TR Daily FCC Revises LOC, Eligibility Provisions in RDOF Order
Thursday, January 30, 2020

FCC Revises LOC, Eligibility Provisions in RDOF Order

Over the partial dissents of Democratic Commissioners Jessica Rosenworcel and Geoffrey Starks, the FCC today established a framework for the two-phase Rural Digital Opportunity Fund to distribute as much as $20.4 billion over 10 years, with up to $16 billion available for fully unserved census blocks in a multi-round reverse auction planned for later this year, and at least $4.4 billion available for unserved locations in partially served census blocks in an auction that will be held after the FCC has better broadband mapping data.

Among the issues that triggered criticism from either or both Commissioner Jessica Rosenworcel and Geoffrey Starks are the decisions to proceed with the first phase using mapping data widely condemned as inaccurate; to adopt minimum broadband speed requirements for funded project that are not “future-proof”; to impose letter of credit (LOC) requirements on winning bidders that some see as onerous; and to restrict eligibility to RDOF Phase I funding in areas that have received prior federal or state-based funding, such as New York, which directly allocated Connect America Fund Phase II support through a state program. Language on the latter restriction was revised just yesterday, the Democratic Commissioners said, and they suggested the language is vague enough that it could be applied to any state that has ever had a program to subsidize broadband deployment.

The minimum supported speed for RDOF subsidies is 25 megabits per second downstream and 3 Mbps upstream, although preferences will be given for higher speeds, up to 1 gigabit per second. Preferences will also be provided for service on tribal lands and service to areas that lack service at 10 Mbps downstream/1 Mbps upstream.

FCC Chairman Ajit Pai and other supporters of the agency’s action counter that areas completely without broadband, as reported on service providers’ most recent Form 477 submissions, shouldn’t have to wait for support until unserved locations in partially served areas are identified; that the auction design will target the projects with the best speed and latency in a given area once the aggregate clearing price (budget) for the auction is met; that the LOC requirements balance fiscal prudence with minimizing burdens on providers, while incentivizing faster buildout; and that areas that have already received funding for broadband should not be able to compete for funding with areas that have not received broadband funding.

Speaking to reporters at a press conference after the meeting, Chairman Pai said, “Eligible areas in New York will be determined by the same neutral rules that apply to other states.”

During a separate press conference following the meeting, Commissioner Rosenworcel said that the action regarding state broadband funding “looks like an election year bonanza where we’re just flooding the area with dollars.”

“FCC staff’s preliminary estimate is that about six million rural homes and businesses are located in areas initially eligible for bidding in the Phase I auction,” the FCC said in press release.

Any funding that is not awarded in Phase I will be added to the $4.4 billion designated for Phase II.

The text of the report and order adopted today at the FCC’s meeting in WC dockets 19-126 and 10-90 was not immediately available.

In her separate statement, Commissioner Rosenworcel said that “the FCC should know in detail where service truly is and is not. It should be that we figure this out before sending federal funds to who knows where to build who knows what. But that is not what we do today. We rush billions of dollars out the door in what feels like a broadband publicity stunt without taking a broad view of what the nation needs.”

She noted that the two-state pilot project to create a serviceable location “fabric” sponsored by USTelecom, ITTA, and the Wireless Internet Service Providers Association last year “found that 38% of the homes and businesses the FCC counted as served had no service at all. When the very providers that seed the data behind the FCC’s broadband maps acknowledge just how bad it is, it should set off alarm bells.”

Commissioner Rosenworcel also criticized the order for not included a mandate on RDOF recipients “to offer a low-cost service for consumers when they are receiving billions in support from the government.”

She called the order “backward-looking with stale service speeds and data caps. It seems crazy that we are going to sit here today and pronounce what service speeds are adequate ten years hence. But we do just that with the baseline speed of 25 megabits per second that we propose. If you want a demonstration of just how ridiculous that is, know that a decade ago this agency called service at 200 kilobits [per second] broadband.”

