[Federal Register Volume 82, Number 53 (Tuesday, March 21, 2017)]
[Rules and Regulations]
[Pages 14466-14476]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05468]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 14-58; FCC 17-12]


Connect America Fund, ETC Annual Reports and Certifications

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes another step towards implementing the Connect 
America Phase II auction in which service providers will compete to 
receive support of up to $1.98 billion to offer voice and broadband 
service in unserved high-cost areas.

DATES: Effective April 20, 2017.

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

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order and Order on Reconsideration in WC Docket Nos. 10-90, 14-58; 
FCC 17-12, adopted on February 23, 2017 and released on March 2, 2017. 
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.,

[[Page 14467]]

Washington, DC 20554, or at the following Internet address: https://apps.fcc.gov/edocs_public/attachmatch/FCC-17-12A1.pdf

I. Introduction

    1. With this Report and Order and Order on Reconsideration (Order), 
the Commission takes another step towards implementing the Connect 
America Phase II (Phase II) auction in which service providers will 
compete to receive support of up to $1.98 billion to offer voice and 
broadband service in unserved high-cost areas. The decisions the 
Commission makes in this Order aim to maximize the value the American 
people will receive for the universal service dollars the Commission 
spends, balancing higher-quality services with cost efficiencies.
    2. First, the Commission resolves issues raised in the Phase II 
Auction Order FNPRM, 81 FR 44414, July 7, 2016 and 81 FR 40235, June 
21, 2016. The Commission adopts weights to compare bids among the 
service performance and latency tiers adopted in the Phase II Auction 
Order, 81 FR 44414, July 7, 2016. Additionally, the Commission declines 
to adopt specific preferences for certain states and Tribal lands in 
the Phase II auction and decline to adopt alternative interim 
deployment obligations for a subset of Phase II auction recipients. 
However, the Commission does adopt preferences that will be implemented 
in the Remote Areas Fund auction for states where the Phase II offer of 
model-based support was declined, subject to certain conditions.
    3. Second, the Commission also considers several petitions for 
reconsideration of decisions made in the Phase II Auction Order. The 
Commission denies a petition for reconsideration of the Commission's 
decision to score bids relative to the reserve price, grants a petition 
for reconsideration of the Commission's decision to retain the option 
to re-auction certain areas served by high latency bidders if a set 
subscription rate is not met, and grants a petition for reconsideration 
of the Commission's decision to require bidders in the Above-Baseline 
and Gigabit performance tiers to offer an unlimited monthly usage 
allowance.

II. Report And Order

    4. Discussion. The Commission now adopts weights for the Phase II 
auction performance and latency tiers that will account for the value 
of higher speeds, higher usage allowances, and low latency, but that 
will also balance these preferences against the Commission's objective 
of maximizing the effectiveness of its funds to serve consumers across 
unserved areas with the Commission's finite budget.
    5. The Commission first clarifies that weights are positive values 
that will be added to a particular bid-price-to-reserve price ratio to 
arrive at a score. Mathematically, S = 100 x B/R + T + L, where S is 
the bid's score, B is the current bid price, R is the reserve price, T 
is the weight assigned to the bid's associated tier of service, and L 
is the weight assigned to the bid's associated latency. Because the 
Phase II auction will be a reverse auction, higher service tiers will 
accordingly have lower weights.
    6. Specifically, the Commission will weigh bids so that Minimum 
performance tier bids will have a 65 weight; Baseline performance tier 
bids will have a 45 weight; Above Baseline performance tier bids will 
have a 15 weight; and Gigabit performance tier bids will have zero 
weight. Moreover, high latency bids will have a 25 weight and low 
latency bids will have zero weight added to their respective 
performance tier weight.
    7. The following charts summarize the Commission's adopted 
approach:

----------------------------------------------------------------------------------------------------------------
            Performance tier                         Speed                  Usage allowance           Weight
----------------------------------------------------------------------------------------------------------------
Minimum.................................  >= 10/1 Mbps..............  >= 150 GB.................              65
Baseline................................  >= 25/3 Mbps..............  >= 150 GB or U.S. median,               45
                                                                       whichever is higher.
Above Baseline..........................  >= 100/20 Mbps............  2 TB......................              15
Gigabit.................................  >= 1 Gbps/500 Mbps........  2 TB......................               0
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
              Latency                    Requirement          Weight
------------------------------------------------------------------------
Low Latency.......................  <= 100 ms...........               0
High Latency......................  <= 750 ms & MOS of                25
                                     >= 4.
------------------------------------------------------------------------

    8. A number of commenters proposed different ways to apply weights. 
Some parties also suggested using positive weights, while others 
suggested negative weights, and some suggested a mix of both. By adding 
increasing weight as speed and usage allowances decrease and latency 
increases, the Commission concludes that its approach is a straight-
forward representation of the fact that the Commission values higher 
speeds and usage allowances and lower latency, and should be easier for 
bidders to understand and simpler for us to implement. Moreover, a 
number of parties suggested that the Commission uses percentage weights 
but suggested various ways to apply the percentage. The Commission 
concludes that their overall approach of adding the weight to the bid-
to-reserve price ratio appropriately applies the weights uniformly 
across all areas, thereby increasing competition and giving providers 
in all eligible areas opportunities to win. The Commission also 
declines to adopt the approach it suggested in the Phase II Auction 
FNPRM, 81 FR 40235, June 21, 2016, whereby the weight would be 
subtracted directly from the dollar amount placed by the bidder. The 
Commission is persuaded by commenters who suggest such an approach 
would have a disproportionate impact on bidders that place bids for 
smaller dollar amounts.
    9. The Commission's weighting scheme for the performance tiers is 
designed to balance its finite budget with the reality that, in some 
areas, speeds of 10/1 Mbps may be the limit of what is achievable in 
the near term but will still offer significant benefits to currently 
unserved areas, including the potential that service providers may 
choose to increase speeds to meet consumer demand once they have made 
the initial investment of deploying to certain areas. At the same time, 
the weights the Commission implements also attempt to leverage its 
finite budget to achieve speeds that are scalable to meet the evolving 
needs of consumers over the 10-year term and the broader community in 
areas where it is cost-effective to do so.

