
that Phase II auction recipients will already be filing each year.
    135. The Commission concludes that the benefit to the Commission in 
being able to track the progress of Phase II recipients and monitor 
their use of the public's funds outweighs the potential costs that will 
be imposed on recipients. The Commission expects that Phase II auction 
recipients will already be tracking their progress and their expenses 
before they have to meet their first service milestone and then 
monitoring their network's performance after their build-out is 
completed to meet the terms and conditions of Phase II auction support. 
Accordingly, the Commission does not anticipate that these additional 
reporting requirements will impose unreasonable costs on recipients.
    136. The Commission will also require recipients of Phase II 
competitive bidding support to identify the total amount of Phase II 
support, if any, that they used for capital expenditures in the 
previous calendar year. The Commission will collect this information in 
recipients' annual section 54.313 reports, recognizing that recipients 
will be required to file annual reports throughout their support term. 
As the Commission concluded in the December 2014 Connect America Order, 
the benefit to the Commission of being able to determine how recipients 
are using Phase II funding outweigh any potential burden on those 
recipients in submitting this information given that it expects they 
will track their capital expenditures for Phase II in the regular 
course of business. Such information also may help the Commission 
determine whether alternative approaches are necessary to maintain 
universal service at the conclusion of the term of Phase II support. 
The Commission notes that all Phase II auction recipients should begin 
filing their section 54.313 annual reports starting the year after they 
begin receiving support. If they have not begun to offer service and 
have no

[[Page 44433]]

customers at this time, they will be able to indicate this in the 
report.
    137. Finally, the Commission will require that in each section 
54.313 annual report that is filed by Phase II recipients during their 
support term, they will be required to certify that they have available 
funds for all project costs that will exceed the amount of support that 
will be received from the authorization stemming from the Phase II 
auction for the next calendar year. This will give the Commission 
assurance that Phase II recipients have obtained enough funding to meet 
their Phase II obligations and also underscore Phase II recipients' 
obligation to conduct a due diligence review of their finances to 
ensure that they can meet their obligations.
    138. The Commission provides as an example, an illustrative chart 
of the reporting requirements for a bidder in the baseline performance 
tier that begins to receive support in September 1, 2017 and takes the 
entire six years to build-out its network:

------------------------------------------------------------------------
      Support term year           Reporting obligations and deadlines
------------------------------------------------------------------------
Year One: Sept. 1, 2017 to     Due by July 1, 2018: FCC Form 481,
 Aug. 31, 2018.                 including capex spent if any (reporting
                                on 2017) and available funds
                                certification (pertaining to 2019).
                               Due by Oct. 31, 2018: First location list
                                indicating locations where service
                                meeting the Commission's requirements at
                                time of authorization is already offered
                                and locations where service newly
                                offered in the first support year.
Year Two: Sept. 1, 2018 to     Due by July 1, 2019: FCC Form 481,
 Aug. 31, 2019.                 including capex spent (reporting on
                                2018) and available funds certification
                                (pertaining to 2020).
                               Due by Oct. 31, 2019: List of locations
                                where service newly offered in second
                                support year.
Year Three: Sept. 1, 2019 to   Due by July 1, 2020: FCC Form 481,
 Aug. 31, 2020.                 including capex spent (reporting on
                                2019) and available funds certification
                                (pertaining to 2021).
                               Due by Oct. 30, 2020: List of locations
                                where service newly offered in third
                                support year; 40% build-out
                                certification.
Year Four: Sept. 1, 2020 to    Due by July 1, 2021: FCC Form 481,
 Aug. 31, 2021.                 including capex spent (reporting on
                                2020) and available funds certification
                                (pertaining to 2022).
                               Due by Oct. 30, 2021: List of locations
                                where service newly offered in fourth
                                support year; 60% build-out
                                certification.
Year Five: Sept. 1, 2021 to    Due by July 1, 2022: FCC Form 481,
 Aug. 31, 2022.                 including capex spent (reporting on
                                2021) and available funds certification
                                (pertaining to 2023).
                               Due by Oct. 31, 2022: List of locations
                                where service newly offered in fifth
                                support year; 80% build-out
                                certification.
Year Six: Sept. 1, 2022 to     Due by July 1, 2023: FCC Form 481,
 Aug. 31, 2023.                 including capex spent (reporting on
                                2022) and available funds certification
                                (pertaining to 2024).
                               Due by Oct. 31, 2023: List of locations
                                where service newly offered in sixth
                                support year; 100% build-out
                                certification.
All Subsequent Years.........  Due by following July 1: FCC Form 481,
                                including capex spent and service
                                performance requirement certification
                                (reporting on the previous calendar
                                year) and available funds certification
                                (pertaining to next calendar year; not
                                required in annual report due the July
                                1st after the support term has ended).
------------------------------------------------------------------------

    139. The Commission directs USAC to review, for these entities that 
are authorized to receive support after the Phase II competitive 
bidding process, compliance with deployment obligations and the 
Commission's public interest obligations at the state level--that is, 
whether the carrier is meeting interim and final service obligations 
for the total number of locations required for each state. As the 
Commission concluded in the December 2014 Connect America Order, 
conducting compliance reviews at the state level would be less 
administratively burdensome for the Commission, USAC, and recipients of 
Phase II support than at the census block level.
    140. Finally, the Commission clarifies that price cap carriers that 
choose to use Phase II model-based support to deploy to locations in 
extremely high-cost census blocks may not use Phase II model-based 
support to serve extremely high-cost census blocks that an authorized 
Phase II auction recipient will be required to serve. In the USF/ICC 
Transformation Order, the Commission gave price cap carriers the 
flexibility to use Phase II model-based support to serve census blocks 
that are above the extremely high-cost threshold to meet their 
commitment to serve a set number of locations. When the Commission 
provided this flexibility to meet deployment obligations, it did not 
contemplate funding two different carriers to deploy broadband to the 
same extremely high cost location. Permitting price cap carriers to use 
model-based support to deploy to such extremely high-cost census blocks 
would be inconsistent with the Commission's objective for Phase II of 
targeting support in the most efficient and effective manner. 
Accordingly, once a Phase II winning bidder has been authorized to 
begin receiving Phase II support to serve an extremely high-cost census 
block, a price cap carrier will not be able to count locations that are 
located in that census block towards its remaining Phase II model-based 
support service milestones.
    141. The Commission directs USAC to review the geocoded locations 
lists that are submitted by the price cap carriers regarding deployment 
to verify that no extremely high-cost locations are located in census 
blocks where a Phase II auction recipient has been authorized to begin 
receiving support. In other words, as of the date of authorization for 
another entity to serve a census block, that census block is no longer 
eligible for substitution of locations. If USAC determines that a price 
cap carrier has included such locations in its list to count towards 
its build-out obligation, that price cap carrier will be deemed to have 
not met the relevant Phase II model-based support build-out obligation 
and will be subject to the applicable non-compliance measures.
    142. As ETCs comply with the new public interest and reporting 
requirements and broadband public interest obligations in this Order, 
the Commission will continue to monitor their behavior and performance. 
Based on that experience, the Commission may make additional 
modifications as necessary to its reporting requirements.

B. Section 54.314 Certifications

    143. Discussion. The Commission clarifies that for the section 
54.314 certification, using high-cost support (i.e. Connect America 
Fund support) for

[[Page 44434]]

the intended purpose in a given calendar year may include setting aside 
the high-cost support received but not spent in that calendar year in 
an account dedicated specifically for upgrades necessary to meet the 
relevant high-cost requirements. All high-cost recipients should be 
prepared to demonstrate to a state making such a certification on their 
behalf, or to the Commission or USAC upon request, that any unspent 
high-cost support was kept in such an account until it was spent.
    144. The Commission previously has recognized that the first task 
for any major network upgrade is to complete an overall plan and then 
undertake detailed engineering analyses in the field to plan the 
construction of particular routes. Depending on the timing of funding 
authorization for recipients of high-cost support, it is possible that 
in the initial year of support, an ETC may not be able to spend the 
funding that is disbursed. Moreover, with any network upgrade, 
construction over the course of the deployment timetable will be 
dependent on the availability of necessary equipment, fiber, and 
construction crews. In some cases, weather may require construction 
projects to be deferred over the winter into the following spring. The 
Commission also has acknowledged that a price cap carrier may not 
deploy new facilities in every state in every year of the Phase II 
term. Accordingly, the Commission concludes that it is permissible for 
high-cost recipients to certify or have the relevant states certify on 
their behalf that they have used their support for its intended purpose 
if they have set aside a portion or all of the high-cost support in a 
given year in an account dedicated to future high-cost improvements, as 
described above.

