November 16, 2020 – The FCC’s Office of Economics and Analytics and Wireline Competition Bureau have adopted 5G adjustment factor values that will be used for disaggregating legacy high-cost support that some mobile wireless providers currently receive.[1]

In the recent 5G Fund Order, the FCC approved the use of an adjustment factor for 5G Fund Phase I auction, as well as for disaggregating legacy high-cost support some mobile wireless providers currently receive.[2]

The Office and Bureau’s Public Notice contains the 5G adjustment factor values that will be used for disaggregating legacy high-cost support. The adjustment factor values will be updated using more current data for use in the 5G Fund Phase I auction, which probably won’t happen for a few years.

Generally, the Office and Wireline Bureau adopted what they proposed in their June 2020 Public Notice.[3] The 5G adjustment factor will consist of two elements:

(1) the relative cost of serving areas with differing terrain characteristics

(2) the potential business case for each area

The first component, the relative cost of serving areas with differing terrain characteristics, will be based on terrain elevation variation. The second, the potential business case for each area, will be based on demand for service, using median household income as a proxy for demand.

The Relative Cost Of Serving Areas With Differing Terrain Characteristics

Many areas within the U.S. have more difficult terrain and economic conditions which require mobile wireless providers to expend significantly more capital when building a network. Areas that are more difficult to serve will receive greater weight and therefore greater support. Areas that are less difficult to serve will receive less weight and therefore less support.

This element of the 5G factor will be based on terrain elevation variation.[4] As the FCC has explained, “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.’”[5] This means “areas with higher terrain elevation variation generally have higher capital expenditures, operating expenditures, and leasing costs.”[6]

The Potential Business Case For Each Area

For many areas that lack 5G coverage, there is weak business case for deploying a network or there may essentially no business case. Providers tend to not build networks in areas where there is little to no return on invest. Thus, in the 5G auction, less profitable areas will receive greater weight and therefore greater support. More profitable areas will receive less weight and therefore less support. This element of the 5G factor be based on demand for service, using median household income as a proxy for demand. An areas’ demand classification will be determined by the areas’ median household income.[7]

5G Adjustment Factor – 5G Fund Phase I Auction

When used for the 5G Fund Phase I auction, the 5G adjustment factor will assign a weight to eligible areas in the auction, and will be applied to bids for those areas.”[8] It is intended to address differences in network costs and expected revenues across eligible areas. This will “ensure carriers bidding to serve the hardest-to-serve parts of the country can compete efficiently and fairly in the auction,”[9] and it will help push support for mobile broadband to areas of the country that are difficult and costly to serve. To be clear, the 5G Fund adjustment factor is not meant to reflect actual costs of serving an area, but “is meant to increase the availability of [5G] funds to areas that are more challenging to serve due to terrain and the business case.”[10]

Here is how the 5G adjustment factor will work in the 5G Fund Phase I auction. The FCC will identify winning bids using a support price per adjusted square kilometer. Each eligible area will have an associated number of square kilometers which will be adjusted by its relevant adjustment factor. For example, an area with 100 square kilometers and an adjustment factor of 1.2 would have 100×1.2 or 120 adjusted square kilometers.[11] An area’s adjustment factor will increase the support level for bids to serve the area.

5G Adjustment Factor – Disaggregating Legacy High-Cost Support

The Office and Bureau’s Public Notice contains the 5G adjustment factor values that will be used for disaggregating legacy high-cost support. They are shown in the table below:

As mentioned earlier, the Office of Economics and Analytics and Wireline Competition Bureau will need to update the adjustment factor values using the latest available data prior to the beginning of the 5G Fund Phase I auction. That auction is not expected to begin for another few years.

********

[1] Office Of Economics And Analytics And Wireline Competition Bureau Adopt Adjustment Factor Values For The 5G Fund, GN Docket No. 20-32, Public Notice, DA 20-1361 (Nov. 16, 2020) (5G Adjustment Factor Public Notice), https://docs.fcc.gov/public/attachments/DA-20-1361A1.pdf.

[2] Establishing a 5G Fund for Rural America, GN Docket No. 20-32, Report And Order, FCC 20-150, ¶¶ 54 – 60 (Oct. 29, 2020) (5G Fund Order), https://docs.fcc.gov/public/attachments/FCC-20-150A1.pdf.

[3] Office of Economics and Analytics and Wireline Competition Bureau Seek Comment on Adjustment Factor Values for the 5G Fund, Public Notice, DA 20-594 (June 5, 2020) (June 2020 Public Notice), https://www.fcc.gov/document/bureau-seek-comment-adjustment-factor-values-5g-fund.

[4] 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). 5G Adjustment Factor Public Notice at footnote 9; see also June 2020 Public Notice at Appendix. A: Terrain Elevation.

[5] 5G Adjustment Factor Public Notice at ¶ 7.

[6] Id.

[7] 5G Adjustment Factor Public Notice at footnote 9; see also June 2020 Public Notice at Appendix. B: Economic Analyses Supporting the Proposed Adjustment Factor.

[8] 5G Fund Order at ¶ 54.

[9] 5G Fund Order at ¶ 48.

[10] 5G Adjustment Factor Public Notice at footnote 15.

[11] 5G Fund Order at footnote 124.