[Federal Register Volume 86, Number 35 (Wednesday, February 24, 2021)]
[Rules and Regulations]
[Pages 11149-11152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03420]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1 and 54

[GN Docket No. 20-32; DA 20-1361; FRS 17443]


Office of Economics and Analytics and Wireline Competition Bureau 
Adopt Adjustment Factor Values for the 5G Fund

AGENCY: Federal Communications Commission.

ACTION: Final action.

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SUMMARY: In this document, the Office of Economics and Analytics 
(Office) and the Wireline Competition Bureau (Bureau) adopt adjustment 
factor values for an adjustment factor that will be used in bidding in 
the 5G Fund auctions and applied to the methodology for disaggregating 
legacy high-cost support.

DATES: Effective February 24, 2021.

ADDRESSES: Federal Communications Commission, 45 L Street NE, 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Kate Matraves, Office of Economics and 
Analytics, Economic Analysis Division, (202) 391-6272 or 
[email protected], or Nicholas Copeland, Office of Economics 
and Analytics, Economic Analysis Division, (202) 418-1025 or 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 5G 
Fund Adjustment Values Public Notice in GN Docket No. 20-32, DA 20-
1361, released on November 16, 2020. The full text of this document is 
available on the Commission's website at https://www.fcc.gov/document/oea-and-wcb-adopt-adjustment-factor-values-5g-fund. To request 
materials in accessible formats for people with disabilities, send an 
email to [email protected] or call the Consumer & Governmental Affairs 
Bureau at 202-418-0530 (voice), 202-418-0432 (TTY).

Synopsis

    1. The Office of Economics and Analytics (Office) and the Wireline 
Competition Bureau (Bureau) adopt 5G Fund adjustment factor values to 
help direct more 5G Fund support to harder to serve areas. 
Specifically, the values we adopt will increase support levels for bids 
to serve areas where the terrain elevation variation raises the 
expected costs of deploying 5G networks, and/or where the business case 
for 5G otherwise is likely to be weaker, relative to the support for 
bids for easier to serve areas. Likewise, the adjustment factor values 
will also be used in the process of disaggregating legacy high-cost 
support to account for differences between recipients' subsidized 
service areas. These adjustment factor values will help ensure that 
additional 5G Fund support goes to the areas that need it the most.
    2. In the 5G Fund NPRM and Order, 85 FR 31636, May 26, 2020, 85 FR 
34525, Jun. 5, 2020, the Federal Communications Commission (Commission) 
proposed to distribute up to $9 billion in two phases using multi-
round, descending clock auctions to assign support for the deployment 
of 5G service in rural areas. To account for differences in the cost of 
providing service and business case considerations across eligible 
areas, the Commission proposed incorporating an adjustment factor into 
the 5G Fund auctions that would assign a weight to each geographic 
area, which would be applied to bidding for support amounts to make the 
areas most difficult to serve more attractive to bidders and increase 
the support to such areas. In addition to incorporating an adjustment 
factor into the 5G Fund auctions, the Commission proposed to apply this 
adjustment factor to the methodology for disaggregating legacy high-
cost support in the transition to 5G Fund support.
    3. Legacy high-cost support is currently provided to a competitive 
eligible telecommunications carrier's entire study area, with no 
attribution to particular sub-areas within that study area. To 
illustrate the role of the adjustment factor in the disaggregation of 
legacy support, consider a hypothetical carrier serving one mountainous 
census tract and one flat census tract of equal size in its subsidized 
service area. Such a carrier might require 75% of its support to serve 
the mountainous tract and 25% to serve the flat tract. Were an 
unsubsidized carrier to enter the flat tract, which may be more likely 
given the relatively lower costs in the flat tract, if we did not apply 
the adjustment factor in calculating disaggregated support, the carrier 
would lose 50% of its funding and would be unable to continue serving 
the mountainous tract. However, applying an adjustment factor of three 
to the mountainous area would result in the carrier retaining 75% of 
its original support amount and allow it to continue serving the 
mountainous tract.
    4. On June 5, 2020, the Office and Bureau released the Adjustment 
Factor Public Notice, 85 FR 36522, Jun. 17, 2020, which sought comment 
on the proposed adjustment factor values, the three analyses that 
inform the values, and the application of the adjustment factor to the 
disaggregation of legacy support.
    5. In the 5G Fund Report and Order, 85 FR 75770, Nov. 25, 2020, the 
Commission adopted its proposal to incorporate an adjustment factor 
into the 5G Fund auctions that will assign a weight to each geographic 
area and apply that adjustment factor to bidding for support amounts; 
this adjustment factor also will be applied to the methodology for 
disaggregating legacy high-cost support. For a 5G Fund auction, the 
Commission deferred the final determination of the precise manner in 
which the adjustment factor will be incorporated into the auction 
mechanism to the pre-auction process. We provide herein the adjustment 
factor values, and we discuss the studies underlying our decision to 
adopt these values for use in a 5G Fund auction and in the methodology 
for the disaggregation of legacy high-cost support.

