[Federal Register Volume 85, Number 47 (Tuesday, March 10, 2020)]
[Rules and Regulations]
[Pages 13773-13802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03135]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket Nos.19-126, 10-90; FCC 20-5; FRS 16498]
Rural Digital Opportunity Fund, Connect America Fund
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) adopts the framework for the Rural Digital Opportunity
Fund. The Rural Digital Opportunity Fund builds on the Connect America
Fund (CAF) Phase II auction, which allocated funds to deploy networks
serving more than 700,000 unserved rural homes and businesses across 45
states. The Rural Digital Opportunity Fund represents the Commission's
single biggest step to close the digital divide and connect millions
more rural homes and small businesses to high-speed broadband networks.
DATES: Effective April 9, 2020, except of Sec. Sec. 54.313(e),
54.316(a)(8), (b)(5), (c)(1), 54.804 (a) through (c), and 54.806. The
Commission will publish a document in the Federal Register announcing
the effective date of those rules.
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 (Order) in WC Docket Nos. 19-126, 10-90; FCC 20-5, adopted on
January 30, 2020 and released on February 7, 2020. 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://www.fcc.gov/document/fcc-launches-20-billion-rural-digital-opportunity-fund-0.
I. Introduction
1. Bringing digital opportunity to Americans living on the wrong
side of the digital divide continues to be the Federal Communication
Commission's top priority. It is imperative that the Commission take
prompt and expeditious action to deliver on its goal of connecting all
Americans, no matter where they live and work. Without access to
broadband, rural communities cannot connect to the digital economy and
the opportunities for better education, employment, healthcare, and
civic and social engagement it provides.
2. In recent years, the Commission has made tremendous strides
toward its goal of making broadband available to all Americans. But
while the digital divide is closing, more work remains to be done.
Therefore, in the Order, the Commission adopts the framework for the
Rural Digital Opportunity Fund. It builds on the successful model from
2018's CAF Phase II auction, which allocated $1.488 billion to deploy
networks serving more than 700,000 unserved rural homes and businesses
across 45 states. The Rural Digital Opportunity Fund represents the
Commission's single biggest step to close the digital divide by
providing up to $20.4 billion to connect millions more rural homes and
small businesses to high-speed broadband networks. It will ensure that
networks stand the test of time by prioritizing higher network speeds
and lower latency, so that those benefitting from these networks will
be able to use tomorrow's internet applications as well as today's.
II. Discussion
3. To ensure continued and rapid deployment of broadband networks
to unserved Americans, the Commission establishes the Rural Digital
Opportunity Fund, which will commit up to $20.4 billion over the next
decade to support up to gigabit speed broadband networks in rural
America. The Commission opts to allocate this funding through a multi-
round, reverse, descending clock auction that favors faster services
with lower latency and encourages intermodal competition in order to
ensure that the greatest possible number of Americans will be connected
to the best possible networks, all at a competitive cost. In light of
the need to bring service both to consumers in areas wholly unserved by
25/3 Mbps, as well as those living in areas partially served, the
Commission will assign funding in two phases: Phase I will target those
areas that current data confirm are wholly unserved; and, Phase II will
target unserved locations within areas that data demonstrates are only
partially served, as well as any areas not won in Phase I. By relying
on a two-phase process, the Commission can move expeditiously to
commence an auction in 2020 for those areas it already knows with
certainty are currently unserved, while also ensuring that other areas
are not left behind by holding a second auction once the Commission has
identified any additional unserved locations through improvements to
its broadband deployment data collection.
4. The Rural Digital Opportunity Fund Phase I auction will make use
of many of the rules that made the CAF Phase II auction a success, with
some exceptions to account for the passage of time and other changed
circumstances. Most importantly, in addition to the weighting of
performance tiers and latency, the Commission will assign support in
the auction's clearing round to the bidder with the lowest weight.
After the auction, the Commission will require Phase I support
recipients to offer the required voice and broadband service to all
eligible homes and small businesses within the awarded areas, without
regard to the number of locations identified by the Connect America
Cost Model (CAM), and instead as determined subsequently by the
Wireline Competition Bureau (the Bureau). This approach differs from
that used in the CAF Phase II auction, which tied the deployment and
service obligations to a specific number of locations within awarded
areas but allowed the recipients to demonstrate that their obligations
should be reduced (along with a corresponding reduction in support)
where there were fewer locations than the CAM specified. As discussed
in the following, the Commission will use its cost model and current
data to establish initial service milestones and to monitor interim
progress, but the Commission emphasizes that Phase I bidders will be
competing for support amounts to offer service to all locations
ultimately identified in an area, not just to the specific number of
locations in that area identified prior to the auction, without
adjusting awarded support amounts.
5. The Commission adopts a term of support of 10 years for the
Rural Digital Opportunity Fund. The Commission believes that the
stability of a 10-year term of support was partially responsible for
the robust participation that occurred in the CAF Phase II auction. The
Commission expects that the same principles regarding encouraging long-
term investments and auction participation will also apply to the Rural
Digital Opportunity Fund. Most commenters addressing this issue agree
that a 10-year term of support will provide the certainty and stability
needed to encourage broadband deployment in unserved and
[[Page 13774]]
underserved locations and attract participation from a wide variety of
participants. Moreover, disbursing support over a 10-year term
minimizes the impact on the contribution factor. The Commission does
not agree that adopting a 10-year term risks funding unsustainable
projects, as one commenter suggests, because it expects bidders to seek
sufficient support to build and maintain their network without an
expectation of ongoing support after the 10-year support term expires.
Nor does the Commission agree that bidders proposing 25/3 Mbps
deployments should be offered only a five-year term. First, given that
bids will be weighted to prioritize faster services, the Commission
expects bidders seeking support for the 25/3 Mbps tier will win support
only in areas where higher speeds are not economical, and that a five-
year term may simply increase the amount sought in order to recover the
same amount of costs in a shorter timeframe. The Commission also more
generally finds no benefit to having multiple terms of support within
the same program.
6. The Commission adopts its proposal to establish a budget of
$20.4 billion for the Rural Digital Opportunity Fund. The Commission
also adopts its proposal to make available $16 billion for Phase I, and
to make available for Phase II a budget based on the remaining $4.4
billion, along with any unawarded funds from Phase I. The Commission
sought comment on whether it should reassess the adequacy of the budget
after the Phase I auction. Although commenters generally supported the
proposed budget, several commenters suggested that the size of the
budget may be insufficient to serve all the unserved locations and
supported reassessing the adequacy of the budget after Phase I. The
Commission expects $16 billion to be sufficient, given the areas
eligible for Phase I, to balance its objectives of encouraging robust
competition for support below the reserve price and closing the digital
divide. The Commission agrees that it may be appropriate after the
Phase I auction, when it knows the areas eligible for Phase II and how
many unserved locations will be eligible for Phase II within those
areas, to reassess the total amount of funds available for Phase II and
expect to revisit this issue at that time.
7. The Rural Digital Opportunity Fund will target support to areas
that lack access to both fixed voice and 25/3 Mbps broadband services
in two stages. For Phase I, the Commission targets census blocks that
are wholly unserved with broadband at speeds of 25/3 Mbps. For Phase
II, the Commission targets census blocks that it later determined
through the Digital Opportunity Data Collection, or suitable
alternative data source, are only partially served, as well as census
blocks unawarded in the Phase I auction. Because the Commission will
have an additional opportunity to seek comment on how best to target
Phase II support as it gathers more granular data on where broadband
has been actually deployed, the Commission focused here on the areas
eligible for Phase I of the auction.
8. A number of commenters support moving forward to the extent the
Commission can identify unserved areas using existing data. The
Commission agrees. The Commission currently has the tools and the data
to identify census blocks that are wholly unserved, and directs the
Bureau to use the CAM with updated coverage data using the most recent
publicly available FCC Form 477 data to identify census blocks that are
unserved with broadband at speeds of at least 25/3 Mbps for the
auction. The FCC Form 477 data have been criticized for identifying
partially served blocks as ``served,'' but the Commission is not aware
of cases in which the data has identified as ``unserved'' a census
block that is in fact served.
9. The Commission disagrees with commenters who argue that it
should delay the auction until it has more granular data. The primary
shortcomings of FCC Form 477 data do not come into play under the two-
phased framework the Commission adopts here. Thus, the Commission sees
no value in denying the benefits of broadband to those rural Americans
it knows lacks service because there may be other unserved Americans
living in other areas that it has not yet identified. Waiting for the
availability of more granular data before moving forward would only
further disadvantage those millions of Americans that the Commission
knows does not currently have access to digital opportunity.
10. The Commission directs the Bureau to compile a preliminary list
of eligible areas for Phase I of the Rural Digital Opportunity Fund
auction using the following methodology. First, the Commission will
include: (1) The census blocks for which price cap carriers currently
receive CAF Phase II model-based support; (2) any census blocks that
were eligible for, but did not receive, winning bids in the CAF Phase
II auction; (3) any census blocks where a CAF Phase II auction winning
bidder has defaulted; (4) the census blocks excluded from the offers of
model-based support and the CAF Phase II auction because they were
served with voice and broadband of at least 10/1 Mbps; (5) census
blocks served by both price cap carriers and rate-of-return carriers to
the extent that the census block is in the price cap carrier's
territory, using the most recent study area boundary data filed by the
rate-of-return carriers to identify their service areas and determine
the portion of each census block that is outside this service area; (6)
any unserved census blocks that are outside of price cap carriers'
service areas where there is no certified high-cost eligible
telecommunications carrier (ETC) providing service, such as the
Hawaiian Homelands, and any other populated areas unserved by either a
rate-of-return or price cap carrier; and (7) any census blocks
identified by rate-of-return carriers in their service areas as ones
where they do not expect to extend broadband (as the Commission did
with the CAF Phase II auction). Not included in these categories for
Phase I eligibility are census blocks where a winning bidder in the CAF
Phase II auction is obligated to deploy broadband service, and census
blocks where a Rural Broadband Experiment support recipient is
obligated to offer at least 25/5 Mbps service over networks capable of
delivering 100/25 Mbps.
11. Second, the Commission will exclude those census blocks where a
terrestrial provider offers voice and 25/3 Mbps broadband service
according to the most recent publicly available FCC Form 477 data. In
addition, the Commission will exclude those census blocks which have
been identified as having been awarded funding through the U.S.
Department of Agriculture's ReConnect Program, or awarded funding
through other similar federal or state broadband subsidy programs to
provide 25/3 Mbps or better service. This is consistent with the
Commission's overarching goal of ensuring that finite universal service
support is awarded in an efficient and cost-effective manner and does
not go toward overbuilding areas that already have service. Although
the Commission sought comment on whether there are any other areas that
it should include in the initial list of eligible areas, such as areas
in legacy rate-of-return areas that are almost entirely overlapped by
an unsubsidized competitor, it declines to expand the list of eligible
areas at this time and instead focus Phase I on the known wholly
unserved census blocks.
12. After compiling the preliminary list of eligible areas, the
Bureau will conduct a limited challenge process for the Rural Digital
Opportunity Fund Phase I auction consistent with the
[[Page 13775]]
process the Bureau used for the CAF Phase II auction. Because there is
an inevitable lag between the time when areas are served and the time
that service is reflected in publicly available FCC Form 477 data,
parties will be given an opportunity to identify areas that have
subsequently become served, and the Bureau will have the opportunity to
compare the preliminary list of eligible areas with the final list to
identify any obvious reporting errors. As discussed in this document,
good policy requires the Commission to avoid making limited federal
funding available in areas where broadband providers already are
receiving support to deploy 25/3 Mbps broadband service. Thus, in order
to identify which areas to exclude, the Commission directs the Bureau
to provide an opportunity to identify census blocks that have been
awarded support by a federal or state broadband subsidy program to
provide 25/3 Mbps or better service. The Commission does this to ensure
that its auction does not award duplicative or unnecessary support. The
Commission does not agree with commenters who argue that a limited
challenge process is insufficient and that it should provide a
``robust'' challenge process to identify census blocks that are not
actually served, and thus should be eligible for Phase I. The
Commission finds that such a challenge process would be
administratively burdensome, time-consuming, and unnecessary. In a
previous challenge process, the Commission found that it was very
difficult to prove a negative--that is, that an area was not served.
The Commission also notes that in Phase II, any areas that are reported
as served based on its current data but are ultimately deemed unserved
will be eligible, and expect that Phase II will occur sooner if Phase I
is not delayed by a more burdensome challenge process. The Commission
directs the Bureau to release a list and map of initially eligible
census blocks based on the most recent publicly available FCC Form 477
data. If more recent FCC Form 477 data is available when the Commission
adopts the specific procedures for the Phase I auction, the Bureau
should use the more recent data and publish a final list.
13. CAF Phase II support was targeted to ``census blocks where the
cost of service is likely to be higher than can be supported through
reasonable end-user rates alone'' by using a cost benchmark that
reflected the expected amount of revenue that could reasonably be
recovered from end users. In the CAF Phase II auction, the Commission
included high-cost areas where the CAM estimated the cost per location
to exceed $52.50 per month. The Commission departs from that decision
here in the Rural Digital Opportunity Fund auction and it will also
include some census blocks where the CAM suggests the costs of
deployment are below that $52.50 high-cost threshold, but deployment
has nonetheless not yet occurred. When the Commission proposed
including at least some low-cost blocks, then-current data indicated
that 6.3 million locations with costs below a $52.50 per month
benchmark still lacked 25/3 Mbps broadband (including 3.4 million
locations that lacked even 10/1 Mbps broadband based on staff analysis
of current FCC Form 477 data), suggesting that potential end-user
revenue alone had not incentivized deployment despite the model's
predictions. Therefore, to encourage deployment of high-speed broadband
in rural census blocks that are wholly unserved, the Commission will
use a lower funding threshold to include blocks where the CAM estimates
the cost per location equals or exceeds $40 per month, rather than
$52.50. Although some commenters do not agree with providing support in
such lower cost areas, the Commission finds that a modest reduction in
the funding threshold is warranted given the number of census blocks
where market forces alone have been insufficient to bring broadband to
these areas.
14. To account for the unique challenges of deploying broadband to
rural Tribal communities, the Commission will use a funding threshold
of $30 per month. This approach is consistent with the Tribal Broadband
Factor established for Tribal areas for carriers that elected model-
based rate-of-return support, which used a 25% decrease compared to the
$52.50 benchmark. Because the Commission will use a $40 benchmark for
the Phase I auction, the $30 benchmark for Tribal areas reflects a 25%
decrease compared to the $40 funding threshold. Using a $30 funding
threshold for census blocks in Tribal areas, in addition to including
blocks below the $40 threshold, has the effect of increasing the
reserve price in all Tribal areas by $10 per location. Finally, to
provide additional incentives in wholly unserved areas that even lack
10/1 Mbps, the Commission will also use a $30 per month funding
threshold in these areas. A number of commenters agree that the
Commission should prioritize these areas, and it finds that an
increased reserve price could encourage deployment in areas where rural
consumers have been left behind.
15. Consistent with the approach the Commission took in the CAF
Phase II auction, it adopts a general auction framework and eligibility
criteria in the Order and leaves the specific procedures to be
established as part of the pre-auction process, including determining
auction-related timing and dates, identifying areas eligible for
support, and establishing detailed bidding procedures consistent with
the Order.
16. Auction Framework. For Phase I, the Commission adopts a single
nationwide, multi-round reverse auction with competition within and
across eligible geographic areas to identify areas that will receive
support and determine support amounts, as it did for the CAF Phase II
auction. The Commission's experience in the CAF II auction demonstrates
that reverse auctions allow for market forces to maximize the impact of
finite universal service resources while awarding support to those
providers that will make the most efficient use of the budgeted funds.
Utilizing an auction mechanism will allow the Commission to distribute
support consistent with its policy goals and priorities in a
transparent manner. An auction provides a straightforward means of
identifying those providers that are willing to provide voice and
broadband at a competitive cost to the Fund, targeting support to
prioritized areas, and determining support levels that awardees are
willing to accept in exchange for the obligations the Commission
imposes. Moreover, a reverse auction is consistent with the
Commission's decision to provide support to at most one provider per
area.
17. Commenters broadly support the use of a reverse auction to
distribute Rural Digital Opportunity Fund support. For example,
commenters state that based on the success of the CAF Phase II auction,
reverse auctions can be expected to produce robust deployment cost-
effectively. The Nebraska Public Service Commission, on the other hand,
raised concerns that a reverse auction focuses on ``the cheapest way to
get to the minimum speed of a given speed tier to a coverage area''
rather than ``focusing on robust and scalable technology.'' The
Commission disagrees. As demonstrated in CAF Phase II, reverse auctions
are the best available tool to achieve the Commission's overall goal of
closing the digital divide in a transparent and efficient manner while
maintaining fiscal responsibility and cost-
[[Page 13776]]
effectiveness. Moreover, in most instances, CAF Phase II winning
bidders agreed to provide a higher speed than the minimum; thus, the
Commission was able to push finite universal service support to many
more locations at a much lower cost and higher speeds. The Commission
therefore maintains that a reverse auction is the most efficient means
of awarding Rural Digital Opportunity Fund support, consistent with its
goal of supporting the buildout of the best possible networks in the
most cost-effective manner possible.
18. Similar to the CAF Phase II auction, the Commission adopts an
auction design in which bidders committing to different performance
levels will have their bids weighted to reflect its preference for
higher speeds, greater usage allowances, and lower latency. However, in
addition to the weights for each performance tier and latency
combination adopted in the following, the Commission adopts bid
processing procedures specific to the ``clearing round'' of the Rural
Digital Opportunity Fund Phase I auction. In the clearing round, the
bidding system will take into account the combined performance tier and
latency weight when assigning support to bidders competing for support
in the same area at the base clock percentage. Among other
modifications to the procedures used in the CAF II auction, the bidding
system will assign support in the clearing round to the bidder with the
lowest performance tier and latency weight instead of, as was done in
the CAF II auction, carrying forward all bids at the base clock
percentage for the same area for bidding in additional clock rounds. If
two or more bids were submitted with the same lowest performance tier
and latency weight in the clearing round, bidding for an area will
continue in additional clock rounds.