[[Page 14468]]

    10. The record regarding the weights that the Commission should 
adopt for the different performance tiers varies, with parties arguing 
for weights as low as 5 and as high as 100 between tiers, and relying 
on several different methodologies for establishing the weights. To 
sift through these proposals and establish a reasonable range of 
weights to choose from, the Commission relies on the following 
propositions.
    11. First, the Commission starts with the principle that the 
Connect America Phase II auction must indeed be an auction, not simply 
a procurement process. The Commission wants this to be a competitive 
auction where every bidder has the opportunity to exert competitive 
pressure on all other bidders, and weighting increments of 100 or more 
would effectively result in each tier always winning over bids placed 
in lower tiers, which may provide an incentive for bidders in higher 
tiers to inflate their bids. The Commission already decided that all 
bids would be considered simultaneously, and it would not realize the 
benefits of competition if one type of bid effectively always wins over 
another regardless of the bids' support amounts. Or, as the Commission 
puts it in the New York Auction Order, an ``absolute preference'' for 
``one type of technology or speed'' would be fiscally irresponsible 
``when more cost-effective, reasonably comparable options may be 
available.''
    12. Second, the Commission takes that principle one step further 
and conclude that every bidder--no matter the service tier or latency--
must have the opportunity to exert competitive pricing pressure on 
every other bidder. In other words, the total band of weights must be 
less than 100. This principle should maximize the competitive pressure 
all bidders bring to bear, ensuring that even the highest-tier services 
take into account the bang-for-the-buck they are delivering to 
consumers nationwide. It also ensures that the Commission examines its 
weights holistically, so that the accumulation of weights does not lead 
to untoward and unexpected consequences.
    13. Third, the Commission concludes that the weights it assign 
should strive to reflect the value of higher-speed and lower-latency 
services to consumers. The purpose of the Connect America Phase II 
auction is to maximize the value the Commission can bring for consumers 
through the use of scarce universal service funds--in effect, the 
weights recognize that consumers can and do spend more to receive 
higher quality services. Accordingly, the Commission rejects claims to 
set weights that normalize the deployment costs for the performance 
tiers based on technology. The Commission sees no reason to spend 
scarce universal service funds to pay for more-expensive services just 
because they are more expensive. Indeed, the value to a consumer of a 
fiber-based service is not its cost but the faster speeds and lower 
latencies it offers--and the goal of the Commission is and must be to 
minimize (not maximize) the cost of such services. Moreover, adding a 
separate weight to account for technology costs would be contrary to 
the Commission's objective to maximize its cost-effective budget 
because it could result in paying more for higher cost technologies 
when it might be more cost-effective to support lower cost 
technologies. And given the challenges of determining representative 
costs for each type of technology, such an approach is likely to add 
complexity to auction process and could lead to delay. In a similar 
vein, the Commission rejects claims to weight bids in correlation to 
the respective download speeds. Such an approach would have the effect 
of heavily weighting the Gigabit performance tier, without any evidence 
that consumers do indeed value that service in proportion to its speed 
or would be willing to spend 100 times more for such service than for 
service at the Minimum performance tier.
    14. Fourth, the Commission concludes that adopting minimal weights 
between each tier would be inappropriate. Consumers clearly value 
higher speed and lower latency services, and minimal weighting could 
deprive rural consumers of the higher-speed, lower latency services 
that are common in urban areas. Indeed, such an approach would likely 
result in bids in lower tiers prevailing, leaving all consumers with 
minimum service even though some service providers might be able to 
offer increased speeds for marginally more support. Additionally, the 
upcoming Remote Areas Fund auction will provide an opportunity to 
ensure that all Americans at least have the opportunity to receive some 
broadband service. For purposes of the Phase II auction, the 
Commission's aim is to maximize consumer welfare given the limited 
budget they have. The Commission disagrees with commenters that suggest 
that giving bids placed in the Gigabit tier anything other than a 
minimal preference violates its statutory duty to support reasonably 
comparable services because Gigabit services are not widely available 
in urban areas. The Commission is not persuaded that it must only 
support services that have ``through the operation of market choices by 
customers, been subscribed to by a substantial majority of residential 
customers . . . .'' First, this is only one of several factors the 
Commission must consider when establishing the definition of supported 
services. Second, the Communications Act of 1934, as amended (the Act) 
makes clear that universal service is an ``evolving level'' of 
services, and thus the Commission must consider the fact that through 
the auction it will be providing support to voice and broadband 
services over a 10-year term. At the same time, the Commission 
disagrees with arguments suggesting that it is a violation of the 
Commission's statutory duty to promote access to services that are 
reasonably comparable to those services offered in urban areas if the 
Commission awarded support to bids committing to provide a minimum of 
10/1 Mbps speeds given the 10-year support term and the fact that most 
urban areas have access to higher speeds. Instead, the Commission finds 
that it is reasonably and responsibly leveraging the Phase II auction 
to make significant steps towards achieving its overarching statutory 
responsibility to support reasonably comparable services for all 
consumers. The Commission has adopted a range of performance tiers with 
increasing weights, starting with speeds and usage allowances the 
Commission has deemed reasonably comparable in the near term and with 
maximum speeds and usage allowances that are scalable to meet the needs 
of consumers at the end of the 10-year term.
    15. With those principles in mind, the Commission reviews the 
weight of the record. Most parties proposing within these parameters 
suggest increment values somewhere between 5 and 60. Parties arguing 
for smaller weight increments between speed tiers with a focus on the 
lower speed tiers suggest that the Commission's focus should be on 
maximizing the number of locations that have access to services that 
are reasonably comparable to those offered in urban areas, and that 
giving a heavy preference to higher speed and usage allowance tiers 
would be an inefficient use of the finite budget, favoring high speeds 
and usage allowances at the expense of leaving many without service. 
They argue that heavily weighting bids or assigning any weight to bids 
committing to a Gigabit performance tier would violate the Commission's 
statutory duty to support reasonably comparable services, and they 
claim that consumers are more

[[Page 14469]]

