July 11, 2019 – Federal Communications Commission Chairman Ajit Pai has announced that the Commission will consider a Notice of Proposed Rulemaking at its August 2019 open meeting to formally establish the Rural Digital Opportunity Fund (RDOF).[1] Chairman Pai first made the announcement of the RDOF NPRM in the FCC’s official blog.[2] A copy of the draft RDOF NPRM is available to the public on the FCC’s website.

Using a multi-round reverse-auction, the RDOF will provide at least $20.4 billion over the next 10 years to fund the construction of new broadband networks in rural America. The auction will favor faster broadband services with lower latency. The FCC is targeting RDOF funding to the more than 10 million households and small businesses in price cap areas that still lack access to broadband services at speeds of at least 25 megabits per second (Mbps) downstream and 3 Mbps upstream; more than 7 million of which are located in rural areas.[3] Stated another way, the areas that will be eligible for RDOF support are those areas that lack 25/3 Mbps broadband service.

RDOF support will be distributed in two phases: Phase I of the RDOF will focus on those areas of the country that are wholly unserved, and Phase II will target (1) any areas not won in Phase I, and (2) census blocks that are partially served once the FCC has granular information about which areas are already served with broadband. The FCC expects to adopt a new “Digital Opportunity Data Collection” item at its August 2019 open meeting that will result in the collection of geospatial broadband coverage maps from Internet service providers which will facilitate Phase II of the RDOF auction.[4]

In general, the RDOF auction will be very similar to the Connect America Fund (CAF) Phase II auction. Bids will be weighted pursuant to three performance tiers and two latency tiers. There will be a two-step application process in which applicants will file a short-form to gain eligibility to participate, with winning bidders required to submit a more detailed long-form application following the close of the auction. Entities that have not been designated as eligible telecommunications carriers (ETCs) will be able to participate on the condition that they obtain ETC designation within a certain timeframe following the announcement that they are winning bidders. Deployment milestones and noncompliance penalties mirror those used for the CAF II auction.

The FCC believes the CAF II auction was a major success, and that belief is evident in how similar the proposed RDOF framework is to the CAF II auction. For that reason, many of the same entities that participated in the CAF II auction will undoubtedly participate in the RDOF auction. Even more WISPs and Electric Companies will likely participate.

In light of the similarities between the CAF II auction and the proposed RDOF auction framework, when comments are eventually filed in response to the NPRM, there will likely be many stakeholders that push for more stringent disclosure requirements on the front end of the application process. Why is that? Following the close of the CAF II auction, the FCC was very quick to declare the auction a success. Some unsuccessful participants and other stakeholders, however, were more tempered in their assessments of the CAF II auction results. There were a number of CAF II participants that won a large amount of support based on commitments to provide a level of service they have never before provided, and those same winners committed to serve areas immensely larger than their current service areas. On top of that, most of those winners expect to use fixed wireless technologies that, based on a number of factors, have not been completely proven to be able to consistently deliver the high speeds to which the winning bidders have committed. These concerns were brought up during the proceeding that crafted the CAF II auction, but became much more illuminated after the auction ended and winners submitted long-form applications. To be clear, these concerns are real and need to be addressed during the RDOF auction establishment and implementation processes. Look for these concerns to be a major issue raised by many commenters.

Putting that aside, let’s take a look at the proposed details of the RDOF. Below is a summary of the main parts of the RDOF NPRM:

Phase I – Unserved Areas: Phase I of the RDOF will focus on those areas of the country that are wholly unserved. Of the $20.4 billion RODF budget, the FCC proposes to make available at least $16 billion for Phase I. The $16 billion amount reflects the sum of the total amount of CAF Phase II model-based support currently received by price cap carriers ($1.5 billion per year) and the support amount the FCC once envisioned for the Remote Areas Fund (at least $100 million per year). The FCC proposes to make the following seven areas initially eligible for Phase I of the RDOF auction:

• Census blocks for which price cap carriers currently receive CAF Phase II model-based support.

• Census blocks that were eligible for, but did not receive, winning bids in the CAF Phase II auction.

• Census blocks where a CAF Phase II auction winning bidder has defaulted.

• 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.

• Census blocks served by both price cap carriers and rate-of-return carriers to the extent that census block is in the price cap carrier’s territory. The FCC proposes to use 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.