She added, “Likewise, when it comes to data caps the agency’s decision misses the mark. This program will set in stone some data caps for some services for the next ten years. That’s bonkers. Data consumption is growing fast. We should not limit our use cases and creativity by choosing a low-lying number at a fixed point in time.”

Commissioner Rosenworcel criticized the agency’s process on the order as well. “Haste makes waste. This effort has been pushed out so fast I fear we are only starting to understand what is not workable in this framework. We are making so much up as we go along. Late last night, we saw major changes to this decision. We have changed misguided policies involving letters of credit but have made new ones up on the fly. We have twisted ourselves to include state broadband efforts without understanding where they are and what this even means. We also are in such a rush that we didn’t even try to fix the holes in the FCC’s data with a meaningful challenge process. Instead of a robust challenge process where [consumers] could come forward and tell the agency they got it wrong, we have come up with one that shuts them out. The only challenges we accept are from entities seeking to remove areas from the auction,” she said.

She added, “To make matters worse, we are turning our back on working cooperatively with broadband efforts in the states. Just a few years ago the agency worked with the state of New York to come up with a new way to address broadband challenges in the state. For this effort, it appears that New York is going to pay an unfortunate price by being largely blocked out of participation here. This is disappointing because we could have explored working more closely with the states by having them match the federal dollars here. In fact, the California Public Utilities Commission sought to do just that, but our action here will render that impossible.”

“I support the impulse behind this decision, but I believe in too many ways this effort falls short of what we need and therefore dissent in all other respects,” she concluded.

Commissioner Starks said that “while there are parts of this item that I think are very good advancements, today’s Order falls short of satisfying my vision of how to best get broadband to our rural Americans,” a vision that includes providing funding based on accurate broadband data and maps, promoting affordable broadband options, incentivizing providers to offer future-proof broadband, and hold funding recipients accountable.

“The data generated from Form 477, on which we will double down today, fell so far short in the state of Georgia that the state decided to stand up its own mapping initiative using a more rigorous approach,” he said, offering preliminary results released by the Georgia Broadband Deployment in September.

“Exhibit A: Lumpkin County, which covers 283 square miles in the foothills of the Blue Ridge Mountains and looks mostly ‘served’ by 25/3 Mbps broadband in our Form 477 data. Georgia’s analysis paints nearly the opposite picture: the vast majority of Lumpkin County is unserved,” Commissioner Starks said.

“The Order asserts that we’ll clean up our mapping problem on that as-yet unknown day when we get to Phase II. But I have not seen any evidence that convinces me that, having already spent 75 percent of our budget, we can feel confident that there will be sufficient money left at Phase II,” he said. “The Order does not even attempt to estimate how many more people will be unserved when we finally get our maps in order. So we don’t know how many communities will need to be covered by Phase II, and we are not allowing a robust challenge process that would give them an opportunity to identify themselves and participate in Phase I.”

Like Commissioner Rosenworcel, Commissioner Starks criticized the order for not addressing “the needs of low-income families. I had hoped that the subscribership target considered in the Notice of Proposed Rulemaking would incentivize winners to provide a range of broadband packages, including some lower-cost options. The final Order does not require winners to meet any subscribership target. Going forward, I’m encouraging all stakeholders involved in universal service to recommit to ensuring that cost is not a barrier.”

He also criticized the lack of future-proof standards. “For too long, the FCC has subsidized networks that are obsolete by the time they are built. Less than 10 years ago, we awarded Connect America Fund Phase I support to price-cap carriers to provide service to approximately 524,000 locations. The CAF I rules only required the carriers to provide ‘broadband’ at download speeds of 4 Mbps and even slower uploads, 4/1. Under our current rules, quite correctly, that is no longer broadband. That experience raises a critical question: could we not have reasonably foreseen in 2013 and 2013 that 4/1 Mbps networks, and even 10/1 Mbps networks, would not stand the test of even a decade?

“That lack of foresight reverberates into the Order before us today. At least 108,000 of those locations, more than 20% of locations served through CAF I, will presumptively be eligible for RDOF support. We must learn from that experience. Universal Service dollars are too scarce and too badly needed to be spent building the networks of the past,” he said.