19. In the CAF II auction, the Commission adopted an auction that
considered all bids 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.'' In
the Rural Digital Opportunity Fund auction, the Commission will
continue to accept bids committing to different performance levels. In
Phase I, however, once the budget has cleared, the Commission will
prioritize bids with lower tier and latency weights, thereby
encouraging the deployment of networks that will be sustainable even as
new advancements are made and which will be capable of delivering the
best level of broadband access for many years to come, all while
keeping funding within the Phase I budget. Although this approach could
result in less intra-area competition after the clearing round in some
areas, the auction will have selected the best possible service, at a
competitive level of support, for the same number of consumers living
in those areas, and this will result in more rapid and efficient
funding for such deployment. In other words, the Commission's goal to
close the digital divide is balanced against its goal to support the
deployment of future-proof networks by this auction. Overall, the
Commission does not expect this approach to adversely impact
competition. The Commission will still accept competitive bids
proposing to offer performance that meets or exceeds the minimums at
each performance tier and latency, but for those areas where there is
still competition as of the clearing round, the Commission will
prioritize selection of bidders that propose to offer the highest
speeds, most usage, and lowest latency for each area.
20. The Commission also adopts the same general competitive bidding
rules, which allow for the subsequent determination of additional,
specific final auction procedures based on additional public input
during the pre-auction process, and the Commission will apply as
appropriate any modifications to those rules that it may adopt. Those
competitive bidding rules, together with the additional rules the
Commission adopts in this document, will establish Rural Digital
Opportunity Fund winning bidders' performance obligations, eligible
areas, and post-auction obligations and oversight. As it typically does
for Commission auctions, the Commission will seek further comment on
auction procedures at a future date, so it does not address the
comments in the Order that speak to those issues. A number of
commenters propose specific changes to the auction that would be better
evaluated during the process to develop detailed auction procedures.
21. Reserve Prices. Consistent with the CAF Phase II auction
procedures, the Commission will use the CAM to establish area-specific
reserve prices. The Commission makes several adjustments to its
approach in the CAF II auction to include some unserved areas that were
excluded from the CAF Phase II auction and to potentially provide
additional funding to extremely high-cost areas. Specifically, the
Commission concludes it is appropriate to reduce the high-cost support
threshold to $40 per location. The Commission also increases the per-
location support cap to $212.50. This approach will add additional
locations above the new threshold and increase inter-area bidding.
Finally, the Commission will prioritize areas entirely lacking 10/1
Mbps and Tribal areas by further lowering the funding threshold for
such areas by 25% to $30.
22. The reserve price in each wholly-unserved, eligible census
block will be equal to the average per-location cost of deploying and
operating a network (as calculated by the CAM) above the $40 support
threshold and up to the per-location support cap of $212.50, multiplied
by the number of locations in the block. Lowering the support threshold
from $52.50 to $40 per locations will provide support to unserved areas
in which the CAM may be understating costs, while still being cognizant
about not offering support in areas market forces alone are likely to
extend broadband. The Commission previously determined that a CAM-
calculated average per-location cost of $52.50 reflected an appropriate
line between areas requiring support and those where market forces
would be sufficient. Where some areas have not yet seen unsubsidized
deployment of broadband networks, it could be an indication that the
assumptions underlying the CAM do not always reflect the reality facing
service providers, and the Commission now concludes it is appropriate
to revisit the high-cost threshold. Likewise, the Commission increases
the per-location support cap to ensure that the highest-cost areas,
many of which did not receive winning bids in the CAF II auction, will
see sufficient interest from bidders in the Rural Digital Opportunity
Fund. Thus, the Commission will set the reserve price based on a lower
support threshold of $40 for all areas and raise the per-location
support cap from $146.10 to $212.50, ultimately helping promote
participation and competition in the Rural Digital Opportunity Fund
Phase I auction.
23. The Commission's goal with this auction is to target support
and provide incentives to serve areas that are known to currently lack
service at speeds of at least 25/3 Mbps. Whereas the CAF Phase II
auction targeted support to high-cost areas where the incumbent price
cap carrier declined the offer of model-based support and extremely
high-cost areas nationwide, here the Commission expands its focus to
include certain areas that remain unserved despite being identified by
the CAM as lower cost. As the Commission stated in the Rural Digital
Opportunity Fund NPRM, 84 FR 43543, August 21, 2019, the new lower
support threshold
[[Page 13777]]
of $40 will ensure that only census blocks above the new support
threshold will be eligible for the auction. Buckeye Hills Regional
Council asserts that the Commission should lower the cost threshold to
$20 or $30 for difficult to serve parts of the country such as
Appalachia. However, lowering the threshold any further than $40 would
provide more support than needed and many locations could be included
that are more likely to be served without universal service support.
24. Certain commenters oppose including unserved low-cost census
blocks in Phase I of the auction, raising concerns that the auction
would shift funding to more densely populated areas at the expense of
more rural consumers and census blocks. The Commission notes that these
areas remain unserved, despite being identified as low cost by CAM more
than five years ago. Moreover, the Commission is lowering the support
threshold in all eligible census blocks, thereby increasing reserve
prices (and potentially available support) throughout. The Commission
declines to adopt NCTA's proposal to reduce the cost threshold only to
account for the costs of upgrading an already deployed network capable
of providing 10/1 Mbps to one capable of providing 25/3 Mbps,'' to
``ensure the . . . fund does not . . . pay more than necessary to serve
these areas.'' The Commission disagrees. NCTA's approach focuses on
areas that already have 10/1 Mbps but not 25/3 Mbps and presumes that
the existing provider would be the auction winner. While an existing
provider should in many cases be able to seek less support from the
auction in order to upgrade existing facilities, it may ultimately be
more efficient for a new provider to serve that same biddable unit with
new facilities, in addition to serving neighboring areas that lack 10/1
Mbps broadband services.
25. The Commission also adopts its proposal in the Rural Digital
Opportunity Fund NPRM to prioritize census blocks that lack 10/1 Mbps
over eligible census blocks that have 10/1 Mbps service, but lack
service at 25/3 Mbps based on Form 477 data. Specifically, the
Commission accomplishes this by reducing the support threshold for such
census blocks by an additional 25% to $30, which will have the effect
of raising the support cap for these blocks to $222.50. Some commenters
support prioritizing areas that lack 10/1 Mbps and some suggest the
reserve prices in such areas should be increased to incentivize bidders
in those areas. USTelecom opposes focusing first on areas that lack 10/
1 Mbps stating that it would be difficult to implement ``absent
mapping'' and due to ongoing CAF Phase II deployment. Pacific Dataport
objects to a 10/1 Mbps prioritization and argues it is a ``desperate
attempt to force-fit a terrestrial solution whether or not the
economics make sense.'' The Commission disagrees with both commenters.
As stated in this document, the Commission has the data to identify
census blocks that are wholly unserved by broadband speeds of at least
10/1 Mbps and are not aware of cases where Form 477 data have
identified as ``unserved'' a census block that is in fact served. One
of the Commission's goals in this proceeding is to provide incentives
to serve locations that lack any terrestrial option. Prioritizing areas
that lack 10/1 entirely is consistent with the Commission's statutory
mandate that such services are deployed to areas lacking broadband and
makes sure this auction does not leave on the wrong side of the digital
divide those areas lacking even basic broadband access.
26. For Tribal areas, the Commission similarly adopts the Tribal
Broadband Factor as a 25% decrease, to $30, of the support threshold
applied to Tribal areas. More specifically, with regard to census
blocks located within the geographic area defined by the boundaries of
the Tribal land, all eligible census blocks for which the CAM-derived
cost is more than $30 will be included in the auction, and the reserve
price for such blocks will be the CAM-derived cost minus $30, up to a
per-location support cap of $222.50. The Commission recognizes the
difficulty Tribal lands have faced in obtaining broadband deployment,
and by incorporating this Tribal Broadband Factor, the Commission seeks
to incentivize network buildout to ensure that Tribal Nations and their
members obtain access to advanced communications services. The record
before the Commission provides ample support for adopting a 25%
decrease of the cost benchmark to incentivize Rural Digital Opportunity
Fund participants to bid on and serve rural Tribal census blocks. A
Tribal Broadband Factor will attach to the eligible Tribal areas, and
thus reflect the additional cost of serving Tribal lands. While the
Commission remains committed to promoting deployment on Tribal lands,
it declines to extend a Tribal-specific preference to Tribal entities
or to require a nontribal entity to ``prove an established
partnership'' prior to the auction. The Commission concludes that it
serves the public interest to maximize participation, and to award
support to the most cost-effective bids, subject to the performance and
latency weights it adopts in the following.
27. Bidding Credits. The Commission declines to adopt bidding
credits for offsetting bidding weights or committing to certain
buildout requirements, as proposed by some bidders. Adopting bidding
credits to reward bidders for simply having met prior regulatory
obligations, for example, would be contrary to the competitive nature
of the auction, and, could ultimately reduce the potential reach of the
Rural Digital Opportunity Fund. While the Commission declines to adopt
a Tribal bidding credit, in this document, it has incorporated into the
reserve prices for Tribal lands a Tribal Broadband Factor, similar to
what the Commission previously incorporated into the recent offer of
model-based support to rate-of-return carriers serving Tribal lands,
which will reflect the higher costs unique to deploying service on
Tribal lands that may not otherwise already be included in the CAM, and
satisfy the Commission's goal of bridging the digital divide.
28. Minimum Geographic Area for Bidding. The Commission concludes
that the minimum geographic area for bidding will be no smaller than a
census block group, as identified by the U.S. Census Bureau, containing
one or more eligible census blocks. As the Commission determined in the
CAF Phase II Procedures PN, using census block groups ensures 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. Nevertheless, as the Commission did in the CAF
Phase II auction, it reserves the right to select census tracts, or
other groupings of areas, when it finalizes the auction design if
necessary to limit the number of discrete biddable units. While some
commenters support bidding based on eligible census blocks, the
Commission declines to adopt individual census blocks as the minimum
geographic area for bidding because of the significantly larger number
of eligible census blocks, increasing the complexity of the bidding
process both for bidders and the bidding system and minimizing the
potential for broad coverage by winning bidders. Furthermore, using
census blocks as the minimum geographic area could create more
challenges for providers in putting together a bidding strategy that
aligns with their intended network construction or expansion.
29. The Commission adopts technology-neutral standards for voice
[[Page 13778]]
and broadband services supported by the Rural Digital Opportunity Fund,
based on its experience in the CAF Phase II auction and its success in
awarding support to a variety of service providers to deploy broadband
in unserved rural areas, and consistent with long-standing Commission
policy. Specifically, the Commission will permit bids in four
performance tiers, and for each tier will differentiate between bids
that would offer either low- or high-latency service. The Minimum
performance tier means 25/3 Mbps with a usage allowance that is the
greater of 250 GB per month or the average usage of a majority of fixed
broadband customers as announced by the Bureau on an annual basis; the
Baseline performance tier means 50/5 Mbps speeds with a 250 GB monthly
usage allowance or a monthly usage allowance that reflects the average
usage of a majority of fixed broadband customers as announced by the
Bureau on an annual basis, whichever is higher; the Above-Baseline
performance tier means 100/20 Mbps speeds with 2 TB of monthly usage;
and the Gigabit performance tier means 1 Gbps/500 Mbps speeds with a 2
TB monthly usage allowance. The Commission adopts 250 GB as the minimum
monthly usage allowance for the Baseline performance tier rather than
the 150 GB as proposed because based on Measuring Broadband America
October 2018-September 2019 usage data, the average monthly usage for
fixed broadband customers is 251.45 GBs per month.
30. Low- or high-latency bids will be required to meet the same
latency requirements as the CAF Phase II auction high- and low-latency
bidders. Low latency means 95% or more of all peak period measurements
of network round trip latency are at or below 100 milliseconds, and
high latency means 95% or more of all peak period measurements of
network round trip latency are at or below 750 milliseconds and a
demonstration of a score of 4 or higher using the Mean Opinion Score
with respect to voice performance.
31. The Commission maintains a Minimum performance tier for the
Rural Digital Opportunity Fund but increase the speed from 10/1 Mbps to
25/3 Mbps. In the CAF Phase II auction, winning bids in a Minimum
performance tier, which required only 10/1 Mbps broadband, covered less
than 1% of locations awarded support. The record generally supports
eliminating the 10/1 Mbps performance tier. Although the Navajo Nation
and the Navajo Nation Telecommunications Regulatory Commission (NNTRC)
request that the Commission establish a 10/1 Mbps bidding tier for
Indian Country because costs of deploying 25/3 Mbps on reservations may
discourage bidders, they provided no specific, detailed information
about differences in cost. Moreover, allowing another performance tier
only in certain areas would complicate the bidding system and the
Commission believes the Tribal Broadband Factor will be sufficient to
increase support on Tribal lands and incent providers to bid on Tribal
lands.
32. Some commenters argue that a Baseline tier of 25/3 Mbps is too
low and the Commission should establish a higher speed tier as the
minimum eligible for the auction, or that bidders proposing 25/3 Mbps
should be required to deploy to all locations in three years and
receive only five years of support. Although the Commission has a
preference for higher speeds, it recognizes that some sparsely
populated areas of the country are extremely costly to serve and
providers offering only 25/3 Mbps may be the only viable alternative in
the near term. Accordingly, the Commission declines to raise the
required speeds in the Minimum tier and it is not persuaded that
bidders proposing 25/3 Mbps should be required to build out more
quickly or have their support term reduced by half.
33. Several others argue that the Commission should include a
fourth performance tier between the Minimum and Gigabit tiers, some
suggesting a tier between 25/3 Mbps and 100/20 Mbps, and others
suggesting a tier between 100/20 Mbps and the Gigabit tier. The
Commission agrees, and accordingly, add an additional performance tier.
The Commission finds that allowing bidders to offer 50/5 Mbps service
is ``critical to reaching the truly high-cost areas in a cost effective
way'' while meeting the ``immediate broadband needs'' of consumers
today. Adding a performance tier at 50/5 Mbps furthers the Commission's
goal of incentivizing providers to deploy networks that will deliver
services that consumers need today as well as in the future, but also
ensures Minimum speed service will be available in the hardest to serve
areas.
34. The Commission declines to make any modifications to its two
latency tiers. Some commenters propose a third, very low-latency tier.
Commenters have provided no persuasive evidence that suggests
technologies meeting latency standards below 100 milliseconds would
have such a material benefit for consumers when compared to services
meeting the Commission's existing long-standing low-latency
requirements that it should potentially divert support to those lower-
latency technologies and would not expect consumers to notice the lower
latency that would make it worth weighting the auction differently. The
Commission notes that providers are encouraged to offer service that
improves upon the Commission's minimum tier thresholds.
35. Satellite providers argue that the Commission's existing
latency tiers do not account for certain satellites capable of
providing lower latency, and that the high-latency weight discourages
hybrid networks. SES Americom, which offers middle-mile capacity on its
satellites to telecommunications carriers, argues its medium earth
orbit satellites can provide broadband service with a latency between
120 milliseconds and 150 milliseconds. Viasat and Hughes ask that the
Commission permits a provider to qualify at the low-latency weight if
it demonstrates a mean opinion score of 4 or more for VoIP service and
routes latency-sensitive traffic over links in which 95% or more of all
peak period measurements of network round trip latency are at or below
100 milliseconds. Although medium earth orbit satellites and hybrid
satellite technologies have the potential to deliver high-speed
broadband to previously unserved rural areas, these technologies have
not been deployed widely to deliver service to residential consumers;
therefore, it would be premature to modify the Commission's latency
standards based on the record to qualify these technologies in the
Phase I auction to bid with a lower-latency weight, or add an
additional interim latency weight. This decision does not preclude the
Commission from reconsidering the feasibility of modifying latency
standards to accommodate medium earth orbit satellite and hybrid
satellite technologies for Phase II of the Rural Digital Opportunity
Fund.
36. As in the CAF Phase II auction, the Commission adopts weights
that reflect its preference for higher speeds, higher usage allowances,
and low latency. The Commission also anticipates that terrestrial fixed
networks will likely result in significant fiber deployment that can
serve as a backhaul for rural 5G networks. Accordingly, the Commission
chooses performance tier and latency weights to encourage the
deployment of higher speed, low-latency services. Specifically, the
Commission adopts weights of 50 for the Minimum performance tier, 35
for the Baseline performance tier, 20 for the Above Baseline
performance tier, and 0 for the Gigabit performance tier, as well as a
weight of 40 for high-latency bids and 0 for low-latency bids to favor
higher-
[[Page 13779]]
than Baseline speeds and low-latency services. Under the descending
clock auction format the Commission will use the weights, when
subtracted from the clock percentage for the round, to indicate the
percentage of an area's reserve price that a winning bidder would
receive in per-location support for serving the locations in that area.
37. The following charts summarize the Commission's approach:
Performance Tiers, Latency, and Weights
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Minimum.................................. >=25/3 Mbps................. >=250 GB or U.S. average, 50
whichever is higher.
Baseline................................. >=50/5 Mbps................. >=250 GB or U.S. average, 35
whichever is higher.
Above Baseline........................... >=100/20 Mbps............... >=2 TB...................... 20
Gigabit.................................. >=1 Gbps/500 Mbps........... >=2 TB...................... 0
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Low Latency........................... <=100 ms 0
High Latency.......................... <=750 ms & MOS >=4 40
------------------------------------------------------------------------
38. The Commission declines to modify the 90-point maximum spread
between the tiers that the Commission used in the CAF II auction. Many
commenters argued that the Commission should increase the 90-point
spread between the highest and lowest tiers to favor higher speeds even
more. Others argue that the Commission should narrow the weighting
spread. Although the Commission does value higher speed services, it
also recognizes that different technologies may be better suited for
different areas. Based on the Commission's experience with the CAF
Phase II auction and its weights, the Commission believes the weights
it adopts will provide an opportunity for providers using various
technologies to participate in the auction and to compete for
appropriate levels of support while providing a minimum level of
service to consumers in all awarded areas.
39. The Commission adopts its proposal to establish a weight of 40
points as the weight for high-latency services, which is an increase
from the CAF Phase II weight of 25. Satellite providers oppose
increasing the weight for high latency. Viasat claims that
substantially increasing the latency weight would effectively preclude
meaningful participation by geostationary orbit (GSO) satellite
providers in the auction and would give Viasat and other GSO satellite
providers virtually no chance of participating successfully. Moreover,
Viasat argues that increasing the latency weight would significantly
reduce the number of supported locations, leaving behind areas where no
terrestrial provider bids, and substantially increase the average per-
location subsidies in areas where terrestrial providers do bid. On the
other side, several commenters argue the Commission should assign an
even greater weight to high-latency bids. USTelecom argues that
satellite broadband service is not a bridge to next-generation 5G
broadband services and suggests that the Commission exclude satellite
from bidding in the Phase I auction, or at a minimum, increase the
high-latency weighting to 60. The Commission's decision to introduce a
more moderate increase to the high-latency weight reflects the
importance of latency to interactive, real-time applications and voice
services, as well as the secondary benefits of terrestrial facilities,
but also recognizes the importance of allowing all technologies the
ability to participate in the auction and offer service to unserved
areas. Moreover, adopting a fourth performance tier will moderate some
of the effects of the Rural Digital Opportunity Fund NPRM's proposed
weights. The 90-point spread the Commission adopts in this document
will allow high-latency bidders to compete for appropriate levels of
support in a much larger auction.
