On August 2, 2019, the Commission released the Notice of Proposed Rulemaking (“NPRM”) in the Digital Rural Opportunity Fund and Connect America Fund proceedings, adopted in the August Open Meeting (WC Docket Nos. 19-126, 10-90). The Commission proposes to establish the Rural Digital Opportunity Fund (“Fund”) that would build off of the CAF Phase II auction, and proposes to provide at least $20.4 billion over the next ten years to support high-speed broadband networks in rural America, at minimum speeds of 25/3 Mbps. The NPRM proposes a multi-round, reverse, descending clock auction for the Fund favoring faster services with lower latency, and proposes to assign funding in two phases: Phase 1 targeting areas currently “wholly unserved”; and Phase 2 targeting (1) areas that are partially served and (2) any areas not won in Phase 1.

The Commission seeks general comment on its overall approach in establishing the Fund, listing its goals as: (1) ensuring that high-speed broadband is quickly made available and affordable to all Americans; (2) reducing waste and inefficiency 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. Additionally, the Commission proposes that moving forward with the Fund is a more effective support mechanism than the existing CAF framework, and seeks comment on this conclusion. In addition, the NPRM seeks comment on the following:

Term of Support – The NPRM proposes a ten-year support term for the Fund, aiming to encourage long term investment and auction participation.

Budget – The NPRM proposes a budget of at least $20.4 billion for the Fund, based on the CAM estimated cost of deploying a high-speed broadband network to all locations in wholly unserved price cap census blocks exceeding the existing high-cost threshold. The Commission proposes and seeks comment on splitting up the funding to make at least $16 billion available for Phase I and $4.4 billion, plus anything left over from Phase I, available for Phase II. The NPRM also seeks comment on the Fund budget consistent with the FCC’s universal service obligations, and asks if the FCC should reassess the budget after the Phase I auction.

A Multi-Round, Descending Clock Auction – The NPRM proposes a multi-round, descending clock auction to identify providers that will receive support and how much support each eligible bidder will be able to receive, substantially similar to the rounds used in the CAF Phase II auction. The Commission proposes using sequential bidding rounds, and relying on existing rules regarding competitive bidding for universal service support. The NPRM proposes and seeks comment on the procedures for how bids will be weighted and compared based on area reserve prices, performance tiers and latency weights, as well as the calculations for implied annual support. The NPRM also proposes to include all Phase I eligible areas in one auction, and seeks comment on whether census block groups is an appropriate geographic bidding unit.

Deployment Obligations

  • Public interest obligations – The NPRM proposes to adopt technology-neutral standards for supported services, use the same speed and usage allowance requirements as the CAF Phase II auction for bids in three performance tiers, but will not require a minimum performance tier. Support recipients would have flexibility to use any fixed broadband technology to meet the required obligations and milestones associated with their winning bids. The NPRM also seeks comment on requiring Fund support recipients to offer standalone voice service and to offer voice and broadband services at rates that are reasonably comparable to rates in urban areas. The NPRM explains that the Rural Digital Opportunity Fund would utilize the same compliance framework and non-compliance measures applicable to all high-cost support recipients.
  • The Commission also proposes service milestones, reporting requirements, non-compliance, and additional performance targets, all substantially similar to those adopted in the CAF Phase II Auction, and seeks comment on any additional or alternative metrics to these requirements to promote faster buildout.

Areas Eligible for the Phase I and Phase II Auctions – The NPRM proposes targeting funding to areas that lack access to both fixed voice and 25/3 Mbps broadband services in two stages. Phase I will target census blocks that are wholly unserved and Phase II will target census blocks later determined to be only partially served, as well as blocks unawarded in the Phase I auction.

  • The NPRM further details and seeks comment on the specific areas that will be initially eligible for Phase I of the Fund and included in each block: 1) census blocks for which price cap carriers currently receive CAF-II model-based support; 2) any blocks that were eligible for, but did not receive, winning bids in the CAF Phase II auction; 3) any blocks where a CAF Phase II action winning bidder has defaulted; 4) blocks excluded from the offers of model-based support and the CAF Phase II auction because they were served with at least 10/1 Mbps; and 5) blocks served by price cap carriers and rate-of-return carriers; 6) any blocks currently unserved where there is no high-cost ETC providing service; and 7) any blocks identified by rate-of-return carriers as ones where they do not expect to extent broadband.
  • For these initially eligible blocks, the NPRM proposes to exclude those blocks where a terrestrial provider offers voice and 25/3 Mbps broadband service, and blocks where a winning bidder in the CAF Phase II auction is obligated to deploy broadband service. Finally, the NPRM proposes a Tribal Broadband Factor for the Fund that accounts for the challenges of deploying broadband to rural Tribal communities, and seeks comment on including any other wholly unserved blocks with costs below the $52.50 benchmark.

Reserve Prices – The NPRM proposes using the CAM to determine reserve prices and number of locations for each area that is eligible for support in the Phase I auction of the Fund, and seeks to set appropriate area-specific reserve prices. Specifically, the NPRM seeks comment on creating a methodology for using the CAM to establish reserve prices based on annual cost per location and other alternatives, like using a uniform reserve price. The Commission will permit recipients showing a disparity between the actual number of locations and CAM number of locations to bring this to the Commission’s attention for adjustment.

Tribal Bidding Credit – The NPRM proposes including a Tribal bidding credit in the auction to incentivize parties to bid on and serve Tribal census blocks, and seeks comment on how to create this credit and what appropriate credit should be used.

Application Process – The NPRM proposes and seeks comment on adopting the same two-step application process, requiring a short-form and long-form application, as used for the CAF Phase II auction. However, the NPRM seeks comment on whether to require less technical and financial information in the short-form application. The Commission also proposes adopting the CAF Phase II auction procedures for auction forfeiture, letters of credit, and eligible telecommunications carrier designations.

Transitions – The NPRM seeks comment on the two transitions that may occur with implementation of the Rural Digital Opportunity fund: (1) how to transition incumbent price cap carriers from legacy high-cost support in areas where the Fund support is awarded; and (2) how to transition price cap carriers from CAF Phase II model-based support in areas where the Fund support is awarded.

On August 21, 2019, the Commission published the Notice of Proposed Rulemaking in the Federal Register, therefore establishing the following comment dates:

Comments are due September 20, 2019.

Reply comments are due October 21, 2019.

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