[Federal Register Volume 90, Number 35 (Monday, February 24, 2025)]
[Rules and Regulations]
[Pages 10456-10462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02953]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket Nos. 10-90, 18-143, 19-126, 24-144; AU Docket Nos. 17-182,
20-34; GN Docket No. 20-32; FCC 24-127; FR ID 276861]
Connect America Fund et al.
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission (the
Commission) makes targeted modifications to the requirements for
letters of credit (LOCs) that recipients of Universal Service Fund
(USF) high-cost support awarded through a competitive process must
obtain.
DATES: Effective March 26, 2025, except for Sec. Sec.
54.315(c)(2)(i)(B); 54.804(c)(2)(i)(B); 54.1016(a)(2)(i)(B); and
54.1508(c)(1)(ii) which shall be effective August 25, 2025.
FOR FURTHER INFORMATION CONTACT: For further information, please
contact, Nathan Eagan, Attorney Advisor, Telecommunications Access
Policy Division, Wireline Competition Bureau, at [email protected]
or 202-418-7400.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order and Order (Order) in WC Docket Nos. 10-90, 18-143, 19-126,
24-144; AU Docket Nos. 17-182, 20-34 and GN Docket No. 20-32; FCC 24-
127, adopted on December 11, 2024, and released on December 13, 2024.
The full text of this document is available at the following internet
address: https://www.fcc.gov/document/fcc-modifies-letter-credit-rules-facilitate-broadband-buildout-0.
I. Discussion
In this document, the Commission makes targeted modifications to
the requirements for letters of credit that recipients of USF high-cost
support awarded through a competitive process must obtain. These
changes are intended to facilitate accelerated broadband deployment in
the areas where it is needed most, while continuing to safeguard our
investment of limited USF dollars. First, the Commission modifies its
bank eligibility rules for programs that award high-cost support
through a competitive process, which will allow winning bidders to
obtain qualifying letters from United States banks that meet the ``well
capitalized'' criteria established by Federal bank supervisory
agencies. This change will increase the number of banks qualified to
issue letters of credit compared to the Commission's prior standard,
which required a B- or better Weiss safety rating, while also ensuring
that the Commission only accept letters of credit from financially
stable banks. Second, the Commission allows Rural Digital Opportunity
Fund (RDOF) support recipients to reduce the value of their letters of
credit to one year of their annual support if they have deployed
service to 10% of their required locations by the end of their second
year of support. Finally, the Commission allows Connect America Fund
Phase II (CAF II) support recipients that have met all of their
reporting and deployment obligations to similarly reduce the value of
their letters of credit consistent with the RDOF rules. Reducing the
required letter of credit values for qualifying RDOF and CAF II support
recipients will facilitate broadband deployment by reducing the amount
of capital providers must maintain for the required letters of credit.
The record provides broad support for the Commission to use a
standard other than a Weiss B- safety rating for banks to qualify to
issue letters of credit. The record also broadly supports reducing the
required letter of credit values to one year of support for (1) RDOF
providers that have deployed service to 10% of their required locations
within a State by the end of their second year of support and (2) CAF
II support recipients that have met all of their reporting and
deployment obligations.
The Commission first finds its relevant high-cost programs should
continue to use a reliable benchmark to assess an issuing bank's
financial stability. As a threshold matter, several commenters argued
that no evaluation of a bank's reliability is necessary, and that any
federally insured bank should be eligible to issue program LOCs. The
Commission disagrees. As the Commission explained in 2016, allowing any
federally-insured bank to issue program LOCs would require Commission
staff to ``conduct a comprehensive review of every bank to determine
whether it has adequate safety and soundness.'' The Commission
continues to believe that some assurance of a bank's stability beyond
being federally-insured is necessary, and that this assurance will
enhance the reliability of the LOCs that are issued, and, by extension,
the integrity of its programs that rely on those LOCs.
The Commission next decides the appropriate standard to ensure a
bank's financial health. Commenters disagreed about whether the
Commission should continue to use the Weiss ratings, with some arguing
that the Weiss ratings were opaque and fundamentally unreliable, while
others believe the Commission should continue to use the Weiss ratings
to minimize disruption. Commenters also had a number of different
proposals for alternative methods of evaluating a bank's suitability to
issue program LOCs. The Bank Policy Institute argued that if the
Commission sought to evaluate a bank's suitability to issue program
LOCs, it should require the bank to be ``well capitalized,'' which is
``the federal supervisory framework's highest tier of capitalization.''