Commissioner Starks also viewed the order as lacking accountability for RDOF recipients. “Looking at our recent efforts, I see warning signs that we should not ignore. For example, I am extremely frustrated more than a dozen winners from our last universal service auction, CAF II, have already defaulted. And some providers have recently announced that they will not make their CAF II milestones, which is concerning. Communities that have already waited too long for broadband should not be delayed by providers unable to fulfill their obligations,” he said.

“Letters of credit are one way to promote responsibility and protect the fund. I understand that the Commission is trying to strike a careful balance here. We don’t want to over-insure and make the program unaffordable for providers, and I support the changes to the draft Order’s Letter of Credit mechanism because I expect that they will promote more participation in the auction. Moving forward, we must continuously evaluate how well our enforcement mechanisms work. I will be watching closely to see how we handle the problems that have arisen with some CAF II winners,” he said.

Commissioner Starks said he could not “support provisions of the Order that penalize the many states that have made their own investments in rural broadband deployment. The version of the Order now before us excludes from RDOF any area that the Commission ‘know[s] to be awarded funding through the U.S. Department of Agriculture’s ReConnect Program or other similar federal or state broadband subsidy programs, or those subject to enforceable broadband deployment obligations.’ Based on my initial research, that means that the nearly 30 states that fund rural broadband through their own programs may find their eligibility reduced or eliminated. These provisions discourage badly needed state-federal partnerships, risk unequal application of the rules between states, and create an unnecessary risk of litigation.”

He added, “[F]ailing to coordinate with states will, in my view, risk undermining the effectiveness of this important effort. We should have taken the time to get it right. Instead, we have damaged our working relationship with important state partners and created litigation risk that jeopardizes the laudable aspects of this decision.”

Commissioner Mike O’Rielly defended the order.

“[B]y limiting Phase I eligibility to those census blocks that have no broadband whatsoever and targeting those consumers truly deserving of FCC assistance, our action should not in any way trigger or exacerbate the rightful concerns raised over our broadband mapping procedures,” he said.

“This item also attempts to correct errors of the past, including the decision to offer price cap carriers a right of first refusal to $9 billion in Connect America Fund Phase II funding. That policy resulted in tremendously poor incentives for funding recipients and left millions of rural Americans without service. It is also no secret that I would have preferred to implement the Remote Areas Fund (RAF) auction at the outset. After all, it is easier to serve the less challenging areas once the more challenging areas have service, than vice versa,” he continued.

He said he is “encouraged that the RDOF may very well bring service to those locations that otherwise would have comprised the RAF. The mechanism to incentivize bidding on areas entirely lacking 10/1 Mbps service should be helpful to that end, and I applaud the Chairman for including it in this item. … At the same time, I am hopeful that service to the RAF areas won’t be undermined by various measures to prioritize fiber-based technologies. Don’t get me wrong: fiber-based broadband is an incredible technology, and, in an ideal world, every American would have access to fiber-to-the-home or something even better. However, our funds are limited, and it’s unfair to leave unserved areas in the dust in order to upgrade service in areas that already have broadband. I do worry that the decision to effectively end bidding after the budget clears could result in spending more than necessary on areas that are easier to serve and leave the harder to serve areas behind.”

Commissioner O’Rielly added, “I would have preferred to allow the private sector’s engineers to prove what various technologies are capable of before indiscriminately confining certain providers to particular service tiers. I hope these decisions won’t disrupt competition by unduly discouraging the participation of certain technology sectors.”

He also supported the decision to reject “demands from certain self-serving politicians to use RDOF funds to overbuild areas in the New NY Broadband Program, as well as other areas in New York subject to enforceable deployment obligations. While I never quite loved the decision to undermine inter-area competition in the CAF II auction by reserving special funding for New York, backtracking on our previous agreement and including funded areas in [RDOF] Phase 1 would have been beyond foolish and incredibly wasteful, and undermined longstanding Commission policy against awarding duplicative support in areas already served by an existing provider.