40. All Rural Digital Opportunity Fund support recipients, like all
other high-cost ETCs, will be required to offer standalone voice
service and offer voice and broadband services at rates that are
reasonably comparable to rates offered in urban areas. Some commenters
urge the Commission to eliminate the standalone voice requirement.
WISPA argues that RDOF recipients should not be required to offer
standalone voice service, because, consumers increasingly are
subscribing to voice as a component of their broadband connections.
SpaceX claims the standalone voice requirement is no longer useful for
nearly all consumers because Americans no longer choose to buy
standalone voice, and the requirement adds costs to develop and make
available voice equipment and provide voice-specific customer support.
GeoLinks urges the Commission to simply require that auction winners
offer a voice service option, which can be available via a service
bundle. The National Association of Counties states that
``unfortunately, the unintended consequence of this requirement would
prevent willing and able entities from providing high-speed broadband
internet services solely because they do not provide voice services in
addition to broadband.''
41. Section 254 of the Communications Act of 1934, as amended,
gives the Commission the authority to support telecommunications
services, which the Commission has defined as ``voice telephony
service.'' The Commission made clear when it adopted the standalone
voice requirement as a condition of receiving Connect America Fund
support in 2011 that the definition of the supported service, voice
telephony service, is technologically neutral, allowing ETCs to
provision voice service over many platforms. When it adopted the
broadband reasonable rate comparability requirement in 2014, the
Commission explained that ``high-cost recipients are permitted to offer
a variety of broadband service offerings as long as they offer at least
one standalone voice service plan and one service plan that provides
broadband that meets the Commission's requirements.'' In 2018, the
Commission dismissed requests to eliminate the standalone voice
requirement. The Commission reasoned that auction funding recipients,
unlike funding recipients of other USF mechanisms, ``may be the only
ETC offering voice in some areas and not all consumers may want to
subscribe to broadband service.'' The record does not show that these
facts have changed, and voice telephony is still the supported service.
Therefore, the Commission requires all ETCs receiving Rural Digital
Opportunity Fund support to provide standalone voice service meeting
the reasonable comparability requirements in the areas in which they
receive support.
42. Some commenters suggest that the Commission adopts additional
public interest obligations. For example, the Schools, Health &
Libraries Broadband Coalition argues that the Commission should
specifically require recipients of Rural Digital Opportunity Fund
support to deploy high-quality broadband to
[[Page 13780]]
anchor institutions in their service territories. The California
Emerging Technology Fund argues that the Commission should require
every provider to propose a low-income package with a rate not to
exceed $20. The Commission notes that support recipients, like all
high-cost ETCs, will be required to report annually the number of
anchor institutions to which they newly began providing service and to
comply with all relevant Lifeline rules. Additional obligations
regarding anchor institutions and low-income subscribers are more
properly addressed in the Commission's other universal service
programs.
43. The Commission adopts interim service milestones for the Rural
Digital Opportunity Fund that are based on those the Commission adopted
for the CAF Phase II auction for monitoring progress in meeting
deployment obligations. The Commission will require support recipients
to commercially offer voice and broadband service to 40% of the CAM-
calculated number of locations in a state by the end of the third full
calendar year following funding authorization, and 20% each year
thereafter. The Commission modifies that approach, however, in the way
it accounts for possible disparities between the CAM location counts
and the actual number of locations in a winning bidder's service
territory in a state. Although initial service milestones will be based
on the number of locations identified by the CAM, the Commission is
confident that it will have access to more accurate location data in
the next few years, whether as a result of the Digital Opportunity Data
Collection, the development of a broadband serviceable location
database, the 2020 Census and/or some other data source. The Commission
concludes that winning bidders will be required to serve the number of
locations subsequently identified in each respective area. The
Commission is persuaded by commenters who argue that the costs of
building and operating broadband networks are predominantly governed by
the size and characteristics of the areas served rather than the
precise number of locations. The Commission accordingly directs the
Bureau to seek comment on the updated location data and publish revised
location counts no later than the end of service milestone year six,
which the Commission expects to be 2027. The Commission will then use
the new location counts to determine whether a Rural Digital
Opportunity Fund support recipient offers the required voice and
broadband service throughout the designated area by the end of
milestone year eight.
44. The Commission takes this approach because the record reflects
considerable concern about the proposed pro rata reductions in a
winning bidder's support if, ultimately, there are fewer locations than
originally identified by the Commission. For the CAF Phase II auction,
the Commission created a process to facilitate appropriate adjustments
to the defined deployment obligations, with associated support
reductions, and delegated the implementation of this process to the
Bureau. Most commenters in this proceeding oppose the pro rata support
reductions, and argue that the Commission should not penalize support
recipients when the location data used to establish milestones
overstates the number of locations in an area. The Commission agrees
and will not reduce support if the Bureau's updated location counts
indicate fewer actual locations in the awarded areas in most
circumstances.
45. Location counts in the CAM are based on 2011 Census data and
the Commission recognizes that there may be some disparity between the
number of locations identified before the auction occurs and the
``facts on the ground.'' Moreover, circumstances may change before the
end of the 10-year support term. Some rural areas may experience a
decrease in population, and in other areas new housing developments may
be built. By requiring build-out to the entire designated area even in
light of the possibility that location numbers could change, the
Commission seeks to ensure the availability of broadband and voice
services to as many rural consumers and small businesses within the
Phase I auction areas by the end of the ten-year term as possible.
46. Until the Bureau adopts new location counts, the Commission
will measure compliance with service milestones against the CAM
location counts across the awarded areas for each Phase I support
recipient. The Commission will require support recipients to
commercially offer voice and broadband service to 40% of the CAM-
calculated number of locations in a state by the end of the third full
calendar year following funding authorization, and 20% each year
thereafter, consistent with the CAF Phase II deployment obligations. In
the following, the Commission explains how service milestones will be
revised in various circumstances after the Bureau gathers more accurate
location counts.
47. More Locations. After the Bureau adopts updated location
counts, in areas where there are more locations than the number of CAM
locations, the Commission will not require a support recipient to
commercially offer voice and qualifying broadband to 100% of the new
number of locations until year eight. The Commission will continue to
use the CAM location counts to measure compliance with interim service
milestones up to 100% of the CAM locations by the end of the sixth
calendar year. If there are more new locations than CAM locations,
recipients should be able to meet those milestones, and measuring
compliance against the new number of locations later in the term will
give carriers the opportunity to revise and update deployment plans
after the Bureau announces the new number of locations. The Commission
does not adopt an interim milestone for the end of year seven, although
carriers will be required to report to Universal Service Administrative
Company (USAC), consistent with current high-cost rules, any locations
deployed in that calendar year. Support recipients will be required to
offer service to 100% of the new location count by the end of year
eight. Carriers for which the new location count exceeds the CAM
locations within their area in each state by more than 35% will have
the opportunity to seek additional support or relief from the
Commission.
48. Any such ETC with increased deployment obligations may also
seek to have its new location count adjusted to exclude additional
locations, beyond the number identified by CAM, that it determines
before the end of year eight are ineligible (e.g., are not habitable),
unreasonable to deploy to (e.g., if it would require a carrier to
install new backhaul facilities or other major network upgrades solely
to provide broadband to that location), or part of a development newly
built after year six for which the cost and/or time to deploy before
the end of the support term would be unreasonable.
49. Fewer Locations. In areas where there are fewer locations than
CAM locations, a support recipient must notify the Bureau no later than
the March 1 following the fifth year of deployment. Upon confirmation
by the Bureau, the Commission will require support recipients to reach
100% of the new number by the end of the sixth calendar year. While
planning and deploying its network, a support recipient that discovers
there are not enough locations to even meet its service milestones in
years three and four, which are based on the number of CAM locations,
should seek a waiver from the Bureau. Carriers for which the
[[Page 13781]]
new location count is less than 65% of the CAM locations within their
area in each state shall have their support amount reduced on a pro
rata basis by the number of reduced locations.
50. Newly Built Locations. In addition to offering voice and
broadband service to the updated number of locations identified by the
Bureau, the Commission requires support recipients to offer service on
reasonable request to locations built subsequently. Support recipients
are not obligated to offer service to these newly built locations that
do not request service, or to those with exclusive arrangements with
other providers. Assuming a two-year deployment cycle, support
recipients similarly are not required to deploy to any locations built
after milestone year eight.
51. The Commission aligns the service milestones and related
reporting deadlines with those of other high-cost programs to minimize
the administrative burdens on the Commission, USAC, and support
recipients. Regardless of when a Rural Digital Opportunity Fund
recipient is authorized to begin receiving support, each service
milestone will occur on December 31. The Commission acknowledges that,
by aligning the service milestones, some Rural Digital Opportunity Fund
support recipients likely will have more than three years to complete
their 40% milestone. CenturyLink suggests that the Commission authorize
funding for all winning bidders to begin on January 1, 2022 to align
all Rural Digital Opportunity Fund support recipients on calendar year
basis for receipt of support and corresponding obligations. The
Commission finds that its method of aligning service milestones is
preferable because it establishes December 31 as the service milestone
date for all participants regardless of authorization date but still
allows the Commission to authorize support for a participant and thus
to begin broadband deployment in unserved areas as soon as possible.
52. The Commission concludes that a support recipient will be
deemed to be commercially offering voice and/or broadband service to a
location if it provides service to the location or could provide it
within 10 business days upon request. All ETCs must advertise the
availability of their voice services through their service areas, and
the Commission requires support recipients also to advertise the
availability of their broadband services within their service area.
Compliance with service milestone requirements will be determined on a
state-level basis, so that a support recipient would be in compliance
with a service milestone if it offers service meeting the relevant
performance requirements to the required percentage of locations across
all of the awarded areas included in its winning bids in a state.
53. The Commission also sought comment on whether it should require
support recipients to build out more quickly earlier in their support
terms by offering voice and broadband to 50% of the requisite number of
locations in a state by the end of the third year. A few commenters
supported an accelerated buildout schedule, while the Navajo Nation and
NNTRC asked the Commission to extend build-out milestones on Tribal
Lands to recognize the difficulty in deploying infrastructure in Indian
Country. Upon consideration, the Commission finds that using the same
interim milestones as in the CAF II auction strikes the appropriate
balance and, thus, adopts the identical first service milestone that it
used there. Recipients have ample incentive to reach their buildout
milestones as quickly as possible to increase their subscribership and
revenues. However, the Commission also recognizes that deploying
broadband in some areas will be more challenging than in others and may
require all the time allowed by the deployment milestones.
54. To ensure that support recipients are meeting their deployment
obligations, the Commission adopts essentially the same reporting
requirements for the Rural Opportunity Digital Fund that it adopted for
the CAF Phase II auction. Consistent with the Commission's decision in
this document to align the interim service milestones, it requires
Rural Digital Opportunity Fund support recipients to file annually
location and technology data in the HUBB at the same time and to make
the same certifications when they have met their service milestones.
The Commission also amends section 54.316 of its rules to require all
Rural Digital Opportunity Fund support recipients, as all high-cost
support recipients currently do, to file their annual location data in
the HUBB by March 1, and the Commission encourages them to file such
data on a rolling basis.
55. The Commission also requires Rural Digital Opportunity Fund
support recipients to file the same information in their annual FCC
Form 481s that it requires of the CAF Phase II auction support
recipients. Specifically, in addition to the certifications and
information required of all high-cost ETCs in the FCC Form 481, Rural
Digital Opportunity Fund support recipients will be required 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. In addition, they will be required to
identify the number, names, and addresses of community anchor
institutions to which they newly began providing access to broadband
service in the preceding calendar year as well as identify the total
amount of support that they used for capital expenditures in the
previous calendar year. Moreover, support recipients will need to
certify that they have available funds for all project costs that will
exceed the amount of support they will receive in the next calendar
year. Finally, Rural Digital Opportunity Fund support recipients will
be subject to the same annual section 54.314 certifications, the same
record retention and audit requirements, and the same support
reductions for untimely filings as all other high-cost ETCs.
56. In the event a support recipient does not meet a service
milestone, the Commission adopts the same non-compliance measures that
are applicable to all high-cost ETCs, the same framework for support
reductions applicable to high-cost ETCs that are required to meet
defined service milestones, and the same process the Commission adopted
for drawing on letters of credit for the CAF Phase II auction. The
Commission also adopts additional non-compliance measures for a support
recipient that fails to meet its third-year service milestone by more
than 50%. Specifically, the Commission relies on the following non-
compliance tiers (which are described in more detail in section 54.320
of the Commission's rules):
Non-Compliance Framework
------------------------------------------------------------------------
------------------------------------------------------------------------
Tier 1: 5% to less than 15% of the Quarterly reporting.
required number of locations.
Tier 2: 15% to less than 25% of the Quarterly reporting + withhold
required number of locations. 15% of monthly support.
Tier 3: 25% to less than 50% of the Quarterly reporting + withhold
required number of locations. 25% of monthly support.
[[Page 13782]]
Tier 4: 50% or more of the required Quarterly reporting + withhold
number of locations. 50% of monthly support for six
months; after six months
withhold 100% of monthly
support and recover percentage
of support equal to compliance
gap plus 10% of support
disbursed to date.
------------------------------------------------------------------------
57. A support recipient will have the opportunity to move tiers as
it comes into compliance and will receive any withheld support as it
increases build-out and moves from one of the higher tiers (i.e., Tiers
2-4) to Tier 1 status during the build-out period. If a support
recipient misses the six year or eight year service milestone as
applicable, it will have 12 months from the date of the service
milestone deadline to come into full compliance.
58. Given that the Commission is modifying the service deployment
milestones to account for the Bureau's updated location counts, the
Commission makes commensurate modifications to the consequences if an
ETC does not come into full compliance after the grace period for its
sixth-year service milestone or, for an ETC with a new location count
that is greater than its CAM location count, its eighth-year service
milestone. At the sixth-year service milestone, support will be
recovered as follows: (1) If an ETC has deployed to 95% or more of the
CAM location count, or of the adjusted CAM location count if there are
fewer locations, but less than 100%, USAC will recover an amount of
support that is equal to 1.25 times the average amount of support per
location received in the state for that ETC over the support term for
the relevant number of locations; (2) if an ETC has deployed to 90% or
more of the CAM location count, or of the adjusted CAM location count
if there are fewer locations, but less than 95%, USAC will recover an
amount of support that is equal to 1.5 times the average amount of
support per location received in the state for that ETC over the
support term for the relevant number of locations, plus 5% of the
support recipient's total Rural Digital Opportunity Fund support
authorized over the ten-year support term for that state; and (3) if an
ETC has deployed to fewer than 90% of the CAM location count, or of the
adjusted CAM location count if there are fewer locations, USAC will
recover an amount of support that is equal to 1.75 times the average
amount of support per location received in the state for that ETC over
the support term for the relevant number of locations, plus 10% of the
support recipient's total Rural Digital Opportunity Fund support
authorized over the ten-year support term for that state.
59. If the ETC's new location count is greater than its CAM
location count, and recognizing the increased obligations of such ETCs,
support will be recovered as follows if the ETC does not meet the
eighth year service milestone: (1) If an ETC has deployed to 95% or
more of its new location count, but less than 100%, USAC will recover
an amount of support that is equal to the average amount of support per
location received in the state for that ETC over the support term for
the relevant number of locations; (2) if an ETC has deployed to 90% or
more of its new location count, but less than 95%, USAC will recover an
amount of support that is equal to 1.25 times the average amount of
support per location received in the state for that ETC over the
support term for the relevant number of locations; (3) if an ETC has
deployed to 85% or more of its new location count, but less than 90%,
USAC will recover an amount of support that is equal to 1.5 times the
average amount of support per location received in the state for that
ETC over the support term for the relevant number of locations, plus 5%
of the support recipient's total Rural Digital Opportunity Fund support
authorized over the ten-year support term for that state; and (4) if an
ETC has deployed to less than 85% of its new location count, USAC will
recover an amount of support that is equal to 1.75 times the average
amount of support per location received in the state for that ETC over
the support term for the relevant number of locations, plus 10% of the
support recipient's total Rural Digital Opportunity Fund support
authorized over the ten-year support term for that state.
60. The same support reductions will apply if USAC later determines
in the course of a compliance review that a support recipient does not
have sufficient evidence to demonstrate that it was offering service to
all of the locations required by the sixth or eighth service
milestones.
61. As in the CAF Phase II auction, USAC will be authorized to draw
on an ETC's letter of credit to recover all of the support that is
covered by the letter of credit in the event that a support recipient
does not meet the relevant service milestones, does not come into
compliance during the cure period, and does not timely repay the
Commission the support associated with the non-compliance gap. If a
support recipient is in Tier 4 status during the build-out period or
has not deployed to 100% of CAM locations by the end of year six (or
the adjusted location total if there are fewer locations), and USAC has
initiated support recovery as described in this document, the support
recipient will have six months to pay back the support that USAC seeks
to recover. If the support recipient does not repay USAC by the
deadline, the Bureau will issue a letter to that effect and USAC will
draw on the letter of credit to recover all of the support that is
covered by the letter of credit. If a support recipient has closed its
letter of credit and it is later determined that the support recipient
does not have sufficient evidence to demonstrate that it was offering
service to the total number of required locations, that support
recipient will be subject to additional non-compliance measures if it
does not repay the Commission after six months. And like other high-
cost ETCs, support recipients will be subject to other sanctions for
non-compliance with the terms and conditions of high-cost funding,
including but not limited to the Commission's existing enforcement
procedures and penalties, reductions in support amounts, potential
revocation of ETC designations, and suspension or debarment.
62. The Commission sought comment on whether there are additional
measures it could adopt that would help ensure that Rural Digital
Opportunity Fund support recipients will meet their third-year service
milestones, and on what steps it should take if it appears support
recipients will not be able to meet their service milestones. The
National Rural Electric Cooperative Association (NRECA) suggested the
Commission make more detailed inquiries of a support recipient to the
extent it substantially misses the 40% service obligation at the three-
year benchmark and possibly terminate support payments. The Commission
agrees with NRECA that it is unlikely that a recipient that
substantially misses its third-year milestone would be able to come
into compliance in the following year. The Commission therefore directs
[[Page 13783]]
any support recipient that believes it cannot meet its year three
milestone to notify the Bureau and provide information explaining this
expected deficiency. If a support recipient has not made such
notification by March 1 following the third-year service milestone and
has deployed by the end of the third-year milestone to fewer than 20%
of its required locations in that state, the Commission will find the
recipient to be in default, rather than withholding support and
providing an additional six months to come into compliance.