Other commenters suggested that a bank should only need to be
``adequately capitalized,'' a less stringent standard than ``well
capitalized.'' Bank of America suggested that a United States bank
should be allowed to issue program LOCs if it had either: (1) a Weiss
rating of B- or higher, or (2) a long-term unsecured credit rating
issued by a widely-recognized credit rating agency that is equivalent
to a BBB- or better rating by Standard & Poor's.
Based on the Commission's review of the record, it eliminates the
use of the Weiss ratings as the standard for United
[[Page 10457]]
States banks to be considered ``acceptable to the Commission'' for
purposes of issuing qualifying program LOCs. The Commission modifies
its rules to make a bank ``acceptable to the Commission'' if it is a
United States bank insured by the Federal Deposit Insurance Corporation
(FDIC) that meets the criteria to be considered ``well capitalized'' as
determined by the FDIC, the Federal Reserve, and the Office of the
Comptroller of the Currency (OCC). Applying the well capitalized
criteria used by these agencies will provide the Commission with
assurance that the United States banks issuing program LOCs will have
sufficient capital to promptly honor those LOCs in the event that the
Commission needs to recover payment due to a default.
Federal bank regulators are required by statute to promulgate
regulations ensuring that a bank maintains adequate capital. The
financial condition of United States banks is supervised by one of
three agencies: the FDIC, the Federal Reserve, and the OCC. Each agency
has promulgated nearly-identical criteria to determine a bank's
capitalization status and whether it is ``well capitalized.'' Based on
the four publicly-available metrics used by these agencies, a bank's
capitalization status can be well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically
undercapitalized. For a bank to be well capitalized, the regulations
also require a confirmation from the bank that it is not subject to
certain regulatory actions from its supervising agency.
The Commission finds that these established criteria are
appropriate metrics by which it can determine that a banking
institution is financially stable and has sufficient assets relative to
its liabilities. Furthermore, like the Weiss bank safety ratings, the
metrics that determine whether a bank is well capitalized are
accessible--in this case in the electronic Code of Federal Regulations,
and a bank's well capitalized status is not confidential supervisory
information and is publicly available, which will assist both the
Commission and the Universal Service Administrative Company (USAC or
the Administrator) in determining whether a support recipient's letter
of credit complies with program rules. Relying on these criteria will
promote transparency in how banks may qualify to issue LOCs for
Commission high-cost support programs because the standards for the
metrics are established by regulation. Further, as stewards of the USF,
the Commission has a responsibility to ensure that its programs'
expenditures are protected while minimizing disruption for support
recipients and their banks, and it concludes that using these criteria
will achieve its obligations.
As an additional safeguard, when future LOCs are submitted by
program recipients to demonstrate compliance with the Commission's
rules, it will also require a certification from a United States bank's
officer that the bank meets the criteria to be considered well
capitalized by at least one of the FDIC, the Federal Reserve, or the
OCC. The Commission directs the Administrator to confirm the bank's
status as well capitalized based on the four publicly-available
metrics. The certification from a United States bank's officer will
also serve as confirmation that the bank is not subject to any of the
enhanced regulatory scrutiny set forth in the banking agencies' rules
that would remove a bank from well capitalized status.
Numerous commenters supported the Commission using well capitalized
as the appropriate standard. The Commission disagrees with the
commenters who argued that banks that are merely ``adequately
capitalized'' under the financial regulations should also be allowed to
issue program LOCs. The Commission concludes that allowing only banks
that are well capitalized, which is the highest tier of capitalization
among the banks that are federally supervised, will provide an
appropriate level of assurance that the LOCs that are issued can be
relied upon, if needed. Although there are no regulatory penalties
associated with being adequately capitalized instead of well
capitalized, banks that are adequately capitalized but not well
capitalized are subject to additional requirements, such as more
frequent examinations, and a bank would need to exceed the well
capitalized standard to avoid certain capital restrictions. To avoid
any marginal risk associated with institutions that do not meet the
well capitalized standard, and because the vast majority of United
States banks are well capitalized, the Commission believes that
requiring this highest tier of capitalization best balances its need
for assurances of a bank's financial stability while allowing a large
number of banks to issue program LOCs.