[[Page 11150]]

    6. Adjustment Factor Values. In the 5G Fund Adjustment Factor 
Public Notice, we proposed values for an adjustment factor that 
operates along two dimensions: Terrain elevation variation and demand, 
using median household income as a proxy. These two dimensions were 
included to account for differences in network deployment costs and 
business case considerations that stem from the geographic and economic 
variations in the United States. We proposed that areas be sorted into 
terrain elevation variation and demand factor groups according to their 
characteristics. The terrain elevation variation dimension is intended 
to address, in part, network cost differences across areas, while the 
demand factor is intended to address differences in expected revenues 
across areas. Under the approach proposed in the 5G Fund Adjustment 
Factor Public Notice, an area's terrain classification is determined by 
its average standard deviation of elevation. Areas are separated into 
one of three categories: (1) Flat (standard deviation of 40 meters or 
less); (2) hilly (standard deviation between 40 and 115 meters); and 
(3) mountainous (standard deviation greater than 115 meters). 
Similarly, areas' demand classification is determined by the areas' 
median household income. We note that the category thresholds for the 
medium- and high-income categories represent 2017 median household 
incomes that are 150% and 200% of the poverty line for a family of 
three, respectively. Consistent with the adjustment factor values we 
adopt herein, we will use the latest available data on terrain and 
median household income appropriate for such purposes to classify areas 
into the adjustment factor categories concurrent with the Commission's 
release of the map of final areas eligible for 5G Fund Phase I support.
    7. We adopt the adjustment factor values in Fig. 1, as proposed in 
the 5G Fund Adjustment Factor Public Notice. We find that these 
adjustment factor values, informed by the three economic analyses laid 
out in the 5G Fund Adjustment Factor Public Notice, appropriately 
reflect the relative cost of serving areas with differing terrain 
characteristics, as well as the potential business case for each area, 
with less profitable areas receiving greater weight and therefore more 
support. Using these values to help distribute 5G Fund support to, and 
disaggregate legacy support in, a range of areas across the country 
that are geographically and economically diverse serves the public 
interest.

                                        Fig. 1--Adjustment Factor Values
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                                                                            Terrain elevation variation
                         Demand factors                          -----------------------------------------------
                                                                       Flat            Hilly        Mountainous
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Low.............................................................             1.2             2.4             3.8
Medium..........................................................             1.1             2.3             3.5
High............................................................             1.0             2.0             3.0
----------------------------------------------------------------------------------------------------------------