63. The Commission declines to adopt additional performance targets
to provide greater incentives for Rural Digital Opportunity Fund
support recipients to enroll customers in the eligible areas. The
Commission specifically sought comment on a proposal to adopt
subscribership milestones set at 70% of the yearly deployment
benchmarks and reduce support accordingly for failure to meet the
subscription target. Most commenters opposed a subscription requirement
and argued that a 70% subscription requirement was too high and
unrealistic in rural areas. Even some commenters supporting the concept
of a subscription requirement thought 70% was too high and suggested
any subscribership requirement should be as low as 35%. Commenters
argued that a subscribership requirement with reductions in support for
failure to meet those targets would discourage participation in the
auction, and change the focus of the Rural Digital Opportunity Fund
program from a deployment program to an adoption program.
64. The Commission agrees that requiring specific subscription
milestones is likely to discourage many bidders from participating in
the auction because they would risk losing funding when they likely
need it most to complete the buildout of their networks. Commenters
pointed out that support recipients have a statutory obligation to
advertise the availability of their services throughout their service
areas and argue that they have the incentive to attract customers to
increase their revenues. Commenters also argued that subscription rates
of 70% in some rural, low-income areas would be almost impossible to
attain. In addition, support recipients must be prepared to provide
service meeting the relevant public interest obligations within 10
business days to any locations they report in the HUBB for purposes of
meeting the service milestones, which will give support recipients
added incentive to ensure their networks have sufficient capacity to
serve the required number of locations. Given these requirements, the
risk of discouraging participation in the auction, and the
administrative complexity of monitoring subscribership, the Commission
declines to require a certain level of subscription as a condition of
Rural Digital Opportunity Fund support.
65. Consistent with prior Commission auctions and based on its
recent experience with the CAF Phase II auction, the Commission adopts
the two-stage application process that will govern the auction process
for the Rural Digital Opportunity Fund, including pre-auction and post-
auction requirements.
66. The Commission concludes that participants in the Rural Digital
Opportunity Fund Phase I auction process will be required to comply
with the same short-form and long-form application process.
Specifically, in the pre-auction short-form application, a potential
bidder will be required to establish its eligibility to participate in
the auction by providing, among other things, basic ownership
information and certifying to its qualifications to receive support.
Once approved as qualified to bid by the Bureau, the company may
participate in the auction. After the auction, winning bidders must
file more extensive information for the long-form application,
demonstrating to the Commission that they are legally, technically and
financially qualified to receive support. As in CAF Phase II, the
Commission stresses that each potential bidder has the sole
responsibility to perform its due diligence research and analysis
before proceeding to participate in the Rural Digital Opportunity Fund
auction. The Commission directs the Bureau, the Office of Economics and
Analytics, and the Rural Broadband Auctions Task Force, to adopt the
format and deadlines for the submission of documentation for the short-
form and long-form applications.
67. Consistent with the approach in the CAF Phase II auction and
proposed in the Rural Digital Opportunity Fund NPRM, the Commission
adopts its existing universal service competitive bidding rules so that
applicants will be required to provide information that will establish
their identity, including disclosing parties with ownership interests
and any agreements the applicants may have relating to the support to
be sought through the Rural Digital Opportunity Fund auction.
Interested parties will submit a pre-auction short-form application,
providing basic information and certifications regarding their
eligibility to receive support. Commission staff will then review the
short-form applications, determining whether the applicants are
eligible to participate in the auction. Thereafter, Commission staff
will release a public notice indicating which short-form applications
are deemed complete and which are deemed incomplete. Consistent with
CAF Phase II, applicants whose short-form applications are deemed
incomplete will be given a limited opportunity to cure defects and to
resubmit correct applications, excluding major modifications. As in CAF
Phase II, a second public notice will be released designating the
applicants that are qualified to participate in the Rural Digital
Opportunity Fund auction.
68. Ownership. The Commission will require that each auction
applicant provide information in its short-form application to
establish its identity, including information concerning its real
parties in interest and its ownership, and to identify all real parties
in interest to any agreements relating to the participation of the
applicant in the competitive bidding. The Commission will also require
an applicant to provide in its short-form application a brief
description of any such agreements, including any joint bidding
arrangements. Commission staff would use such information to identify
relationships among applicants, including those that might be commonly
controlled or members of a joint bidding arrangement. The Commission
will also require every applicant to certify in its short-form
application that it has not entered into any explicit or implicit
agreements, arrangements, or understandings of any kind related to the
support to be sought through the Rural Digital Opportunity Fund
auction, other than those disclosed in the short-form application.
69. Types of Technologies. The Commission will also require all
applicants to indicate the type of bids that they plan to make and
describe the technology or technologies they will use to provide
service for each bid. This information is imperative to establishing
bidders' eligibility for the bidding weights the Commission adopts.
Consistent with CAF Phase II, the Commission will allow an applicant to
use different technologies within a state as well as hybrid networks to
meet its public interest obligations.
70. Technical and Financial Qualifications Certifications.
Likewise, applicants will be required to certify that they are
financially and technically qualified to meet the public interest
obligations in each area for which they
[[Page 13784]]
seek Rural Digital Opportunity Fund support. Based on the Commission's
experience with CAF Phase II, this approach is an appropriate screening
process to ensure serious participation, without being overly
burdensome to applicants and recipients.
71. Operational History. Applicants will be required to provide
additional assurances to the Commission that the entities that intend
to bid in the auction have experience operating networks. 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 that they specify the number of years they have been operating, or
that 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. As the Commission determined in CAF Phase II, it also
will accept certifications from entities that have provided electric
distribution or transmission services for at least two years (or their
wholly owned subsidiaries).
72. An applicant that can certify 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, will
provide the Commission with sufficient assurance before the auction
that it has the ability to build and maintain a network.
73. The Commission will require each applicant that does not have
two years of operational experience, to submit with its short-form
application its (or its parent company's) financial statements that
have been audited by an independent certified public accountant from
the three prior fiscal years, including the balance sheets, incomes,
and cash flow statements, along with a qualified opinion letter. The
Commission's interest in having a level of insight into the financial
health of a potential Rural Digital Opportunity Fund 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. Likewise, such applicants will also be required to submit a
letter of interest from a bank meeting the Commission's eligibility
requirements stating that the bank would provide a letter of credit to
the applicant if the applicant becomes a winning bidder and is awarded
support of a certain dollar magnitude. 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.
74. The Commission declines to adopt a suggestions from USTelecom
and Windstream to limit the total bid based on the bidder's annual
revenues, while Verizon proposes further pre-auction scrutiny ``on
applicants that are seeking authority to bid for a large number of
locations, relative to the size of their existing customer base, or are
planning to bid for performance tiers in which they currently provide
little or no commercial service.'' The Commission is not persuaded that
either of these proposals are an effective method to guarantee the
financial qualifications of bidders to perform; instead, they would
more likely limit competition by arbitrarily excluding bidders with
more limited revenues or existing customer bases. The Commission is
generally reluctant to adopt additional measures that limit competition
from bidders and any concerns with financial qualifications will be
resolved during the short-form applications.
75. The Commission declines to collect less financial and technical
information from existing USF support recipients on the short-form than
it did in CAF Phase II as suggested by some commenters. It is important
for Commission staff to review the same specific information from each
carrier when evaluating carriers' qualifications to bid. However, CAF
Phase II auction participants that subsequently defaulted on their
entire award will be barred from participating in the Rural Digital
Opportunity Fund. The Commission declines to bar participants that
defaulted in other universal service programs as well as decline to
subject participants to additional scrutiny that subsequently defaulted
in CAF Phase II, as suggested by other commenters, or that have filed
for bankruptcy or that have been bankrupt in the recent past. The
Commission is capable of evaluating the circumstances of a prior
default and the outcome of any subsequent enforcement action without
collecting additional information in the short-form application. All
applicants will be subject to a thorough financial and technical review
in both the short-form application stage and the long-form application
stage prior to bidding and ultimately receiving support.
76. Conversely, some commenters stated that the Commission should
increase the short-form requirements. For instance, NTCA asserted that
the Commission should require that a prospective bidder demonstrate
``more thorough qualifications at the short-form stage'' focusing on
technical and operational qualifications. NRECA proposes shifting to
the short-form review more of the detailed technical and financial
showings conducted at the long-form review. USTelecom states that the
Commission should require an applicant to provide information about
subscribership trends and employee expertise to show that it has the
expertise and experience ``to scale its network.'' Subscribership and
employee expertise do not necessarily suggest that the entity is
unqualified to bid in the Rural Digital Opportunity Fund auction. The
Commission's interest in maximizing participation in the Rural Digital
Opportunity Fund auction outweighs the potential risk of qualifying a
less experienced entity to participate in the auction without reviewing
that bidder's subscribership and employee counts, particularly given
that it adopts the requirement that bidders will be required to submit
their audited financial statements. This will allow the Commission to
scrutinize the bidder's audited financial statements at the long-form
application stage before authorizing that entity to begin receiving
support. The Commission believes that requiring more technical and
operational information before the auction begins will provide
significant barriers to entry for some participants and unnecessarily
extend the short-form review period and delay the auction. Moreover,
additional technical information at the short-form stage would be
speculative based on a presumption of what a winning area would look
like.
77. Similarly, the Commission declines NTCA's proposal to require
applicants to submit propagation maps to show where they intend to bid,
as it would be burdensome on applicants ``particularly given the maps
may not be relevant if an applicant does not become qualified or does
become qualified but does not win support in that area.'' The
Commission concludes on balance that its short-form process provides
significant assurances for serious participation and its long-form
post-auction process, as discussed in the following, will provide an
in-depth extensive review of the winning bidders' qualifications.
78. Audited Financials. The Commission will require each applicant
that has certified that it has at least two years of operational
experience to submit financial statements that have been audited by an
independent certified public accountant from the
[[Page 13785]]
prior fiscal year, including balance sheets, net income and cash flow,
along with a qualified opinion letter with its short-form application.
If such an applicant (or its parent company) is not audited in the
ordinary course of business, the Commission will require the applicant
to submit unaudited financial statements from the prior fiscal year
with its short-form application and to certify that it will submit
audited financials during the long-form application process. The
Commission will require 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 the public notice announcing winning bidders). If the audit process
is expected to exceed 180 days, a winning bidder will have the option
of seeking a waiver of this deadline. In considering such waiver
requests, the Commission directs the Bureau to determine whether the
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. Applicants that certify that they have at least two
years of operational experience and fail to submit audited financial
statements as required, will be subject to the same base forfeiture of
$50,000 that the Commission adopted for the CAF Phase II auction. The
Commission notes that most CAF Phase II auction support recipients were
able to obtain audited financial statements by the required deadlines.
As with the CAF Phase II auction, the Commission does not extend to
applicants that lack two years of operational history the option of
submitting audited financial statements during the long-form
application stage. They must submit audited financial statements from
the three prior fiscal years with their short-form application, as
described in this document.
79. Eligible Telecommunications Carrier Designation. The Commission
adopts the same CAF Phase II flexibility with respect to ETC
designations and do not require an applicant to obtain its designation
as an ETC in the areas where it seeks support prior to bidding in the
Rural Digital Opportunity Fund auction. The Commission does, however,
require an applicant to disclose in its short-form application its
status as an ETC in any area for which it will seek support or if it
will become an ETC in any area where it wins support. The Commission is
not persuaded that it should require an applicant to secure its ETC
designation prior to the auction. As the Commission determined in CAF
Phase II, permitting entities to obtain ETC designation after the
announcement of winning bidders for support, encourages broader
participation in the competitive process by a wider range of entities.
Additionally, the Commission's experience with CAF Phase II indicates
that most applicants were ultimately designated within the long form
review period, even if it took them longer than the ETC designation
proof deadline. The Commission will continue to presume that an entity
acted in good faith if it files its ETC application within 30 days of
the release of the public notice announcing that it is a winning
bidder, but as with both the rural broadband experiments and the CAF
Phase II auction, the Commission discovered there were various
circumstances impacting the ability of individual bidders to file their
ETC applications and that when an application was filed did not always
determine whether an applicant was designated within the 150 remaining
days.
80. Spectrum Access. Additionally, with respect to eligibility
requirements relating to spectrum access, applicants will be required
to disclose and certify the source of the spectrum they plan to use to
meet Rural Digital Opportunity Fund obligations in the particular
area(s) for which they plan to bid. Specifically, applicants will be
required to disclose whether they currently hold a license or lease the
spectrum, including any necessary renewal expectancy, and whether such
spectrum access is contingent on obtaining support in the auction.
Consistent with CAF Phase II, the Commission will require applicants
intending to use spectrum to indicate the spectrum band(s) they will
use for the last mile, backhaul, and any other parts of the network;
and the total amount of uplink and downlink bandwidth (in megahertz)
that they have access to in each spectrum band for last mile.
Applicants must also describe the authorizations they have obtained to
operate in the spectrum and list the call signs and/or application file
numbers associated with their spectrum authorizations, if applicable.
Applicants must have secured any Commission approvals necessary for the
required spectrum access prior to submitting an auction application, if
applicable. Moreover, applicants will be required to certify that they
will retain their access to the spectrum for at least ten years from
the date support is authorized. NTCA argues that applicants who do not
have access to spectrum should be required to show how they would
acquire it. The Commission agrees and, consistent with its treatment of
this situation in CAF Phase II, it will find a recipient in default if
it is unable to meet its obligations, including if the authorization is
not renewed during the support term.''
81. Also, any applicant that intends to provide service using
satellite technology will be required to identify in its short-form
application its expected timing for applying for any earth station
licenses it intends to use in the areas where it intends to bid, if it
has not already obtained these licenses. The Commission does not
require satellite providers to obtain all necessary earth station
licenses by the short-form application deadline. An earth station
license requires that a satellite provider bring the station into
operation within one year of obtaining a license and a satellite
provider may not be ready to meet this requirement by the short-form
filing deadline. Moreover, because an applicant can apply to obtain a
microwave license at any time, the Commission will permit an applicant
that intends to obtain microwave license(s) for backhaul to meet its
public interest obligations for the Rural Digital Opportunity Fund by
describing in its short-form application its expected timing for
applying for such license(s), if it has not already obtained them.
82. Due Diligence Certification. Consistent with the procedures
adopted for the CAF Phase II auction, the Commission adopts the
requirement that an applicant certify that it has performed due
diligence concerning its potential participation in the Rural Digital
Opportunity Fund auction so the applicant understands its obligations.
Specifically, the Commission adopts the requirement that each applicant
make the following certification in its short-form application under
penalty of perjury:
The applicant acknowledges that it has sole responsibility for
investigating and evaluating all technical and marketplace factors
that may have a bearing on the level of Rural Digital Opportunity
Fund support it submits as a bid, and that if the applicant wins
support, it will be able to build and operate facilities in
accordance with the Rural Digital Opportunity Fund obligations and
the Commission's rules generally.
83. This proposed certification will help ensure that each
applicant acknowledges and accepts responsibility for its bids and any
forfeitures imposed in the event of default, and that the applicant
will not attempt to place responsibility for the
[[Page 13786]]
consequences of its bidding activity on either the Commission or third
parties.
84. Winning bidders for the Rural Digital Opportunity Fund support
will be required to comply with the same long-form application process
the Commission adopted for CAF Phase II. The rules the Commission
adopts in the following provide the basic framework and requirements
for winning bidders to demonstrate their qualifications for support.
After the close of the auction, the Bureau will release a public notice
declaring the auction closed, identifying the winning bidders, and
establishing details and deadlines for next steps. Winning bidders will
then be required to submit extensive information detailing their
respective qualifications in their long-form applications, allowing for
a further in-depth review of their qualifications prior to
authorization of support. Any additional information that is required
to establish whether an applicant is eligible for Rural Digital
Opportunity Fund support will be announced by public notice. The
Commission notes that very few commenters addressed the Commission's
proposed post-auction long-form application processes and none of those
commenters raised significant concerns. The Commission therefore
concludes the rules it adopts in this document will best serve the
Commission's ability to determine whether the applicants are ultimately
eligible for Rural Digital Opportunity Support authorization funding,
providing a fair and efficient review process.
85. Ownership Disclosure. The Commission adopts the ownership
disclosure requirements proposed in the Rural Digital Opportunity Fund
NPRM. Specifically, an applicant for Rural Digital Opportunity Fund
support must fully disclose its ownership structure as well as
information regarding the real party- or parties-in-interest of the
applicant or application. Ownership disclosure reports from the short-
form process must be updated if any information reported in the short-
form has changed.
86. Financial and Technical Capability Certification. Consistent
with CAF Phase II, the Commission will require a long-form applicant to
certify that it is financially and technically capable of providing the
required coverage and performance levels within the specified timeframe
in the geographic areas in which it won support.
87. Public Interest Obligations Certifications. The Commission next
adopts proposed rule 54.804(b)(2)(iii), concluding that a long-form
applicant must certify in its long-form application that it will meet
the relevant public interest obligations for each performance tier and
latency combination for which it was deemed a winning bidder, including
the requirement that it will offer service at rates that are equal to
or lower than the Commission's reasonable comparability benchmarks for
fixed services offered in urban areas.
88. Description of Technology and System Design. Due to the varying
types of technologies that entities may use to fulfill their Rural
Digital Opportunity Fund competitive bidding process obligations, the
Commission finds that it is also reasonable to require each winning
bidder to submit a description of the technology and system design it
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 CAM 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 an engineer that the proposed network will be able to
fulfill the service obligations to which the bidders will have to
commit. Filing deadlines will be strictly enforced, and bidders should
not presume that they may obtain a waiver absent extraordinary
circumstances.
89. Available Funds Certification. Next the Commission adopts
proposed rule 54.804(b)(2)(v), concluding that an applicant must
certify in its long-form application that it will have the funds
available for all project costs that exceed the amount of support to be
received, and that it will comply with all program requirements.
Simultaneously, 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. Additionally, these requirements include the public interest
obligations contained in the Commission's rules.
90. ETC Eligibility and Documentation. Consistent with the CAF
Phase II auction rules, a winning bidder in the Rural Digital
Opportunity Fund auction will be permitted to obtain its ETC
designation after the close of the auction, submitting proof within 180
days of the public notice identifying winning bidders. The Commission
declines to forbear from the ETC requirement. The Commission recognizes
the statutory role that Congress created for state commissions and the
FCC with respect to ETC designations, and the Commission does not
disturb that framework. Nothing in the record addresses the standards
necessary to find forbearance in the public interest, even if some
interested parties may prefer not to become ETCs with all of the
associated obligations. Therefore, the Commission will continue to
require service providers to obtain ETC status to qualify for universal
service support. A winning bidder must demonstrate with appropriate
documentation that it has been designated as an ETC covering each of
the geographic areas for which it seeks to be authorized for support.