The Commission disagrees with commenters who contend that it should
continue to use the Weiss ratings. The Commission believes, based on
its experience and the record before it, that the use of the Weiss bank
safety ratings has ultimately burdened RDOF and CAF II recipients and
their banks, and the significant number of banks whose Weiss safety
rating has fallen below a B- has forced numerous recipients to incur
additional time and expense to obtain LOCs from different banks or to
obtain a waiver of our rules. Since there are more banks that are well
capitalized--a criteria that also provides the Commission an
appropriate level of assurance regarding the bank's financial
stability--than there are banks that have a Weiss bank safety rating of
B- or better, modifying the Commission's bank qualification standard
will allow for more flexibility for program support recipients to
obtain and maintain LOCs from the bank of their choice without
sacrificing program integrity. There appear to be more than 4,000 banks
that are ``well capitalized'' under the Federal rules, which makes it
unlikely that the Commission's rule change would lead to disruption for
program support recipients, as it expects that any bank that has a
Weiss bank safety rating of B- or better will also be well capitalized.
Nor does the Commission find it reasonable or necessary to permit
reliance on banks with Weiss safety ratings of C- or better, as some
commenters suggested. While lowering the permissible minimum rating
from B- to C- would likely allow more United States banks to issue
program LOCs, the Commission believes that such a change is rendered
unnecessary given its adoption of the well capitalized criteria, which,
as explained in this document, allows more banks to qualify to issue
LOCs than the current Weiss B- rating threshold. Accordingly, the
Commission declines to continue to use the Weiss bank safety ratings at
any level.
Finally, the Commission declines to adopt the alternative methods
of evaluating a bank's reliability that were proposed in the record.
The Commission notes that adopting Bank of America's proposal of
allowing United States banks with a ``long-term unsecured credit rating
issued by a widely recognized credit rating agency that is equivalent
to a BBB- or better rating by Standard & Poor's'' would leave many
smaller banks ineligible to issue program LOCs, as many of these
smaller institutions are not rated by large Nationally Recognized
Statistical Rating Organizations. Preventing smaller banks from issuing
program LOCs would run counter to the Commission's original goal of
``expand[ing] the eligibility of banks to lower barriers to
participation in the auction for entities that may not otherwise be
able to obtain a letter of credit from a smaller pool of banks.''
Instead, allowing United States banks
[[Page 10458]]
that are ``well capitalized'' to issue program LOCs will best benefit
program recipients by allowing them to obtain and maintain LOCs from a
larger pool of United States banks while still serving the LOC
requirement's purpose of supporting program integrity by enabling the
Commission to recover funding if needed.
Transition Period. The Commission will provide a transition period
of six months from the effective date of this document, during which
providers may continue to obtain and maintain program LOCs and rely
upon the existing waiver of the Commission's rule requiring a Weiss
bank safety rating of B- or better. To enable this transition, on its
own motion, the Commission extends the Wireline Competition Bureau (the
Bureau's) waiver of the rules requiring a Weiss bank safety rating of
B- or better for those banks that previously qualified to issue letters
of credit to support recipients until the end of this transition
period. Without a waiver extension, impacted support recipients would
be required to obtain new letters of credit under the existing rules
even though a new standard will soon be in place. Generally, the
Commission's rules may be waived for good cause shown. Waiver of the
Commission's rules is appropriate only if both: (1) special
circumstances warrant a deviation from the general rule, and (2) such
deviation will serve the public interest. The Commission believes that
both circumstances are present here, because permitting the existing
waiver to lapse prior to the effective date of the amended rules would
require support recipients to incur significant costs and
administrative burdens to obtain new letters of credit, even though
their existing letters of credit may well meet the well capitalized
standard that will soon be in effect. A waiver will serve the public
interest by minimizing burdens on support recipients and permitting
them to focus on ensuring that they are prepared to comply with the
amended rules by the end of the transition period.
Additionally, support recipients whose letter of credit comes from
a bank that no longer meets the Commission's criteria as of the
effective date of the Order's adoption can continue to rely on the
existing letter of credit until such letter of credit expires. Put
differently, if the support recipient's LOC is from an ineligible bank,
based on the rule the Commission adopts herein, it will nonetheless
consider the LOC compliant until it expires and is up for renewal.
Additionally, banks will not need to certify that they are well
capitalized until the rules the Commission adopts in this document
become effective.
In the Letter of Credit NPRM (LOC NPRM), 89 FR 55542, July 5, 2024,
the Commission sought comment on allowing an RDOF recipient to lower
the value of its LOC when it deployed service to 10%, rather than 20%,
of its required locations by the end of its second year of support.
After considering the record, and the advantages of this proposal, the
Commission adopts this rule change.