C. Measures for Non-Compliance

    145. Discussion. The Commission adopts the process by which the 
Wireline Competition Bureau or the Wireless Telecommunications Bureau 
will authorize USAC to draw on the letter of credit to recover all of 
the support that has been disbursed in the event that the Phase II 
competitive bidding process recipient does not meet the relevant 
service milestones. In the December 2014 Connect America Order, the 
Commission determined that USAC would recover support from ETCs 
associated with their compliance gap in three separate circumstances. 
If after six months, the ETC fails to repay in full, either the 
Wireline Competition Bureau or the Wireless Telecommunications Bureau 
will issue a letter authorizing USAC to draw on the letter of credit to 
recover 100 percent of the support that has been disbursed to the ETC.
    146. First, for interim milestones, if the ETC has a compliance gap 
of 50 percent or more of the number of locations that the ETC is 
required to offer service to by the relevant interim milestone (i.e., 
Tier 4 status), USAC will withhold 50 percent of the ETC's monthly 
support for that state, and the ETC will be required to file quarterly 
reports. If, after having 50 percent of support withheld for six 
months, the ETC has not reported that it has a compliance gap of less 
than 50 percent (i.e., the ETC is eligible for Tier 3 or lower or is in 
compliance), USAC will withhold 100 percent of the ETC's support for 
the state and will commence recovery action for a percentage of support 
that is equal to the ETC's compliance gap plus 10 percent of the ETC's 
support that has been paid to that point. At this point, this ETC will 
have six months to pay back the amount of support that USAC seeks to 
recover. If at the end of six months the ETC has not fully paid back 
the support, the Wireline Competition Bureau or the Wireless 
Telecommunications Bureau will issue a letter to that effect and USAC 
will draw on the letter of credit to recover all of the support that 
has been disbursed to the ETC. If at any point during the six-year 
period for deployment the ETC reports that it is eligible for Tier 1 
status, the ETC will have its support fully restored including any 
support that had been withheld, USAC will repay any funds that were 
recovered, and the ETC will move to Tier 1 status.
    147. Second, if an ETC misses the final milestone, it must identify 
by what percentage the milestone has been missed. It will then have 12 
months from that date to come into full compliance with the milestone. 
If it does not come into full compliance within 12 months, the Wireline 
Competition Bureau or the Wireless Telecommunications Bureau will issue 
a letter and USAC will recover an amount of support that is equal to 
1.89 times the average amount of support per location received in the 
state over the six-year period for the relevant number of locations the 
ETC has failed to offer service to, plus 10 percent of the ETC's total 
Phase II support received in the state over the six-year period for 
deployment. At this point, the ETC will have six months to repay the 
support USAC seeks to recover. If at the end of six months the ETC has 
not fully paid back the support, the Wireline Competition Bureau or the 
Wireless Telecommunications Bureau will issue a letter to that effect, 
and USAC will draw on the letter of credit to recover all of the 
support that has been disbursed to the ETC.
    148. Third, if after the build-out has been verified and the ETC 
closes its letter of credit it is determined that the ETC does not have 
sufficient evidence to demonstrate that it is offering service to the 
total number of required locations, USAC will recover an amount of 
support that is equal to 1.89 times the average amount of support per 
location received in the state over the six-year period for the 
relevant number of locations for which the ETC has failed to produce 
sufficient evidence, plus 10 percent of the ETC's total support 
received in that state over the six-year time period. Because the ETC's 
build-out will have already been verified before it may close its 
letter of credit, the Commission does not find it necessary to require 
that the ETC continue to keep its letter of credit open in the event 
that the ETC does not repay the Commission after it is found to be 
lacking evidence. Instead, the Commission notes that if the ETC does 
not repay the Commission after six months it may be subject to 
additional non-compliance measures, including forfeitures.
    149. The Commission concludes that drawing on the letter of credit 
in the event that the ETC fails to repay the support that USAC is 
instructed to recover will ensure that the Commission will be able to 
recover the support in the event that the ETC is unable to pay. The 
Commission notes that through the support reduction framework the 
Commission adopted in the December 2014 Connect America Order, the ETC 
will have a number of opportunities to cure before the Commission will 
seek to recover the support that is associated with the compliance gap. 
And the Commission will only recover 100 percent of the support that 
has been disbursed in those cases where the ETC is unable to repay the 
support associated with its compliance gap. Because an ETC that is 
unable to repay the support is also unlikely to be able to meet its 
obligations to use the support to offer service meeting the 
Commission's requirements, recovering 100 percent of the support will 
allow the Commission to re-award the support through an alternative 
mechanism to an ETC that will be able to meet its obligations.
    150. Finally, the Commission notes that Phase II auction recipients 
may also be subject to other sanctions for non-compliance with the 
terms and conditions of high-cost funding, including, but not limited 
to potential revocation of ETC designation and

[[Page 44435]]

suspension or debarment. Phase II auction recipients will also be 
subject to any non-compliance measures that are adopted in conjunction 
with a methodology for high-cost recipients to measure and report speed 
and latency performance to fixed locations.

VIII. Remote Areas Fund

    151. Discussion. While the Commission previously decided to include 
census blocks that are deemed to be extremely high-cost in the Phase II 
auction, it recognizes that not all of those areas will receive bids. 
Moreover, the Commission recognizes that there may not be winning 
bidders for all of the high-cost census blocks in the declined states 
that are included in the Phase II auction. At the same time, the 
Commission also recognizes that in the intervening period, it is 
possible that some areas will become served through market forces and 
will not require ongoing support from the universal service fund. The 
Commission now adopts a framework and rules herein to ensure the 
Commission moves expeditiously to implement a Remote Areas Fund for 
those areas that remain unserved with broadband after the Phase II 
auction. These areas will comprise, in effect, the ``remote areas'' 
where the Commission will target Remote Areas Fund support. The 
Commission's objective is to bring broadband to these unserved areas 
across the country as soon as possible.
    152. The Commission concludes that it will award support for the 
Remote Areas Fund through a competitive bidding process, with providers 
receiving support to serve defined areas that remain unserved with 
broadband service meeting the Commission's public interest obligations, 
determined based on the most recent publicly available FCC Form 477 
data available prior to the opening of the filing window for short-form 
applications. For several reasons, the Commission concludes that it 
will be most efficient to award support from the Remote Areas Fund to 
serve a designated area through a competitive bidding process, rather 
than as a portable consumer subsidy. The Commission expects that the 
competitive process will drive down the amount of support awarded to 
serve these remote locations, enabling the Commission to utilize its 
Remote Areas funding most effectively. The Commission also believes 
this approach will best provide incentives for providers to deploy 
broadband-capable infrastructure in these remote areas. The Commission 
recognizes the need for service providers to have some assurance that 
there will be sufficient demand in these remote areas to warrant making 
the necessary investments to extend service, and by awarding support to 
serve a given area, bidders will be able to aggregate demand 
sufficiently to warrant the investments necessary to serve such areas. 
The Commission notes that a number of bidders in the rural broadband 
experiments were ultimately authorized to begin receiving support in 
category 3 which was limited to bids for only extremely high-cost 
census blocks, suggesting that these bidders were able to put together 
bids that enabled them to make a business case to serve the highest 
cost areas. Lastly, by moving swiftly to auction support from the 
Remote Areas Fund utilizing many of the same processes and procedures 
established for the Phase II auction, the Commission will bring service 
to consumers more quickly than would likely be the case if it were to 
adopt an approach that has never been implemented to date in the high-
cost program. The Commission does not rule out the possibility of 
implementing some form of a portable consumer subsidy at a future date, 
however, should there remain areas after the Remote Areas Fund auction 
that remain unserved.
    153. The areas eligible for the Remote Areas Fund auction will 
generally be those areas not subject to winning bids in the Phase II 
auction that are not served with voice and 10/1 Mbps broadband 
according to the most recently published FCC Form 477 data that are 
available prior to the opening of the expedited filing window for 
applicants for the Remote Areas Fund auction. The Commission directs 
the Bureau to publish the list of eligible areas within 60 days after 
the announcement of winning bidders in the Phase II auction. The 
Commission reserves the right to make further adjustments to the 
eligible areas based on lessons learned from the Phase II auction, 
however, and its progress in implementing other Connect America Fund 
reforms in the intervening period.
    154. The Commission's goal is to commence the Remote Areas Fund 
auction within a year of the close of the Phase II Auction. The 
specific dates and deadlines will be announced in a Remote Areas Fund 
Auction Procedures Public Notice after the Phase II auction.
    155. The Commission intends that the Remote Areas Fund auction will 
occur as soon as feasible after the Phase II auction, providing for a 
limited period of time in between so that applicants that may wish to 
participate in both auctions may plan and prepare for the Remote Areas 
auction taking into account winning bids in the Phase II auction. 
Bidders qualified to bid in the Phase II auction will be able 
automatically to participate in this subsequent auction without having 
to file another short-form application, so long as there is no material 
change in any information filed in their Phase II short-form 
application.
    156. Consistent with the rules established for the Phase II 
competitive bidding process, the Commission will not require bidders to 
be ETCs in order to bid in the Remote Areas Fund auction. Rather, they 
may obtain ETC designation after being selected as a winning bidder. 
The Commission finds this will serve the public interest for the same 
reasons previously stated when it adopted these measures for Phase II. 
Similarly, the Commission adopts the same timelines for submitting 
proof of ETC designation for Remote Areas Fund winning bidders for the 
same reasons stated above for the Phase II auction.
    157. Similarly, the Commission adopts rules providing for a short-
form application process to qualify entities eligible to bid and a 
long-form application to be filed by winning bidders that are similar 
in substance to the rules adopted above for the Phase II auction. As 
the Commission stated above, this approach will balance the need to 
collect essential information with administrative efficiency and will 
provide the Commission with assurance that interested participants are 
qualified to meet the terms and conditions of the Remote Areas Fund, if 
authorized to receive support. The Commission delegates authority to 
the Bureaus to adjust the format and timing of the Remote Areas Fund 
applications based on experience gained with the implementation of the 
Phase II auction. The Commission's goal is to conduct the Remote Areas 
Fund auction generally utilizing the same format and procedures adopted 
for the Phase II auction, although the Commission recognizes that some 
adjustments may need to be made.
    158. As a general matter, support from the Remote Areas Fund will 
be awarded on similar terms and subject to the same rules as Phase II 
support awarded through the Phase II auction. The Commission expects 
that recipients will be subject to the same interim and final service 
milestones as Phase II auction winners, although it reserves the right 
to make adjustments if necessary to encourage auction participation. 
Recipients will be subject to the same reporting obligations as Phase 
II recipients and subject to the same measures for non-compliance. The 
Commission expects, however, that it may be necessary to relax 
performance

[[Page 44436]]

standards for the Remote Areas Fund. The Commission may make further 
adjustments as needed, based on what it learns from the Phase II 
auction.
    159. The Commission does not decide at this time a number of issues 
that will need to be resolved before it can implement the Remote Areas 
Fund, including the public interest obligations for recipients of 
support, the term of support for the Remote Areas Fund, and whether to 
disburse support on a per-subscriber basis or a per-location basis. The 
Commission will decide those issues once it observes the outcome of the 
Phase II auction.

IX. Procedural Matters

A. Paperwork Reduction Act Analysis

    160. This document contains new information collection requirements 
subject to the 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 will be invited to comment 
on the new 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 C, infra.