For example, in addition to providing the relevant state or Commission
orders, each winning bidder will need to demonstrate that its ETC
designation covers the areas of its winning bid(s) (e.g., census
blocks, wire centers, etc.). Such documentation could include map
overlays of the winning bid areas, or charts listing designated areas.
Furthermore, each winning bidder will be required to submit a letter
with its documentation from an officer of the company certifying that
its ETC designation for each state covers the relevant areas where the
winning bidders will receive support. As the Commission experienced
with CAF Phase II, these requirements will help them verify that each
winning bidder is permitted to operate in the areas where it will be
receiving support.
91. Forbearance from Service Area Redefinition Process. The
Commission adopts its proposal to forbear from the statutory
requirement that the ETC service area of a Rural Digital Opportunity
Fund participant conform to the service area of the rural telephone
company serving the same area. As in the CAF Phase II auction, the
Commission will be maximizing the use of Rural Digital Opportunity Fund
support by making it available for only one provider per geographic
area. Moreover, the Commission expects that the incumbent rural
telephone company's service area will no longer be relevant because the
incumbent service
[[Page 13787]]
provider may be replaced by another Rural Digital Opportunity Fund
recipient in portions of its service area. Thus, forbearance is
appropriate and in the public interest.
92. Accordingly, for those entities that obtain ETC designations as
a result of being selected as winning bidders for the Rural Digital
Opportunity Fund, the Commission forbears from applying section
214(e)(5) of the Act, insofar as this section requires that the service
area of such an ETC conform to the service area of any rural telephone
company serving an area eligible for Rural Digital Opportunity Fund
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 Rural
Digital Opportunity Fund competitive bidding process. However, if an
existing ETC seeks support through the Rural Digital Opportunity Fund
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. Likewise, as in CAF Phase II, some of the price cap
carrier study areas that may become eligible for the Rural Digital
Opportunity Fund competitive bidding process meet the statutory
definition so that the carrier serving those study areas would be
classified as a rural telephone company.
93. Thus, the Commission concludes that forbearance is warranted in
these limited circumstances. The Commission's 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 the Commission's
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. For the same reasons set forth in
the CAF Phase II Auction Order, 81 FR 44414, July 7, 2016, the
Commission concludes each of these statutory criteria is met for
winning bidders of the Rural Digital Opportunity Fund competitive
bidding process.
94. Letters of Credit. The Commission next adopts letter of credit
rules that provide appropriate protection for Rural Digital Opportunity
Fund support, with reduced burdens on participants. In CAF Phase II,
the Commission found that requiring bidders to obtain an irrevocable
standby letter of credit, covering the first year of support of a
recipient's winning bid, was an effective means to safeguard the
universal service funds. Moreover, the letter of credit was subject to
a phase-down schedule, reducing the burdens on the recipients. The
letter of credit requirement did not deter broad participation in the
CAF Phase II auction where the Commission awarded $1.488 billion in
support to 103 winning bidders and, as of December 2019, nearly 90
percent of carriers have been authorized after securing valid letters
of credit. Thus, the Commission is not persuaded to adopt suggestions
from commenters that it removes the letter of credit requirement
entirely, either for all winning bidders or for certain groups of
winning bidders such as Tribally owned and controlled carriers or
established rural carriers.
95. The Commission finds appropriate, however, certain
modifications to the letter of credit requirements proposed in the
Rural Digital Opportunity Fund NPRM. The Commission makes these changes
after hearing from commenters concerned about the fees associated with
maintaining the larger letters of credit required because of the size
of the Rural Digital Opportunity Fund. The Commission concludes that
the modified letter of credit requirements it adopts in the following,
which establishes a mechanism to easily recover disbursed funding in
the event of non-compliance, fulfills its responsibility to protect
program funds while also reducing for applicants the costs of
participating in the Rural Digital Opportunity Fund.
96. First, the Commission's revised approach allows a support
recipient to reduce the amount of its letter of credit as it meets--and
USAC verifies that a support recipient has completed--service
milestones. Specifically, the Commission requires support recipients to
report their deployed locations in the HUBB by March 1 following each
support year. Upon verification of the buildout by USAC, the Commission
will then allow the recipient to reduce its letter of credit to an
amount equal to only one year of total support. And once a support
recipient reduces its letter of credit obligation to one year of total
support, it will be able to maintain its letter of credit at that level
for the remainder of the deployment term, as long as USAC verifies that
the support recipient successfully and timely meets its remaining
service milestones.
97. Second, the Commission creates an optional 20% service
milestone in year two. Doing so allows a support recipient to
demonstrate concrete progress in building its network earlier than
existing milestones (40% in year three), thus allowing it to reduce its
letter of credit earlier than it could otherwise. The Commission
reiterates that this 20% buildout benchmark is optional; if a support
recipient does not meet this milestone, it will not be able to reduce
its letter of credit, but it will not face any reductions in support.
98. Third, the Commission finds that support recipients do not need
to wait for the specific support years to end to meet their deployment
milestones. For example, if a support recipient is able to deploy to
20% of its locations by the end of year one, it may report those
locations and request that USAC complete the verification process for
those locations in order to allow it to reduce its letter of credit to
one year of support. In those instances, the Commission requires that
these support recipients be able to immediately produce the necessary
documentation to minimize the time required for USAC to verify its
milestone.
99. Fourth, the Commission adopts a modified letter of credit
requirement for the time periods before any required service milestones
must be met and verified by USAC. Specifically, at the beginning of the
first year of its support term, a support recipient must obtain a
letter of credit equal to one year of the total support it will
receive. In year two, it will be required to obtain a letter of credit
equal to eighteen months of its total support. In year three, it will
be required to obtain a letter of credit equal to two years of its
total support. And in year four, it will be required to obtain a letter
of credit equal to three years of its total support. This schedule
balances the need to protect federal funds against the costs of a
letter of credit for those that decline to meet the optional 20%
deployment milestone.
100. Fifth, the Commission finds it necessary to maintain larger
letters of credit for support recipients that fail to meet service
milestones. If the support recipient misses a required service
milestone, it will be required to obtain a letter of credit covering an
additional year of total support for the next
[[Page 13788]]
applicable support year, up to a letter of credit covering a total of
three years of support. Likewise, any support recipient failing to meet
two or more service milestones will be required to maintain a letter of
credit in the amount of three years of support and will be subject to
additional non-compliance penalties as outlined in this document. The
Commission finds these increased letter of credit requirements will
both protect federal funds from potential default and serve as an
incentive to timely deployment.
101. Sixth, consistent with CAF Phase II, 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% of the CAM locations by the end
of year six, and USAC has verified that the recipient has fully
deployed its network. The Commission does not expect new additional
locations in years seven and eight to be significant enough that it
would be necessary to secure that additional deployment with a letter
of credit, but recipients will be subject to other sanctions for non-
compliance with the terms and conditions of Rural Digital Opportunity
Fund support, including but not limited to the Commission's existing
enforcement procedures and penalties, reductions in support amounts,
potential revocation of ETC designations, and suspension or debarment.
102. In short, the Commission provides a letter of credit
trajectory that recognizes that once support recipients have
demonstrated significant and verifiable steps toward meeting their
deployment obligations, they should have the opportunity to avoid some
of the more significant credit requirements, consistent with their
proven performance in the Rural Digital Opportunity Fund. For those
support recipients that elect to deploy quickly and meet the 20%
optional milestone early in the support term, and continue to meet all
milestones, their letters of credit may never exceed 18 months' support
at any time during the support term. At the same time, the more gradual
increase in the letter of credit requirements the Commission adopts for
support recipients that do not elect to make use of the optional 20%
milestone will reduce potential financial strain on support recipients,
and still allow those support recipients to maintain a smaller letter
of credit once their first mandatory deployment milestone is met in
year three.
103. The Commission declines to adopt the specific parameters of
the letter of credit proposals advanced and supported by several
parties. After thorough review of these constructive proposals, the
Commission determines that they fail to sufficiently account for the
Commission's interests in ensuring that universal service dollars are
being used efficiently and for their intended purposes, as well as
protecting against the potential for those carriers that may fail to
fulfill their broadband deployment obligations. However, the approach
the Commission adopts here is consistent with the proposals advocated
by parties in that it recognizes that the letter of credit rules, as
originally proposed, would impose a disproportionate financial burden
on support recipients and result in less funding going directly to
broadband deployment. Moreover, given that the Rural Digital
Opportunity Fund will award up to almost 15 times the amount of funding
as the CAF Phase II auction, the Commission acknowledges that a one-
size-fits-all approach to letter of credit requirements may not
properly reflect the realities of a particular auction. Thus, the
Commission's revised approach strives to carefully balance the interest
of potential support recipients in minimizing their financial cost over
the course of the deployment term with the Commission's interest in
ensuring that universal funding is protected as the Rural Digital
Opportunity Fund progresses.
104. Consistent with CAF Phase II, 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 them for the support
associated with its compliance gap. Additionally, as stated in CAF
Phase II, ``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.'' The
Commission also requires each winning bidder to submit a commitment
letter from a bank no later than the number of days provided by public
notice. A long-form applicant must submit a letter from a bank
acceptable to the Commission, committing to issue an irrevocable stand-
by letter of credit, to the long-form applicant. The letter must, 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 provided in Appendix C of the
Order.
105. Once a winning bidder has been authorized, the Commission will
require an irrevocable standby letter of credit from a bank that is
acceptable to them in substantially the same form as the model letter
of credit provided in Appendix C of the Order. The letters of credit
for winning bidders must be obtained from a domestic or foreign bank
meeting the requirements adopted herein. For U.S. banks, the bank must
be insured by the Federal Deposit Insurance Corporation and have a
Weiss bank safety rating of B- or higher committing to issue a letter
of credit. Similarly, 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). Winning
bidders also have the option of obtaining a letter of credit from
CoBank or the National Rural Utilities Cooperative Finance Corporation
so long as they continue to meet the Commission's requirements. When a
winning applicant obtains a letter of credit, it must be at least equal
to the amount of the first year of authorized support. Before the
winning applicant can receive its next year's support, it must modify,
renew, or obtain a new letter of credit. 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 monthly disbursement.
106. However, the Commission will require all winning bidders to
provide a single letter of credit covering all of their winning bids
within a single state. The Commission declines to allow multiple
letters of credit that cover all bids in a state as it did for CAF
Phase II, as this option was not used and is administratively
burdensome on the Commission and USAC. Thus, a default in one census
block could result in a draw on the entire letter of credit.
107. As the Commission has previously recognized, it will again
allow for the option of greater flexibility regarding letter of credit
for Tribally owned and controlled winning bidders. Consistent with CAF
Phase II, if any Tribally owned and controlled Rural Digital
Opportunity Fund winning bidder is unable to obtain a letter of credit,
it may file a petition for a waiver of the letter of credit
requirement. Consistent with the Commission's precedent, waiver
applicants must show, with evidence acceptable to them, that the
Tribally owned and controlled
[[Page 13789]]
winning bidder is unable to obtain a letter of credit.
108. The determinations the Commission reaches in this document
take into consideration the comments submitted on the burdens
associated with the letter of credit requirement. The Commission
concludes, however, that the letter of credit requirement best protects
the Fund. While the Commission understands that there are costs
associated with the letter of credit, it continues to believe bidders
can incorporate these costs when determining their strategies prior to
the auction. The universal service program provides significant
benefits when weighed against the costs of the letter of credits, which
in turn provide significant security of public funding. As the
Commission has previously stated, letters of credit 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.''
109. Commenters renewed requests for other safeguard measures, yet
none of the measures fully guarantee that the Commission will be able
to recover past support disbursements from a defaulting recipient.
Several commenters suggested performance bonds or sureties. For
example, WISPA and WTA assert the Commission should require auction
winners to obtain performance bonds as an alternative to obtaining
letters of credit, costing participants substantially less than a
letter of credit. USTelecom agrees, commenting that the Commission
should reconsider its proposals requiring Rural Digital Opportunity
Fund winners to obtain a letter of credit as it is a substantial
barrier to participation. Letters of credit, unlike performance bonds,
allow for an immediate reclamation of support in the event the
recipient is not properly using those funds. Performance bonds, on the
other hand, would not provide the same level of protection and would
require the involvement of a third party to adjudicate any disputes
that arise, which would complicate the Commission processes and
unnecessarily limit the authority of the Commission to allocate funds.
A letter of credit, unlike a performance bond, has the benefit of the
``independence principle'' in that the letter of credit is independent
of the underlying transaction. The bank's obligation to pay under the
letter of credit does not depend on the auction winner's default but on
the presentation of documents evidencing the default. Being independent
in this way assures that USAC can collect monies due to it promptly
without engaging in disputes with the winning bidder, the performance
bond guarantor or the winning bidder's trustee in bankruptcy over
whether the funds should be paid or even whether the funds are
available to the Fund due to competing claims of creditors.
110. Similarly, Frontier and Windstream recommend placing money in
escrow prior to bidding because they claim letters of credit are too
expensive. The record also includes several comments opposing letter of
credits or suggesting other means of protecting the Commission's
interests. However, the Commission is not persuaded that escrow
agreements, or other alternatives, would provide protection equal to
the letters of credit that it now requires. Escrow agreements would put
an amount of money with a third party who releases it when a
contingency is satisfied. The auction winner would be a party to the
escrow agreement, with the possibility that the support becomes the
property of an auction winner's bankruptcy. Additionally, the auction
winner would be required to place the same amount of funds in escrow as
were disbursed by USAC, which could cause ``administrative burdens'' on
the Commission and ``could potentially delay the auction.'' The
Commission itself would need to create an escrow account, attain the
money of all recipients, and manage and ensure proper payment to all
recipients, an unnecessary and inefficient duplication of a system
banks already have in place with letters of credit, with none of the
advantages. Instead, the Commission can rely on the expertise of banks'
experience in managing letters of credit, guaranteeing payment, and
ensuring security for the Commission and ultimately the Fund.
Therefore, the Commission declines to implement escrow accounts and
maintain the letter of credit requirement.
111. Finally, consistent with CAF Phase II, the Commission will
require each winning bidder to submit a bankruptcy opinion letter from
outside 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 competitive bidding process recipient-related
entity requesting issuance of the letter of credit under section 541 of
the Bankruptcy Code. The West Virginia Council argues that the
bankruptcy opinion letter requirement is unduly burdensome and should
be eliminated ``to accommodate non-traditional service providers like
co-ops, non-profits, and government entities . . . .'' However, it is
important to receive confirmation from each winning bidder that its
letter of credit would not be consolidated in the estate. Therefore,
the Commission declines to eliminate this requirement and concludes
that the limited burden imposed on winning bidders to obtain this
letter is outweighed by its policy goal to be fiscally responsible with
finite universal service funds.
112. The Commission next adopts rules that establish the framework
under which a Rural Digital Opportunity Fund winning bidder will be
subject to a forfeiture under section 503 of the Act if it defaults on
its winning bid(s) before it is authorized to begin receiving support.
A recipient will be considered in default and will be subject to
forfeiture if it fails to timely file a long-form application, fails to
meet the document submission deadlines outlined in this document, is
found ineligible or unqualified to receive support, or otherwise
defaults on its bid or is disqualified for any reason prior to the
authorization of support. Consistent with CAF Phase II, a winning
bidder will be subject to the base forfeiture for each separate
violation of the Commission's rules.
113. For Rural Digital Opportunity Fund competitive bidding
purposes, the Commission defines a violation as any form of default
with respect to each geographic unit subject to a bid. The Commission
maintains that each violation should not be unduly punitive and expect
the forfeiture to be proportionate to the overall scope of the winning
bidder's bid. The Commission concludes that it is reasonable to subject
all bidders to the same $3,000 base forfeiture per violation subject to
adjustment based on the criteria set forth in its forfeiture
guidelines. To determine the final forfeiture amount, the Commission's
Enforcement Bureau will consider the ``nature, circumstances, extent
and gravity of the violations.''
[[Page 13790]]
114. No commenter specifically opposed the Commission's original
proposal to establish the forfeiture owed for an auction default.
However, Windstream characterized the CAF Phase II forfeiture as
``modest'' and ``apparently insufficient to prevent [defaulters] from
bidding.'' Windstream further noted that ``the forfeiture penalties
proposed against [defaulters], which range from $1,242 to $30,000 did
not deter these entities from bidding.'' USTelecom suggested that the
Commission raise the base forfeitures, as the CAF Phase II base amounts
were ``not substantial enough to dissuade'' uncommitted applicants from
participating.
115. The Commission agrees with commenters. Thus, 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 15% of the bidder's total bid amount for the support
term, which is an increase from the CAF Phase II auction limit of 5%.
The Commission expects this will further ensure serious participation,
without being overly burdensome and punitive to defaulters. As a
condition of participating in the Rural Digital Opportunity Fund
auction, entities will acknowledge that they are subject to a
forfeiture in the event of an auction default. Thus, the Commission
maintains that by adopting rules governing forfeitures for defaults,
``the Commission will impress upon recipients the importance of being
prepared to meet all its 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 . . . competitive bidding process and meet its terms and
conditions.''
III. Rural Digital Opportunity Fund Transitions
116. In this section, the Commission addresses several issues
relating to the implementation of the Rural Digital Opportunity Fund in
areas currently served by price cap carriers receiving either legacy
high-cost or CAF Phase II model-based support. To ensure continuity of
service for consumers, the Commission adopts specific support
transition paths for census blocks served by these price cap carriers.
The Commission also considers additional issues related to the
transition from CAF Phase II model-based support to Rural Digital
Opportunity Fund support, including the continuing responsibilities of
incumbent price cap carriers no longer receiving support to serve
specific areas.
117. In the Rural Digital Opportunity Fund NPRM, the Commission
sought comment on adopting a transition period methodology for
incumbent price cap carriers receiving disaggregated legacy support
similar to the approach employed following the CAF Phase II auction.
Specifically, the Commission proposed that, in areas where an incumbent
price cap carrier receives disaggregated legacy support and
subsequently it or another provider becomes the authorized Rural
Digital Opportunity Fund support recipient, the incumbent will cease
receiving disaggregated legacy support on the first day of the month
after it is authorized to receive Rural Digital Opportunity Fund
support. In legacy high-cost support areas where no Rural Digital
Opportunity Fund support is authorized, the Commission proposed
allowing the incumbent to continue receiving disaggregated support
until further Commission action. Finally, the Commission proposed
ceasing disaggregated legacy support payments to incumbent carriers in
any census block deemed ineligible for the Rural Digital Opportunity
Fund on the first day of the month after the final Rural Digital
Opportunity Fund eligible areas list is released.