Commenters almost universally supported this change and argued that
allowing an RDOF support recipient to reduce the value of its LOC to
one year of support after deploying service to 10% of required
locations by the end of its second year of support would free up
capital to facilitate more broadband deployment, while still requiring
proof of substantial network construction. The Coalition of RDOF
Winners supported allowing an LOC's value to be reduced if a support
recipient had deployed service to 10% of locations by the end of its
second year of support, but also argued that the support recipient
should be allowed to reduce its LOC upon certification that it has met
its deployment obligations, rather than needing to wait for USAC to
verify that deployment.
One commenter, GeoLinks, disagreed and argued that lowering this
threshold could introduce risk with regard to RDOF support recipients
that had only completed a ``minimal amount of network construction,''
and that 10% was not evidence of sufficient network construction to
justify an LOC reduction. GeoLinks also argued that there were
alternative ways, such as accelerated disbursement of RDOF support, to
more efficiently facilitate accelerated broadband deployment. However,
the Commission does not find GeoLinks' arguments persuasive.
GeoLinks has not provided specific examples of the type of behavior
that would lead the Commission to conclude that the LOC reduction it
adopts in this document would introduce risk. Based on the Commission's
experience administering RDOF and other high-cost programs, deploying
service to 10% of required locations by the end of the second year of
support shows sufficient progress and sufficiently demonstrates a
provider's intent to fulfill its deployment obligations. Further, the
permitted reduction in the value of the LOC will alleviate financial
burdens and in turn facilitate faster broadband expansion by freeing up
capital that can be directed to deployment. Also, the concerns raised
by GeoLinks are mitigated by the fact that this change has no impact on
the other required deployment milestones; all RDOF support recipients
still must deploy qualifying service to 40% of their required locations
by the end of their third year of support, and then continue to
progressively meet their next obligations, in order to maintain an LOC
at an amount equal to one year of support. Moreover, this adjustment
does not change the amount owed in the event that the Commission must
recover funds from a support recipient due to noncompliance.
At the same time, the Commission declines to allow an RDOF support
recipient to lower the value of its LOC upon certification of deploying
service to at least 10% of its locations by the end of its second year
of support, rather than upon USAC's verification of deployment. While
the Coalition of RDOF Winners argues that USAC's verification process
can be lengthy, the verification process, which may include follow-up
questions and requests for further documentation from USAC, is critical
to ensuring that reported broadband deployment is actually occurring.
The Commission has previously encouraged support recipients to report
their deployment on a rolling basis, and to certify their deployment
and start the verification process as soon as they are able. Once that
verification is complete, the support recipient may obtain and maintain
an LOC at a lower value as long as it continues to meet its deployment
and reporting obligations.
The Commission also declines Talkie Communications, Inc.'s request
to further modify (or waive) its rules to allow RDOF support recipients
that were authorized to receive funding during the first quarter of
2022 to immediately reduce the value of their LOCs to one year of their
support upon certification of deploying service to at least 10% of
their required locations. Talkie Communications' request would permit
it and other potentially similarly positioned recipients to
unilaterally reduce the value of the LOC even before USAC could conduct
a verification.
The relief provided in this document, which will allow providers to
lower the value of their LOCs to one year of support only upon the
completion of the verification process, strikes the appropriate balance
between relieving burdens on providers and ensuring that support
recipients only reduce the values of their letters of credit after
their deployment progress has been verified by an independent source,
rather than relying on the recipient's self-certification. Even though
the Commission denies Talkie's additional
[[Page 10459]]
request, the changes the Commission makes in this document will enable
Talkie to lower the value of its LOC sooner than it otherwise would
have been able under the originally adopted rule.
Additionally, the Commission is mindful that allowing for the
reduction of an LOC before any verification process has been completed
could ultimately undermine the critical role that the verification
process plays in ensuring that RDOF support recipients deploy service
to their required locations and preserving carriers' incentive to fully
cooperate during the verification process. Moreover, there is
ultimately no financial penalty for recipients who pass the
verification process. Other providers, to remain compliant with our LOC
rules, have been required to obtain new LOCs at increased values during
the pendency of USAC's verification process, and those support
recipients were then able to lower the values of their LOCs upon the
successful completion of that process.
In the LOC NPRM, the Commission sought comment on allowing all CAF
II support recipients that met each of their deployment and reporting
obligations to follow the RDOF LOC rules, which allow support
recipients that have met each of their deployment obligations to lower
the value of their LOCs to one year of their total support, in contrast
with the more modest reductions permitted under the CAF II LOC rules.