B. Congressional Review Act

    161. The Commission will send a copy of this Report and Order to 
Congress and the Government Accountability Office pursuant to the 
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

C. Final Regulatory Flexibility Analysis

    162. 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 adopted in 
November 2011 (USF/ICC Transformation FNPRM) and the Further Notice of 
Proposed Rulemaking adopted in April 2014 (April 2014 Connect America 
FNPRM). The Commission sought written public comment on the proposals 
in the USF/ICC Transformation FNPRM, 76 FR 78384, December 16, 2011 and 
April 2014 Connect America FNPRM, 79 FR 39196, July 9, 2014, including 
comment on the IRFAs. The Commission did not receive any relevant 
comments in response to these IRFAs. This Final Regulatory Flexibility 
Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the Report and Order
    163. Over the last several years, the Commission has engaged in a 
modernization of its universal service regime to support networks 
capable of providing voice and broadband, including developing a new 
forward-looking cost model to calculate the cost of providing service 
in rural and high-cost areas. In 2015, 10 price cap carriers accepted 
an offer of Phase II support calculated by a cost model in exchange for 
a state-level commitment to deploy and maintain voice and broadband 
service in the high-cost areas in their respective states. With this 
Report and Order (Order), the Commission now adopts rules to implement 
a competitive bidding process for Phase II of the Connect America Fund.
    164. Specifically, building on decisions already made by the 
Commission, in this Order, the Commission:
     Adopt public interest obligations for recipients of 
support awarded through the Phase II competitive bidding process, that 
will be known in advance of the auction and that will continue for the 
duration of the term of support, recognizing that competitive bidding 
is likely to be more efficient if potential bidders know what their 
performance standards will be before bids are made. In particular, the 
Commission establishes four technology-neutral tiers of bids available 
for bidding with varying speed and usage allowances, all at reasonably 
comparable rates, and for each tier will differentiate between bids 
that would commit to either lower or higher latency.
    [cir] The Commission's minimum performance tier requires that 
bidders commit to provide broadband speeds of at least 10 Mbps 
downstream and 1 Mbps upstream (10/1 Mbps) and offer at least 150 
gigabytes (GB) of monthly usage.
    [cir] The Commission's baseline performance tier requires that 
bidders commit to provide at least 25 Mbps downstream and 3 Mbps 
upstream (25/3 Mbps) and offer a minimum usage allowance of 150 GB per 
month, or that reflects the average usage of a majority of fixed 
broadband customers, using Measuring Broadband America data or a 
similar data source, whichever is higher.
    [cir] The Commission's above-baseline performance tier requires 
that bidders commit to provide at least 100 Mbps downstream and 20 Mbps 
upstream (100/20 Mbps) and offer an unlimited monthly usage allowance.
    [cir] The Commission's Gigabit performance tier requires that 
bidders commit to provide at least 1 Gigabit per second (Gbps) 
downstream and 500 Mbps upstream and offer an unlimited monthly usage 
allowance.
    [cir] For each of the four tiers, bidders will designate one of two 
latency performance levels: (1) Low latency bidders will be required to 
meet 95 percent or more of all peak period measurements of network 
round trip latency at or below 100 milliseconds (ms), or (2) High 
latency bidders will be required to meet 95 percent or more of all peak 
period measurements of network round trip latency at or below 750 ms 
and, with respect to voice performance, demonstrate a score of four or 
higher using the Mean Opinion Score (MOS).
     Adopt the same interim service milestones for winning 
bidders in the Phase II auction as for price cap carriers that accepted 
Phase II model-based support.
     Finalize the Commission's decisions regarding areas 
eligible for the Phase II competitive bidding process.
     Establish a budget for the Phase II competitive bidding 
process of $215 million in annual support.
     Provide general guidance on auction design, with the 
specific details to be determined by the Commission at a future date in 
the Auction Procedures Public Notice, after further opportunity for 
comment. The Commission will use weights to account for the different 
characteristics of service offerings that bidders propose to offer when 
ranking bids. The Commission expresses its preference for a multi-round 
auction format and for setting the minimum biddable unit as a census 
block group containing any eligible census blocks. The Commission 
concludes that reserve prices will not exceed support amounts 
determined by the Connect America Cost Model (CAM).
     Adopt a two-step application process, similar to 
Commission spectrum auctions and the Mobility Fund Phase I and Tribal 
Mobility Fund Phase I auctions. In the pre-auction short-form 
application, a potential bidder will need to establish its baseline 
financial and technical capabilities in order to be eligible to bid. In 
the long-form review process, winning bidders will be required to 
provide additional information regarding their qualifications. They 
will be required to

[[Page 44437]]

obtain an acceptable letter of credit and designation as an eligible 
telecommunications carrier (ETC) before funding is authorized.
     Establish a baseline forfeiture for bidders that default 
before funding authorization.
     Establish a 180-day post-auction deadline for winning 
bidders to submit proof of their ETC designation during long-form 
review and forbear from the section 214(e)(5) service area conformance 
requirements.
     Adopt reporting requirements that will enable the 
Commission to monitor recipients' progress in meeting their interim 
deployment obligations, and a process by which the Wireline Competition 
Bureau (Bureau) or the Wireless Telecommunications Bureau will 
authorize the Universal Service Administrative Company (USAC) to draw 
on a letter of credit in the event of performance default.
     Adopt rules to establish the framework for the Remote 
Areas Fund, which will award support through a competitive bidding 
process to occur expeditiously after conclusion of the Phase II 
auction.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    165. There were no relevant comments filed that specifically 
addressed the rules and policies proposed in the USF/ICC Transformation 
FNPRM IRFA and the April 2014 Connect America FNPRM, IRFA.
3. Response to Comments by the Chief Counsel for Advocacy of the Small 
Business Administration
    166. Pursuant to the Small Business Jobs Act of 2010, which amended 
the RFA, the Commission is required to respond to any comments filed by 
the Chief Counsel of the Small Business Administration (SBA), and to 
provide a detailed statement of any change made to the proposed rule(s) 
as a result of those comments.
    167. The Chief Counsel did not file any comments in response to the 
proposed rule(s) in this proceeding.
4. Description and Estimate of the Number of Small Entities to Which 
the Rules Will Apply
    168. 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.
    169. Small Businesses. Nationwide, there are a total of 
approximately 28.2 million small businesses, according to the SBA.
    170. 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, 
3,144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1,000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    171. 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 in the Order.
    172. 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.
    173. 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.
    174. 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.
    175. 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

[[Page 44438]]

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.
    176. 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 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, the 
Commission estimates that 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.
    177. 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.
    178. 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.
    179. 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.
    180. 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 the Commission's 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.
    181. 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.
    182. 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,

[[Page 44439]]

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.
    183. Advanced Wireless Services. In 2008, the Commission conducted 
the auction of Advanced Wireless Services (``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.
    184. 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.
    185. 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 the Commission's 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.
    186. 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.
    187. 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

[[Page 44440]]

licenses: 216 EA Licenses and 9 EAG licenses. Fourteen companies 
claiming small business status won 158 licenses.
    188. 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 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.
    189. 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.
    190. 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.
    191. 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 10 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.
    192. 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.
    193. 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

[[Page 44441]]

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 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.
    194. 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.
    195. 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).
    196. 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.
    197. 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.
    198. 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.
    199. 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.
    200. 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 issued herein.
    201. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground

[[Page 44442]]

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.
    202. 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 
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 the 
Commission's 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.
    203. 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.
    204. 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.
    205. 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.
    206. 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.
    207. 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

[[Page 44443]]

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.
    208. 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'' 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.
    209. 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.
    210. 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.
    211. 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 the Commission's 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.
    212. 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.
    213. 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.
    214. 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.
    215. 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 its action.
    216. Cable and Other Program Distribution. Since 2007, these 
services have been defined within the broad economic census category of 
Wired Telecommunications Carriers; that

[[Page 44444]]

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 1,000 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.
    217. 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.
    218. 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 10 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.
    219. 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 1,000 
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.
    220. 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 1,000 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 1,000 
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.
    221. Internet Publishing and Broadcasting and Web Search Portals. 
The Commission's actions 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.
    222. 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

[[Page 44445]]