118. Likewise, the Commission sought comment on transitioning
support in areas served by CAF Phase II model-based support recipients.
In particular, the Commission asked whether these carriers should
receive an additional seventh year of model-based support, given the
potential timing of a Rural Digital Opportunity Fund auction, and, if
so, whether that additional support should be made available to all
carriers receiving model-based support or only a certain subset of
those carriers. The Commission also sought comment on whether the
seventh year of support should be modified in any way, including
whether it should cover all of 2021 or just a portion of the year, as
well as whether any additional obligations should be tied to this
support. Finally, the Commission asked parties to highlight any
additional issues related to the transition of support.
119. Commenters broadly supported ensuring appropriate transitions
to Rural Digital Opportunity Fund auction support and encouraged the
Commission to affirm that all CAF Phase II model-based support
recipients are entitled to a full seventh year of funding. In areas won
by bidders in the Rural Digital Opportunity Fund auction, CenturyLink
proposed that the Commission authorize all auction winners on January
1, 2022, with legacy transition support and CAF Phase II model-based
support continuing through that time. Frontier argued that, in areas
where the Rural Digital Opportunity Fund auction winner is not the
incumbent price cap carrier, the Commission must provide continued
support to existing CAF Phase II providers to ensure continued voice
and broadband services, proposing a six-year phase out of this support
at periods equal to the inverse of the new provider's deployment
milestones. ITTA also argued for continued support for the incumbent
price cap carriers in these areas, but instead proposed that the
incumbent receive support at the level of the winning bidder in the
respective service area until the winning bidder is able to serve all
the locations currently served by the incumbent. In areas where there
is no Rural Digital Opportunity Fund auction winner, Frontier and ITTA
encouraged the Commission to provide existing price cap carriers with
sufficient support to continue providing broadband and voice service.
USTelecom, Windstream, and ITTA further advocated for continued support
to incumbent price cap carriers in areas where auction winners are not
authorized by the end of 2021. Additionally, CenturyLink and NTCA
proposed extending ongoing support in areas deemed ineligible for the
Rural Digital Opportunity Fund. Other commenters highlighted the need
for transitional support and encouraged the Commission to tie specific
metrics or obligations to this support.
120. For incumbent price cap carriers currently receiving support
through the disaggregated legacy high-cost support mechanism, the
Commission determines that adopting a transition to Rural Digital
Opportunity Fund auction support that builds on the approach employed
following the CAF Phase II auction will provide necessary clarity as it
implements a new support mechanism. As the Commission noted when it
adopted the transitions to CAF Phase II auction support, such an
approach will ``protect customers of current support recipients from a
potential loss of service, and minimize the disruption to recipients of
frozen legacy support from a loss of funding'' while at the same time
ensuring that finite universal service funds are used responsibly.
121. First, in areas currently funded by disaggregated legacy
support that are subsequently won in the Rural Digital Opportunity Fund
auction by the incumbent price cap carrier, the incumbent will cease
receiving
[[Page 13791]]
disaggregated legacy support on the first day of the month following
its authorization to receive Rural Digital Opportunity Fund support.
Likewise, in legacy high-cost support areas won in the Rural Digital
Opportunity Fund auction by new providers, the incumbent will cease
receiving disaggregated legacy support the first day of the month after
the new ETC is authorized to receive such support. In these instances,
the Commission believes it is appropriate to transition to the new
support mechanism as soon as possible to ensure that finite support
dollars are used most efficiently.
122. The Commission recognizes that there may be eligible areas in
the Rural Digital Opportunity Fund auction that see significant
interest, but do not receive a winning bid. For these areas, the
Commission revisits its prior approach of extending disaggregated
legacy support on an interim basis until further Commission action. As
the Commission previously noted, continued legacy support in auction-
eligible, high-cost areas was provided on an interim basis pending
further Commission action. Thus, carriers receiving legacy support have
been on notice that this support would not be provided in perpetuity.
The Commission now concludes that price cap carriers receiving legacy
support in areas that do not receive a winning bid will cease receiving
such support on the first day of the month following the close of Phase
I of the auction. These support amounts will instead be included as
part of the budget for Phase II of the auction. The Commission also
declines to extend additional support to these carriers to maintain
fixed voice services in these areas. As the Commission's most recent
data indicate, mobile voice subscriptions constitute almost 75% of the
overall consumer voice subscriptions in the United States. Given the
increasing ubiquity of fixed and mobile voice services, dedicating
continued support for fixed voice services would be an inefficient use
of the Commission's finite universal service dollars. Instead, the
Commission concludes that directing support toward deploying more
robust broadband services, rather than continuing to maintain current
minimum service levels, is the best use of this funding. The Commission
notes, however, that these areas will be included in Phase II of the
Rural Digital Opportunity Fund auction and thus price cap carriers
currently serving these areas will have the opportunity to bid on and
again receive support to provide voice and broadband services in these
areas.
123. In all census blocks deemed ineligible for the Rural Digital
Opportunity Fund auction, incumbent price cap carriers will no longer
receive legacy support beginning the first day of the month following
release of the final Rural Digital Opportunity Fund eligible areas list
for Phase I of the auction. Because these areas will be excluded from
Phase I of this auction, the Commission has determined that continued
legacy support for these areas is no longer necessary. Thus, the
Commission will cease distributing legacy support as soon as possible
in order to preserve its finite universal service funds, instead
focusing support to areas in the greatest need of broadband deployment.
Transition of Price Cap Carriers' Legacy Support
------------------------------------------------------------------------
------------------------------------------------------------------------
Won at auction by the Receives legacy support until the first
incumbent price cap carrier. day of the month following its
authorization, then transitions to Rural
Digital Opportunity Fund support.
Won at auction by a new Receives legacy support until the first
provider. day of the month following the new
provider's authorization; new provider
then receives Rural Digital Opportunity
Fund support.
Not won at auction........... Receives legacy support until the first
day of the month following close of the
auction.
Not eligible for auction..... Receives legacy support until the first
day of the month following release of
the final eligible areas list.
------------------------------------------------------------------------
124. Next, the Commission addresses support transitions in areas
where incumbent price cap carriers currently receive CAF Phase II
model-based support. As with the Commission's approach for legacy
support transitions, it has attempted to strike a balance between
properly allocating its finite resources and ensuring that consumers
across the country have access to uninterrupted services. The
Commission notes at the outset that it, in establishing the six-year
term of support for model-based support recipients that would extend
through 2020, intended to conduct a competitive bidding process in
areas served by these carriers ``no later than the end of 2019 to
ensure there is continuity and a transition path'' to the next support
mechanism. Though the Commission did not meet this initial goal, it
intends to conduct Phase I of the Rural Digital Opportunity Fund before
the end of 2020. However, the Commission has learned from its
experience with the CAF Phase II competitive bidding process that
additional work will remain post-auction before winning bidders will be
authorized to receive Rural Digital Opportunity Fund support and
provide the required voice and broadband service. Because this work
likely will stretch into 2021, the Commission revisits the previously
established term of support for incumbent price cap carriers.
125. In the December 2014 CAF Phase II Order, 80 FR 4446, January
27, 2015, the Commission recognized the importance of providing a
transition path between recipients of CAF Phase II model-based support
and recipients of funding under a new support mechanism. Specifically,
the Commission determined that it would offer incumbent price cap
carriers the option of electing an additional year of support--through
calendar year 2021--if they did not win at, or chose not to participate
in, the subsequent competitive bidding process. Because of the timing
considerations regarding Phase I of Rural Digital Opportunity Fund
explained in this document, the Commission now determines that an
additional seventh year for carriers receiving model-based support is
necessary to ensure continuity in service for consumers and to provide
a reasonable support glide path as it transitions from one support
mechanism to another. This additional seventh year will not be limited
to carriers that do not win in Phase I of the Rural Digital Opportunity
Fund auction or carriers that do not participate in the auction;
instead it will be available to all price cap carriers that elected the
offer of model-based support in exchange for meeting defined service
obligations. The Commission directs the Bureau to determine and
implement a mechanism that will enable these price cap carriers to
elect whether to receive an additional seventh year of support.
126. The Commission clarifies that in census blocks where a price
cap carrier elects not to receive a seventh year of model-based
support, it is indicating that ongoing model-based support is not
necessary to maintain voice and broadband services in these areas.
Thus,
[[Page 13792]]
the carrier will receive no further support after the conclusion of its
six-year term (i.e., December 31, 2020), even if these areas are
eligible for the Rural Digital Opportunity Fund auction. Following
Phase I of the auction, the provider authorized to receive funding in
these areas--whether the incumbent price cap carrier or a new
provider--will begin receiving Rural Digital Opportunity Fund support
the first day of the month after it is authorized. For areas where no
qualifying bid is received in Phase I of the Rural Digital Opportunity
Fund auction, as well as for areas deemed ineligible for Phase I of the
Rural Digital Opportunity Fund auction, the incumbent price cap
carrier's model-based support will cease on December 31, 2020 and no
further support will be provided in these areas.
Transition for Price Cap Carriers in Areas Where a Carrier Declines a
Seventh Year of Model-Based Support
------------------------------------------------------------------------
------------------------------------------------------------------------
Won at auction by the Receives model-based support through
incumbent price cap carrier. 2020; begins receiving Rural Digital
Opportunity Fund support the first day
of the month after it is authorized.
Won at auction by a new Receives model-based support through
provider. 2020; new provider begins receiving
Rural Digital Opportunity Fund support
the first day of the month after it is
authorized.
Not won at auction........... Receives model-based support through
2020.
Not eligible for auction..... Receives model-based support through
2020.
------------------------------------------------------------------------
127. In census blocks where a price cap carrier elects to receive a
seventh year of model-based support, the Commission clarifies that the
carrier will receive a full seventh calendar year of support--from
January 2021 through December 2021--regardless of whether Rural Digital
Opportunity Fund support is authorized in these areas in 2021. Thus, in
areas where a price cap carrier currently receives model-based support
that are subsequently won in the Rural Digital Opportunity Fund auction
by a new provider, the incumbent price cap carrier will continue to
receive model-based support through 2021, even if the new provider is
authorized to receive Rural Digital Opportunity Fund support in 2021.
The Commission concludes providing support to both the incumbent price
cap carrier and the new Rural Digital Opportunity Fund provider in
these areas for the limited duration of 2021 will help facilitate an
appropriate transition to a new ETC. The Commission notes that price
cap carriers receiving the seventh year of model-based support will
``be required to continue providing broadband with performance
characteristics that remain reasonably comparable to the performance
characteristics of terrestrial fixed broadband service in urban
America, in exchange for ongoing CAF Phase II support.''
128. Similarly, in census blocks where a price cap carrier elects
to receive a seventh year of model-based support and ultimately becomes
the authorized Rural Digital Opportunity Fund support recipient, the
price cap carrier will continue to receive support at its model-based
levels through 2021, with Rural Digital Opportunity Fund support levels
commencing in January 2022. The Commission declines to adopt
USTelecom's proposal that incumbent price cap carriers be allowed to
choose the greater of their model-based support or RDOF support amount
to receive during the remainder of 2021. The Commission observes that
the reserve price for the RDOF auction is based on the support amounts
calculated by the model and likely will be bid down by participants in
the auction. Thus, in most, if not all, cases a price cap carrier's
model-based support amount will be greater than its Rural Digital
Opportunity Fund support amount. Relatedly, in some instances, the
incumbent price cap carrier may wish to expand its service area from
its current CAF Phase II model-based supported areas and may bid on and
be authorized to receive support in census blocks eligible for the
Rural Digital Opportunity Fund that are adjacent to areas in which the
carrier receives model-based support. Because the Commission expects
the amount of model-based support that a carrier is receiving in a
certain area to be higher than the amount of Rural Digital Opportunity
Fund support it will receive, it expects these carriers to use the
additional model-based support they receive in 2021 to begin the
process of planning their buildouts for any adjacent, non-model-based
support census blocks they may win.
129. In auction-eligible census blocks where a price cap carrier
elects to receive a seventh year of model-based support and no
qualifying bid is received in Phase I of the Rural Digital Opportunity
Fund auction, the incumbent price cap carrier will continue to receive
model-based support until the end of 2021. At that point, no further
support will be provided to carriers serving these areas. As the
Commission previously noted, the state-level commitment procedure for
incumbent price cap carriers was intended to be limited in scope and
duration. Though the Commission is providing carriers with a potential
seventh year of support, this option is limited in duration and, as
previously contemplated by the Commission, is a ``a gradual transition
to the elimination of support.'' The Commission therefore concludes
that extending support in these areas beyond the seven-year term simply
to maintain substandard broadband levels would be an inefficient use of
its limited universal service funds. Moreover, providing additional
support simply to maintain fixed voice services in these areas is an
inefficient use of funding given the ubiquity of mobile voice services.
Instead, the Commission determines that these funds should be aimed at
deploying high-speed broadband networks in rural communities across the
country.
130. Likewise, census blocks where a price cap carrier elects to
receive a seventh year of model-based support that are deemed
ineligible for the Rural Digital Opportunity Fund auction will cease
receiving model-based support at the end of 2021. Because the
Commission, by excluding these blocks from Phase I of this auction, has
determined that ongoing model-based support for these areas is no
longer necessary, no further support will be provided to carriers
serving these blocks after 2021. This approach is consistent with the
Commission's decision to stop providing legacy support in areas deemed
ineligible for both the CAF Phase II auction and the Rural Digital
Opportunity Fund auction and allows funding to flow to areas in the
greatest need of broadband deployment.
[[Page 13793]]
Transition for Price Cap Carriers in Areas Where a Carrier Elects to
Receive a Seventh Year of Model-Based Support
------------------------------------------------------------------------
------------------------------------------------------------------------
Won at auction by the Receives model-based support through
incumbent price cap carrier. 2021; transitions to Rural Digital
Opportunity Fund support on January 1,
2022.
Won at auction by a new Receives model-based support through
provider. 2021; new provider receives RDOF support
the first day of the month following
authorization.
Not won at auction........... Receives model-based support through
2021.
Not eligible for auction..... Receives model-based support through
2021.
------------------------------------------------------------------------
131. Several commenters sought clarification from the Commission on
the responsibilities of an incumbent price cap carrier once a new
provider is authorized to receive Rural Digital Opportunity Fund
support in an area previously served by the incumbent. Frontier
contended that price cap carriers must be released from incumbent
obligations, including the obligation to provide voice services, in
areas where they cease to receive Rural Digital Opportunity Fund
support. USTelecom proposed requiring Rural Digital Opportunity Fund
auction winners to offer voice services beginning in the first month
after they receive Rural Digital Opportunity Fund support. Likewise,
Windstream and INCOMPAS stated that new providers should be able to
provide voice service on day one of their support term. Commenters also
encouraged the Commission to address additional issues regarding the
responsibilities of price cap carriers no longer receiving support to
serve specific areas. Conversely, some opposed commenters' requests to
eliminate ETC obligations and preempt state and discontinuance
requirements.
132. The Commission previously addressed the issue of ETC
obligations as funding transitions to new mechanisms. In the December
2014 CAF Phase II Order, the Commission concluded that it was in the
public interest to forbear, pursuant to section 10 of the
Communications Act of 1934, as amended, from enforcing a federal high-
cost requirement that price cap carriers offer voice telephony service
throughout their service areas pursuant to section 214(e)(1)(A) in
three types of geographic areas: (1) Low-cost census blocks, (2) census
blocks served by an unsubsidized competitor, as defined in the
Commission's rules, offering voice and broadband at speeds of 10/1 Mbps
to all eligible locations, and (3) census blocks where another ETC is
receiving federal high-cost support to deploy modern networks capable
of providing voice and broadband to fixed locations. At that time, the
Commission also noted that price cap carriers would remain obligated to
maintain existing voice service ``unless and until they receive
authority under section 214(a) to discontinue that service.''
133. The same limited circumstances that required the Commission to
grant forbearance to price cap carriers from the federal high-cost
requirement to offer voice services in certain areas also exist here.
As a result, in areas where a new provider is granted ETC status and is
authorized to receive Rural Digital Opportunity Fund support, the
incumbent price cap carrier will be relieved of its federal high-cost
ETC obligation to offer voice telephony services in that area. As the
Commission explained when it initially granted such forbearance,
because there is another ETC in these areas required to offer voice and
broadband services to fixed locations that meet the Commission's public
service obligations, it concludes that enforcement of the requirement
that price cap carriers offer voice telephony in these areas ``is not
necessary to ensure that the charges, practices, or classifications of
price cap carriers are just and reasonable and not unjustly or
unreasonably discriminatory in specific geographic areas.'' The
Commission also clarifies that this forbearance applies to census
blocks deemed ineligible for the Rural Digital Opportunity Fund by
virtue of being served by an unsubsidized competitor.
134. The Commission's decision to extend this limited forbearance
to the Rural Digital Opportunity Fund context does not redefine price
cap carriers' service areas or revoke price cap carriers' ETC
designations in these areas. Thus, the Commission's action does not
relieve ETCs of their other ``incumbent-specific obligations'' like
interconnection and negotiating unbundled network elements pursuant to
sections 251 and 252 of the Act. Moreover, these price cap carriers
must continue to satisfy all Lifeline ETC obligations by offering voice
telephony service to qualifying low-income households in areas in which
they are subject to this limited forbearance. Finally, price cap
carriers in these areas remain subject to other Title II requirements,
including ensuring that voice telephony rates remain just and
reasonable and the nondiscrimination obligations of sections 201 and
202 of the Act. Additionally, the Commission declines to preempt any
state regulations or obligations to which these carriers may be
subject. Commenters make only vague, unsubstantiated claims about
burdensome state obligations in support of these requests. Price cap
carriers must continue to comply with state requirements, including
carrier of last resort obligations, to the extent applicable. The
Commission similarly defers to the states' judgment in assuring that
the local rates that price cap carriers offer in the areas from which
the Commission forbears remain just and reasonable. Price cap carriers
will remain subject to ETC obligations other than those covered by the
Commission's forbearance unless or until they relinquish their ETC
designations in those areas pursuant to section 214(e)(4). As the
Commission transitions to a new funding mechanism to further its goal
of supporting the deployment of both voice and broadband-capable
networks, the existing service areas and corresponding obligations will
help preserve existing voice service for consumers until the Rural
Digital Opportunity Fund is fully implemented, and ensure that even the
most remote, extremely high-cost areas are served, consistent with the
Commission's universal service goals and principles.