All commenters supported this proposal, which the Commission now
adopts.
In 2022, when the Bureau sought comment on extending the waiver of
the CAF II LOC rules, it proposed limiting that waiver with a more
``tailored'' approach by permitting application of the waiver to those
recipients that have deployed the supported broadband networks as
required. The Bureau ultimately adopted this proposal, reasoning that
the Commission will most likely need to draw on the LOCs of the CAF II
support recipients that have failed to comply with the program's
deployment obligations, reporting requirements, and other program rules
and deadlines. Therefore, when deciding to extend the waiver applying
the RDOF letter of credit rules to the CAF II program, the Bureau
limited the waiver relief only to the CAF II recipients with the lowest
risk of non-compliance as measured by the program's deployment and
reporting milestones. Accordingly, all CAF II support recipients that
are currently following the RDOF's LOC rules have met each of their
deployment and reporting deadlines.
The Commission will continue to allow those CAF II recipients that
have met each of their deployment and reporting deadlines to maintain
LOCs under the RDOF rules. These recipients have shown that they are in
compliance with the requirements of the CAF II program, and that this
reduction in the LOC amount will serve the public interest by freeing
up additional capital for these recipients, which will allow them to
more efficiently deploy broadband service throughout their service
areas.
Since the Bureau's existing waiver will end before the Commission's
amendments to Sec. 54.315(c)(1) of its rules take effect, the
Commission extends, on its own motion, the existing waiver to permit
CAF II recipients that have met each of their deployment and reporting
obligations to maintain LOCs pursuant to the RDOF rules until the
amended rule takes effect. Since the Commission's rules will soon be
changed and will at that point be consistent with the existing waiver
for certain CAF II support recipients, it will serve the public
interest to avoid requiring those providers from incurring the costs to
increase their letters of credit due to the end of the current waiver,
only to be permitted to lower them again when the rule changes adopted
in this document become effective.
The Commission declines to adopt several other proposals from
commenters for the reasons explained in the following.
LOC Requirement Term. In its comments, the Wireless internet
Service Provider Association (WISPA) argued that once a CAF II or RDOF
support recipient meets its 80% deployment obligation, it should be
allowed to retire its LOC. The Commission disagrees. While meeting its
80% deployment obligation is evidence of substantial progress, the
Commission believes that the security the LOC provides remains
necessary until a recipient has completed all of its deployment
obligations. The Commission notes, however, that RDOF support
recipients, and CAF II recipients that have met all of their deployment
and reporting obligations, are able to reduce the value of their LOCs
to one year of support as long as they have met their previous
deadlines, which will undoubtedly reduce the financial burden of
maintaining those LOCs.
Credit Unions. The Commission also declines at this time to adopt
any eligibility requirements for credit unions to issue program LOCs.
While credit unions may meet a ``well capitalized'' standard similar to
the one the Commission relies upon for banks, based on the record and
further review of how to determine whether a credit union is ``well
capitalized'', the Commission believes the administration of this
standard would pose additional challenges for the Administrator to
verify a credit union's capitalization status as compared to the status
of United States banks that are insured by the FDIC. The inclusion of
credit unions is therefore not sufficiently supported by the record and
the Commission declines to make this change at this time.
Surety Bonds. The Commission also declines to allow surety bonds in
lieu of LOCs. The Commission has previously considered and declined to
accept performance bonds for the programs, concluding that ``[LOCs]
permit the Commission to immediately reclaim support that has been
provided in the event the recipient is not furthering the objectives of
universal service by complying with the Commission's rules or
requirements. They also have the added advantage of minimizing the
possibility that the support becomes property of a recipient's
bankruptcy estate for an extended period of time, thereby preventing
the funds from being used promptly to accomplish our goals.'' While
some commenters supported allowing performance bonds instead of LOCs,
the Commission's previously articulated concerns regarding the
potential complications of relying on performance bonds continue to be
persuasive, and such changes seem unnecessary when the support
recipients in the programs at issue are already able to obtain LOCs,
with the rule amendments made earlier in the Order. In addition to
these concerns, allowing surety bonds to be used in the middle of an
ongoing program would not lead to efficient and effective program
administration.