be affected by rules adopted pursuant to the Order.
    223. 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).'' The Commission's actions 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 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 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 its action.
5. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    224. In the Order the Commission adopts today, it establishes four 
technology-neutral tiers of bids available for bidding with varying 
speed and usage allowances, and for each tier will differentiate 
between bids that would offer either lower or higher latency. All 
bidders must offer a service at rates that are within a reasonable 
range of rates for comparable fixed wireline services offered in urban 
areas
    225. Once a winning bidder is authorized to begin receiving Phase 
II auction support, it will have six years to deploy a voice and 
broadband-capable network meeting the relevant public interest 
obligations to the required number of locations included in its bid. 
Phase II auction recipients will also be required to meet interim 
service milestones. They will have to complete construction to 40 
percent of the requisite number of locations in a state by the end of 
the third year of funding authorization, an additional 20 percent in 
subsequent years, with 100 percent by the end of the sixth year. Phase 
II recipients that at the end of their support term have deployed to at 
least 95 percent, but less than 100 percent of the number of funded 
locations will be required to refund support based on the number of 
funded locations left unserved in the state. The amount refunded will 
be based on one-half the average support for the top five percent of 
the highest cost funded locations nationwide.
    226. Entities that are interested in participating in the Phase II 
auction will be required to file a short-form application in order to 
establish their eligibility to participate. In their short-form 
applications, they will be required to submit any information or 
documentation required to establish their eligibility for any bidding 
credits the Commission adopts. If applicants are already ETCs they will 
need to identify themselves as such and all applicants will be required 
to submit a certification acknowledging that they must be designated as 
an ETC for the area in which they will receive support prior to being 
authorized to begin receiving support. Applicants will be required to 
submit a certification of their financial and technical capabilities to 
provide the required service in the required timeframe and information 
that establishes their identity, including disclosing parties with 
ownership interests and any agreements the applicants may have relating 
to the support to be sought through the Phase II auction. Applicants 
will also be required to indicate the type of bid they intend to place 
and describe the technology or technologies that will be used to 
provide service for each category of bid. If an applicant plans to use 
spectrum, it must also provide additional details about its spectrum 
access, including demonstrating that it has the proper authorizations, 
if applicable, and access and that the spectrum resources will be 
sufficient to cover peak network usage and deliver the minimum 
performance requirements.
    227. Applicants will also be required to certify in their short-
form application that they have provided voice, broadband, and/or 
electric transmission or distribution services for at least two years 
or they are the wholly-owned subsidiary of such an entity, and specify 
the number of years they have been operating. Applicants that have 
provided voice or broadband services must also certify that they have 
filed FCC Form 477s as required during that time period. Applicants 
that have operated only an electric distribution or transmission 
network must submit qualified operating or financial reports for the 
relevant time period that they have filed with the relevant financial 
institution along with a certification stating that those submissions 
are the true and accurate copies of the submissions made to the 
relevant financial institution. Applicants that are able to demonstrate 
that they have operated such a network for at least two years will also 
be required to submit the prior fiscal year's audited financial 
statements. Applicants that meet these requirements but that do not 
audit their financial statements in the ordinary course of business can 
instead certify that they will submit their audited financial 
statements for the prior fiscal year during the long-form application 
review process if they are selected as a winning bidder. A winning 
bidder that fails to submit its audited financial statements during the 
long-form application stage will be subject to a forfeiture. If 
applicants cannot meet these requirements, in the alternative, 
applicants may instead submit audited financial statements from the 
three most recent consecutive fiscal years and a letter of interest 
from a qualified bank that the bank would provide a letter of credit to 
the bidder if the bidder were selected for bids of a certain dollar 
magnitude. The short-form application may also include additional 
certifications or requirements that are adopted in an auction 
procedures public notice.
    228. Within a specified number of days of the release of a public 
notice announcing an entity as a winning bidder, that winning bidder 
will be required to file a long-form application. In this long-form 
application, winning bidders will be required to submit a self-
certification regarding their financial and technical qualifications 
and a self-certification that specifies that that they will be able to 
meet all of the applicable public interest obligations for the relevant 
categories, including the requirement that they offer service at rates 
that are equal or lower to the Commission's reasonable comparability 
benchmarks for fixed wireline services offered in urban areas. Winning 
bidders will also be required to submit a description of the technology 
and system design they intend to use to deliver voice and broadband 
service, including a network diagram which must be certified by a 
professional engineer. The professional engineer must certify that the 
network is capable of delivering, to at least 95 percent of the 
required number of locations in each relevant state, voice and 
broadband service that meets the requisite performance requirements. 
Winning bidders proposing to use wireless technologies must also 
provide certain information related to their spectrum access and 
licenses if applicable.
    229. Winning bidders will also have to certify in their long-form 
applications that they have available funds for all project costs that 
will exceed the amount of support that will be received

[[Page 44446]]

from the Phase II auction for the first two years of their support term 
and that they will comply with program requirements, including service 
milestones. They will also have to describe how the required 
construction will be funded and include financial projections that 
demonstrate that they can cover the necessary debt service payments 
over the life of the loan. The long-form application may also include 
additional certifications or requirements that are adopted in an 
auction procedures public notice.
    230. Within the number of days specified by public notice, the 
winning bidder will be required to submit a letter of credit commitment 
letter from a qualified bank as part of the long-form application 
process. Within 180 days of being announced as a winning bidder, 
winning bidders that demonstrated in their short-form application that 
they had provided a voice, broadband and/or electric distribution or 
transmission service for at least two years and did not submit their 
audited financials during the short-form application process, must 
submit their audited financial statements for the prior year. Within 
180 days of an entity being announced as a winning bidder, the winning 
bidder will be required to submit appropriate documentation in its 
long-form application of its ETC designation in all areas for which it 
will receive support, documentation showing that the designated areas 
cover the bid areas, and a letter from an officer of the company 
certifying that the ETC designation covers the relevant areas where the 
winning bidder will receive support.
    231. After the Commission has reviewed the winning bidder's long-
form application and has determined that it is qualified to be 
authorized to begin receiving Phase II support, a public notice will be 
released stating that the winning bidder is ready to be authorized. At 
that point, the winning bidder will have the number of days specified 
by public notice to submit an irrevocable standby letter of credit from 
a bank that meets the Commission's requirements and an opinion letter 
from legal counsel. After the letter of credit and opinion letter are 
approved a public notice will be released authorizing the winning 
bidder to begin receiving Phase II auction support. Phase II recipients 
will be required to maintain an open and renewed letter of credit until 
USAC has verified that their build-outs are complete.
    232. If an entity that files a short-form application defaults, it 
will be subject to a forfeiture. An entity will be considered in 
default if it fails to timely file a long-form application or meet 
document submission deadlines, is found ineligible or unqualified to 
receive Phase II support by the Bureaus on delegated authority, or 
otherwise defaults on its bid or is disqualified for any reason prior 
to the authorization of the support.
    233. Once a Phase II recipient has been authorized to begin 
receiving support, it will be required to report certain information to 
the Commission so that the Commission can track the progress of Phase 
II recipients and monitor their use of the public's funds before and 
after they meet service milestones. Specifically, each year Phase II 
auction recipients will be required to submit by the last business day 
of the second calendar month following each support year a list of the 
geocoded locations and the total number of locations to which they have 
newly offered service meeting the requisite requirements with Connect 
America support in the prior year. The first list they submit, will 
also include a list of all of the locations where the recipient already 
offers service meeting the Commission's requirements before receiving 
support. Carrier are encouraged to submit their locations on a rolling 
basis to an online portal that will be developed by the Bureau and 
USAC, 30 days from the date of deployment. By the last business day of 
the second calendar month following the end of certain support years, 
recipients will also be required to submit certifications that they 
have met the relevant interim service milestones.
    234. Like all recipients of Connect America support, all Phase II 
recipients are also required to file section 54.313 annual reports and 
section 54.314 certifications. In addition to other information 
required to be submitted in the section 54.313 annual reports, Phase II 
recipients will be required to identify the total amount of Connect 
America Phase II support they used for capital expenditures in the 
previous year and certify that they have available funds for all 
project costs that will exceed the amount of support that will be 
received from the Phase II auction for the next calendar year. After 
they have met the final service milestone, recipients will also be 
required to certify in their section 54.313 annual reports that the 
network they operated in the prior year met the Commission's 
performance requirements.
    235. Analogous application and reporting requirements also are 
adopted for recipients of support awarded through the Remote Areas Fund 
auction.
6. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    236. 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.
    237. The Commission has taken a number of steps to ensure that 
small entities have the opportunity to participate in the Phase II 
auction. For example, the Commission adopts different performance 
standards for bidders to maximize the types of entities that can 
participate in the Phase II auction. Recognizing that not all entities, 
including some small entities, will be able to meet the baseline 
performance standards the Commission adopts, it permits entities to 
choose to meet minimum performance requirements. Although the 
Commission will rank bids using weights and minimum performance bidders 
are not guaranteed a 10-year support term under certain circumstances, 
it does not restrict the geographic area where entities placing bids 
for relaxed standards can bid.
    238. Because the Phase II challenge process was a resource-
intensive process for all entities involved, the Commission has also 
decided to rely on Form 477 data and conduct a more streamlined 
challenge process to determine areas that are eligible for the Phase II 
auction. This means that competitors, who can be small entities, that 
qualify as an unsubsidized competitor will only have to file a Form 477 
as they are already required to do to ensure that the areas they serve 
are not overbuilt and may submit comments within 30 days of the 
publication of the preliminary eligible census block list if they have 
built out since they have submitted June 2015 Form 477 data.
    239. The Commission expects that the minimum geographic area for 
bidding will be a census block group containing one or more eligible 
census blocks. The Commission found adopting a larger minimum 
geographic unit would preclude entities from participating in the Phase 
II auction, including small

[[Page 44447]]

entities that intend to construct a smaller network or edge out their 
networks. The Commission expects that the auction design adopted by the 
Commission in the Auction Procedures Public Notice will similarly 
account for the needs of small entities.
    240. Based on lessons learned from the rural broadband experiments 
and in response to comments submitted by participating entities, 
including small entities, the Commission also adopts requirements for 
the short-form and long-form applications that will maximize the number 
and types of entities that can participate. For example, in the rural 
broadband experiments, the Commission required that provisionally 
selected bidders submit three years of audited financials. A number of 
entities, including small entities, could not meet this requirement 
because they had not been in business for three years or they claimed 
audited financials were prohibitively expensive. For the Phase II 
auction and the Remote Areas Fund, the Commission will require that 
applicants certify in their short-form application that they have 
provided voice, broadband, and/or electric distribution or transmission 
services for at least two years or that they are the wholly-owned 
subsidiary of such an entity. Applicants that have provided voice or 
broadband services must also certify that they have filed FCC Form 477s 
as required during that time period and submit their audited financial 
statements from the prior fiscal year. Applicants that have operated 
only an electric distribution or transmission network must submit 
qualified operating or financial reports. As an alternative, the 
Commission also permits applicants that have demonstrated that they 
have operated a network for two years but do not audit their financial 
statements in the ordinary course of business, many which may be small 
companies, to wait to submit audited financial statements until the 
long-form application review process. This will allow such applicants 
to avoid the cost of obtaining an audit if they are not ultimately 
announced as winning bidders. Also, by requiring only one year of 
audited financials, the Commission reduces the cost of this requirement 
for entities that have already demonstrated that they are able to 
maintain a voice, broadband, and/or electric distribution or 
transmission network for two years.
    241. Recognizing that these requirements may preclude entities, 
including small entities, that have not operated a voice, broadband, 
and/or electric distribution or transmission network for two years, the 
Commission also provides the alternative of letting applicants instead 
submit three year of audited financials and a letter of interest from a 
qualified bank that the bank would provide a letter of credit to the 
bidder if the bidder were selected for bids of a certain dollar 
magnitude. The Commission concluded that its interest in having some 
level of insight into the financial health over a significant period of 
time of applicants that lack an operating history outweigh the costs of 
obtaining three years of financial statements for this subset of 
entities.
    242. Additionally, the Commission has taken steps to reduce the 
costs of the letter of credit requirement for the recipients of support 
awarded through a competitive bidding process to serve fixed locations 
in response to claims from entities, particularly small entities, that 
the letter of credit requirement for the rural broadband experiments 
was prohibitively expensive. First, the Commission only requires that 
recipients maintain an open irrevocable standby letter of credit until 
it has been verified that they have met the final service milestone; in 
the rural broadband experiments the letter of credit originally had to 
be open and renewed for the entire support term. Second, recipients can 
modestly reduce the value of their letters of credit as they have made 
substantial progress in building out their networks by meeting certain 
service milestones. Third, the Commission has modified its issuing bank 
eligibility requirements for all recipients of support authorized 
through competitive bidding to serve fixed locations. The Commission 
has expanded the pool of eligible U.S. banks and made the National 
Rural Utilities Cooperative Finance Corporation (CFC) an eligible 
issuing bank. This will potentially reduce the costs and other 
challenges of obtaining a letter of credit for entities that lack 
established business relationships with larger banks.
    243. The Commission notes that the reporting requirements it adopts 
are tailored to ensuring that support is used for its intended purpose 
and so that the Commission can monitor the progress of recipients in 
meeting their service milestones. The Commission finds that the 
importance of monitoring the use of the public's funds outweighs the 
burden of filing the required information on all entities, including 
small entities, particularly because much of the information that it 
requires they report is information it expects they will already be 
collecting to ensure they comply with the terms and conditions of 
support and they will be able to submit their location data on a 
rolling basis to help minimize the burden of uploading a large number 
of locations at once.
    244. People with Disabilities. To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

