On November 16, 2020, the Office of Economics and Analytics (“OEA”) and the Wireline Competition Bureau (“the Bureau”) released a Public Notice announcing the adoption of adjustment factor values for the 5G Fund (GN Docket No. 20-32). You may recall that in the 5G Fund Report and Order, the FCC adopted an adjustment factor that will be applied in the 5G Fund auctions to encourage bidders to provide support to areas that are the most difficult to serve and to disaggregate legacy high-cost support in the transition to 5G Fund support. OEA and the Bureau have adopted values for adjustment factors based upon two variables: (1) terrain elevation variation, which is intended to address the network cost differences across areas; and (2) demand, using median household income as a proxy, which is intended to address differences in expected revenues across areas. The values range from an adjustment factor of one, for areas with flat terrain and high demand, to 3.8, for areas with mountainous terrain and low demand.
Use in Bidding: OEA and the Bureau note that the adjustment factor is intended to “make the most difficult areas to serve more attractive at auction in order to encourage more bidding for those areas.” It is not intended “to fully offset the differences inherent in providing service to different types of areas.” In furtherance of this goal, OEA and the Bureau concluded that terrain elevation variation and demand were the best factors to use because they are important factors in characterizing deployment costs and business case considerations and there is more readily available and verifiable data to apply these two factors.
Use for Disaggregation of Legacy High-Cost Support: OEA and the Bureau note that the adjustment factor is meant to “give an estimate of how a carrier may allocate legacy high-cost support within the area for which it receives such support.” It is not intended “to reflect the actual cost of deployment in that area.” While the adjustment factor may not address every single challenge providers face, OEA and the Bureau are persuaded the adjustment factors will ensure that legacy-high cost support is available for harder-to-serve areas, while avoiding several downfalls that arise from service providers self-reporting their own costs.
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