LOC Requirements on Tribal Lands. Finally, the National Tribal
Telecommunications Association argues for Tribal-specific modifications
to our LOC requirements to facilitate broadband deployment on Tribal
lands. While the Commission is mindful of the specific challenges that
some Tribal carriers may face, the record does not show the need for
wholesale changes at this time to facilitate deployment on Tribal
lands, and the Commission believe that those challenges are best
addressed on an individual basis. Additionally, making wholesale
changes to our rules in the middle of an ongoing program would be
unnecessary and could create confusion for support recipients. Given
the difficulties some Tribal carriers have collateralizing
[[Page 10460]]
assets to support a LOC, however, the Commission will consider waiving
the relevant LOC requirements on an individual basis consistent with
its waiver standard, and the Commission does not foreclose examining in
future support programs whether Tribal carriers should be permitted to
rely on alternatives to LOCs.
II. Procedural Matters
A. Paperwork Reduction Act Analysis
This document does not contain new or substantively modified
information collection requirements subject to the Paperwork Reduction
Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does
not contain any new or modified information collection burden for small
business concerns with fewer than 25 employees, pursuant to the Small
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4). A non-substantive change was approved by the Office
of Management and Budget (OMB) on January 15, 2025.
B. Congressional Review Act
The Commission has determined, and the Administrator of the Office
of Information and Regulatory Affairs, OMB, 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 the Order to Congress and the Government
Accountability Office pursuant to 5 U.S.C. 801(a)(1)(A).
As required by the Regulatory Flexibility Act of 1980 (RFA) an
Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the
LOC NPRM released in June 2024. The Commission sought written public
comment on the proposals in the LOC NPRM, including comment on the
IRFA. No comments were filed addressing the IRFA. This Final Regulatory
Flexibility Analysis (FRFA) conforms to the RFA.
The Order makes targeted modifications to the requirements for LOCs
that recipients of USF high cost support awarded through a competitive
process must obtain. Rapidly deploying broadband to areas that
currently do not have access to it is a key goal of the Commission's
high cost programs that award support through competitive bidding
processes. In order to ensure that the Commission's investments are
protected, it requires support recipients to obtain and maintain LOCs.
The Order takes steps to ensure that USF high-cost support
recipients have a wider range of banks from which they can obtain and
maintain LOCs by modifying requirements that apply to recipients of USF
high-cost support awarded through competitive mechanisms to define a
United States bank as ``acceptable to the Commission,'' if it is
insured by the FDIC and if it meets the criteria to be considered
``well capitalized'' by Federal bank supervisory agencies.
Additionally, the Commission allows RDOF support recipients to lower
the value of their LOC if they've deployed service to 10% of their
required locations, rather than 20%, by the end of their second year
support, and it allows CAF II support recipients that have met each of
their deployment and reporting obligations to follow the RDOF's LOC
rules. Each of these changes will free up capital for program support
for small and other recipients, and will help them more efficiently
deploy broadband services in areas that need it.
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 Small Business
Administration (SBA).
Small Businesses, Small Organizations, and Small Governmental
Jurisdictions. The Commission's actions, over time, may affect small
entities that are not easily categorized at present. The Commission
therefore describes, at the outset, three broad groups of small
entities 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 SBA
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 33.2 million businesses.
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.''
The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000
or less to delineate its annual electronic filing requirements for
small exempt organizations. Nationwide, for tax year 2022, there were
approximately 530,109 small exempt organizations in the U.S. reporting
revenues of $50,000 or less according to the registration and tax data
for exempt organizations available from the IRS.
Finally, the small entity described as a ``small governmental
jurisdiction'' is defined generally as ``governments of cities,
counties, towns, townships, villages, school districts, or special
districts, with a population of less than fifty thousand.'' U.S. Census
Bureau data from the 2022 Census of Governments indicate there were
90,837 local governmental jurisdictions consisting of general purpose
governments and special purpose governments in the United States. Of
this number, there were 36,845 general purpose governments (county,
municipal, and town or township) with populations of less than 50,000
and 11,879 special purpose governments (independent school districts)
with enrollment populations of less than 50,000. Accordingly, based on
the 2022 U.S. Census of Governments data, the Commission estimates that
at least 48,724 entities fall into the category of ``small governmental
jurisdictions.''
Small entities potentially affected by the rules herein include
Wired Telecommunications Carriers, Local Exchange Carriers (LECs),
Incumbent Local Exchange Carriers (Incumbent LECs), Competitive Local
Exchange Carriers (CLECs), Interexchange Carriers (IXCs), Local
Resellers, Toll Resellers, Other Toll Carriers, Prepaid Calling Card
Providers, Fixed Microwave Services, Cable and Other Subscription
Programming, Cable Companies and Systems (Rate Regulation), Cable
System Operators (Telecom Act Standard), Radio and Television
Broadcasting and Wireless Communications Equipment Manufacturing,
Satellite Telecommunications, Wireless Telecommunications Carriers
(except Satellite), All Other Telecommunications, Wired Broadband
Internet Access Service Providers (Wired ISPs), Wireless Broadband
Internet Access Service Providers (Wireless ISPs or WISPs), Internet
Service Providers (Non-Broadband), All Other Information Services.
