January 9, 2020 – The Federal Communications Commission (FCC) has released a draft Report and Order which establishes a framework for the Rural Digital Opportunity Fund (RDOF).[1] The FCC will vote on the item during its open meeting on January 30, 2020.

Much of the RDOF framework is similar to what was originally proposed in the August 2019 Notice of Proposed Rulemaking, but with more focus on driving funding toward the deployment of networks that provide higher speeds and low latency.[2] At this point, everyone should understand that fiber is the future. Funding should go to the deployment of future-proof broadband networks, which is one of the RDOF’s goals.

The RDOF will commit up to $20.4 billion over a ten-year period to support the deployment of broadband networks to areas in rural America that are wholly unserved by broadband service at speeds of at least 25/3 Mbps and areas that are partially served by that level of service. Funding will be allocated using a multi-round, reverse, descending clock auction that favors faster services with lower latency and encourages intermodal competition. The RDOF will distribute funding in two phases. Phase I – $16 billion – will target areas that current data confirm are wholly unserved. Phase II – $4.4 billion – will target unserved locations within areas that data demonstrates are only partially served, as well as any areas not won in Phase I.

The information below summarizes the basic framework for Phase I of the RDOF.[3]

RDOF Goals

The RDOF is designed to achieve two goals – close the digital divide and support the deployment of future-proof broadband networks.[4]

Total RDOF Budget

The RDOF will have a total budget of $20.4 billion. Of that amount, $16 billion will be available for Phase I. The remaining $4.4 billion, along with any unawarded funds from Phase I, will be available for Phase II. After the close of Phase I, however, the FCC expects to review the total amount of funds available for Phase II. At that time, the FCC will have a better understanding of the areas eligible for Phase II and how many Phase I unserved locations will be eligible for Phase II. The RDOF will provide support over a term of 10 years.

Areas Eligible For Support – Phase I

Phase I of the RDOF will target support to census blocks that are wholly unserved with broadband at speeds of 25/3 Mbps. Furthermore, census blocks without 10/1 Mbps broadband service will be prioritized over census blocks that have 10/1 Mbps service, but lack service at speeds of at least 25/3 Mbps.

Areas Eligible For Support – Phase II

RDOF Phase II will target census blocks that are determined through the Digital Opportunity Data Collection to be only partially served by 25/3 Mbps broadband service, as well as census blocks unawarded in the Phase I auction.

Phase I – Preliminary List Of RDOF Eligible Areas

To identify census blocks that are unserved with 25/3 Mbps broadband service, the Wireline Competition Bureau will use the Connect America Cost Model (CAM) that has been updated with the most recent FCC Form 477 coverage data. According to the FCC, there currently is no alternative source of publicly available nationwide broadband coverage data that could be used to help ensure that support is not provided to overbuild areas where another provider already is providing voice and broadband service meeting the FCC’s requirements.[5] As an initial matter, the following census blocks are eligible for RDOF Phase I support:

(1) census blocks for which price cap carriers currently receive CAF Phase II model-based support;

(2) any census blocks that were eligible for, but did not receive, winning bids in the CAF Phase II auction;

(3) any census blocks where a CAF Phase II auction winning bidder has defaulted;

(4) the census blocks excluded from the offers of model-based support and the CAF Phase II auction because they were served with voice and broadband of at least 10/1 Mbps;

(5) census blocks served by both price cap carriers and rate-of-return carriers to the extent that the census block is in the price cap carrier’s territory, using the most recent study area boundary data filed by the rate-of-return carriers to identify their service areas and determine the portion of each census block that is outside this service area;

(6) any unserved census blocks that are outside of price cap carriers’ service areas where there is no certified high-cost ETC providing service, such as the Hawaiian Homelands, and any other populated areas unserved by either a rate-of-return or price cap carrier; and

(7) any census blocks identified by rate-of-return carriers in their service areas as ones where they do not expect to extend broadband service.[6]

Areas Not Eligible For RDOF Phase I Funding

The following areas will not be eligible for support from Phase I of the RDOF:

(1) census blocks where a winning bidder in the CAF Phase II auction is obligated to deploy broadband service;

(2) census blocks where a Rural Broadband Experiment support recipient is obligated to offer at least 25/5 Mbps service over networks capable of delivering 100/25 Mbps;

(3) census blocks where a terrestrial provider offers voice and 25/3 Mbps broadband service according to the most recent publicly available FCC Form 477 data; and

(4) areas awarded funding through the U.S. Department of Agriculture’s ReConnect Program.[7]

Phase I Limited Challenge Process

There will be a limited challenge process for the RDOF Phase I auction that is similar to the one used for the CAF Phase II auction. Parties will be given an opportunity to identify areas that have subsequently become served since the release of the most recent publicly available FCC Form 477 data. The Wireline Competition Bureau will then examine the information submitted by challengers to determine whether any changes should be made to the list of eligible areas.