X. Ordering Clauses

    245. Accordingly, it is ordered, pursuant to the authority 
contained in sections 1, 2, 4(i), 5, 10, 201-206, 214, 218-220, 251, 
252, 254, 256, 303(r), 332, 403, 405, and 503 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), 155, 160, 201-206, 214, 218-220, 251, 
252, 254, 256, 303(r), 332, 403, 405, 503, 1302, and sections 1.1, 
1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.427, and 
1.429, that this Report and Order and concurrently adopted Further 
Notice of Proposed Rulemaking is adopted, effective thirty (30) days 
after publication of the text or summary thereof in the Federal 
Register, except for those rules and requirements involving Paperwork 
Reduction Act burdens, which shall become effective immediately upon 
announcement in the Federal Register of OMB approval. It is the 
Commission's intention in adopting these rules that if any of the rules 
that the Commission retains, modifies, or adopts herein, or the 
application thereof to any person or circumstance, are held to be 
unlawful, the remaining portions of the rules not deemed unlawful, and 
the application of such rules to other persons or circumstances, shall 
remain in effect to the fullest extent permitted by law.
    246. It is further ordered that, pursuant to section 1.3 of the 
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by NTCA--
The Rural Broadband Association on Feb. 3, 2015 is dismissed as moot in 
part and denied in part to the extent described herein.
    247. It is further ordered that, pursuant to section 1.3 of the 
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by The 
National Rural Utilities Cooperative Finance Corporation and the Rural 
Telephone Finance Cooperative on Jan. 21, 2015 is dismissed as moot.
    248. It is further ordered that, pursuant to section 1.3 of the 
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by 
Allamakee-

[[Page 44448]]

Clayton Electric Cooperative, Inc. on Jan. 30, 2015 is dismissed as 
moot.
    249. It is further ordered that, pursuant to section 1.3 of the 
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by 
Midwest Energy Cooperative, Inc. on March 20, 2015 is dismissed as 
moot.
    250. It is further ordered that Part 54 of the Commission's rules, 
47 CFR part 54, is amended as set forth in Appendix A, and such rule 
amendments shall be effective thirty (30) days after publication of the 
rules amendments in the Federal Register, except to the extent they 
contain information collections subject to PRA review. The rules that 
contain information collections subject to PRA review shall become 
effective immediately upon announcement in the Federal Register of OMB 
approval and an effective date.
    251. It is further ordered that the Commission shall send a copy of 
this Report and Order and concurrently adopted Further Notice of 
Proposed Rulemaking to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A).
    252. It is further ordered, that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order and concurrently adopted Further Notice 
of Proposed Rulemaking, including the Final Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration.

List of Subjects

47 CFR Part 1

    Administrative practice and procedure, Civil rights, Claims, 
Communications common carriers, Cuba, Drug abuse, Environmental impact 
statements, Equal access to justice, Equal employment opportunity, 
Federal buildings and facilities, Government employees, Income taxes, 
Indemnity payments, Individuals with disabilities, Investigations, 
Lawyers, Metric system, Penalties, Radio, Reporting and recordkeeping 
requirements, Telecommunications, Television, Wages.

47 CFR Part 54

    Communications common carriers, Health facilities, Infants and 
children, Internet, Libraries, Reporting and recordkeeping 
requirements, Schools, Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR parts 1and 54 as follows:

PART 1--PRACTICE AND PROCEDURE

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

    Authority: 15 U.S.C. 79, et seq.; 47 U.S.C. 151, 154(i), 154(j), 
155, 157, 160, 201, 225, 227, 303, 309, 332, 1403, 1404, 1451, 1452, 
and 1455.


0
2. Section 1.21001 is amended by revising paragraph (b)(6) to read as 
follows:


Sec.  1.21001  Participation in competitive bidding for support.

* * * * *
    (b) * * *
    (6) Certification that the applicant is in compliance with all 
statutory and regulatory requirements for receiving the universal 
service support that the applicant seeks, or, if expressly allowed by 
the rules specific to a high-cost support mechanism, a certification 
that the applicant acknowledges that it must be in compliance with such 
requirements before being authorized to receive support;
* * * * *

PART 54--UNIVERSAL SERVICE

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

    Authority:  47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
254, 303(r), 403, and 1302 unless otherwise noted.


0
4. Section 54.309 is amended by revising paragraph (a) to read as 
follows:


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

    (a) Recipients of Connect America Phase II support are required to 
offer broadband service with latency suitable for real-time 
applications, including Voice over Internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonably comparable to rates for comparable 
offerings in urban areas. For purposes of determining reasonable 
comparable usage capacity, recipients are presumed to meet this 
requirement if they meet or exceed the usage level announced by public 
notice issued by the Wireline Competition Bureau. For purposes of 
determining reasonable comparability of rates, recipients are presumed 
to meet this requirement if they offer rates at or below the applicable 
benchmark to be announced annually by public notice issued by the 
Wireline Competition Bureau, or no more than the non-promotional prices 
charged for a comparable fixed wireline service in urban areas in the 
state or U.S. Territory where the eligible telecommunications carrier 
receives support.
    (1) Recipients of Connect America Phase II model-based support are 
required to offer broadband service at actual speeds of at least 10 
Mbps downstream/1 Mbps upstream.
    (2) Recipients of Connect America Phase II support awarded through 
a competitive bidding process are required to offer broadband service 
meeting the performance standards required in bid tiers based on 
performance standards.
    (i) Winning bidders meeting the minimum performance tier standards 
are required to offer broadband service at actual speeds of 10 Mbps 
downstream and 1 Mbps upstream and to offer at least 150 gigabytes of 
monthly usage.
    (ii) Winning bidders meeting the baseline performance tier 
standards are required to offer broadband service at actual speeds of 
at least 25 Mbps downstream and 3 Mbps upstream and offer a minimum 
usage allowance of 150 GB per month, or that reflects the average usage 
of a majority of fixed broadband customers, using Measuring Broadband 
America data or a similar data source, whichever is higher, and 
announced annually by public notice issued by the Wireline Competition 
Bureau over the 10-year term.
    (iii) Winning bidders meeting the above-baseline performance tier 
standards are required to offer broadband service at actual speeds of 
at least 100 Mbps downstream and 20 Mbps upstream and offer an 
unlimited monthly usage allowance.
    (iv) Winning bidders meeting the Gigabit performance tier standards 
are required to offer broadband service at actual speeds of at least 1 
Gigabit per second downstream and 500 Mbps upstream and offer an 
unlimited monthly usage allowance.
    (v) For each of the tiers in paragraphs (a)(2)(i) through (iv) of 
this section, bidders are required to meet one of two latency 
performance levels:
    (A) Low latency bidders will be required to meet 95 percent or more 
of all peak period measurements of network round trip latency at or 
below 100 milliseconds; and
    (B) High latency bidders will be required to meet 95 percent or 
more of all peak period measurements of

[[Page 44449]]

network round trip latency at or below 750 ms and, with respect to 
voice performance, demonstrate a score of four or higher using the Mean 
Opinion Score (MOS).
* * * * *

0
5. Section 54.310 is amended by revising paragraph (c) to read as 
follows:


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

* * * * *
    (c) Deployment obligation. Recipients of Connect America Phase II 
model-based support must complete deployment to 40 percent of supported 
locations by December 31, 2017, to 60 percent of supported locations by 
December 31, 2018, to 80 percent of supported locations by December 31, 
2019, and to 100 percent of supported locations by December 31, 2020. 
Recipients of Connect America Phase II awarded through a competitive 
bidding process must complete deployment to 40 percent of supported 
locations by the end of the third year, to 60 percent of supported 
locations by the end of the fourth year, to 80 percent of supported 
locations by the end of the fifth year, and to 100 percent of supported 
locations by the end of the sixth year. Compliance shall be determined 
based on the total number of supported locations in a state.
    (1) For purposes of meeting the obligation to deploy to the 
requisite number of supported locations in a state, recipients of 
Connect America Phase II model-based support may serve unserved 
locations in census blocks with costs above the extremely high-cost 
threshold instead of locations in eligible census blocks, provided that 
they meet the public interest obligations set forth in Sec.  54.309(a) 
introductory text and (a)(1) for those locations and provided that the 
total number of locations covered is greater than or equal to the 
number of supported locations in the state.
    (2) Recipients of Connect America Phase II support may elect to 
deploy to 95 percent of the number of supported locations in a given 
state with a corresponding reduction in support computed based on the 
average support per location in the state times 1.89.
* * * * *

0
6. Section 54.313 is amended by revising paragraph (e) to read as 
follows:


Sec.  54.313  Annual reporting requirements for high-cost recipients.