The Order modifies existing reporting, recordkeeping, and
compliance obligations for USF high-cost recipients awarded through
competitive mechanisms. Specifically, the Commission adopts an
alternative method of evaluating a bank's ability to provide a LOC to
winners of Auction 903 and 904 support, along with
[[Page 10461]]
winners of 5G Fund auctions. These recipients will now be required to
obtain LOCs from United States banks that are insured by the FDIC and
that meet the criteria to be considered ``well capitalized'' by Federal
bank supervisory agencies, instead of relying on Weiss bank safety
ratings, which limit the number of acceptable banks. The Order will
allow more banks to issue program LOCs, and will allow small and other
program support recipients to lower the value of the LOCs they are
required to maintain. The Commission also allows Auction 904 support
recipients who have deployed service to at least 10% of their required
locations by the end of their second year of support to lower the value
of their LOCs. Finally, the Commission allows Auction 903 support
recipients that have met their deployment and reporting obligations to
maintain LOCs in accordance with Auction 904's rules.
The changes in the Order are intended to reduce the administrative
burden on small and other recipients of Auctions 903 and 904 support
and 5G Fund support. The changes will allow support recipients,
including small entities, to minimize their expenses by maintaining
their existing LOC with the bank that issued it, instead of obtaining a
new one. As a result of these changes, if there is an economic impact
on small entities, the Commission expects the impact to be a positive
one. These changes would not add any additional compliance requirements
for small entities, or additional costs for professional skills,
because support recipients are already required to maintain LOCs under
the current rules.
The requires an agency to provide, ``a description of the steps the
agency has taken to minimize the significant economic impact on small
entities . . . including a statement of the factual, policy, and legal
reasons for selecting the alternative adopted in the final rule and why
each one of the other significant alternatives to the rule considered
by the agency which affect the impact on small entities was rejected.''
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 small and other carriers. For example,
the Commission now allows any bank that is ``well capitalized'' to
evaluate a bank's fitness to issue program LOCs, instead of using the
previously required Weiss ratings. This will expand the pool of
eligible banks which will increase the flexibility for all program
support recipients, including small entities.
The Commission also considered alternatives to its existing rules,
by seeking comment on alternative standards that could be used to
evaluate the health and suitability of a bank. For example, Bank of
America proposed on alternative method of determining a bank's
eligibility that includes the current Weiss rating of B- or better or a
long-term unsecured credit rating issued by a widely-recognized credit
rating agency that is equivalent to a BBB- or better rating by Standard
& Poor's, which is the requirement for non-U.S banks. WISPA proposed
that CAF II or RDOF support recipients that met 80% of their
obligations should be allowed to retire their LOCs, instead of the
current requirement for completing all deployment obligations. Other
alternatives proposed allowing banks that were ``adequately
capitalized'' or those with lower Weiss ratings to issue LOCs. The
Commission disagrees with these and other alternative proposals. The
``well capitalized'' standard allows the Commission to honor its
responsibility to ensure that its programs' expenditures are protected,
while minimizing disruption for support recipients and their banks.
Retaining the requirement that support recipients maintain LOCs until
all deployment obligations are met provides security that funding is
protected until these obligations are complete. Some alternative
proposals would reduce the ability of smaller banks to be eligible to
provide LOCs, which is counter to our goal of expanding eligibility of
banks, and may lower barriers to participation for small and other
entities. In light of the economic burdens that auction support
recipients could face by being required to obtain new LOCs from
different banks, the Commission considered the most effective ways of
allowing those support recipients to maintain their LOCs with the banks
that originally issued them, as long as they are confident that the
bank's economic health is sufficient. This change will free up capital
to support small and other recipients which will allow them to more
efficiently deploy broadband service.
The Commission also allowed RDOF support recipients that deployed
service to 10% of their required locations by the end of their second
year of support to reduce the value of their LOC to one year of their
totally support, upon USAC's verification. Commenters opposed to these
changes did not provide alternatives or specific examples of behavior
that would lead the Commission to conclude this reduction would be
inappropriate. Further, the USAC verification process is critical to
ensuring that broadband deployment is actually occurring. Finally, the
Commission allowed Auction 903 support recipients that have met all of
their deployment and reporting obligations to continue to follow the
RDOF's LOC rules, which will allow small and other Auction 903 support
recipients that have met their obligations to free up additional
capital and more efficiently deploy broadband service.