• Census blocks that are currently unserved outside of price cap carriers where there is no certified high-cost ETC providing service, such as the Hawaiian Homelands, and any other populated areas unserved by either a rate-of-return or price cap carrier.

• Census blocks identified by rate-of-return carriers as ones where they do not expect to extend broadband.[5]

Phase II – Unserved and Partially Served Areas: Phase II will target (1) any areas not won in Phase I, and (2) census blocks that are partially served once the FCC has granular information about which areas are already served with broadband. Of the $20.4 billion RODF budget, the FCC proposes to make $4.4 billion available for Phase II, as well as any unawarded funds from Phase I.

RDOF Framework & Goals: The FCC is seeking comment on the overall approach in establishing the RDOF, and the four goals that will guide its implementation:

• (1) ensuring that high-speed broadband is made available to all Americans quickly, and at an affordable price;

• (2) reducing waste and inefficiency in in the high-cost program and promoting the use of incentive-based mechanisms to award support;

• (3) requiring accountability to ensure that public investments are used wisely to deliver intended results; and

• (4) minimizing the contribution burden.

Budget: The FCC is seeking comment on RDOF budget and its analysis of costs to deploy broadband to unserved areas. The FCC’s proposes a budget of at least $20.4 billion for the RDOF, which is premised on the Connect America Cost Model (CAM) estimated cost of deploying a high-speed broadband network to all locations in wholly unserved price cap census blocks that exceed the existing high-cost threshold of $52.50 per-location per-month, and with that cost capped at $198.60. These census blocks are considered wholly unserved because no provider is offering both voice service as well as 25/3 Mbps terrestrial fixed broadband service. The FCC estimates that there are 3.9 million locations in these census blocks.

Auction Format: The FCC proposes to use a reverse auction mechanism that is substantially similar to the CAF Phase II auction to distribute RDOF support. Specifically, the FCC proposes to use a multi-round, descending clock auction to identify the providers that will be eligible to receive support and to establish the amount of support that each bidder will be eligible to receive using procedures substantially similar to those used in the CAF Phase II auction. Bids for different areas at specified performance tier and latency levels will be compared to each other based on area reserve prices, and tier and latency weights. Likewise, the FCC proposes to use weights to account for the different characteristics of service offerings that bidders propose to offer when ranking bids. Bids for different service tiers will be considered simultaneously, so bidders that propose to meet one set of performance standards will be directly competing against bidders that propose to meet other performance standards.[6]

Auction Format – Minimum Geographic Bidding Unit: The FCC is seeking comment on whether census block groups containing one or more eligible census blocks is an appropriate minimum geographic unit for bidding for the RDOF. Given that the RDOF auctions will be much larger than the CAF Phase II auction, the FCC asks whether a larger minimum geographic unit, like census tracts or counties, would be more manageable.

Deployment Obligations – Bidding Performance Tiers: The FCC proposes to permit bids in three performance tiers: Baseline, Above-Baseline, and Gigabit. These performance tiers have the same speed and usage allowance requirements as the CAF Phase II auction. Baseline performance means 25/3 Mbps speeds with a 150 gigabytes (GB) monthly usage allowance or a monthly usage allowance that reflects the average usage of a majority of fixed broadband customers, whichever is higher. Above-Baseline performance means 100/20 Mbps speeds with 2 terabytes (TB) of monthly usage. Gigabit performance means 1 Gbps/500 Mbps speeds with a 2 TB monthly usage allowance. The FCC also proposes to allow bidders to place low latency or high latency bids meeting 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 four or higher using the Mean Opinion Score with respect to voice performance.[7]

Broadband Performance Testing: The FCC proposes subjecting RDOF support recipients to the same framework for measuring broadband speed and latency performance and the accompanying compliance framework as are applicable to all other recipients of high-cost universal service support required to serve fixed locations.[8]

Weighted Bids: As in the CAF Phase II auction, the FCC proposes using weights to reflect a preference for higher broadband speeds, higher usage allowances, and low latency. The FCC proposes the following performance tier weights: 50 for the Baseline performance tier; 25 for the Above Baseline performance tier; and 0 for the Gigabit performance tier. The FCC proposes the following latency weights: 40 for high latency bids and 0 for low latency bids.[9]

Fixed Broadband Technology Neutral: Authorized support recipients would have the flexibility to use any fixed broadband technology to meet the required performance obligations and service milestones associated with their winning bids.