* * * * *
    (e) In addition to the information and certifications in paragraph 
(a) of this section, the following requirements apply to Phase II and 
Remote Areas Fund recipients:
    (1) Any price cap carrier that elects to receive Connect America 
Phase II model-based support shall provide:
    (i) On July 1, 2016 a list of the geocoded locations already 
meeting the Sec.  54.309 public interest obligations at the end of 
calendar year 2015, and the total amount of Phase II support, if any, 
the price cap carrier used for capital expenditures in 2015.
    (ii) On July 1, 2017 and every year thereafter ending July 1, 2021, 
the following information:
    (A) The number, names, and addresses of community anchor 
institutions to which the eligible telecommunications carrier newly 
began providing access to broadband service in the preceding calendar 
year;
    (B) The total amount of Phase II support, if any, the price cap 
carrier used for capital expenditures in the previous calendar year; 
and
    (C) A certification that it bid on category one telecommunications 
and Internet access services in response to all FCC Form 470 postings 
seeking broadband service that meets the connectivity targets for the 
schools and libraries universal service support program for eligible 
schools and libraries (as described in Sec.  54.501) located within any 
area in a census block where the carrier is receiving Phase II model-
based support, and that such bids were at rates reasonably comparable 
to rates charged to eligible schools and libraries in urban areas for 
comparable offerings.
    (2) Any recipient of Phase II or Remote Areas Fund support awarded 
through a competitive bidding process shall provide:
    (i) Starting the first July 1st after receiving support until the 
July 1st after the recipient's support term has ended:
    (A) The number, names, and addresses of community anchor 
institutions to which the eligible telecommunications carrier newly 
began providing access to broadband service in the preceding calendar 
year;
    (B) The total amount of support, if any, the recipient used for 
capital expenditures in the previous calendar year; and
    (C) A certification that it bid on category one telecommunications 
and Internet access services in response to all FCC Form 470 postings 
seeking broadband service that meets the connectivity targets for the 
schools and libraries universal service support program for eligible 
schools and libraries (as described in Sec.  54.501) located within any 
area in a census block where the carrier is receiving support awarded 
through auction, and that such bids were at rates reasonably comparable 
to rates charged to eligible schools and libraries in urban areas for 
comparable offerings.
    (ii) Starting the first July 1st after receiving support until the 
July 1st after the recipient's penultimate year of support, a 
certification that the recipient has available funds for all project 
costs that will exceed the amount of support that will be received for 
the next calendar year.
    (iii) Starting the first July 1st after meeting the final service 
milestone in Sec.  54.310(c) of this chapter until the July 1st after 
the Phase II recipient's support term has ended, a certification that 
the Phase II-funded network that the Phase II auction recipient 
operated in the prior year meets the relevant performance requirements 
in Sec.  54.309 of this chapter, or that the network that the Remote 
Areas Fund recipient operated in the prior year meets the relevant 
performance requirements for the Remote Areas Fund.
* * * * *

0
7. Section 54.315 is added to read as follows:


Sec.  54.315  Application process for phase II support distributed 
through competitive bidding.

    (a) Application to participate in competitive bidding for Phase II 
support. In addition to providing information specified in Sec.  
1.21001(b) of this chapter and any other information required by the 
Commission, an applicant to participate in competitive bidding for 
Phase II auction support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a) 
of this chapter;
    (2) Certify that the applicant is financially and technically 
qualified to meet the public interest obligations of Sec.  54.309 for 
each relevant tier and in each area for which it seeks support;
    (3) Disclose its status as an eligible telecommunications carrier 
to the extent applicable and certify that it acknowledges that it must 
be designated as an eligible telecommunications carrier for the area in 
which it will receive support prior to being authorized to receive 
support;
    (4) Indicate the tier of bids that the applicant plans to make and 
describe the technology or technologies that will be used to provide 
service for each tier of bid;
    (5) Submit any information required to establish eligibility for 
any bidding weights adopted by the Commission in an order or public 
notice;
    (6) To the extent that an applicant plans to use spectrum to offer 
its voice

[[Page 44450]]

and broadband services, demonstrate it has the proper authorizations, 
if applicable, and access to operate on the spectrum it intends to use, 
and that the spectrum resources will be sufficient to cover peak 
network usage and deliver the minimum performance requirements to serve 
all of the fixed locations in eligible areas, and certify that it will 
retain its access to the spectrum for at least 10 years from the date 
of the funding authorization; and
    (7) Submit specified operational and financial information.
    (i) Submit a certification that the applicant has provided a voice, 
broadband, and/or electric transmission or distribution service for at 
least two years or that it is a wholly-owned subsidiary of such an 
entity, and specifying the number of years the applicant or its parent 
company has been operating, and submit the financial statements from 
the prior fiscal year that are audited by a certified public 
accountant. If the applicant is not audited in the ordinary course of 
business, in lieu of submitting audited financial statements it must 
certify that it will provide financial statements from the prior fiscal 
year that are audited by a certified independent public accountant by a 
specified deadline during the long-form application review process.
    (A) If the applicant has provided a voice and/or broadband service 
it must certify that it has filed FCC Form 477s as required during this 
time period.
    (B) If the applicant has operated only an electric transmission or 
distribution service, it must submit qualified operating or financial 
reports that it has filed with the relevant financial institution for 
the relevant time period along with a certification that the submission 
is a true and accurate copy of the reports that were provided to the 
relevant financial institution.
    (ii) If an applicant cannot meet the requirements in paragraph 
(a)(7)(i) of this section, in the alternative it must submit the 
audited financial statements from the three most recent fiscal years 
and a letter of interest from a bank meeting the qualifications set 
forth in paragraph (c)(2) of this section, that the bank would provide 
a letter of credit as described in paragraph (c) of this section to the 
bidder if the bidder were selected for bids of a certain dollar 
magnitude.
    (b) Application by winning bidders for Phase II auction support--
(1) Deadline. As provided by public notice, winning bidders for Phase 
II auction support shall file an application for Phase II auction 
support no later than the number of business days specified after the 
public notice identifying them as winning bidders.
    (2) Application contents. An application for Phase II auction 
support must contain:
    (i) Identification of the party seeking the support, including 
ownership information as set forth in Sec.  1.2112(a) of this chapter;
    (ii) Certification that the applicant is financially and 
technically qualified to meet the public interest obligations of Sec.  
54.309 for each tier in which it is a winning bidder and in each area 
for which it seeks support;
    (iii) Certification that the applicant will meet the relevant 
public interest obligations for each relevant tier, including the 
requirement that it will offer service at rates that are equal or lower 
to the Commission's reasonable comparability benchmarks for fixed 
wireline services offered in urban areas;
    (iv) A description of the technology and system design the 
applicant intends to use to deliver voice and broadband service, 
including a network diagram which must be certified by a professional 
engineer. The professional engineer must certify that the network is 
capable of delivering, to at least 95 percent of the required number of 
locations in each relevant state, voice and broadband service that 
meets the requisite performance requirements in Sec.  54.309;
    (v) Certification that the applicant will have available funds for 
all project costs that exceed the amount of support to be received from 
the Phase II auction for the first two years of its support term and 
that the applicant will comply with all program requirements, including 
service milestones;
    (vi) A description of how the required construction will be funded, 
including financial projections that demonstrate the applicant can 
cover the necessary debt service payments over the life of the loan, if 
any;
    (vii) Certification that the party submitting the application is 
authorized to do so on behalf of the applicant; and
    (viii) Such additional information as the Commission may require.
    (3) No later than the number of days provided by public notice, the 
applicant shall submit a letter from a bank meeting the eligibility 
requirements outlined in paragraph (c) of this section committing to 
issue an irrevocable stand-by letter of credit, in the required form, 
to the winning bidder. The letter shall at a minimum provide the dollar 
amount of the letter of credit and the issuing bank's agreement to 
follow the terms and conditions of the Commission's model letter of 
credit.
    (4) No later than 180 days after the public notice identifying them 
as a winning bidder, bidders that did not submit audited financial 
statements in their short-form application pursuant to paragraph 
(a)(7)(i) of this section must submit the financial statements from the 
prior fiscal year that are audited by a certified independent public 
accountant.
    (5) No later than 180 days after the public notice identifying it 
as a winning bidder, the applicant shall certify that it is an eligible 
telecommunications carrier in any area for which it seeks support and 
submit the relevant documentation supporting that certification.
    (6) Application processing. (i) No application will be considered 
unless it has been submitted in an acceptable form during the period 
specified by public notice. No applications submitted or demonstrations 
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either 
does not identify the applicant seeking support as specified in the 
public notice announcing application procedures or does not include 
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor 
modifications to amend its application or correct defects noted by the 
applicant, the Commission, the Administrator, or other parties. Minor 
modifications include correcting typographical errors in the 
application and supplying non-material information that was 
inadvertently omitted or was not available at the time the application 
was submitted.
    (iv) Applications to which major modifications are made after the 
deadline for submitting applications shall be denied. Major 
modifications include, but are not limited to, any changes in the 
ownership of the applicant that constitute an assignment or change of 
control, or the identity of the applicant, or the certifications 
required in the application.
    (v) After receipt and review of the applications, a public notice 
shall identify each winning bidder that may be authorized to receive 
Phase II auction support after the winning bidder submits a letter of 
credit and an accompanying opinion letter as described in paragraph (c) 
of this section, in a form acceptable to the Commission. Each such 
winning bidder shall submit a letter of credit and accompanying opinion 
letter as required by paragraph (c) of this section, in a form 
acceptable to the Commission no