135. More generally, price cap carriers must continue to maintain
existing voice service until they receive discontinuance authority
under section 214(a) of the Act and section 63.71 of the Commission's
rules. As noted in this document, several commenters have requested
that the Commission adopt a streamlined section 214 discontinuance
process for price cap carriers that are replaced by a new provider
receiving high-cost support. The Commission is not persuaded that such
a process would benefit consumers in these areas. The Commission's
discontinuance rules are designed to ensure that customers are fully
informed of any proposed change that will reduce or end service, ensure
appropriate oversight by the
[[Page 13794]]
Commission of such changes, and provide an orderly transition of
service, as appropriate. This process allows the Commission to minimize
harm to customers and to satisfy its obligation under the Act to
protect the public interest.
136. In evaluating a section 214 discontinuance application, the
Commission generally considers a number of factors, including the
existence, availability, and adequacy of alternatives. By examining
these factors, the Commission can ensure that the removal of a voice
service option from the marketplace occurs in a manner that respects
consumer expectations and needs. Thus, the Commission will deny a
discontinuance application if it would leave customers or other end
users in the proposed area without the ability to receive voice service
or a reasonable alternative, or if the public convenience and necessity
would be otherwise adversely affected. In such circumstances, the
Commission will require price cap carriers to continue offering voice
telephony services in those areas in those instances where there is no
reasonable alternative. The Commission notes that an authorization to
receive Rural Digital Opportunity Fund support includes an expectation
that the provider will offer a reasonable voice service alternative
satisfying section 63.602(b) of the Commission's rules, but it will
retain the discontinuance process to confirm that it is doing so.
Adopting a streamlined process for areas in which the Commission grants
limited forbearance would prevent them from conducting the thorough
review process necessary to ensure whether appropriate alternatives are
available to consumers or the present or future public convenience and
necessity would be adversely affected by such a discontinuance.
137. Finally, the Commission clarifies the specific timing to the
grant of limited forbearance to incumbent price cap carriers that are
replaced by a new provider. First, the Commission finds that these
carriers will be relieved of their federal high-cost ETC obligation to
offer voice telephony in specific census blocks on the first day of the
month after a new ETC is authorized to receive Rural Digital
Opportunity Fund support in those blocks. Thus, the new provider
receiving Rural Digital Opportunity Fund support should be prepared to
provide voice service throughout its service areas, either through its
own facilities or a combination of its own and other ETC's facilities,
on the first day of that month. Price cap carriers electing to receive
a seventh year of model-based support will maintain their obligation to
provide both voice and broadband service throughout 2021, as explained
in this document. These carriers will be relieved of their federal
high-cost ETC obligation to offer voice telephony in specific census
blocks on January 1, 2022, regardless of when a new ETC is authorized
to receive Rural Digital Opportunity Fund support. Finally, incumbent
price cap carriers that decline a seventh year of model-based support
will be relieved of the federal high-cost ETC obligation to offer voice
telephony on the first day of the month after a new Rural Digital
Opportunity Fund support recipient is authorized to receive support.
IV. Procedural Matters
A. Paperwork Reduction Act
138. This document contains new and modified information collection
requirements subject to the Paperwork Reduction Act of 1995 (PRA)
Public Law 104-13. It will be submitted to the Office of Management and
Budget (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 or modified information collection requirements contained in
this proceeding. In addition, the Commission notes that pursuant to the
Small Business Paperwork Relief Act of 2002, it previously sought
specific comment on how the Commission might further reduce the
information collection burden for small business concerns with fewer
than 25 employees.
B. Congressional Review Act
139. The Commission has determined, and the Administrator of the
Office of Information and Regulatory Affairs, Office of Management and
Budget, concurs that this rule is non-major under the Congressional
Review Act, 5 U.S.C. 804(2). The Commission will send a copy of this
Report and Order to Congress and the Government Accountability Office
pursuant to 5 U.S.C. 801(a)(1)(A).
140. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the Rural Digital Opportunity Fund NPRM. The Commission
sought written public comment on the proposals in the Rural Digital
Opportunity Fund NPRM, including comment on the IRFA. The Commission
did not receive any comments in response to this IRFA. This Final
Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
141. Bringing digital opportunity to Americans living on the wrong
side of the digital divide continues to be the Federal Communication
Commission's top priority. It is imperative that the Commission take
prompt and expeditious action to deliver on its goal of connecting all
Americans, no matter where they live and work. Without access to
broadband, rural communities cannot connect to the digital economy and
the opportunities for better education, employment, healthcare, and
civic and social engagement it provides.
142. In recent years, the Commission has made tremendous strides
toward its goal of making broadband available to all Americans. But
while the digital divide is closing, more work remains to be done.
Therefore, in this Order, the Commission adopts the framework for the
Rural Digital Opportunity Fund. It builds on the successful model from
2018's Connect America Fund (CAF) Phase II auction, which allocated
$1.488 billion to deploy networks serving more than 700,000 unserved
rural homes and businesses across 45 states. The Rural Digital
Opportunity Fund represents the Commission's single biggest step to
close the digital divide by providing up to $20.4 billion to connect
millions more rural homes and small businesses to high-speed broadband
networks. It will ensure that networks stand the test of time by
prioritizing higher network speeds and lower latency, so that those
benefitting from these networks will be able to use tomorrow's internet
applications as well as today's.
143. 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.
144. The Commission's actions, over time, may affect small entities
that are not easily categorized at present. The Commission therefore
describes here, at the outset, three comprehensive small entity size
standards that could be directly affected herein. First, while there
are industry specific size standards for small businesses that are used
in the regulatory flexibility analysis, according to data from the
[[Page 13795]]
SBA's Office of Advocacy, in general a small business is an independent
business having fewer than 500 employees. These types of small
businesses represent 99.9% of all businesses in the United States which
translates to 28.8 million businesses.
145. Next, the type of small entity described as 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 August 2016, there were approximately 356,494 small
organizations based on registration and tax data filed by nonprofits
with the Internal Revenue Service (IRS).
146. Finally, the small entity described as a ``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.'' U.S. Census Bureau data from
the 2012 Census of Governments indicate that there were 90,056 local
governmental jurisdictions consisting of general purpose governments
and special purpose governments in the United States. Of this number
there were 37,132 General purpose governments (county, municipal and
town or township) with populations of less than 50,000 and 12,184
Special purpose governments (independent school districts and special
districts) with populations of less than 50,000. The 2012 U.S. Census
Bureau data for most types of governments in the local government
category show that the majority of these governments have populations
of less than 50,000. Based on this data the Commission estimates that
at least 49,316 local government jurisdictions fall in the category of
``small governmental jurisdictions.''
147. Small entities potentially affected by the rules herein
include Wireline Providers, Wireless Providers (except Satellite),
internet Service Providers (Broadband), Satellite Telecommunications,
Electric Power Generators, Transmitters, and Distributors and All Other
Telecommunications.
148. In the Order the Commission adopts rules that will apply in
the Rural Digital Opportunity Fund auction. The Commission establishes
four technology-neutral tiers of bids available for bidding with
varying broadband speed and usage allowances, and for each tier will
differentiate between bids that would offer either lower or higher
latency. Like all high-cost ETCs, the Commission requires that Rural
Digital Opportunity Fund recipients offer standalone voice service and
offer voice and broadband service meeting the relevant performance
requirements at rates that are reasonably comparable to rates offered
in urban areas. All ETCs must advertise the availability of their voice
services through their service areas, and the Commission requires
support recipients also to advertise the availability of their
broadband services within their service area. Rural Digital Opportunity
Fund support recipients will also be subject to the same uniform
framework for measuring speed and latency performance along with the
accompanying compliance framework as all other recipients of high-cost
support required to serve fixed locations.
149. In the Order, the Commission adopts a 10-year support term for
Rural Digital Opportunity Fund support recipients along with interim
service milestones by which support recipients must offer the required
voice and broadband service to a required number of locations. The
final service milestones will differ based on whether the Bureau
determines that there are more or fewer locations than initially
determined by the Connect America Cost Model. Rural Digital Opportunity
Fund recipients must also offer service to newly built locations upon
reasonable request if those locations were built before milestone year
eight.
150. For entities that are interested in participating in the Rural
Digital Opportunity Fund, adopted a two-step application process. The
Commission requires applicants to submit a pre-auction short-form
application that includes information regarding their ownership,
technical and financial qualifications, the technologies they intend to
use and the types of bids they intend to place, their operational
history, and an acknowledgement of their responsibility to conduct due
diligence. Commission staff will review the applications to determine
if applicants are qualified to bid in the auction.
151. The Commission also requires winning bidders to submit a long-
form application in which they will submit information about their
qualifications, funding, and the networks they intend to use to meet
their obligations. During the long-form application period, the
Commission will require long-form applicants to obtain an ETC
designation from the state or the Commission as relevant that covers
the eligible areas in their winning bids. Prior to being authorized to
receive support, the Commission will require long-form applicants to
obtain an irrevocable stand-by letter of credit that meets its
requirements from an eligible bank along with a bankruptcy opinion
letter. The amount of support the letter of credit must cover will vary
based on whether the support recipient has met certain service
milestones. Commission staff will review the applications and submitted
documentation to determine whether long-form applicants are qualified
to be authorized to receive support. The Commission will subject
winning bidders or long-form applicants that default during the long-
form application process to forfeiture.
152. To monitor the use of Rural Digital Opportunity Fund support
to ensure that it is being used for its intended purposes, the
Commission will require support recipients to file location and
technology data on an annual basis in the online High Cost Universal
Broadband (HUBB) portal and to make certifications when they have met
their service milestones. The Commission also will require applicants
to file certain information in their annual FCC Form 481 reports
including information regarding the community anchor institutions they
serve, the support they used for capital expenditures, and
certifications regarding meeting the Commission's performance
obligations and available funds. Support recipients will also be
subject to the annual section 54.314 certifications, the same record
retention and audit requirements, and the same support reductions for
untimely filings as other high-cost ETCs.
153. For support recipients that do not meet their Rural Digital
Opportunity Fund obligations, the Commission will subject such support
recipients to the framework for support reductions that is applicable
to all high-cost ETCs that are required to meet defined service
milestones and to the process the Commission adopted for drawing on
letters of credit for the CAF Phase II auction, subject to some
modifications regarding the amount of support that will be recovered
after the sixth and eighth service milestones, as applicable.
Additionally, if a Rural Digital Opportunity Fund support recipient
believes it cannot meet the 40% service milestone, it must notify the
Bureau and provide information explaining this expected deficiency. If
a support recipient has not made such a notification and has deployed
to fewer than 20% of the required number of locations by the third year
service milestone, the Commission will find the recipient to be default
rather than withholding the support and giving the support recipient an
additional year to come into compliance. Support recipients may also
seek waiver if as
[[Page 13796]]
they are deploying their networks there are not enough locations to
meet their interim milestones.
154. The Commission also adopts specific support transition paths
for census blocks served by price cap carriers receiving both legacy
high-cost and model-based support, including delegating to the Wireline
Competition Bureau the task of determining and implementing a mechanism
that will enable price cap carriers to elect whether to receive an
additional, seventh year of Phase II model-based support. Additionally,
the Commission clarifies the continuing responsibilities of price cap
carriers no longer receiving support to serve specific areas.
155. 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.''
156. The Commission has considered the economic impact on small
entities in reaching its final conclusions and taking action in this
proceeding. The rules that the Commission adopts in the Order will
provide greater certainty and flexibility for all carriers, including
small entities. For example, the Commission adopts different
performance standards for bidders to maximize the types of entities
that can participate in the Rural Digital Opportunity Fund auction.
Additionally, while the Commission declines to adopt any bidding
credits, it does incorporate into the reserve prices for Tribal areas a
Tribal Broadband Factor to provide an incentive for service providers,
including small entities, to bid on and serve Tribal lands.
157. The Commission also expects that the minimum geographic area
for bidding will be a census block group containing one or more
eligible census blocks, but reserve the right to select census tracts
when the Commission finalizes the auction design if necessary to limit
the number of discrete biddable units. The Commission finds that this
approach is preferable because it ensures 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 declines to adopt census blocks as the minimum
geographic unit because there are significantly more eligible census
blocks, increasing the complexity of the bidding process both for
bidders, including small entities, and the bidding system and
minimizing the potential for broad coverage by winning bidders.
158. The Commission declines to adopt a resource-intensive
challenge process and instead have decided to rely on FCC Form 477 data
and conduct a more streamlined challenge process to determine areas
that are eligible for the Rural Digital Opportunity Fund auction. This
means that service providers, including small entities, will have to
file a FCC Form 477 as they are already required to do to ensure that
the areas they serve are not overbuilt. Through the challenge process,
interested parties may also identify areas that have been served since
they have submitted the most recent publicly available FCC Form 477
data or identify areas that have been awarded funding through federal
or state broadband subsidy programs to provide 25/3 Mbps or better
service.
159. Based on lessons learned from the CAF Phase II auction, the
Commission also adopts a two-step application process that will allow
entities interested in bidding to submit a short-form application to be
qualified in the auction that it found to be an appropriate but not
burdensome screen to ensure participation by qualified providers,
including small entities. Only if an applicant becomes a winning bidder
will it be required to submit a long-form application which requires a
more thorough review of an applicant's qualifications to be authorized
to receive support. Like the CAF Phase II auction, the Commission
provides two pathways for eligibility for the auction--both (1) for
entities that have at least two years' experience providing a voice,
broadband, and/or electric transmission or distribution service, and
(2) for entities that have at least three years of audited financials
and can obtain an acceptable letter of interest from an eligible bank.
The Commission expects that by proposing to adopt two pathways for
eligibility and to permit experienced entities that do not audit their
financial statements in the ordinary course of business to wait to
submit audited financials until after they are announced as winning
bidders, more small entities will be able to participate in the
auction. The Commission declines to collect less financial and
technical information from experienced providers, finding that all
existing service providers are not necessarily qualified to bid for
additional universal service support and that the passage of time since
its last review may impact qualifications. At the same time, the
Commission also declines to require more detailed technical and
operational showings as suggested by some commenters because it found
these proposals would provide significant barriers to entry for
participation by interested entities, including small entities.
160. The Commission also permits all long-form applicants,
including small entities, to obtain their ETC designations after
becoming winning bidders so that they do not have to go through the ETC
designation process prior to finding out if they won support through
the auction. The Commission declines to adopt the alternatives to
letters of credit that were suggested by commenters because letters of
credit better achieve the Commission's objective of protecting the
public's funds. But recognizing that some CAF Phase II auction
participants, including small entities, have expressed concerns about
the costs of obtaining and maintaining a letter of credit, the
Commission makes a modification to its requirements to allow support
recipients to cover less support with their letters of credit and
further reduce the value of their letters of credit once it has been
verified that they have met certain service milestones.
161. The Commission declines to adopt additional performance
requirements, like requiring specific subscription milestones, because
it finds that they are likely to discourage many bidders, including
small entities, from participating in the auction because they would
risk losing funding in areas with low subscribership rates. The
Commission also declines to adopt more aggressive service milestones
and instead explain that entities with smaller projects have the
opportunity to build-out faster than the service milestones.
162. The reporting requirements the Commission adopts for all Rural
Digital Opportunity Fund support recipients 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 the Commission
requires they report is
[[Page 13797]]
information the Commission 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.
V. Ordering Clauses
163. Accordingly, it is ordered, pursuant to the authority
contained in sections 4(i), 214, 254, 303(r), and 403 of the
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254,
303(r), and 403, and Sec. Sec. 1.1 and 1.425 of the Commission's
rules, 47 CFR 1.1 and 1.425 this Report and Order is adopted. The
Report and Order shall be effective 30 days after publication in the
Federal Register, except for portions containing information collection
requirements in Sec. Sec. 54.313, 54.316, 54.804, and 54.806 that have
not been approved by OMB. The Federal Communications Commission will
publish a document in the Federal Register announcing the effective
date of these provisions.
164. It is further ordered that Part 54 of the Commission's rules
is amended as set forth in the following, and that any such rule
amendments that contain new or modified information collection
requirements that require approval by the Office of Management and
Budget under the Paperwork Reduction Act shall be effective after
announcement in the Federal Register of Office of Management and Budget
approval of the rules, and on the effective date announced therein.
List of Subjects in 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 Dortch,
Secretary, Office of the Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 54 as follows:
PART 54--UNIVERSAL SERVICE
0
1. The authority citation for part 54 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220,
229, 254, 303(r), 403, 1004, and 1302, unless otherwise noted.
0
2. Amend Sec. 54.310 by adding paragraphs (g) and (h) to read as
follows:
Sec. 54.310 Connect America Fund for Price Cap Territories--Phase II.
* * * * *
(g) Extended term of model-based support. Eligible
telecommunications carriers receiving model-based support may elect to
receive a seventh year of such support. An eligible telecommunications
carrier electing to receive this additional year of support makes a
state-level commitment to maintain the required voice and broadband
services in the areas for which it receives support during this
extended term. The Wireline Competition Bureau will implement a
mechanism to enable an eligible telecommunications carrier to elect
whether to receive an additional seventh year of support.
(h) Transition to Rural Digital Opportunity Fund support. (1) In
areas where the eligible telecommunications carrier elects to receive
an optional seventh year of model-based support pursuant to paragraph
(g) of this section, it shall receive such support for a full calendar
year, regardless of the disposition of these areas in the Rural Digital
Opportunity Fund auction.
(i) If the eligible telecommunications carrier becomes the winning
bidder in the Rural Digital Opportunity Fund auction in these areas, it
shall continue to receive model-based support through December 31,
2021. Thereafter, it shall receive monthly support in the amount of its
Rural Digital Opportunity Fund winning bid.
(ii) If another provider is the winning bidder in the Rural Digital
Opportunity Fund auction in these areas, the new provider shall receive
monthly support in the amount of its Rural Digital Opportunity Fund
winning bid starting the first day of the month following its
authorization by the Wireline Competition Bureau. The eligible
telecommunications carrier shall continue to receive model-based
support for these areas through December 31, 2021.
(iii) If there is no authorized Rural Digital Opportunity Fund
auction support recipient in these areas or if these areas are deemed
ineligible for the Rural Digital Opportunity Fund auction, the eligible
telecommunications carrier shall continue to receive model-based
support for these areas through December 31, 2021. Thereafter, it shall
receive no additional support.
(2) In areas where the eligible telecommunications carrier declines
to receive an optional seventh year of model-based support pursuant to
paragraph (g) of this section, it shall cease receiving model-based
support for these areas on December 31, 2020.