Phase I Funding Threshold

Similar to the CAF Phase II auction, the RDOF will target support to census blocks where the cost of service is likely to be higher than can be supported through reasonable end-user rates alone by using a cost benchmark that reflects the expected amount of revenue that could reasonably be recovered from end users. This is referred to as a funding threshold. Phase I of the RDOF will use a $40 per location, per month funding threshold.

For Tribal areas and wholly unserved areas that lack 10/1 Mbps broadband service, the per location, per month funding threshold will be reduced by 25%, producing a $30 per location funding threshold. This will allow for census blocks without 10/1 Mbps broadband service to be prioritized over eligible census blocks that have 10/1 Mbps service, but lack service at speeds of at least 25/3 Mbps (based on applicable FCC Form 477 broadband deployment data).[8] The reduced threshold will also help address the unique challenges in Tribal areas.[9]

Phase I Funding Support Cap

RDOF Phase I will use a per-location support cap of $212.50. For wholly unserved areas that lack 10/1 Mbps broadband service and Tribal areas, there will be a $222.50 per location support cap.

Phase I Reserve Prices

To establish area-specific reserve prices, the FCC will use the CAM, but as mentioned above, will set the funding threshold at $40 per location, per month and the per-location support cap at $212.50. In other words, the reserve price in each eligible census block will be equal to the average per-location cost of deploying and operating a network (as calculated by the CAM) above the $40 support threshold and up to the per-location support cap of $212.50, multiplied by the number of locations in the block.[10]

For census blocks in Tribal areas and areas without 10/1 Mbps broadband service, the reserve price will be equal to the average per-location cost of deploying and operating a network above a $30 support threshold and up to a per-location support cap of $222.50, multiplied by the number of locations in the block.

Phase I Auction Framework

The RDOF Phase I auction will be a single nationwide, multi-round reverse auction. Auction participants committing to different performance levels will have their bids weighted to reflect a preference for higher speeds, greater usage allowances, and lower latency. In other words, the auction will accept competitive bids that meet or exceed the minimums at each performance tier and latency. However, once the Phase I budget has cleared, the auction will prioritize selection of bidders for each area that propose to offer the highest speeds, highest usage limits, and lowest latency.

Phase I Clearing Round Process

The RDOF Phase I auction will utilize a clearing round to prioritize bids committing to provide higher speeds and lower latency. In the clearing round, the RDOF bidding system will take into account the combined performance tier and latency weight when assigning support to bidders competing for support in the same area at the base clock percentage. The bidding system will assign support to the bidder with the lowest performance tier and latency weight instead of carrying forward all bids at the base clock percentage for the same area for bidding in additional clock rounds.[11] Bidding for an area will only occur in additional clock rounds after the clearing round if two or more bids were submitted with the same lowest performance tier and latency weight.

No Bidding Credits For Phase I

The FCC declined to adopt bidding credits for offsetting bidding weights or committing to certain buildout requirements.[12]

Minimum Geographic Area For Bidding In Phase I Auction

The minimum geographic area for bidding in the RDOF Phase I auction will be no smaller than a census block group, as identified by the U.S. Census Bureau, containing one or more eligible census blocks. The FCC has stated, however, that it reserves the right to select census tracts, or other groupings of areas as the minimum bidding area, when it finalizes the auction design.[13]

Final Phase I Auction Competitive Bidding Rules

Consistent with other auctions, the FCC will seek comment on specific RDOF Phase I auction procedures, timing, and bidding rules at a later date. The FCC will then issue final auction rules.

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[1] Rural Digital Opportunity Fund, WC Docket No. 19-126, Connect America Fund, WC Docket No. 10-90, Report And Order, FCC-CIRC2001-01 (Jan. 9, 2020) (Draft Report And Order), available at https://docs.fcc.gov/public/attachments/DOC-361785A1.pdf.

[2] Rural Digital Opportunity Fund, WC Docket No. 19-126, Connect America Fund, WC Docket No. 10-90, Notice of Proposed Rulemaking, FCC 19-77, 34 FCC Rcd 6778 (Aug. 2, 2019), available at https://docs.fcc.gov/public/attachments/FCC-19-77A1.pdf.

[3] Draft Report And Order at ¶¶ 1-30.

[4] Draft Report And Order at ¶ 21.

[5] Draft Report And Order at footnote 20.

[6] Draft Report And Order at ¶ 12.

[7] Draft Report And Order at ¶¶ 12-13.

[8] Draft Report And Order at ¶ 27.

[9] Draft Report And Order at ¶ 28.

[10] Draft Report And Order at ¶¶ 23-24.

[11] Details of the specific processing mechanism, as well as any associated changes to bidding procedures required based on this decision, will be considered during the pre-auction process. Draft Report And Order at ¶ 20.

[12] Draft Report And Order at ¶ 29.

[13] Draft Report And Order at ¶ 30.