concerned with having access to service at reasonable prices than 
subscribing to expensive high speed packages. They suggest that if 
consumers' needs evolve and they begin to demand higher speeds, 
carriers will have an incentive to increase the speeds they offer as 
deployment costs go down. Supporters of narrow weights also claim that 
such weights would promote efficiency by challenging bidders seeking to 
offer services in the higher tiers to place more cost-effective bids.
    16. By contrast, other parties argue that higher speeds and usage 
allowances should have heavier weights so these bids are more likely to 
prevail. Some of these parties suggest that the speeds in the Minimum 
and Baseline performance tiers would not be sufficient to constitute 
reasonably comparable services. They argue that the Commission should 
focus on supporting ``future proof'' networks given that speeds that 
are reasonably comparable today may not be reasonably comparable 
throughout the 10-year support term. They also suggest that certain 
technologies that may be more cost-effective today are likely to be 
more expensive in the long term because such networks will need to be 
upgraded to meet consumers' needs, and that it would be more efficient 
to support speeds that can be leveraged by entire communities. They 
claim that if higher tier bids are not given sufficient weight, bidders 
able to offer such services will be less likely to participate, and 
bidders in lower tiers could win without having to place cost-effective 
bids. Some of these commenters argue that higher speeds should be given 
a near absolute preference, while others argue for more moderate 
increments between the tiers.
    17. Taking into account these principles and the record, the 
Commission finds that increments of 15-30 between performance tiers 
appropriately balance the concerns of these potential bidders, and 
their representatives, by adopting increments that are within a 
reasonable range of the increments proposed by both sets of commenters. 
Based on the Commission's predictive judgment, the Commission concludes 
that this approach is likely to promote competition both within and 
across areas by giving all service providers the opportunity to place 
competitive bids, regardless of the technology they intend to use to 
meet their obligations. The Commission weights appropriately recognize 
the value to rural consumers of higher speeds and higher usage 
allowances, but bids placed in the higher tiers will not necessarily 
win because of the generally greater costs of deploying a higher 
capacity network at higher speeds. Bids placed for lower speeds and 
usage allowances will still have the opportunity to compete for 
support, but will have to be particularly cost-effective to compete 
with higher tier bids.
    18. The Commission is not convinced by suggestions that it should 
adopt weights that are based on metrics derived from consumer 
preference data. Commenters proposed several competing data sources and 
methodologies in an attempt to substantiate their proposed weights as 
``objective,'' but the Commission declines to adopt any of these 
proposals. The Commission concludes that establishing weights based on 
specific data is likely to be a drawn out and complicated process that 
may further delay the Phase II auction and may not produce an improved 
outcome in the auction. Moreover, a consumer's decision to subscribe to 
a particular service may be based on numerous variables and does not 
necessarily suggest that one level of service should be valued by a 
particular percentage over another level of service in areas where 
consumers currently have no options for service. The Commission is not 
persuaded that its decision to adopt weights that are not derived from 
specific data is ``arbitrary.'' Instead, the Commission adopts weights 
between each tier that recognize the value of increased speeds and 
usage allowances and select weights that fall within the range of 
weights proposed by parties in the record that do not seek to give any 
one tier an absolute preference.
    19. The Commission is not persuaded that some of the other 
proposals parties made in the record regarding how to approach 
weighting the different tiers would be consistent with its objectives 
and statutory duties. First, the Commission disagrees with the 
suggestion that it should only weight bids in higher tiers if 
sufficient funding is available to fund all bids at the Baseline 
performance tier. While this approach might permit us to serve more 
consumers, the Commission would lose out on the opportunity to balance 
its other objective of funding service that will achieve reasonable 
comparability for the long term. Section 254 of the Act makes clear 
that universal service requires an evolving level of service.
    20. Second, the Commission is not convinced that it should fund 
extremely high-cost locations only after the Commission has funded all 
bids for high-cost locations. When it decided to include the extremely 
high-cost census blocks in the Phase II auction, the Commission 
explicitly recognized that in some areas a service provider might be 
able to make a business case to serve extremely high-cost areas 
efficiently even though the Connect America Cost Model has determined 
an area to be extremely high-cost. The Commission has explained that, 
because extremely high-cost areas are interspersed among high-cost 
areas, including extremely high-cost census blocks in the Phase II 
auction enables parties to build integrated networks that span both 
types of areas as appropriate. The approach gives bidders the 
flexibility to decide how to most efficiently upgrade or extend their 
networks. It would contradict this rationale to refuse to fund bids in 
extremely high-cost areas until high-cost area bids have been awarded 
because such an approach would assume that bids in high-cost areas 
would be more cost-effective.
    21. The Commission also concludes that its decision to adopt a 
weight of 25 for high latency bids appropriately balances its objective 
of using its finite budget in a cost-effective manner, but also 
supporting services that will meet consumers' needs. The Commission 
decided in the Phase II Auction Order to open the Phase II auction to 
participation from satellite providers ``in the interest of making this 
auction as competitive as possible.'' It adopted objectively measured 
latency performance standards to ensure that consumers received an 
appropriate level of service.
    22. Commenters propose a wide range of weights in the record for 
the latency tiers, from weights as high as 100 to weights as low as 10, 
with commenters proposing weights lower than 100 suggesting a weight 
within the range of 10 to 75. Because they propose latency tier weights 
relative to their proposed performance tier weights, the Commission 
similarly considers weights for the latency tiers relative to the 
weights it adopted for the performance tiers above. The Commission is 
not persuaded by commenters that argue that low latency services should 
be heavily weighted or by comments suggesting that low latency services 
should always win over high latency services. Thus, the Commission 
concludes a weight of 100 or 75 would be too high. While many 
commenters raise concerns about high latency services, the Commission 
already took such concerns into account when deciding to adopt 
objective performance requirements so that high latency providers can 
participate. The Commission is not persuaded that high latency 
providers should have to partner with terrestrial providers in order to 
participate competitively in the Phase II

[[Page 14470]]