Voice Service Requirement: RDOF support recipients will be required to offer standalone voice service.

Service Offered At Reasonable Rates: RDOF support recipients will be required to offer voice and broadband services at rates that are reasonably comparable to rates offered in urban areas.

Broadband Service Deployment Milestones: The FCC proposes to adopt the same service milestones for the RDOF that were used for the CAF Phase II auction. Specifically, the FCC proposes that support recipients complete construction and commercially offer voice and broadband service to 40% of the requisite number of locations in a state by the end of the third year of funding authorization, and an additional 20% in subsequent years, with 100% by the sixth year.[10] Comment is sought on whether the FCC should alternatively 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 of funding authorization.

Deployment Flexibility – 95%: RDOF support recipients will have some flexibility in their service obligations to address unforeseeable challenges to meeting those obligations, with a corresponding support reduction, similar to what was done for CAF Phase II auction support recipients. Specifically, RDOF support recipients that have offered service to at least 95%, but less than 100%, of the number of funded locations at the end of the support term will be required to refund support based on the number of funded locations left unserved in that state.[11]

Reporting Requirements: The FCC proposes to adopt the same reporting requirements for the RDOF that were adopted for the CAF Phase II auction. Specifically, the FCC proposes requiring RDOF recipients to annually file the same location and technology data in the HUBB and to make the same certifications when they have met their service milestones. The FCC also proposes requiring RDOF support recipients to file the same information in their annual FCC Form 481s that are required of CAF Phase II auction support recipients.[12]

Non-Compliance Penalty Measures: The FCC proposes to apply the same non-compliance measures that are applicable to all high-cost ETCs, the framework for support reductions that is applicable to high-cost ETCs that are required to meet defined service milestones, and the process the FCC adopted for drawing on letters of credit for the CAF Phase II auctions.[13]

Additional Performance Targets: The FCC is seeking comment on whether it should adopt additional performance targets to provide better incentives for RDOF support recipients to sign up customers in the eligible areas. Specifically, the FCC is seeking comment on how to ensure that support recipients have sufficient incentives for support recipients to pursue customers in eligible areas.[14]

Initial List Of Eligible Areas – Excluded Census Blocks – Challenge Process: For all census blocks on the initial list of eligible areas, the FCC proposes to exclude those census blocks where a terrestrial provider offers voice and 25/3 Mbps broadband service, using the most recent publicly available FCC Form 477 data to identify these areas. The FCC proposes to exclude census blocks where a winning bidder in the CAF Phase II auction is obligated to deploy broadband service. The FCC proposes to conduct a challenge process for the RDOF Phase I auction consistent with the process the FCC conducted for the CAF Phase II auction, in which the Wireline Competition Bureau released a preliminary list and map of initially eligible census blocks based on the most recent publicly available FCC Form 477 data.[15] The FCC proposes to include in the RDOF Phase I auction census blocks in which the price cap carrier receiving model-based support is the only terrestrial provider reporting the deployment of 25/3 Mbps broadband service in that block, but has not deployed such service to all locations in the block. In these cases, the price cap carrier could have deployed 10/1 Mbps service to some locations and 25/3 Mbps broadband service to other locations, or the price cap carrier could have deployed only 25/3 Mbps service but the number of deployed locations is less than the number determined by the CAM for the block. If HUBB data show that all locations in such a census block, as determined by the CAM, are receiving 25/3 Mbps broadband service from a price cap carrier, the FCC would not include such a census block in the auction as it would appear to be wholly served.[16]

High-Cost & Extremely-High-Cost Locations Included: As in the CAF Phase II auction, the FCC proposes to include both high-cost (i.e., those where the CAM estimates the cost per location to exceed $52.50 per month) and extremely-high cost locations (i.e., those where the CAM estimates the cost per location to equal or exceed $198.60 per month) in the RDOF auction.[17]