0
3. Amend Sec. 54.312 by adding paragraph (e) to read as follows:
Sec. 54.312 Connect America Fund for Price Cap Territories--Phase I.
* * * * *
(e) Eligibility for support after Rural Digital Opportunity Fund
auction. (1) A price cap carrier that receives monthly baseline support
pursuant to this section and is a winning bidder in the Rural Digital
Opportunity Fund auction shall receive support at the same level as
described in paragraph (a) of this section for such area until the
Wireline Competition Bureau determines whether to authorize the carrier
to receive Rural Digital Opportunity Fund auction support for the same
area. Upon the Wireline Competition Bureau's release of a public notice
approving a price cap carrier's application submitted pursuant to Sec.
54.315(b) and authorizing the carrier to receive Rural Digital
Opportunity Fund auction support, the carrier shall no longer receive
support at the level of monthly baseline support pursuant to this
section for such area. Thereafter, the carrier shall receive monthly
support in the amount of its Rural Digital Opportunity Fund winning
bid.
(2) Starting the first day of the month following the release of
the final eligible areas list for the Rural Digital Opportunity Fund
auction, as determined by the Wireline Competition Bureau, no price cap
carrier that receives monthly baseline support pursuant to this section
shall receive such monthly baseline support for areas that are
ineligible for the Rural Digital Opportunity Fund auction.
(3) Starting the first day of the month following the close of
Phase I of the Rural Digital Opportunity Fund auction, no price cap
carrier that receives monthly baseline support pursuant to this section
shall receive such monthly baseline support for areas where Rural
Digital Opportunity Fund auction support is not awarded at auction for
an eligible area.
(4) Starting the first day of the month following the authorization
of Rural Digital Opportunity Fund auction support to a winning bidder
other than the price cap carrier that receives monthly baseline support
pursuant to this section for such area, the price cap carrier shall no
longer receive monthly baseline support pursuant to this section.
0
4. Amend Sec. 54.313 by revising paragraphs (e) introductory text,
(e)(2) introductory text and (e)(2)(iii) to read as follows:
[[Page 13798]]
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 requirements in paragraphs (e)(1) and (2) of
this section apply to recipients of Phase II, Rural Digital Opportunity
Fund, Uniendo a Puerto Rico Fund Stage 2 fixed support, and Connect
USVI Fund Stage 2 fixed support:
* * * * *
(2) Any recipient of Phase II, Rural Digital Opportunity Fund,
Uniendo a Puerto Rico Fund Stage 2 fixed, or Connect USVI Fund Stage 2
fixed support awarded through a competitive bidding or application
process shall provide:
* * * * *
(iii) Starting the first July 1st after meeting the final service
milestone in Sec. 54.310(c) or Sec. 54.802(c) of this chapter until
the July 1st after the Phase II recipient's or Rural Digital
Opportunity Fund 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 Rural
Digital Opportunity Fund recipient operated in the prior year meets the
relevant performance requirements in Sec. 54.805 for the Rural Digital
Opportunity Fund.
* * * * *
0
5. Amend Sec. 54.316 by revising paragraph (a)(4), adding paragraph
(a)(8), and revising paragraphs (b)(5) and (c)(1) to read as follows:
Sec. 54.316 Broadband deployment reporting and certification
requirements for high-cost recipients.
(a) * * *
(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 Connect America Phase II auction
support shall also report the technology they use to serve those
locations.
* * * * *
(8) Recipients subject to the requirements of Sec. 54.802(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 Rural Digital Opportunity Fund support
shall also report the technology they use to serve those locations.
(b) * * *
(5) Recipients of Rural Digital Opportunity Fund support shall
provide: No later than March 1 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) * * *
(1) Price cap carriers that accepted Phase II model-based support,
rate-of-return carriers, and recipients of Rural Digital Opportunity
Fund support 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:
* * * * *
0
6. Revise subpart J to read as follows:
Subpart J--Rural Digital Opportunity Fund
Sec.
54.801 Use of competitive bidding for Rural Digital Opportunity
Fund.
54.802 Rural Digital Opportunity Fund geographic areas, deployment
obligations, and support disbursements.
54.803 Rural Digital Opportunity Fund provider eligibility.
54.804 Rural Digital Opportunity Fund application process.
54.805 Rural Digital Opportunity Fund public interest obligations.
54.806 Rural Digital Opportunity Fund reporting obligations,
compliance, and recordkeeping.
Subpart J--Rural Digital Opportunity Fund
Sec. 54.801 Use of competitive bidding for Rural Digital Opportunity
Fund.
The Commission will use competitive bidding, as provided in part 1,
subpart AA of this chapter, to determine the recipients of Rural
Digital Opportunity Fund support and the amount of support that they
may receive for specific geographic areas, subject to applicable post-
auction procedures.
Sec. 54.802 Rural Digital Opportunity Fund geographic areas,
deployment obligations, and support disbursements.
(a) Geographic areas eligible for support. Rural Digital
Opportunity Fund support may be made available for census blocks or
other areas identified as eligible by public notice.
(b) Term of support. Rural Digital Opportunity Fund support shall
be provided for ten years.
(c) Deployment obligation. (1) All recipients of Rural Digital
Opportunity Fund support must complete deployment to 40 percent of the
required number of locations as determined by the Connect America Cost
Model by the end of the third year, to 60 percent by the end of the
fourth year, and to 80 percent by the end of the fifth year. The
Wireline Competition Bureau will publish updated location counts no
later than the end of the sixth year. A support recipient's final
service milestones will depend on whether the Wireline Competition
Bureau determines there are more or fewer locations than determined by
the Connect America Cost Model in the relevant areas as follows:
(i) More Locations. After the Wireline Competition Bureau adopts
updated location counts, in areas where there are more locations than
the number of locations determined by the Connect America Cost Model,
recipients of Rural Digital Opportunity Fund support must complete
deployment to 100 percent of the number of locations determined by the
Connect America Cost Model by the end of the sixth year. Recipients of
Rural Digital Opportunity Fund support must then complete deployment to
100 percent of the additional number of locations determined by the
Wireline Competition Bureau's updated location count by end of the
eighth year. If the new location count exceeds 35% of the number of
locations determined by the Connect America Cost Model within their
area in each state, recipients of Rural Digital Opportunity Fund
support will have the opportunity to seek additional support or relief.
(ii) Fewer Locations. In areas where there are fewer locations than
the number of locations determined by the Connect America Cost Model, a
Rural Digital Opportunity Fund support recipient must notify the
Wireline Competition Bureau no later than March 1 following the fifth
year of deployment. Upon confirmation by the Wireline Competition
Bureau, Rural Digital Opportunity Fund support recipients must complete
deployment to the number of locations required by the new location
count by the end of the sixth year. Support recipients for which the
new location count is less than 65 percent of the Connect America Cost
Model locations within their area in each state shall have the support
amount reduced on a pro rata basis by the number of reduced locations.
(iii) Newly Built Locations. In addition to offering the required
service to the updated number of locations identified by the Wireline
Competition Bureau, Rural Digital Opportunity Fund support
[[Page 13799]]
recipients must offer service to locations built since the revised
count, upon reasonable request. Support recipients are not required to
deploy to any location built after milestone year eight.
(d) Disbursement of Rural Digital Opportunity Fund funding. An
eligible telecommunications carrier will be advised by public notice
when it is authorized to receive support. The public notice will detail
how disbursements will be made.
Sec. 54.803 Rural Digital Opportunity Fund provider eligibility.
(a) Any eligible telecommunications carrier is eligible to receive
Rural Digital Opportunity Fund support in eligible areas.
(b) An entity may obtain eligible telecommunications carrier
designation after public notice of winning bidders in the Rural Digital
Opportunity Fund auction.
(c) To the extent any entity seeks eligible telecommunications
carrier designation prior to public notice of winning bidders for Rural
Digital Opportunity Fund support, its designation as an eligible
telecommunications carrier may be conditioned subject to receipt of
Rural Digital Opportunity Fund support.
(d) Any Connect America Phase II auction participant that defaulted
on all of its Connect America Phase II auction winning bids is barred
from participating in the Rural Digital Opportunity Fund.
Sec. 54.804 Rural Digital Opportunity Fund application process.
(a) 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
Rural Digital Opportunity 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 Rural
Digital Opportunity 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;
(7) Submit operational and financial information.
(i) If applicable, the applicant should submit a certification that
it 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 an
independent certified public accountant. If the applicant is not
audited in the ordinary course of business, in lieu of submitting
audited financial statements it must submit unaudited financial
statements from the prior fiscal year and certify that it will provide
financial statements from the prior fiscal year that are audited by an
independent certified 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.
(8) Certify that the applicant has performed due diligence
concerning its potential participation in the Rural Digital Opportunity
Fund.
(b) Application by winning bidders for Rural Digital Opportunity
Fund support--
(1) Deadline. As provided by public notice, winning bidders for
Rural Digital Opportunity Fund support or their assignees shall file an
application for Rural Digital Opportunity 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 Rural Digital
Opportunity 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 Rural
Digital Opportunity 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 Rural Digital
Opportunity 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 Rural Digital Opportunity 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) Letter of credit commitment letter. No later than the number of
days
[[Page 13800]]
provided by public notice, the long-form 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 long-form applicant.
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) Audited financial statements. No later than the number of days
provided by public notice, if a long-form applicant or a related entity
did not submit audited financial statements in the relevant short-form
application as required, the long-form applicant must submit the
financial statements from the prior fiscal year that are audited by an
independent certified public accountant.
(5) Eligible telecommunications carrier designation. No later than
180 days after the public notice identifying it as a winning bidder,
the long-form 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 long-form applicant that may be authorized to
receive Rural Digital Opportunity Fund support after the long-form
applicant 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 long-form applicant 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 later than the
number of business days provided by public notice.
(vi) After receipt of all necessary information, a public notice
will identify each long-form applicant that is authorized to receive
Rural Digital Opportunity Fund support.
(c) Letter of credit. Before being authorized to receive Rural
Digital Opportunity 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 Rural Digital
Opportunity Fund support shall maintain the standby letter of credit in
an amount equal to, at a minimum, one year of support, until the
Universal Service Administrative Company has verified that the
recipient has served 100 percent of the Connect America Cost Model-
determined location total (or the adjusted Connect America Cost Model
location count if there are fewer locations) by the end of year six.
(i) For year one of a recipient's support term, it must obtain a
letter of credit valued at an amount equal to one year of support.
(ii) For year two of a recipient's support term, it must obtain a
letter of credit valued at an amount equal to eighteen months of
support.
(iii) For year three of a recipient's support term, it must obtain
a letter of credit valued at an amount equal to two years of support.
(iv) For year four of a recipient's support term, it must obtain a
letter of credit valued at an amount equal to three years of support.
(v) A recipient may obtain a new letter of credit or renew its
existing letter of credit so that it is valued at an amount equal to
one year of support once it meets its optional or required service
milestones. The recipient may obtain or renew this letter of credit
upon verification of its buildout by the Universal Service
Administrative Company. The recipient may maintain its letter of credit
at this level for the remainder of its deployment term, so long as the
Universal Service Administrative Company verifies that the recipient
successfully and timely meets its remaining required service
milestones.
(vi) A recipient that fails to meet its required service milestones
must obtain a new letter of credit or renew its existing letter of
credit at an amount equal to its existing letter of credit, plus an
additional year of support, up to a maximum of three years of support.
(vii) A recipient that fails to meet two or more required service
milestones must maintain a letter of credit in the amount of three year
of support and may be subject to additional non-compliance penalties as
described in Sec. 54.320(d).
(2) Bank eligibility. 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 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);
(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
[[Page 13801]]
a BBB- or better rating by Standard & Poor's; and
(D) Issues the letter of credit payable in United States dollars
(3) Bankruptcy opinion letter. A long-form applicant for Rural
Digital Opportunity 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) Non-compliance. .Authorization to receive Rural Digital
Opportunity 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 Rural Digital Opportunity Fund support recipient
to meet its service milestones for the location totals determined by
the Connect America Cost Model, or the location total that is adjusted
by the Wireline Competition Bureau for those areas where there are
fewer locations than the number of locations determined by the Connect
America Cost Model, as required by Sec. 54.802 will trigger reporting
obligations and the withholding of support as described in Sec.
54.320(d). Failure to come into full compliance during the relevant
cure period as described in Sec. Sec. 54.320(d)(1)(iv)(B) or
54.320(d)(2) will trigger a recovery action by the Universal Service
Administrative Company as described in Sec. 54.320(d)(1)(iv)(B) or
Sec. 54.806(c)(1)(i), as applicable. If the Rural Digital Opportunity
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 Rural Digital Opportunity Fund support recipient from
the receipt of Rural Digital Opportunity 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 its 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 Rural Digital Opportunity Fund public interest
obligations.
(a) Recipients of Rural Digital Opportunity Fund 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.
(b) Recipients of Rural Digital Opportunity Fund support are
required to offer broadband service meeting the performance standards
for the relevant performance tier.
(1) Rural Digital Opportunity Fund support recipients meeting the
minimum 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 250 GB per month, or
that reflects the average usage of a majority of fixed broadband
customers as announced annually by the Wireline Competition Bureau over
the 10-year term.
(2) Rural Digital Opportunity Fund support recipients meeting the
baseline performance tier standards are required to offer broadband
service at actual speeds of at least 50 Mbps downstream and 5 Mbps
upstream and offer a minimum usage allowance of 250 GB per month, or
that reflects the average usage of a majority of fixed broadband
customers as announced annually by the Wireline Competition Bureau over
the 10-year term.
(2) Rural Digital Opportunity Fund support recipients 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 at least 2 terabytes of monthly usage.
(3) Rural Digital Opportunity Fund support recipients 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 at least 2 terabytes of monthly usage.
(4) For each of the tiers in paragraphs (b)(1) through (3) of this
section, bidders are required to meet one of two latency performance
levels:
(i) 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
(ii) 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).
(c) Recipients of Rural Digital Opportunity Fund support are
required to bid on category one telecommunications and internet access
services in response to a posted FCC Form 470 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 Rural Digital Opportunity Fund
support. Such bids must be at rates reasonably comparable to rates
charged to eligible schools and libraries in urban areas for comparable
offerings.
Sec. 54.806 Rural Digital Opportunity Fund reporting obligations,
compliance, and recordkeeping.
(a) Recipients of Rural Digital Opportunity Fund support shall be
subject to the reporting obligations set forth in Sec. Sec. 54.313,
54.314, and 54.316.
(b) Recipients of Rural Digital Opportunity Fund support shall be
subject to the compliance measures, recordkeeping requirements and
audit requirements set forth in Sec. 54.320(a)-(c).
(c) Recipients of Rural Digital Opportunity Fund support shall be
subject to the non-compliance measures set forth in Sec. 54.320(d)
subject to the following modifications related to the recovery of
support.
(1) If the support recipient does not report it has come into full
compliance after the grace period for its sixth year or eighth year
service milestone as applicable or if USAC determines in the course of
a compliance review that the eligible telecommunications carrier does
not have sufficient evidence to demonstrate that it is offering service
to all of the locations required by the sixth
[[Page 13802]]
or eighth year service milestone as set forth in Sec. 54.320(d)(3):
(i) Sixth year service milestone. Support will be recovered as
follows after the sixth year service milestone grace period or if USAC
later determines in the course of a compliance review that a support
recipient does not have sufficient evidence to demonstrate that it was
offering service to all of the locations required by the sixth year
service milestone:
(A) If an ETC has deployed to 95 percent or more of the Connect
America Cost Model location count or the adjusted Connect America Cost
Model location count if there are fewer locations, but less than 100
percent, USAC will recover an amount of support that is equal to 1.25
times the average amount of support per location received in the state
for that ETC over the support term for the relevant number of
locations;
(B) If an ETC has deployed to 90 percent or more of the Connect
America Cost Model location count or the adjusted Connect America Cost
Model location count if there are fewer locations, but less than 95
percent, USAC will recover an amount of support that is equal to 1.5
times the average amount of support per location received in the state
for that ETC over the support term for the relevant number of
locations, plus 5 percent of the support recipient's total Rural
Digital Opportunity Fund support authorized over the 10-year support
term for that state;
(C) If an ETC has deployed to fewer than 90 percent of the Connect
America Cost Model location count or the adjusted Connect America Cost
Model location count if there are fewer locations, USAC will recover an
amount of support that is equal to 1.75 times the average amount of
support per location received in the state for that ETC over the
support term for the relevant number of locations, plus 10 percent of
the support recipient's total Rural Digital Opportunity Fund support
authorized over the 10-year support term for that state.
(ii) Eighth year service milestone. If a Rural Digital Opportunity
Fund support recipient is required to serve more new locations than
determined by the Connect America Cost Model, support will be recovered
as follows after the eighth year service milestone grace period or if
USAC later determines in the course of a compliance review that a
support recipient does not have sufficient evidence to demonstrate that
it was offering service to all of the locations required by the eighth
year service milestone:
(A) If an ETC has deployed to 95 percent or more of its new
location count, but less than 100 percent, USAC will recover an amount
of support that is equal to the average amount of support per location
received in the state for that ETC over the support term for the
relevant number of locations;
(B) If an ETC has deployed to 90 percent or more of its new
location count, but less than 95 percent, USAC will recover an amount
of support that is equal to 1.25 times the average amount of support
per location received in the state for that ETC over the support term
for the relevant number of locations;
(C) If an ETC has deployed to 85 percent or more of its new
location count, but less than 90 percent, USAC will recover an amount
of support that is equal to 1.5 times the average amount of support per
location received in the state for that ETC over the support term for
the relevant number of locations, plus 5 percent of the support
recipient's total Rural Digital Opportunity Fund support authorized
over the 10-year support term for that state;
(D) If an ETC has deployed to less than 85 percent of its new
location count, USAC will recover an amount of support that is equal to
1.75 times the average amount of support per location received in the
state for that ETC over the support term for the relevant number of
locations, plus 10 percent of the support recipient's total Rural
Digital Opportunity Fund support authorized over the 10-year support
term for that state.
(2) Any support recipient that believes it cannot meet the third-
year service milestone must notify the Wireline Competition Bureau
within 10 business days of the third-year service milestone deadline
and provide information explaining this expected deficiency. If a
support recipient has not made such a notification by March 1 following
the third-year service milestone, and has deployed to fewer than 20
percent of the required number of locations by the end of the third
year, the recipient will immediately be in default and subject to
support recovery. The Tier 4 status six-month grace period as set forth
in Sec. 54.320(d)(iv) will not be applicable.
[FR Doc. 2020-03135 Filed 3-9-20; 8:45 am]
BILLING CODE 6712-01-P