“Back in 2016, the governor of New York represented to this agency that allocating the full $170 million in CAF II support to the state broadband program would allow full broadband buildout throughout the Empire State, when combined with the state’s own funding. The Commission granted that request even though much of the funding likely would have gone elsewhere, and been spent in a more efficient manner, in the absence of New York’s special treatment. To now claim that New York is being shortchanged is completely ludicrous,” he continued.

“I also support the Chairman’s decision to expand the scope of the Phase I challenge process, and to maintain the Letter of Credit obligation for auction winners. While I certainly want as much funding as possible to be spent on deployment, some of the potential bidders are in precarious financial situations, and it would be highly irresponsible to totally eliminate this important safeguard and put our precious funding at risk. At the same time, I recognize the interest in minimizing the requirement’s impact on potential participation and buildout. While the final landing spot may not be ideal to everyone, it promotes these fundamental goals,” Commissioner O’Rielly said.

Commissioner Brendan Carr said, “I want to highlight three features of our decision today. First, we support the type of high-speed networks that are key to building 5G in communities across the country. So our decision marks another significant step forward for U.S. leadership in wireless.

“Second, when we launched this proceeding last summer, I proposed that we prioritize truly unserved communities over those that might already have fast Internet connections. Instead of treating every community with less than 25 Mbps the same, I suggested that we first focus on communities that have dial-up or nothing. I am pleased that we moved forward with that idea. The Order prioritizes and provides maximum incentives for providers to serve areas that have no high-speed service today,” he continued.

“Third, I want to thank my colleagues for working with me on ways to improve on the item that circulated a few weeks ago. In particular, we made important changes to our letter of credit requirement. The original draft could have required winning bidders to spend over $600 million more than necessary on fees to financial institutions. And it could have prevented providers from participating in the program altogether, which would only decrease our chances of getting more broadband built out. So rather than tying up scarce dollars in financial institutions, we now free up more capital to go directly into the ground building out Internet infrastructure. In doing so, we also put new milestones in place that incentivize providers to build out on an accelerated basis,” Commissioner Carr said.

In his statement, Chairman Pai said, “FCC data shows there are still millions of American homes and businesses in rural areas completely lacking broadband at the 25/3 Mbps standard. Many of these locations can’t even get a 10/1 Mbps connection, and right now there simply is no business case for deploying broadband there. This means that millions of Americans can’t start a business, advance their children’s and their own education, use precision agriculture, access telemedicine, or benefit from the digital economy. This demands the Commission take immediate, concrete action.”

He added that the RDOF framework has made changes from the CAF approach to “help ensure maximum participation—and therefore maximum broadband deployment—in the auction. In response to concerns about the financial strain some carriers might face, we’re changing the letter of credit requirement to reduce costs to carriers by up to 80% in a given year from those initially proposed—while still protecting these scarce federal funds. At the same time, we’re giving bidders an all-new incentive to deploy their networks more quickly than ever. This will ensure that more carriers can participate in the auction while both safeguarding taxpayer funds and getting rural Americans connected as soon as possible.

“And those aren’t the only improvements. We’re including in the auction many areas that were previously excluded from some of our rural broadband programs but where market forces alone still have not brought about broadband deployment. We’re increasing support to bidders serving Tribal lands, where deployment is often especially challenging. And we’re adding a new, intermediate speed tier of 50/5 Mbps to the auction that will give bidders greater flexibility to design networks and use technologies that make sense for the area where they’re bidding,” the Chairman added.

Initial reaction to the RDOF order was largely positive, although at times cautiously so.

However, one public interest group was critical of the change regarding eligibility based on prior broadband support to an area.

“Read broadly, this surprise last-minute change impacts almost every state in the Union. Nearly every state either has its own broadband subsidy program, receives funds under the Department of Agriculture ReConnect program, or receives other federal funding for broadband,” Public Knowledge Senior Vice President Harold Feld said in a statement.