Some Low Cost Census Blocks Included: The FCC proposes to include at least some census blocks where the CAM suggests the costs of deployment are below the high-cost threshold but deployment has nonetheless not yet occurred. The FCC proposes to include at least two subsets of such census blocks. First, the FCC proposes to include census blocks on Tribal lands meeting a $39.38 per month benchmark, which reflects a 25% decrease compared to the $52.50 funding benchmark for locations in non-Tribal census blocks. Second, the FCC seeks comment on including how to include other wholly unserved census blocks with estimated costs below the $52.50 benchmark.[18]

Reserve Prices: For Phase I of the RDOF auction, the FCC proposes to use the CAM to determine the reserve prices and number of locations for each area eligible for support in the auction.[19]

Possible Tribal Bidding Credit: The FCC is seeking comment on including a Tribal bidding credit to incentivize parties in the RDOF auction to bid on and serve Tribal census blocks.[20]

Short-Form & Long-Form Application Process: The FCC proposes to adopt generally the same two-step application process that was used for the CAF Phase II auction – short-form to participate and then a long-form application for winning bidders.[21]

Short-Form Application Requirements: RDOF auction applicants will be required to provide information about ownership and agreements to establish their identity.[22] An RDOF applicant will be required certify that it is technically and financially capable of meeting public interest obligations in each area for which it seeks support.[23] All RDOF applicants will be required to indicate the performance tier and latency for the bids that they plan to make and describe the technology or technologies that will be used to provide service for each bid.[24] If an applicant intends to use spectrum to offer voice and broadband services, the applicant will be required to indicate the spectrum bands and total amount of uplink and downlink bandwidth (in megahertz) that it has access to for the last mile for each performance tier and latency combination it selected in each state. An applicant also must disclose whether it currently holds licenses for or leases spectrum.[25] An applicant must provide various information to demonstrate its operational experience and financial qualifications to participate in the RDOF auction.[26] The FCC proposes that each applicant make the following due diligence 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.[27] Finally, the FCC is seeking comment on whether to require less technical and financial information at the short-form stage from applicants that are existing providers – those entities that have been offering a voice and/or broadband service for a certain period of time as demonstrated by FCC Form 477 data.[28]

Long-Form Application Requirements: The FCC proposes that each RDOF winning bidder submit a long-form application, which will be reviewed to determine whether the winning bidder meets the eligibility requirements for receiving RDOF support and has the financial and technical qualifications to meet the obligations associated with such support. Consistent with the CAF Phase II auction, in its long-form application, each Rural Digital Opportunity Fund winning bidder will be required to submit information about its qualifications, funding, and the network it intends to use to meet its obligations. Prior to being authorized to receive RDOF support, each winning bidder will be required to demonstrate that it has been designated as an ETC in the areas for which it is a winning bidder and obtain a letter of credit from a bank meeting the FCC’s eligibility requirements. Comment is sought on these proposals and on whether any changes should be made to the long-form application process for the RDOF.[29]

Auction Forfeiture: If a winning bidder is not authorized to receive RDOF support – fails to file or prosecute its long-form application or its long-form application is dismissed or denied – the FCC proposes that the winning bidder would be in default and subject to the same forfeitures as CAF Phase II auction long-form applicants.[30]

Letter Of Credit: For the RDOF, the FCC proposes to adopt the same letter of credit rules used for the CAF Phase II auction.[31] Specifically, the FCC proposes that an RDOF long-form applicant be required to obtain an irrevocable stand-by letter of credit that is issued in substantially the same form as set forth in the FCC’s Phase II Auction Order model letter of credit and that a long-form applicant submit a bankruptcy opinion letter from outside legal counsel. The FCC also proposes that the letter of credit be issued by a bank that meets the same CAF Phase II auction bank eligibility rules. Additionally, the FCC proposes that before an RDOF winner can receive their next year’s support, it will be required to modify, renew, or obtain a new letter of credit to ensure that it is valued at a minimum of the total amount of money that has already been disbursed plus the amount of money that is going to be provided in the next year.[32]

Eligible Telecommunications Carrier Designation: The FCC proposes to adopt the same ETC designation procedures for the RDOF that were used for the CAF Phase II auction. The FCC proposes that service providers that want to apply to bid in the RDOF auction will not be required to be ETCs, but that long-form applicants will be required, within 180 days of the release of the public notice announcing winning bidders, to obtain an ETC designation from the relevant state commission, or the FCC if the state commission lacks jurisdiction, that covers the areas where they won support.[33] The FCC proposes it waive the deadline where long-form applicants demonstrate good faith efforts to obtain their ETC designations, but the proceeding is not complete by the deadline. Good faith would be presumed if the long-form applicant filed its ETC application with the relevant authority within 30 days of the release of the public notice announcing winning bidders.[34] Additionally, the FCC proposes to forbear from the statutory requirement that the ETC service area of an RDOF participant conform to the service area of the rural telephone company serving the same area.