    8. Use of An Adjustment Factor in Bidding. Commenters generally 
support the use of an adjustment factor to increase support in higher-
cost, less-profitable areas, and no commenter suggests alternative 
adjustment factor values to those proposed in the 5G Fund Adjustment 
Factor Public Notice. Although no commenter objects to the use of 
terrain elevation variation and median household income in the 
determination of the adjustment factor, several commenters suggest that 
the adjustment factor should consider other variables, such as 
differences in the cost of labor and transportation to both deploy and 
operate 5G service, differences in the cost of utility and other 
operating costs, and the existing infrastructure in an area.
    9. We are not persuaded by these arguments and decline to increase 
the number of components or categories that make up the adjustment 
factor. We acknowledge that terrain elevation variation and median 
household income do not exhaust the list of potentially relevant 
variables. Likewise, we acknowledge that when we separate areas into 
categories, the areas near the midpoint of the category will have their 
relative costs and business cases more accurately represented by the 
adjustment factor values than areas at the margins. Nevertheless, as 
noted in the 5G Fund Report and Order, the adjustment factor adopted by 
the Commission is not intended to fully offset the differences inherent 
in providing service to different types of areas. Rather, it is 
intended to ``make the most difficult areas to serve more attractive at 
auction in order to encourage more bidding for these areas.'' Moreover, 
we selected terrain elevation variation and median household income as 
the two dimensions for the adjustment factor characteristics because 
they are important factors in characterizing deployment costs and 
business case considerations, respectively, and because there is more 
readily available and verifiable data with which to apply these two 
factors. As we discussed in the 5G Fund Adjustment Factor Public 
Notice, terrain elevation variation captures differences in network 
costs because ``wireless network engineering principles indicate that 
greater variability of terrain in a given geographic area reduces the 
signal strength received by a mobile user, which requires wireless 
carriers to build more sites to provide the same quality of service.'' 
As a result, areas with higher terrain elevation variation generally 
have higher capital expenditures, operating expenditures, and leasing 
costs. Similarly, we also discussed in the 5G Fund Adjustment Factor 
Public Notice the importance of demand factors and the role that 
expected revenues play in carriers deployment decisions. The Entry 
Model Adjustment Factor study found that, all else equal, areas with 
higher median household incomes are more likely to be covered, a 
finding consistent with the basic assumption that higher income areas 
are more profitable.
    10. Economic Analyses. To inform the proposed adjustment factor 
values, the Office and Bureau included three economic analyses. The 
first analysis (the Entry Model) used coverage data to estimate the 
effect that an area's physical and demographic characteristics have on 
carriers' network deployment decisions. The second analysis (the Cell 
Site Density Model) examined how cell site spacing changes as terrain 
roughness increases. The third analysis (the Auction Bidding Model) 
used Mobility Fund Phase I (Auction 901) bidding data to estimate how 
terrain roughness and other factors affected carriers' bids.
    11. Discussion of the economic analyses in the record is limited, 
and no party submitted an alternative economic analysis. Some 
commenters argue that

[[Page 11151]]

