FCC Approves CAF II Auction Order, With FNPRM on Tier Bid Weights, Other Specifics

Chairman Tom Wheeler said the CAF II auction would provide more than $2 billion in cumulative high-cost support over 10 years. The reverse auction will be carried out "in a technologically neutral way" and pave the way for a "remote areas fund" for the highest-cost rural areas, he said. Commissioner Mignon Clyburn cited FCC consensus on establishing "speed, capacity and latency tiers for the auction" that will "encourage all providers -- fixed or mobile, using licensed or unlicensed spectrum, terrestrial or satellite -- to participate."

Commissioner Jessica Rosenworcel said the auction would be "open" to broad participation and solutions, "fair" in rewarding economically efficient proposals, and deliver "accountability" through oversight mechanisms. O'Rielly said minimum broadband standards would enable a wide range of providers to participate and he also welcomed the FCC's "flexible" service tiers.

Commissioner Ajit Pai lauded a "bipartisan compromise" that would "induce new entrants like wireless Internet service providers, small-town cable operators, and electric utilities to participate." Pai welcomed "reserve prices" matching level based on a broadband cost model and a multiround bidding approach. He and Clyburn also welcomed FCC efforts to facilitate the ability of smaller providers to obtain loans from smaller banks and credit institutions while maintaining financial standards. Pai approved the item in part and concurred in part.

Wheeler said the CAF II item put the FCC on "third base" in its high-cost USF overhaul effort. The commission got to "first base" when price-cap telcos in August agreed to accept a total of $9 billion to provide broadband to 7.3 million people over six years, and to "second base" when it revamped USF rate-of-return mechanisms that will provide a total of $20 billion to smaller carriers over 10 years, he said. "We're not going to be standing on third base," he said, noting the FCC's plans to finalize and carry out the CAF II auction, and to "make a dash later this year" on a Phase II CAF mobility fund order and an order addressing "the uniqueness of tribal lands."

The CAF II auction item adopted Wednesday targets price-cap rural areas where carriers haven't accepted model-based broadband/voice support. Recognizing different broadband flavors, the order sets technology-neutral performance standards in four tiers, with bidder flexibility to designate either low or high latency for each, an FCC release said: (1) a "minimum" tier requires bidders to commit to data speeds of at least 10 Mbps downloads and 1 Mbps uploads and at least 150 gigabytes (GB) of monthly usage; (2) a "baseline" tier requires at least 25/3 Mbps and monthly usage of 150 GB or the average usage of fixed broadband customers nationwide, whichever is higher; (3) an "above-baseline" tier requires at least 100/20 Mbps and unlimited monthly usage; and (4) a "Gigabit" tier requires at least 1 Gbps/500 Mbps and unlimited monthly usage.

The order phases in network buildout requirements over time, the release said: of 40 percent three years after authorization, 60 percent after four years, 80 percent after five years and 100 percent after six years. The order also sets reporting duties to monitor deployment, and creates a framework for a remote areas fund to address areas that don't receive qualifying bids for support. It also sets up a two-step process requiring participants to submit pre-auction short-form applications establishing their financial and technical capability, and winning bidders to submit a post-auction long form providing more information on their qualifications, said Wireline Bureau staffer Alex Minard, who outlined the item at the meeting. The order and FNPRM didn't contain interim voice support or related proposals pushed by price-cap telcos for unsubsidized extremely costly areas (see 1605050036 and 1605190034), FCC officials said later.

The FNPRM seeks comment on several procedures for the reverse auction in which bidders will try to win subsidies by bidding low. The procedures teed up include "how to apply weights to the different levels of performance adopted in the Order, measures to achieve the public interest objective of ensuring appropriate support for all of the states, and measures to achieve the public interest objective of expanding broadband on Tribal lands," the release said. "A forthcoming Auction Comment PN will seek comment on other auction procedures that must be resolved in order to conduct the auction."

Clyburn said she would have preferred to adopt the specific tier weights in the order, but said she understood the need to get them right and thanked the chairman "for seeking comment now rather than waiting several months" for the PN. She also appreciated the order's recognition of the need to spur broadband deployment on tribal lands. But she said more attention is needed to bring broadband to people lacking service in urban areas. "We need to ask and answer the question why certain pockets of our communities in major metropolitan areas still lack access," she said.

O'Rielly found other things to like about the order. "Instead of a special fiber-only round or a waterfall approach, all participants will now bid at the same time, ensuring the maximum possible competition in each round of the multi-round auction," he said. "In addition, the order now excludes areas that already have at least 10/1 service, targeting funds to areas that need it most, rather than wasting dollars overbuilding existing providers. All of these changes will have the effect of stretching USF dollars to cover more consumers." He disagreed with the Gigabit service tier. "It's a nice soundbite, but it is a distraction from the effort to connect the maximum number of people with the limited dollars available under our budget," he said. "And as I have said before, we should buy fewer Lamborghinis and more Chevys."

O'Rielly said setting the tier weights would be critical and the FNPRM has the right goal: to provide broadband in high-cost areas while making efficient use of finite USF money. "I worry, however, that the Commission may ultimately adopt weights that disproportionately favor certain technologies and place too high a reward on premium offerings," he said. He recognized the goal of serving consumers in all states and tribal lands, but said it was "appalling" the FCC was considering "quotas or set asides to favor certain consumers in certain areas." He said the states shouldn't be guaranteed the specific levels offered to the price-cap telcos.

The American Cable Association and Wireless Internet Service Provider Association applauded the FCC actions in statements (here and here).