auction. Indeed, by choosing to adopt alternative latency requirements 
for high latency providers, the Commission has already rejected the 
concept that this is the only way high latency providers can be 
competitive. While the Commission welcomes such partnerships, it 
concludes that it serves the public interest to permit service 
providers to determine how they are best able to place a competitive 
bid, either by leveraging their own network or partnering with other 
providers.
    23. Commenters suggesting weights below 75 argue for a range of 
weights between 10 and 45 relative to their own various performance 
tier proposals. Similarly, based on the weights the Commission has 
adopted for the performance tiers above, it concludes that a weight of 
25 would reasonably maximize competition. A weight of 25 is appropriate 
because a bidder placing a low latency bid in the Gigabit performance 
tier will not necessarily win, which will add pressure on such bidders 
to make more cost-effective bids. A Minimum performance high latency 
bidder will have cumulative weight of 90 (65 for the Minimum 
performance tier; 25 for the high latency bid), which will provide a 
reasonable opportunity for high latency bidders to make competitive 
bids in the lower performance tiers.
    24. Relative to the performance tiers the Commission has adopted, 
it also concludes that a weight of 25 is more appropriate than a 
narrower weight like 10 or 15, given the arguments in the record about 
the benefits of low latency services, especially in areas where the 
Phase II auction recipient is the only voice provider. The Commission 
concludes that like the weighting approach it has adopted for the 
performance tiers, adopting a moderate weight will take a significant 
step towards ensuring consumers throughout the country have access to 
reasonably comparable services pursuant to the Commission's statutory 
duty, while also balancing the realities of its finite budget and the 
high costs of providing voice and broadband to these unserved areas. 
The Commission rejects arguments that it should adopt a narrower weight 
for latency than it has adopted for speed tiers to account for claims 
that consumers value higher speeds over lower latency. First, the 
performance tier weighting the Commission has adopted already accounts 
for the value of higher speeds given that, as speeds increase, the 
weights will decrease. Second, while high latency providers suggest 
that consumers' satisfaction with high latency services has improved so 
that it is comparable to some cable services, some consumers have 
chosen high latency services over low latency services, and that 
terrestrial providers emphasize speed and price over latency in their 
marketing materials, these claims do not address the concerns raised by 
commenters about the inherent limitations of high latency services--
particularly for interactive, real-time applications and voice services 
given that high latency providers may be the only voice providers in 
the area. The Commission is not persuaded that it should use consumer 
data to establish the bidding weight between low and high latency bids. 
As t explained above, such an approach has the potential to be highly 
subjective, and the process would likely be complex and time-consuming. 
Moreover, the fact that parties subscribe to more low latency services 
in urban areas could be due to a number of factors and does not 
necessarily suggest that a high latency service would not meet the 
needs of consumers living in otherwise unserved high-cost areas.
    25. Finally, the Commission is not persuaded that it should adopt 
other types of weights that have been proposed in the record. 
Generally, the Commission finds that the more weights it adopts to 
effectuate various perceived policy preferences, the more the 
Commission moves away from the objective of maximizing the reach of its 
budget by awarding bids based on cost-effectiveness. Moreover, 
additional weights add more complexity to the auction design and, in 
turn, this increased complexity could drive down interest and 
participation in the Phase II auction. In addition, the Commission 
explains above why the weights it has adopted serves the public 
interest because they help us balance other important objectives, like 
ensuring that consumers have access to reasonably comparable services. 
Parties proposing that the Commission adopts other types of weights to 
advance other objectives have not demonstrated similarly compelling 
public interest benefits.
    26. For example, the Commission declines to adopt weights that 
would improve a bid's ranking if it covers small areas. The Commission 
notes that in some cases, service providers may be able to take 
advantage of economies of scale by bidding on larger areas, and in 
those instances bids for larger areas may be more cost-effective. But 
the Commission also declines to adopt weights that would give a 
preference to bids that included 75 percent or more funded locations 
within a state. The Commission notes that there could be instances when 
it is more cost-effective for a number of carriers to offer service 
within a state. Similarly, the Commission declines to adopt weights to 
give a preference to small bidders. The Commission's focus is on 
maximizing the effectiveness of its funds to serve consumers 
nationwide. While the Commission encourages small bidders to 
participate in the Phase II auction and have adopted eligibility 
requirements to facilitate their participation, it is not persuaded 
that giving a preference to smaller bidders will necessarily achieve 
its objectives when it is possible that a larger bidder may be able to 
make a more cost-effective bid in a higher performance or lower latency 
tier. Rather than artificially give a preference to smaller or larger 
bids or to small bidders, the Commission prefers to rely on the cost-
effectiveness scores of bids to determine how its budget can best be 
maximized to serve the most consumers with service that is reasonably 
comparable to service offered in urban areas.
    27. If unqualified bidders are able to participate in the auction 
and divert support from qualified bidders able to offer service meeting 
the Commission's requirements then consumers would ultimately be 
harmed. In the Phase II Auction Order, the Commission required bidders 
to submit with their short-form applications any information required 
to establish their eligibility for weights adopted by the Commission. 
Now that the Commission has adopted weights for the performance and 
latency tiers, it is persuaded that in some circumstances it may serve 
the public interest to require potential bidders to submit evidence 
that demonstrates that they can meet the service requirements 
associated with the tiers in which they intend to bid. The Commission 
concludes that such an approach is likely to provide further assurance 
that Phase II auction support will be awarded to qualified bidders. In 
a future Commission-level public notice after opportunity for further 
comment, the Commission intends to: (1) specify what evidence or other 
information must be submitted, (2) establish the conditions for when 
such information must be submitted, (3) adopt the applicable standards 
that bidders must demonstrate, (4) set procedures for reviewing and 
validating the submitted information, and (5) adopt any additional 
penalties if capabilities are misrepresented.
    28. While the Commission already requires that potential bidders 
make certain showings in their short-form applications, the Commission 
is not persuaded by claims that this information will offer sufficient

[[Page 14471]]