Transitioning Price Cap Carrier Support In RDOF Areas: The FCC is seeking comment on two transitions that may occur as a result of the RDOF.[35] First, the FCC proposes a process for transitioning incumbent price cap carriers from legacy high-cost support in areas where RDOF support is awarded. Second, the FCC proposes a process for transitioning price cap carriers from CAF Phase II model-based support in areas where RDOF support is awarded.

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[1] Rural Digital Opportunity Fund, WC Docket No. 19-126, Connect America Fund, WC Docket No. 10-90, Notice of Proposed Rulemaking, FCC-CIR1908-01 (July 11, 2019) (Draft NPRM), available at https://docs.fcc.gov/public/attachments/DOC-358432A1.pdf. The FCC has created WC Docket No. 19-126, captioned “Rural Digital Opportunity Fund,” for all related public filings and FCC items.

[2] When Opportunity Knocks, FCC Chairman Ajit Pai, FCC Blog (July 10, 2019), https://www.fcc.gov/news-events/blog/2019/07/10/when-opportunity-knocks. The RDOF was first announced by Commissioner Pai at a White House even in April 2019. See Remarks Of FCC Chairman Ajit Pai At The White House Washington, DC (Apr. 12, 2019), https://docs.fcc.gov/public/attachments/DOC-356994A1.pdf.

[3] Draft NPRM at ¶3 (citing Staff analysis of Connect America Cost Model and December 2017 FCC Form 477 data (v.2) (includes revisions through Mar. 26, 2019), available at https://www.fcc.gov/general/broadband-deployment-data-fcc-form-477.)

[4] Establishing the Digital Opportunity Data Collection, WC Docket No. 19-195, Modernizing the FCC Form 477 Data Program, WC Docket No. 11-10, Report And Order And Second Further Notice Of Proposed Rulemaking, FCCCIRC 1908-02 (July 11, 2019), available at https://docs.fcc.gov/public/attachments/DOC-358433A1.pdf.

[5] Draft NPRM at ¶44.

[6] Draft NPRM at ¶20.

[7] Draft NPRM at ¶23.

[8] Draft NPRM at ¶26; See Connect America Fund, WC Docket No. 10-90, Order, DA 18-710 (July 6, 2018).

[9] Draft NPRM at ¶25.

[10] Draft NPRM at ¶28. 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. See Wireline Competition Bureau Provides Guidance To Carriers Receiving Connect America Fund Support Regarding Their Broadband Location Reporting Obligations, WC Docket No. 10-90, Public Notice, DA 16-1363 (Dec. 8,2016).

[11] Draft NPRM at ¶29.

[12] Draft NPRM at ¶30.

[13] See 47 C.F.R. § 54.320(d)(1)(i)-(iv).

[14] Draft NPRM at ¶¶38-42.

[15] Draft NPRM at ¶46.

[16] Draft NPRM at ¶47; footnote 87.

[17] Draft NPRM at ¶48.

[18] Draft NPRM at ¶¶49-51.

[19] Draft NPRM at ¶¶52-29.

[20] Draft NPRM at ¶¶60-62.

[21] Draft NPRM at ¶¶63-66.

[22] Draft NPRM at ¶68.

[23] Draft NPRM at ¶69.

[24] Draft NPRM at ¶70.

[25] Draft NPRM at ¶71.

[26] Draft NPRM at ¶72.

[27] Draft NPRM at ¶76.

[28] Draft NPRM at ¶78.

[29] Draft NPRM at ¶80.

[30] Draft NPRM at ¶81.

[31] Draft NPRM at ¶¶82-87.

[32] Draft NPRM at ¶83.

[33] Draft NPRM at ¶88.

[34] Draft NPRM at ¶89.

[35] Draft NRPM at ¶¶92-101.