[[Page 44451]]

later than the number of business days provided by public notice.
    (vi) After receipt of all necessary information, a public notice 
will identify each winning bidder that is authorized to receive Phase 
II auction support.
    (c) Letter of credit. Before being authorized to receive Phase II 
auction support, a winning bidder shall obtain an irrevocable standby 
letter of credit which shall be acceptable in all respects to the 
Commission.
    (1) Value. Each recipient authorized to receive Phase II support 
shall maintain the standby letter of credit or multiple standby letters 
of credit in an amount equal to at a minimum the amount of Phase II 
auction support that has been disbursed and that will be disbursed in 
the coming year, until the Universal Service Administrative Company has 
verified that the recipient met the final service milestone as 
described in Sec.  54.310(c).
    (i) Once the recipient has met its 60 percent service milestone, it 
may obtain a new letter of credit or renew its existing letter of 
credit so that it is valued at a minimum at 90 percent of the total 
support amount already disbursed plus the amount that will be disbursed 
in the coming year.
    (ii) Once the recipient has met its 80 percent service milestone, 
it may obtain a new letter of credit or renew its existing letter of 
credit so that it is valued at a minimum at 80 percent of the total 
support that has been disbursed plus the amount that will be disbursed 
in the coming year.
    (2) The bank issuing the letter of credit shall be acceptable to 
the Commission. A bank that is acceptable to the Commission is:
    (i) Any United States bank
    (A) That is insured by the Federal Deposit Insurance Corporation, 
and
    (B) That has a bank safety rating issued by Weiss of B- or better; 
or
    (ii) CoBank, so long as it maintains assets that place it among the 
100 largest United States Banks, determined on basis of total assets as 
of the calendar year immediately preceding the issuance of the letter 
of credit and it has 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); or
    (iii) The National Rural Utilities Cooperative Finance Corporation, 
so long as it maintains assets that place it among the 100 largest 
United States Banks, determined on basis of total assets as of the 
calendar year immediately preceding the issuance of the letter of 
credit and it has 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); or
    (iv) Any non-United States bank
    (A) That is among the 50 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 letter of credit 
(determined on a U.S. dollar equivalent basis as of such date);
    (B) Has a branch office in the District of Columbia or such other 
branch office agreed to by the Commission;
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to a BBB- or better 
rating by Standard & Poor's; and
    (D) Issues the letter of credit payable in United States dollars
    (3) A winning bidder for Phase II auction support shall provide 
with its letter of credit an opinion letter from its legal counsel 
clearly stating, subject only to customary assumptions, limitations, 
and qualifications, that in a proceeding under Title 11 of the United 
States Code, 11 U.S.C. 101 et seq. (the ``Bankruptcy Code''), the 
bankruptcy court would not treat the letter of credit or proceeds of 
the letter of credit as property of the winning bidder's bankruptcy 
estate under section 541 of the Bankruptcy Code.
    (4) Authorization to receive Phase II auction support is 
conditioned upon full and timely performance of all of the requirements 
set forth in this section, and any additional terms and conditions upon 
which the support was granted.
    (i) Failure by a Phase II auction support recipient to meet its 
service milestones as required by Sec.  54.310 will trigger reporting 
obligations and the withholding of support as described in Sec.  
54.320(c). Failure to come into full compliance within 12 months will 
trigger a recovery action by the Universal Service Administrative 
Company. If the Phase II recipient does not repay the requisite amount 
of support within six months, the Universal Service Administrative 
Company will be entitled to draw the entire amount of the letter of 
credit and may disqualify the Phase II auction support recipient from 
the receipt of Phase II auction support or additional universal service 
support.
    (ii) The default will be evidenced by a letter issued by the Chief 
of the Wireline Competition Bureau or the Wireless Telecommunications 
Bureau, or their respective designees, which letter, attached to a 
standby letter of credit draw certificate, shall be sufficient for a 
draw on the standby letter of credit for the entire amount of the 
standby letter of credit.

0
8. Section 54.316 is amended by revising paragraph (a) introductory 
text, paragraph (a)(4), and paragraph (b) introductory text, adding 
paragraphs (b)(4) and (5), and revising paragraph (c) to read as 
follows:


Sec.  54.316  Broadband deployment reporting and certification 
requirements for high-cost recipients.

    (a) Broadband deployment reporting. Rate-of Return ETCs, ETCs that 
elect to receive Connect America Phase II model-based support, and ETCs 
awarded support to serve fixed locations through a competitive bidding 
process shall have the following broadband reporting obligations:
* * * * *
    (4) Recipients subject to the requirements of Sec.  54.310(c) shall 
report the number of locations for each state and locational 
information, including geocodes, where they are offering service at the 
requisite speeds. Recipients of Phase II Auction support and Remote 
Areas Fund support shall also report the technology they use to serve 
those locations.
    (b) Broadband deployment certifications. Rate-of Return ETCs, ETCs 
that elect to receive Connect America Phase II model-based support, and 
ETCs awarded support through a competitive bidding process shall have 
the following broadband deployment certification obligations:
* * * * *
    (4) Recipients of Connect America Phase II auction support shall 
provide: By the last business day of the second calendar month 
following each service milestone in Sec.  54.310(c), a certification 
that by the end of the prior support year, it was offering broadband 
meeting the requisite public interest obligations specific in Sec.  
54.309 to the required percentage of its supported locations in each 
state as set forth in Sec.  54.310(c).
    (5) Recipients of Remote Areas Fund support shall provide: By the 
last business day of the second calendar month following each service 
milestone specified by the Commission, a certification that by the end 
of the prior support year, it was offering broadband meeting the 
requisite public interest obligations to the required percentage of its 
supported locations in each state.
    (c) Filing deadlines. In order for a recipient of high-cost support 
to continue to receive support for the following calendar year, or 
retain its eligible telecommunications carrier designations, it must 
submit the annual reporting information as set forth below.

[[Page 44452]]

    (1) Price cap carriers that accepted Phase II model-based support 
and rate-of-return carriers must submit the annual reporting 
information required by March 1 as described in paragraphs (a) and (b) 
of this section. Eligible telecommunications carriers that file their 
reports after the March 1 deadline shall receive a reduction in support 
pursuant to the following schedule:
    (i) An eligible telecommunications carrier that files after the 
March 1 deadline, but by March 9, will have its support reduced in an 
amount equivalent to seven days in support;
    (ii) An eligible telecommunications carrier that files on or after 
March 9 will have its support reduced on a pro-rata daily basis 
equivalent to the period of non-compliance, plus the minimum seven-day 
reduction;
    (iii) Grace period. An eligible telecommunications carrier that 
submits the annual reporting information required by this section after 
March 1 but before March 5 will not receive a reduction in support if 
the eligible telecommunications carrier and its holding company, 
operating companies, and affiliates as reported pursuant to Sec.  
54.313(a)(8) in their report due July 1 of the prior year have not 
missed the March 1 deadline in any prior year.
    (2) Recipients of support to serve fixed locations awarded through 
a competitive bidding process must submit the annual reporting 
information required by the last business day of the second calendar 
month following the relevant support years as described in paragraphs 
(a) and (b) of this section. Eligible telecommunications carriers that 
file their reports after the deadline shall receive a reduction in 
support pursuant to the following schedule:
    (i) An eligible telecommunications carrier that files after the 
deadline, but within seven days of the deadline, will have its support 
reduced in an amount equivalent to seven days in support;
    (ii) An eligible telecommunications carrier that filed on or after 
the eighth day following the deadline will have its support reduced on 
a pro-rata daily basis equivalent to the period of non-compliance, plus 
the minimum seven-day reduction;
    (iii) Grace period. An eligible telecommunications carrier that 
submits the annual reporting information required by this section 
within three days of the deadline will not receive a reduction in 
support if the eligible telecommunications carrier and its holding 
company, operating companies, and affiliates as reported pursuant to 
Sec.  54.313(a)(8) in their report due July 1 of the prior year have 
not missed the deadline in any prior year.

0
9. Subpart J, consisting of Sec. Sec.  54.801 through 54.806, is added 
to read as follows:
Subpart J--Remote Areas Fund
Sec.
54.801 Use of competitive bidding for Remote Areas Fund.
54.802 Geographic areas eligible for Remote Areas Fund support.
54.803 Provider eligibility.
54.804 Application process.
54.805 [Reserved]
54.806 Remote Areas Fund reporting obligations.

Subpart J--Remote Areas Fund


Sec.  54.801  Use of competitive bidding for Remote Areas Fund.

    The Commission will use competitive bidding, as provided in part 1, 
subpart AA of this chapter, to determine the recipients of Remote Areas 
Fund support and the amount of support that they may receive for 
specific geographic areas, subject to applicable post-auction 
procedures.


Sec.  54.802  Geographic areas eligible for Remote Areas Fund support.

    Remote Areas Fund support may be made available for census blocks 
identified as eligible by public notice.


Sec.  54.803  Provider eligibility.

    (a) Any eligible telecommunications carrier is eligible to receive 
Remote Areas Fund support in eligible areas.
    (b) An entity may obtain eligible telecommunications carrier 
designation after public notice of winning bidders in the Remote Areas 
Fund auction.
    (c) To the extent any entity seeks eligible telecommunications 
carrier designation prior to public notice of winning bidders for 
Remote Areas Fund support, its designation as an eligible 
telecommunications carrier may be conditional subject to the receipt of 
Remote Areas Fund support.


Sec.  54.804  Application process.