assurance that potential bidders are qualified to meet the applicable 
tier requirements in all circumstances. Instead, given the varying 
capabilities of the technologies that the Commission expects bidders 
will propose to use to meet their obligations, it concludes there may 
be circumstances where it will serve the public interest for the 
Commission to make an independent, objective decision regarding 
potential bidders' capabilities and also require bidders to demonstrate 
they have undergone the necessary due diligence to ensure they can meet 
the applicable requirements before bidding in particular tiers. The 
Commission also disagrees with claims that the technical showings it 
requires in the long-form application will sufficiently address the 
Commission's concerns because it will not have access to this 
information until winning bidders have already been selected.
    29. Finally, the Commission rejects suggestions that the Commission 
intended to adopt the same eligibility process it adopted for the rural 
broadband experiments or that the Commission would need to reconsider 
the eligibility requirements it has already adopted in the Phase II 
Auction Order to require potential bidders to submit additional 
evidence in their short-form applications. Instead, the Commission made 
clear that potential bidders would be required to submit any 
information or documentation required to establish their eligibility 
for bidding weights adopted by the Commission. Moreover, eligibility 
considerations are different in the Phase II auction context than they 
were for the rural broadband experiments. The intent of the rural 
broadband experiments was to award support to discrete experiments. If 
a bidder was found to be unqualified after being announced as a winning 
bidder, the relevant service area would be made eligible for Phase II 
if the Commission determined that the area remained unserved. By 
contrast, one of the main objectives of the Phase II auction is to 
maximize coverage. As the Commission explained above, selecting bidders 
that are later determined to be unqualified will thwart this objective 
because the areas included in the unqualified winning bid and other 
areas covered by bids that would have otherwise been selected will lose 
an opportunity to be served through the Phase II auction.
    30. Although the Commission declines to adopt state-based 
preferences or ceiling in the Connect America Phase II auction, it is 
persuaded that it should reserve funding in the Remote Areas Fund for 
any state that did not receive support equal to the funding declined in 
the statewide election process, subject to the conditions described 
below. The Commission continues to recognize the importance of 
connecting consumers in areas that would have been reached had the 
Phase II offer been accepted and to provide sufficient universal 
service funds to do so. Accordingly, the Commission intends to observe 
the outcome of the Phase II auction, and will adopt a process for the 
Remote Areas Fund to ensure that states receive an equitable 
distribution of funds. In order to ensure service is extended 
expeditiously to areas not supported in the Phase II auction, the 
Commission also reaffirms that the Commission will seek to commence the 
Remote Areas Fund auction no later than one year after the commencement 
of the Phase II auction.
    31. Specifically, once the Commission has had the opportunity to 
observe the results of the Phase II auction it will prioritize bids in 
the Remote Areas Fund auction that are placed in such declined states 
until it has awarded enough support to make up the difference between 
the total Phase II declined support and the total support that was 
awarded in the state by the Phase II auction, to the extent possible 
based on bids placed, remaining eligible areas, and budget available. 
To ensure that support is targeted to commercially reasonable bids, the 
Commission anticipates that only bids that are at or below the reserve 
price would be eligible for this preference. Any implementation details 
will be adopted when the Commission finalizes the procedures for the 
Remote Areas Fund auction after observing the outcome of the Phase II 
auction.
    32. The Commission acknowledges that this approach may mean that 
some areas in declined states have to wait longer to get service than 
if support was awarded through the Phase II auction. Nevertheless, on 
balance the Commission concludes this approach serves the public 
interest because it reasonably enables us to achieve its objectives by 
first using the Phase II auction to maximize its budget by prioritizing 
cost-effective bids and then targeting support to areas that remain 
unserved in the Remote Areas Fund. Indeed, the areas where support has 
been declined are, according to the Commission's cost model, lower cost 
than the extremely high-cost areas that are eligible nationwide. While 
it is possible that some areas that would have received support if the 
Commission implemented preferences in the Phase II auction may be left 
unserved after the Phase II auction, it is also possible that bidders 
will be attracted to serve these lower-cost areas and will be awarded 
support through the Phase II auction to the extent that they place 
cost-effective bids when compared to the reserve price and bids 
nationwide.
    33. For these reasons, the Commission concludes that this approach 
is preferable to adopting weights for the Phase II auction for states 
where Phase II auction support was declined, or adopting other measures 
like support thresholds, ceilings, or rankings in the Phase II auction. 
Instead, the possibility that state preferences in the Phase II auction 
could divert funding from more cost-effective and higher service 
quality bids in the Phase II auction, and the added complexity they 
would introduce to the Phase II auction, outweigh the potential 
benefits. The Commission concludes that any inequitable distribution 
issues would be better addressed after the Phase II auction, after 
bidders have had the opportunity to place cost-effective competitive 
bids in all states.
    34. The Commission disagrees with commenters that argue that the 
Commission should not implement any preferences for states where Phase 
II model-based support was declined. Instead, the Commission has 
acknowledged that an incumbent price cap carrier's decision to decline 
Phase II model-based support does not diminish the Commission's 
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. To the extent unserved areas remain 
in declined states after cost-effective bids have been awarded in the 
Phase II auction and bidders are willing to serve those areas with 
support equal to or less than the relevant reserve price, the 
Commission concludes that it is reasonable to spend at least as much 
support through the Phase II and Remote Areas Fund auctions that the 
Commission was willing to spend through the Phase II offer of support 
to address a similar number of unserved consumers in these states. And 
as the Commission explained above, it is using this approach as a 
backstop, once it has had the opportunity to select bids based on cost-
effectiveness and service quality through the Phase II auction.
    35. The Commission is not persuaded that it should adopt weights or 
any other kind of preferences for states where the state has either 
provided state broadband funding or has committed to co-invest funds 
for winning Phase II auction bids, or where the state is a net

[[Page 14472]]

payer to the universal service fund. First, as noted above, these 
proposals would add additional complexity to the Phase II auction, both 
for the Commission in designing and executing an auction that would 
incorporate these preferences and for bidders that may face difficulty 
in putting together a cost-effective bid that accounts for such 
preferences. Second, if a state has implemented a broadband program, 
Phase II bidders could use those funds to supplement the funds they are 
seeking from the federal Connect America program, thereby lowering 
their bids so that they are more competitive. The state's contribution 
to a project will already effectively lower the amount of support a 
bidder needs from the federal universal service fund. Third, the 
Commission's universal service programs are designed to target areas 
where there is not a business case for service providers to offer 
reasonably comparable services at reasonably comparable rates. By 
virtue of the geography of each state, some states have more of these 
areas than others and thus require more support to achieve the 
Commission's universal service objectives. It would contradict the 
Commission's statutory responsibility to connect all Americans with 
reasonably comparable services if the Commission were to target federal 
universal service support to certain states for the sole reason that 
their ratepayers contribute more into the universal service fund than 
the states receive from all disbursement programs in the aggregate.
    36. The Commission is not convinced that it should set up a 
separate mechanism to allocate support directly to declined states--
either in lieu of those states participating in the Phase II auction or 
for those states that do not receive a certain level of support in the 
Phase II auction--or work in partnership with the states to choose 
winning projects based on specified criteria. Not only would this cause 
further delay in getting support to those areas because the Commission 
would need to establish rules for a new mechanism, it would also 
contradict its decision to allocate unclaimed Phase II support using 
market-based mechanisms--the Phase II auction and the Remote Areas Fund 
auction. For all the reasons explained above, the Commission continues 
to conclude that requiring bidders to compete for support rather than 
using more subjective measures to select awardees will lead to a more 
efficient use of its finite budget.
    37. While the Commission acknowledges that it conditionally waived 
the Phase II auction program rules to make available up to an amount of 
support that is equivalent to the amount of support Verizon declined in 
New York to be allocated in partnership with New York's New NY 
Broadband Program, the Commission did not guarantee that carriers in 
New York would be awarded the full $170.4 million if winning bidders 
were not authorized for this amount by the Commission in coordination 
with New York's program. Moreover, such support will be allocated to 
service providers rather than directly to the state. Such bidders are 
required to compete for funds through New York's broadband program and 
will only be eligible to be authorized for Phase II support if they are 
selected as winning bidders and if New York commits a matching amount 
of support at the minimum. The Commission also finds that the public 
interest considerations in that context are different than the 
considerations here. The Commission's decision to allocate up to $170.4 
million in coordination with New York's program was premised on the 
fact that New York had committed a significant amount of state support 
and had already established a program that is compatible with the 
objectives of Connect America Phase II and that will lead to faster 
build out and potentially higher speeds than if the Commission had 
waited for the Phase II auction to allocate the support. Working in 
partnership with New York also meant that the Commission could 
eliminate potential overlaps between the two programs that could 
otherwise thwart the Commission's Connect America objectives. No other 
state has demonstrated that they have adopted a similar program that 
would achieve the same or similar public interest benefits.
    38. While the Commission remains committed to promoting deployment 
on Tribal lands, it declines to adopt a Tribal-specific preference for 
Tribal entities or entities choosing to serve Tribal lands in the Phase 
II auction. For the reasons described above, the Commission concludes 
that it serves the public interest to award Phase II support to the 
most cost-effective bids, subject to the performance and latency 
weights it adopts above. The Commission's decision to score a bid's 
cost-effectiveness relative to the reserve price will ensure that 
service providers that place cost-effective bids that commit to serve 
Tribal lands will be competitive. Furthermore, the Connect America Cost 
Model used to set reserve prices already takes into consideration many 
factors causing varying deployment costs. With this approach, the 
auction is able to use a market-based mechanism to award support for 
the purposes of connecting all consumers, including those on Tribal 
lands. The Commission's action today does not preclude us from adopting 
preferences for Tribal entities or entities serving Tribal lands in the 
Remote Areas Fund auction if Tribal lands remain unserved after the 
Phase II auction and after the Commission has had the opportunity to 
observe the outcome of the Phase II auction.
    39. It is unclear at this time what the effect of a Tribal bidding 
credit would be given the Commission's decision to adopt weights for 
service and latency tiers. The Commission concludes that it serves the 
public interest to maximize its budget by first determining whether the 
Commission's recent policy decisions will result in cost-effective 
competitive bids on Tribal lands in the Phase II auction. If not, the 
Commission will be able to observe bidders' behavior in the Phase II 
auction to determine how to best implement a targeted preference that 
will encourage deployment on Tribal lands that remain unserved.
    40. The Commission is not persuaded that Tribal governments should 
instead select the service providers that will be serving Tribal lands 
or that Tribally-owned or -controlled carriers should have the right of 
first refusal. The Commission's paramount goal must be to maximize the 
value of the universal service dollars it is spending on behalf of 
consumers--including those on Tribal lands--and creating artificial 
barriers to competing for support or deploying service on Tribal lands 
will only serve to delay the build out of high-quality services that 
rural Americans on Tribal lands want and need. Such an approach would 
be contrary to the Commission's decision to conduct a competitive 
bidding process in these areas to select service providers that will 
efficiently use support to offer reasonably comparable services. 
Moreover, eligible Tribally-owned or -controlled carriers will have the 
opportunity to participate in the Phase II auction and potentially win 
support if they place competitive bids.
    41. The Commission concludes that it would not serve the public 
interest to adopt alternative interim service milestones for non-
terrestrial service providers or service providers that already have 
deployed the infrastructure they intend to use to fulfill their Phase 
II obligations. The Commission expects that determining whether a 
recipient has sufficiently built out its network and thus would be 
subject to the alternative milestones would be a subjective and 
possibly time-consuming fact-specific inquiry. Also, tracking and 
verifying different milestones for a subset of Phase II auction 
recipients that