III. Ordering Clauses
Accordingly, it is ordered, pursuant to the authority contained in
sections 4(i), 5(c), 214, 254, 303(r), and 403 of the Communications
Act of 1934, as amended, 47 U.S.C. 154(i), 155(c), 214, 254, 303(r),
and 403, and Sec. Sec. 1.1, 1.3, and 1.421 of the Commission's rules,
47 CFR 1.1, 1.3, and 1.425, that the Order is adopted.
It is further ordered, pursuant to sections 1, 4(i), 5(c), and 254
of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i),
155(c), 254, and Sec. 1.3 of the Commission's rules, 47 CFR 1.3, that
47 CFR 54.315(c)(2)(i)(B), 54.804(c)(2)(i)(B), and 54.1508(c)(1)(ii) of
the Commission's rules are waived to the limited extent provided herein
and pursuant to Sec. 1.103(a) of the Commission's rules, 47 CFR
1.103(a), such waiver shall be effective upon release.
It is further ordered that the Petition for Waiver filed by Talkie
Communications, Inc., is denied as described herein.
It is further ordered that part 54 of the Commission's rules is
amended as set forth in this document, and that rule amendments to
Sec. Sec. 54.315(c)(2)(i)(B); 54.804(c)(2)(i)(B); 54.1016(a)(2)(i)(B);
and 54.1508(c)(1)(ii) shall be effective six months after publication
of this item in the Federal Register.
It is further ordered that part 54 of the Commission's rules is
amended as set forth in this document, and that all other rule
amendments shall be effective 30 days after publication in the Federal
Register.
List of Subjects in 47 CFR Part 54
Communications common carriers, Health facilities, Infants and
children, Internet, Libraries, Puerto Rico, Reporting and recordkeeping
requirements, Schools, Telecommunications, Telephone, Virgin Islands.
[[Page 10462]]
Federal Communications Commission.
Marlene Dortch,
Secretary.
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, 1302, 1601-1609, and 1752, unless
otherwise noted.
0
2. Amend Sec. 54.315 by adding paragraph (c)(1)(iii) and revising
paragraph (c)(2)(i)(B) to read as follows:
Sec. 54.315 Application process for Connect America Fund phase II
support distributed through competitive bidding.
* * * * *
(c) * * *
(1) * * *
(iii) A recipient that has met each of its deployment and reporting
obligations may obtain a new letter of credit that follows the Rural
Digital Opportunity Fund's rules as set forth in Sec. 54.804(c)(1)(v).
(2) * * *
(i) * * *
(B) That is well capitalized, as defined by Federal bank
regulations promulgated by the Federal Deposit Insurance Corporation,
the Federal Reserve, and the Office of the Comptroller of the Currency;
or
* * * * *
0
3. Amend Sec. 54.804 by revising paragraph (c)(2)(i)(B) to read as
follows:
Sec. 54.804 Rural Digital Opportunity Fund application process.
* * * * *
(c) * * *
(2) * * *
(i) * * *
(B) That is well capitalized, as defined by Federal bank
regulations promulgated by the Federal Deposit Insurance Corporation,
the Federal Reserve, and the Office of the Comptroller of the Currency;
or
* * * * *
0
4. Amend Sec. 54.1016 by revising paragraph (a)(2)(i)(B) to read as
follows:
Sec. 54.1016 Letter of credit.
(a) * * *
(2) * * *
(i) * * *
(B) That is well capitalized, as defined by Federal bank
regulations promulgated by the Federal Deposit Insurance Corporation,
the Federal Reserve, and the Office of the Comptroller of the Currency;
or
* * * * *
0
5. Amend Sec. 54.1508 by revising paragraph (c)(1)(ii) to read as
follows:
Sec. 54.1508 Letter of credit for stage 2 fixed support recipients.
* * * * *
(c) * * *
(1) * * *
(ii) That is well capitalized, as defined by Federal bank
regulations promulgated by the Federal Deposit Insurance Corporation,
the Federal Reserve, and the Office of the Comptroller of the Currency;
or
* * * * *
[FR Doc. 2025-02953 Filed 2-21-25; 8:45 am]
BILLING CODE 6712-01-P