    (a) Any entity qualified to bid in the Phase II auction pursuant to 
Sec.  54.315(a) shall be pre-qualified to bid in the Remote Areas Fund 
auction, subject to the requirement that there be no material change in 
any information previously submitted in the application to bid for 
Phase II support.
    (b) In addition to providing information specified in Sec.  
1.21001(b) of this chapter and any other information required by the 
Commission, any applicant to participate in competitive bidding for 
Remote Areas Fund support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a) 
of this chapter;
    (2) Certify that the applicant is financially and technically 
qualified to meet the public interest obligations established for 
Remote Areas Fund support;
    (3) Disclose its status as an eligible telecommunications carrier 
to the extent applicable and certify that it acknowledges that it must 
be designated as an eligible telecommunications carrier for the area in 
which it will receive support prior to being authorized to receive 
support;
    (4) Describe the technology or technologies that will be used to 
provide service for each bid;
    (5) Submit any information required to establish eligibility for 
any bidding weights adopted by the Commission in an order or public 
notice;
    (6) To the extent that an applicant plans to use spectrum to offer 
its voice and broadband services, demonstrate it has the proper 
authorizations, if applicable, and access to operate on the spectrum it 
intends to use, and that the spectrum resources will be sufficient to 
cover peak network usage and deliver the minimum performance 
requirements to serve all of the fixed locations in eligible areas, and 
certify that it will retain its access to the spectrum for the term of 
support; and
    (7) Submit specified operational and financial information.
    (i) Submit a certification that the applicant has provided a voice, 
broadband, and/or electric transmission or distribution service for at 
least two years or that it is a wholly-owned subsidiary of such an 
entity, and specifying the number of years the applicant or its parent 
company has been operating, and submit the financial statements from 
the prior fiscal year that are audited by a certified public 
accountant. If the applicant is not audited in the ordinary course of 
business, in lieu of submitting audited financial statements it must 
certify that it will provide financial statements from the prior fiscal 
year that are audited by a certified independent public accountant by a 
specified deadline during the long-form application review process.
    (A) If the applicant has provided a voice and/or broadband service 
it must certify that it has filed FCC Form 477s as required during this 
time period.
    (B) If the applicant has operated only an electric transmission or 
distribution service, it must submit qualified operating or financial 
reports that it has filed with the relevant financial institution for 
the relevant time period along with a certification that the submission 
is a true and accurate copy of the reports that were provided to the 
relevant financial institution.

[[Page 44453]]

    (ii) If an applicant cannot meet the requirements in paragraph 
(b)(7)(i) of this section, in the alternative it must submit the 
audited financial statements from the three most recent fiscal years 
and a letter of interest from a bank meeting the qualifications set 
forth in paragraph (d)(2) of this section, that the bank would provide 
a letter of credit as described in paragraph (d) of this section to the 
bidder if the bidder were selected for bids of a certain dollar 
magnitude.
    (c) Application by winning bidders for Remote Areas Fund support--
(1) Deadline. As provided by public notice, winning bidders for Remote 
Areas Fund support shall file an application for Remote Areas Fund 
support no later than the number of business days specified after the 
public notice identifying them as winning bidders.
    (2) Application contents. An application for Remote Areas Fund 
support must contain:
    (i) Identification of the party seeking the support, including 
ownership information as set forth in Sec.  1.2112(a) of this chapter;
    (ii) Certification that the applicant is financially and 
technically qualified to meet the public interest obligations for 
Remote Areas Fund support in each area for which it seeks support;
    (iii) Certification that the applicant will meet the relevant 
public interest obligations, including the requirement that it will 
offer service at rates that are equal or lower to the Commission's 
reasonable comparability benchmarks for fixed wireline services offered 
in urban areas;
    (iv) A description of the technology and system design the 
applicant intends to use to deliver voice and broadband service, 
including a network diagram which must be certified by a professional 
engineer. The professional engineer must certify that the network is 
capable of delivering, to at least 95 percent of the required number of 
locations in each relevant state, voice and broadband service that 
meets the requisite performance requirements for Remote Areas Fund 
support;
    (v) Certification that the applicant will have available funds for 
all project costs that exceed the amount of support to be received from 
the Remote Areas Fund for the first two years of its support term and 
that the applicant will comply with all program requirements, including 
service milestones;
    (vi) A description of how the required construction will be funded, 
including financial projections that demonstrate the applicant can 
cover the necessary debt service payments over the life of the loan, if 
any;
    (vii) Certification that the party submitting the application is 
authorized to do so on behalf of the applicant; and
    (viii) Such additional information as the Commission may require.
    (3) No later than the number of days provided by public notice, the 
applicant shall submit a letter from a bank meeting the eligibility 
requirements outlined in paragraph (d) of this section committing to 
issue an irrevocable stand-by letter of credit, in the required form, 
to the winning bidder. The letter shall at a minimum provide the dollar 
amount of the letter of credit and the issuing bank's agreement to 
follow the terms and conditions of the Commission's model letter of 
credit.
    (4) No later than 180 days after the public notice identifying them 
as a winning bidder, bidders that did not submit audited financial 
statements in their short-form application pursuant to paragraph 
(b)(7)(i) of this section must submit the financial statements from the 
prior fiscal year that are audited by a certified independent public 
accountant.
    (5) No later than 180 days after the public notice identifying it 
as a winning bidder, the applicant shall certify that it is an eligible 
telecommunications carrier in any area for which it seeks support and 
submit the relevant documentation supporting that certification.
    (6) Application processing. (i) No application will be considered 
unless it has been submitted in an acceptable form during the period 
specified by public notice. No applications submitted or demonstrations 
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either 
does not identify the applicant seeking support as specified in the 
public notice announcing application procedures or does not include 
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor 
modifications to amend its application or correct defects noted by the 
applicant, the Commission, the Administrator, or other parties. Minor 
modifications include correcting typographical errors in the 
application and supplying non-material information that was 
inadvertently omitted or was not available at the time the application 
was submitted.
    (iv) Applications to which major modifications are made after the 
deadline for submitting applications shall be denied. Major 
modifications include, but are not limited to, any changes in the 
ownership of the applicant that constitute an assignment or change of 
control, or the identity of the applicant, or the certifications 
required in the application.
    (v) After receipt and review of the applications, a public notice 
shall identify each winning bidder that may be authorized to receive 
Remote Areas Fund support after the winning bidder submits a letter of 
credit and an accompanying opinion letter as described in paragraph (d) 
of this section, in a form acceptable to the Commission. Each such 
winning bidder shall submit a letter of credit and accompanying opinion 
letter as required by paragraph (d) of this section, in a form 
acceptable to the Commission no later than the number of business days 
provided by public notice.
    (vi) After receipt of all necessary information, a public notice 
will identify each winning bidder that is authorized to receive Remote 
Areas Fund support.
    (d) Letter of credit. Before being authorized to receive Remote 
Areas Fund support, a winning bidder shall obtain an irrevocable 
standby letter of credit which shall be acceptable in all respects to 
the Commission.
    (1) Value. Each recipient authorized to receive Remote Areas Fund 
support shall maintain the standby letter of credit or multiple standby 
letters of credit in an amount equal to at a minimum the amount of 
Remote Areas Fund support that has been disbursed and that will be 
disbursed in the coming year, until the Universal Service 
Administrative Company has verified that the recipient met the final 
service milestone as described in Sec.  54.310(c).
    (i) Once the recipient has met its 60 percent service milestone, it 
may obtain a new letter of credit or renew its existing letter of 
credit so that it is valued at a minimum at 90 percent of the total 
support amount already disbursed plus the amount that will be disbursed 
in the coming year.
    (ii) Once the recipient has met its 80 percent service milestone, 
it may obtain a new letter of credit or renew its existing letter of 
credit so that it is valued at a minimum at 80 percent of the total 
support that has been disbursed plus the amount that will be disbursed 
in the coming year.
    (2) The bank issuing the letter of credit shall be acceptable to 
the Commission. A bank that is acceptable to the Commission is:
    (i) Any United States bank
    (A) That is insured by the Federal Deposit Insurance Corporation, 
and
    (B) That has a bank safety rating issued by Weiss of B- or better; 
or

[[Page 44454]]

    (ii) CoBank, so long as it maintains assets that place it among the 
100 largest United States Banks, determined on basis of total assets as 
of the calendar year immediately preceding the issuance of the letter 
of credit and it has 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); or
    (iii) The National Rural Utilities Cooperative Finance Corporation, 
so long as it maintains assets that place it among the 100 largest 
United States Banks, determined on basis of total assets as of the 
calendar year immediately preceding the issuance of the letter of 
credit and it has 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); or
    (iv) Any non-United States bank:
    (A) That is among the 50 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 letter of credit 
(determined on a U.S. dollar equivalent basis as of such date);
    (B) Has a branch office in the District of Columbia or such other 
branch office agreed to by the Commission;
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to a BBB- or better 
rating by Standard & Poor's; and
    (D) Issues the letter of credit payable in United States dollars
    (3) A winning bidder for Remote Areas Fund support shall provide 
with its letter of credit an opinion letter from its legal counsel 
clearly stating, subject only to customary assumptions, limitations, 
and qualifications, that in a proceeding under Title 11 of the United 
States Code, 11 U.S.C. 101 et seq. (the ``Bankruptcy Code''), the 
bankruptcy court would not treat the letter of credit or proceeds of 
the letter of credit as property of the winning bidder's bankruptcy 
estate under section 541 of the Bankruptcy Code.
    (4) Authorization to receive Remote Areas Fund support is 
conditioned upon full and timely performance of all of the requirements 
set forth in this section, and any additional terms and conditions upon 
which the support was granted.
    (i) Failure by a Remote Areas Fund support recipient to meet its 
service milestones as required by Sec.  54.310 will trigger reporting 
obligations and the withholding of support as described in Sec.  
54.320(c). Failure to come into full compliance within 12 months will 
trigger a recovery action by the Universal Service Administrative 
Company. If the Remote Areas Fund recipient does not repay the 
requisite amount of support within six months, the Universal Service 
Administrative Company will be entitled to draw the entire amount of 
the letter of credit and may disqualify the Remote Areas Fund support 
recipient from the receipt of Remote Areas Fund support or additional 
universal service support.
    (ii) The default will be evidenced by a letter issued by the Chief 
of the Wireline Competition Bureau or the Wireless Telecommunications 
Bureau, or their respective designees, which letter, attached to a 
standby letter of credit draw certificate, shall be sufficient for a 
draw on the standby letter of credit for the entire amount of the 
standby letter of credit.


Sec.  54.805  [Reserved]


Sec.  54.806  Remote Areas Fund reporting obligations.

    Recipients of Remote Areas Fund support shall be subject to the 
reporting obligations set forth in Sec.  54.313.

[FR Doc. 2016-14506 Filed 7-6-16; 8:45 am]
 BILLING CODE 6712-01-P