[[Page 14473]]

are based on the timing of consumer requests would complicate the 
Commission and USAC's oversight responsibilities. Additionally, 
subjecting such providers to more aggressive interim milestones could 
potentially undermine both their incentives to participate in the Phase 
II auction and their willingness to take steps to deploy facilities 
prior to being awarded Phase II auction support.
    42. The Commission concludes that these considerations outweigh the 
public interest benefits of the potential that in some circumstances 
recipients will offer the required services faster if they have to meet 
more aggressive milestones. Indeed, carriers that have deployed 
infrastructure already have an incentive to meet their obligations 
quickly. First, carriers will want to supplement universal service 
support with customer revenue. Second, Phase II auction recipients are 
required to maintain an open and renewed letter of credit only until 
they have certified they have met their 100 percent service milestone 
and that certification has been verified. As a result, Phase II auction 
recipients may choose to accelerate the rate at which they offer the 
required services so that they can close out their letter of credit 
sooner.

III. Order on Reconsideration

    43. In this Order on Reconsideration the Commission considers 
several petitions for reconsideration of decisions made in the Phase II 
Auction Order. First, the Commission denies a petition for 
reconsideration of its decision to score bids relative to the reserve 
price. Second, the Commission grants a petition for reconsideration of 
its decision to retain the option to re-auction certain areas served by 
high latency bidders if a set subscription rate is not met. Finally, 
the Commission grants a petition for reconsideration of its decision to 
require bidders in the Above-Baseline and Gigabit performance tiers to 
offer an unlimited monthly usage allowance.
    44. Discussion. The Commission declines to reconsider the decision 
to score bids relative to the applicable reserve price. While one of 
the Commission's objectives is to maximize the number of locations that 
are served with its finite budget and ranking bids based on the dollar 
per location would achieve that goal, the Commission has also made 
clear that it is focused on adopting an auction design that balances 
this objective with other goals, including efficiently and effectively 
allocating support among the states. The Commission concludes that 
ranking bids relative to the reserve price reasonably balances these 
objectives.
    45. As the Commission explained in the Phase II Auction Order, it 
made the decision to adopt this bid-to-reserve price ratio methodology 
to prevent support from disproportionately flowing to those states 
where the cost to serve per location is, relatively speaking, lower 
than other states. It is the Commission's statutory duty to support 
universal service, which includes ``[c]onsumers in all regions of the 
Nation,'' not just those living in denser areas. By ranking bids 
relative to the reserve price, the Commission will be providing an 
opportunity for bidders across the country to make competitive bids 
while also working to maximize its available funds by awarding support 
to the most cost-effective bids nationwide. Awarding support to those 
areas where there are more locations might mean that the Commission 
would get ``more bang for the buck'' by serving more locations with its 
budget, but that approach might also preclude us from taking advantage 
of efficiencies in cases where service providers are able to serve 
areas with fewer locations but with support that is far below the 
applicable reserve price. While the Commission acknowledges that it 
could instead choose to award support to denser areas in the Phase II 
auction and address the remaining areas in the Remote Areas Fund 
auction, it concludes that on balance the public interest will be 
served by giving consumers nationwide the opportunity to be served 
sooner if cost-effective bids are placed in those areas. The Commission 
notes that its decision to cap reserve prices for extremely high-cost 
areas will help ensure that its budget is not disproportionately 
diverted to these extremely high-cost areas. Support will only be 
awarded to service providers that can make a business case to serve 
these areas with support below the capped amount and that submit cost-
effective bids relative to other bids nationwide.
    46. The Commission reconsiders the Commission's decision with 
regard to re-auctioning areas served by high latency bidders where 
there is low subscribership. Instead, all authorized Phase II auction 
recipients will have a full 10-year term of support if they comply with 
the terms and conditions of Phase II support. While the Commission had 
adopted the subscriber standard to give high latency providers 
something objective and quantifiable that they could track to determine 
if the areas they serve would be placed in the Phase III auction, after 
further reflection, the Commission is persuaded that this approach does 
not necessarily reflect the quality of that service or the value to 
consumers.
    47. First, the Commission agrees that it may be difficult for high 
latency service providers to obtain enough subscribers to meet the 35 
percent threshold given that by the end of the third year of support, 
Phase II auction recipients will only be required to offer service to 
40 percent of the required number of locations and may not have focused 
on adoption efforts while working on deploying their networks. And even 
if the Commission were to push this option to later in the support 
term, it would be difficult to determine an appropriate timeframe at 
this point without knowing the timing for any subsequent auctions. 
Second, consumers may decide not to subscribe to a service for any 
number of reasons, and the Commission is persuaded by comments that 
suggest that many of the factors that are related to low adoption are 
likely to be present in more rural high-cost areas of the country.
    48. While commenters suggest that they have had success in 
encouraging broadband adoption in high-cost areas, they do not address 
the Commission's timing concerns. Moreover, such a general statement 
about their success does not provide us with adequate assurance that 
high latency providers would have the same experience in the areas they 
are awarded support absent service quality issues. In fact, if the 
Commission uses a low adoption rate as the measure to determine if 
service is meeting consumers' needs, it would seem to follow that the 
Commission should also re-auction areas served by low latency service 
providers that have low subscribership. For these reasons, the 
Commission concludes that subscribership is not an appropriate measure 
for determining whether a high latency service is meeting the needs of 
consumers.
    49. The Commission is also sympathetic to claims that even if it 
were to come up with an alternative objective and quantifiable 
standard, by simply retaining the option to shorten a high latency 
service provider's support term it will create uncertainty for such 
bidders. The Commission would be asking high latency providers to 
commit significant resources to deploy at a minimum 40 percent of their 
network while reserving the option to take away their support and 
potentially fund a competitor in that same area. Such conditions may 
mean that high latency providers will not participate in the auction or 
will inflate their bids to compensate for the risk, which would 
undermine the Commission's decision