the Auction Bidding Model should not be used to determine the 
adjustment factor values because (1) bidding data from the Mobility 
Fund Phase I auction is distorted, (2) the Mobility Fund Phase I 
auction is not an appropriate analogue because it provided one-time 
funding for capital expenditures versus long-term support for capital 
expenditures and operational expenses, (3) bidding decisions were based 
on 2012 pricing that is not comparable to today's pricing, and (4) at 
the time of the Mobility Fund Phase I auction, carriers could still use 
network equipment from low-cost equipment suppliers that have since 
been designated by the Commission as national security threats.
    12. We acknowledge the contextual differences between the Mobility 
Fund Phase I auction and the upcoming 5G Fund auctions, but do not find 
that such differences unduly undermine the analysis. While the timing 
and one-time funding nature of the Mobility Fund Phase I auction and 
the presence of Huawei and ZTE as low-cost equipment options for 
Mobility Fund Phase I support recipients may have influenced the 
absolute bid amounts, the commenters fail to explain why the relative 
bid amounts would differ significantly compared with a more recent 
long-term funding auction where bidders could not use Huawei and ZTE 
equipment. The absolute level of the bids does not necessarily affect 
the relative differences across areas. For example, if all bids were 
20% lower in absolute level due to factors related to the auction's 
context, the ratio of bids across areas would be unaffected. We find it 
more likely that the calculated adjustment factor should be largely 
invariant to differences in funding type and radio equipment costs. 
There are two cases to consider. In the case where the costs to build 
and operate towers are the same across terrain types and more towers 
are needed to cover rougher terrain, the cost of radio equipment would 
have no effect on the calculated adjustment factors. In the case where 
towers cost more to build and operate in rougher terrain, the absolute 
cost of radio equipment could affect the adjustment factor. However, 
given that radio equipment costs are a very low percentage of the 
overall costs to build and operate a network, the change in the 
calculated adjustment factor would be negligible.
    13. Similarly, arguments that the Mobility Fund Phase I auction is 
not an appropriate point of comparison because it did not provide 
funding for both capital and operational expenditures likewise do not 
undermine our analysis here because the adjustment factor values we 
adopt are meant to capture the relative differences in cost and 
business case for different areas. That is, reliance upon bid amounts 
in an auction that did not award operational expenses should not affect 
the relative differences in costs because bidders in the 5G Fund 
auctions will be able to consider the entirety of costs (including both 
capital and operational expenditures). Thus, any additional operational 
expenses will be reflected in higher bidding values in the auction but 
the relative differences between areas is likely to remain the same. 
Moreover, our conclusions about the appropriateness of using Mobility 
Fund Phase I auction data are also consistent with all three models 
producing comparable adjustment factor estimates. We find that the 
information regarding the relative bidding incentives across areas 
produced by the Auction Bidding Model outweighs any concerns with the 
absolute levels of the bidding data.
    14. Use of an Adjustment Factor for Disaggregation of Legacy High-
Cost Support. In the 5G Fund Adjustment Factor Public Notice, the 
Office and Bureau sought comment on the appropriate adjustment factor 
values for the disaggregation of legacy high-cost support to account 
for differences in costs across areas and the underlying methodologies 
that could be used to develop the values. In cases where the transition 
of legacy support occurs across areas of different types, such as 
eligible areas and ineligible areas, the adjustment factor would be 
used to scale the actual square kilometers associated with each 
disaggregated area. In the 5G Fund Report and Order, the Commission 
concluded that the adjustment factor values that are adopted by the 
Office and Bureau for a 5G Fund auction also would be used for the 
disaggregation of legacy high-cost support. Accordingly, we adopt the 
adjustment factor values proposed in the 5G Fund Adjustment Factor 
Public Notice, as set forth in Fig. 1 herein, for use in the process of 
disaggregating legacy support.
    15. We note that some commenters oppose using the adjustment factor 
in the disaggregation process. They generally argue that, because the 
adjustment factor does not capture all of the characteristics of the 
particular service areas for which legacy support is provided (e.g., 
foliage) and the terrain categories are too broad, thereby 
disadvantaging the areas near the margins, it is not appropriate to 
apply the factor when disaggregating legacy support. They propose 
instead that the Commission rely on service providers' knowledge of 
their subsidized areas to estimate the costs of deploying in those 
areas.
    16. In the 5G Fund Report and Order, the Commission rejected the 
argument that the adjustment factor should not be applied to the 
disaggregation of legacy support, finding that ``[u]sing an adjustment 
factor is appropriate because it will alleviate potential concerns over 
a carrier losing a disproportionate amount of its legacy support 
resulting from a disaggregation methodology in which more costly areas 
would be treated the same as less costly areas with respect to 
subsidies received.'' As the Commission indicated, this approach will 
help ensure that legacy high-cost support is available for harder-to-
serve areas.
    17. We also note that there are other reasons to apply the 
adjustment factor to the disaggregation of legacy high-cost support. 
Using an adjustment factor to disaggregate legacy support is preferable 
to the administrative burdens that would arise from requiring service 
providers to disaggregate their costs, and furthermore, it avoids the 
potential incentive issues associated with service providers self-
reporting their own costs. For example, where part of a legacy support 
recipient's service area would be served by a 5G Fund winner while its 
remaining area would continue to receive legacy support, the legacy 
support recipient would have the incentive to overestimate the amount 
of high-cost support flowing to the area that would continue to receive 
legacy support, thus maximizing the funds it would receive through 
preservation of service support. In addition, while we acknowledge that 
the adjustment factor does not account for all factors that affect 
network costs, the Commission indicated that the adjustment factor is 
meant to give an estimate of how a carrier may allocate legacy high-
cost support within the area for which it receives such support. It is 
not meant to reflect the actual cost of deployment in that area. We 
maintain that applying an adjustment factor in the disaggregation 
process will lead to a more equitable distribution of legacy funding. 
Applying the adjustment factor will better reflect the distribution of 
high-cost support by accounting for cost differences arising from 
terrain elevation variation and business case differences arising from 
income disparities within a service area. Thus, we will use the 
adjustment factor values in Fig. 1 for the disaggregation of legacy 
high-cost support.


[[Page 11152]]


Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2021-03420 Filed 2-23-21; 8:45 am]
BILLING CODE 6712-01-P