FCC Approves Bidding Weight Rules for Connect America Fund Phase II Auction

At the February 2017 Open Meeting, the Federal Communications Commission (Commission) approved an Order finalizing bidding rules for the upcoming Connect America Fund (CAF) Phase II auction where service providers will compete for up to $1.98 billion in financial support in areas where the incumbent provider declined cost-model funding. This Order is the next stage in an ongoing effort by the Commission to revise aspects of the high cost program of the universal service fund (USF) to encourage the extension of voice and broadband communications services to rural and high cost areas of the country. As of this writing, the Commission has yet to release the text of the order.

In 2011, the Commission’s USF/ICC Transformation Order established the CAF and provided for two phases of funding for expanding broadband coverage to unserved locations. The USF/ICC Transformation Order established rules wherein CAF Phase II would be provided through the combination of a forward-looking cost model of constructing modern multi-purpose networks and a competitive bidding process. The competitive auction process serves as a mechanism to determine support in geographic areas where price cap carriers declined the support determined by the cost model. In May 2016, the Commission created an auction framework that included four technology-neutral broadband performance tiers with increasing speeds and usage allowances along with commitments to either low or high latency. In addition, the Commission issued a Further Notice of Proposed Rulemaking (FNPRM) that sought comment on specific procedures for weighting the bids for the Phase II auction.

This Order establishes the bid weights for the CAF Phase II auction. According to the Press Release, the goal of the weighting process is to give credit to bids that offer more robust service. The Order does this by adding specified values to a bid, depending on the performance tier and latency. (A lower bid is a more competitive bid, so those assigned a positive weight are at a disadvantage.) All bids in the reverse auction will be considered simultaneously across performance tiers such that bidders that propose to meet one performance tier will be directly competing against bidders proposing to meet other standards. The weighted values are as follows:

  • Minimum (speeds of at least 10 Mbps downstream and 1 Mbps upstream) gets 65;
  • Baseline (speeds of at least 25 Mbps downstream and 3 Mbps upstream) gets 45;
  • Above-baseline (speeds of at least 100 Mbps downstream and 20 Mbps upstream) gets 15;
  • Gigabit (speeds of at least 1 Gbps downstream and 500 Mbps upstream) is 0;
  • High latency gets 25; and
  • Low latency gets 0.
In addition, the Commission adopted an Order on Reconsideration that addresses several petitions for reconsideration of its earlier decisions regarding the Phase II auction. The Commission decided to:
  • Deny a petition requesting that it reconsider the decision to score bids relative to applicable reserve price;
  • Grant a petition requesting that it reconsider its decision to re-auction areas served by high latency providers that do not meet a certain subscribership level. Instead, the Commission will provide all authorized recipients with a full ten year term of support if they comply with the Phase II terms and conditions; and
  • Grant a petition to lower the usage allowances for the above-baseline and Gigabit performance tiers from unlimited to 2 terabytes of data. As a result, providers in these two tiers will be allowed to cap data usage at 2 terabytes of data.
Although the Order was adopted by a 3-0 vote, both Commissioners Clyburn and O’Rielly expressed dissatisfaction with particular aspects of the Order. Commission Clyburn expressed disappointment that the Order did not include bidding credits for providing service in Tribal areas, which she stated present unique challenges for broadband buildout. Additionally, she stated that broadband availability will not be sufficient to close the digital divide and that she is hopeful the Commission will address affordability and accessibility gaps as well. Commissioner O’Rielly dissented in part expressing concern that the Order adopted the broader proposals regarding the bidding weights and seems to favor higher speed tiers over average performance level proposals that may provide access to more communities. Commissioner O’Rielly compared the high speed tiers to Lamborghinis, and argued that the country “needs more Chevys” instead. He also argued that the final bidding weight framework was not given sufficient public consideration and has little to no factual basis.

The Commission will seek comments next about the auction mechanics. Upon completion of that proceeding, the Commission will set a final auction date, which is expected to be before the end of 2017.