[[Page 14474]]

to include high latency providers in the Phase II auction to maximize 
the budget by increasing competition.
    50. On balance, the Commission is persuaded that these harms 
outweigh the public interest benefits of having the opportunity to 
include areas served by high latency bidders in a subsequent auction 
prior to the end of the 10-year term. As the Commission discussed 
above, it acknowledges that some parties have significant concerns 
about whether high latency services will meet the needs of consumers. 
Nevertheless, the Commission concludes that the performance standards 
it has adopted for high latency bidders will offer sufficient 
protection to consumers living in areas served by a high latency 
bidder. Moreover, as the Commission explains above, recognizing these 
concerns it has adopted weights that give a preference to low latency 
bids to achieve a reasonable balance between using its budget cost-
effectively to maximize the deployment of service to unserved consumers 
with service quality. The Commission concludes that the potential that 
it would undermine competition by retaining the option to re-auction 
certain service areas could throw off this balance and potentially 
thwart its ability to leverage the Phase II auction to further the 
Commission's statutory objective of supporting reasonably comparable 
services nationwide within its finite budget.
    51. In order to encourage robust bidding, the Commission grants 
Verizon's request for reconsideration of the Commission's prior 
decision to require bidders in the Above-Baseline and Gigabit 
performance tiers to offer an unlimited monthly usage allowance. 
Instead, the Commission will require bidders in these tiers to offer a 
monthly usage allowance of at least 2 terabytes (TB) per month.
    52. As Verizon explains, a requirement of unlimited data could 
discourage bidding on those tiers, because a potential bidder would 
have to factor in additional investments and operating expenses to 
accommodate a small number of customers whose very high usage would be 
responsible for a disproportionate share of demand. Rather than require 
unlimited usage, Verizon argues that the Commission could set a very 
high allowance, which would provide a greater usage allowance than the 
baseline tier but still permit providers to address true outliers that 
increase the cost of providing rural broadband service. The Commission 
is persuaded by Verizon's argument that requiring bidders to offer 
unlimited usage would raise the cost of providing higher performance 
services in rural areas and could discourage bidding in these tiers.
    53. Therefore, instead of requiring bidders in the Above-Baseline 
and Gigabit performance tiers to offer unlimited data allowances, the 
Commission will require bidders in these tiers to offer a monthly usage 
allowance of at least 2 terabytes (TB) per month. The Commission finds 
that a 2 TB usage allowance is sufficiently high to ensure that rural 
America is not left behind, and will enable more bidders to offer 
higher performance services in rural areas. Although Verizon originally 
suggested that recent urban rate survey data shows that many urban 
providers have usage limits for services of 100 Mbps or more that range 
from 250 GB to 1,000 GB (1 TB) per month, it more recently suggested a 
usage allowance of 1 TB per month. Verizon cited usage limits from last 
years' urban rate survey data, and the Commission finds it reasonable 
to adopt a higher usage limit for a 10-year term of support. A data 
allowance of 250 GB was the lower end of the range for comparable 
services from this year's urban rate survey data. The Commission 
therefore disagrees with WISPA's suggestion that a usage tier of only 
250 GB for the Above-Baseline tier is sufficient for a 10-year support 
term. Nor does the Commission agree with WISPA's argument there should 
not be any usage limits for the Gigabit tier. WISPA did not raise any 
substantive arguments to counter Verizon's arguments about the 
additional costs of requiring unlimited usage in high-cost areas. The 
Commission is therefore persuaded that an unlimited usage cap could 
impose additional costs on bidders that may discourage them from 
offering services that exceed its Baseline performance requirements in 
rural areas. As always, Phase II winners will be free to offer an array 
of service plans, including those with unlimited usage.

IV. Procedural Matters

    54. This document does not contain new information collection 
requirements subject to the PRA. In addition, therefore, it does not 
contain any new or modified information collection burden for small 
business concerns with fewer than 25 employees, pursuant to the Small 
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4).
    55. 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, 76 FR 78384, December 16, 
2011), the Further Notice of Proposed Rulemaking adopted in July 2014 
(Rural Broadband Experiments FNPRM, 79 FR 44352, July 31, 2014), and 
the Further Notice of Proposed Rulemaking adopted in May 2016 (Phase II 
Auction FNPRM). The Commission sought written public comment on the 
proposals in the USF/ICC Transformation FNPRM, the State Action FNPRM, 
and the Phase II Auction FNPRM, 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.
    56. With this Report and Order and Order on Reconsideration 
(Order), the Commission takes another step towards implementing the 
Connect America Phase II (Phase II) auction in which service providers 
will compete to receive support of up to $1.98 billion to offer voice 
and broadband service in unserved high-cost areas. The decisions the 
Commission makes in this Order aim to maximize the value the American 
people will receive for the universal service dollars it spends, 
balancing higher-quality services with cost efficiencies.
    57. First, the Commission resolves issues raised in the Phase II 
Auction Order FNPRM. The Commission adopts weights to compare bids 
among the service performance and latency tiers adopted in the Phase II 
Auction Order. Additionally, the Commission declines to adopt specific 
preferences for certain states and Tribal lands in the Phase II auction 
and decline to adopt alternative interim deployment obligations for a 
subset of Phase II auction recipients. However, the Commission does 
adopt preferences that will be implemented in the Remote Areas Fund 
auction for states where the Phase II offer of model-based support was 
declined, subject to conditions.
    58. Second, the Commission also considers several petitions for 
reconsideration of decisions made in the Phase II Auction Order. The 
Commission denies a petition for reconsideration of the Commission's 
decision to score bids relative to the reserve price and grant a 
petition for reconsideration of the Commission's decision to retain the 
option to re-auction certain areas served by high latency bidders if a 
set subscription rate is not met.
    59. 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 proposed rules, if adopted. The RFA

[[Page 14475]]

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 
Small Business Administration (SBA).
    60. Total Small Entities. The Commission's proposed action, if 
implemented, may, over time, affect small entities that are not easily 
categorized at present. The Commission therefore describes here, at the 
outset, three comprehensive, statutory small entity size standards. 
First, nationwide, there are a total of approximately 28.2 million 
small businesses, according to the SBA, which represents 99.7% of all 
businesses in the United States. In addition, a ``small organization'' 
is generally ``any not-for-profit enterprise which is independently 
owned and operated and is not dominant in its field.'' Nationwide, as 
of 2007, there were approximately 1,621,215 small organizations. 
Finally, the term ``small governmental jurisdiction'' is defined 
generally as ``governments of cities, towns, townships, villages, 
school districts, or special districts, with a population of less than 
fifty thousand.'' Census Bureau data for 2011 indicate that there were 
90,056 local governmental jurisdictions in the United States. The 
Commission estimates that, of this total, as many as 89,327 entities 
may qualify as ``small governmental jurisdictions.'' Thus, the 
Commission estimates that most governmental jurisdictions are small.
    61. The Report and Order and Order on Reconsideration do not impose 
any specific reporting, recordkeeping, or compliance requirements for 
entities, including small entities. Instead, the Report and Order 
adopts or declines to adopt measures that will affect all bidders 
participating in the Phase II auction. For example, the Report and 
Order adopts weights for the Phase II auction technology-neutral 
service and latency tiers, and indicates that the Commission will seek 
comment on requiring potential bidders to establish their eligibility 
for such weights. The Report and Order declines to take further action 
to give a preference to certain states, Tribal bidders, or other types 
of bids in the Phase II auction. However, the Report and Order does 
adopt a preference for certain states in the Remote Areas Fund auction 
where the Phase II offer of model-based support was declined, subject 
to conditions. The Report and Order also declines to subject entities 
that have already deployed a network capable of meeting their Phase II 
obligations to different interim build-out milestones than the interim 
build-out milestones that were adopted in the Phase II Auction Order.
    62. The Order on Reconsideration declines to reconsider the 
Commission's decision to score bids relative to the reserve price by 
instead ranking bids on a dollar-per-location basis. In the Order on 
Reconsideration the Commission also decides that all Phase II auction 
recipients will have a 10-year support term, thereby reconsidering the 
Commission's decision to retain the option to shorten the support term 
of certain high latency bidders that are unable to meet a set 
subscribership threshold.
    63. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include (among others) the following four alternatives: (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. The Commission has considered all of these factors subsequent 
to receiving substantive comments from the public and potentially 
affected entities. The Commission has considered the economic impact on 
small entities, as identified in comments filed in response to the USF/
ICC Transformation FNPRM, the Rural Broadband Experiments FNPRM and the 
Phase II Auction FNRPM and their IRFAs, in reaching its final 
conclusions and taking action in this proceeding.
    64. Generally, the decisions that the Commission makes in this 
Order will apply in equal force to all Phase II auction bidders, 
including small bidders. Thus, the decisions made in this Order 
generally do not impose unique burdens or benefits on small bidders. 
For example, the Commission's decision to adopt weights for the 
performance and latency tiers that will not grant an absolute 
preference to any kind of service is unlikely to uniquely impact small 
bidders, but it is likely to help maximize participation by making it 
possible for all entities, including small entities, to be competitive 
if they place a cost-effective bid. Additionally, like all bidders in 
the Phase II auction, to the extent smaller bidders choose to bid in 
less populated areas, they may benefit from the Commission's decision 
to retain a bid ranking method that will score bids relative to the 
applicable reserve price rather than a dollar per location basis.
    65. In the Order, the Commission does decline to adopt proposals 
for other weights or preferences in the Phase II auction, including a 
preference specifically for small entities. The Commission concludes 
that such an approach would not further its objective of maximizing the 
effectiveness of its funds to serve consumers nationwide. Nevertheless, 
recognizing the important role that small entities can play in bringing 
voice and broadband services to unserved consumers, the Commission has 
already adopted specific eligibility requirements for the Phase II 
auction in an effort to facilitate the participation of small entities.
    66. The Commission also indicates in the Order that it is persuaded 
that in some circumstances it may serve the public interest to require 
potential bidders to submit evidence that demonstrates that they can 
meet the service requirements associated with the tiers in which they 
will bid in their short-form applications. The Commission will seek 
comment on this issue and will consider the unique challenges faced by 
small entities in submitting any required information.

V. Ordering Clauses

    67. Accordingly, it is ordered, pursuant to the authority contained 
in sections 4(i), 214, 254, 303(r), 403, and 405 of the Communications 
Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 303(r), 403, and 
405, 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 Order on 
Reconsideration is adopted, effective thirty (30) days after 
publication of the text or summary thereof in the Federal Register. 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.
    68. It is further ordered that, pursuant to section 1.429 of the 
Commission's rules, 47 CFR 1.429 the Petition for Reconsideration filed 
by Verizon on

[[Page 14476]]

August 8, 2016 is denied in part to the extent described herein.
    69. It is further ordered that, pursuant to section 1.429 of the 
Commission's rules, 47 CFR 1.429 the Petition for Reconsideration filed 
by ViaSat, Inc. on August 8, 2016 is granted in part to the extent 
described herein.
    70. It is further ordered that the Commission shall 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).

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2017-05468 Filed 3-20-17; 8:45 am]
 BILLING CODE 6712-01-P