“Even read narrowly, this would appear to cut off millions of unconnected rural Americans from a program designed explicitly to help them. According to a PEW Report published in December 2019, 35 states have funds that directly subsidize broadband. Numerous other states have funds that might qualify as a ‘subsidy’ or ‘enforceable broadband deployment obligations,’ depending on how the FCC Order defines these terms,” he continued.

“Hopefully, publication of the Order will contain some sort of clarification. But even read as narrowly as possible, this change makes no sense. Connecting all of America will require the combined effort of every level of government—federal, state, and local. We should encourage states to take initiative and reward those that rise to the challenge. At least, we should not punish states by making them depend exclusively on underfunded federal programs doled out from Washington, D.C.,” Mr. Feld said.

The National Association of Regulatory Utility Commissioners declined to comment before seeing the text of the order.

In a blog post, USTelecom President and Chief Executive Officer Jonathan Spalter said, “While we review the details, my take on RDOF’s impact: this could be a game changer for rural connectivity. Why? A federal partnership on this scale—with rules that leverage the billions invested by America’s broadband providers over many generations—could advance the shared goals of innovators and policymakers: narrow the digital divide, maximize rural deployment and target the truly unserved.”

He added, “The final order prioritizes fiber-based broadband, an inherently faster, more reliable service for consumers. RDOF will ensure more fiber exists throughout the country’s communications network and builds the bridge to 5G in rural America.”

Mr. Spalter also praised the order for creating “a smooth transition” between CAF-supported providers and any competitive providers who win RDOF support in the same area. “Without an orderly transition plan, the shift to RDOF support would leave the companies that currently serve these same rural consumers in the lurch,” he said.

“Also wisely, the FCC worked hard to strike a balance in shaping its Letter of Credit requirements that will do more to encourage broader participation while maintaining guardrails to mitigate risk to the program. This is a good step forward for broadband providers and the communities and customers we serve. We especially appreciate Commissioner Carr’s leadership in shaping a path forward that will maximize participation in this important auction,” Mr. Spalter said.

NTCA CEO Shirley Bloomfield said, “NTCA members are eager to participate in this effort, we thank Chairman Pai for moving this initiative forward, and we look forward to engaging with the FCC as it finalizes the auction procedures, vets qualified bidders, and conducts the auction.

“At the same time, even in the course of conducting auctions to distribute funds in unserved areas, it is important not to lose sight of those areas that are well-served today only by the grace of universal service support. These are market failure areas, where reasonably comparable consumer rates will not cover the costs of repaying loans taken out to build networks and the costs of maintaining networks once built. NTCA therefore welcomes a renewed conversation now not only on how we get broadband where it is not, but also how we keep broadband where it already is—sustaining high-quality voice and broadband services at affordable rates for the long-term benefit of rural consumers and communities,” she added.

ACA President and CEO Matthew Polka said, "By adopting a challenge process to ensure eligible areas are unserved and by using the ‘budget clearing round’ approach to awarding funds in the auction, the FCC will further ensure that residents and businesses at millions of unserved locations receive broadband service that is reasonably comparable to the service urban consumers receive.”

Angie Kronenberg, chief advocate and general counsel of Incompas, said, “We are pleased that the Commission heard our concerns and has adjusted its letter of credit requirements that will enable more competition in the RDOF and incent faster deployment. In particular, we’d like to thank Commissioner Carr and his staff for their work on this issue, and Patrick Halley and the USTelecom team for their leadership on this issue.”

Claude Aiken, president and CEO of the Wireless Internet Service Providers Association said, “WISPA is thankful for having the opportunity to present alternatives to its ambitious RDOF proposal. Though we have not yet seen the Order, it appears from prior reports and statements made in today’s Open Meeting that the Commission has worked to make the RDOF auction process fair and inclusive for all players.

“An example of this can be seen in the Commission’s initially circumscribed reliance on the use of letters of credit (LoC) to secure taxpayer investment in the RDOF. WISPA believes today’s Order strikes a better balance, which will work to bring small rural innovators into the RDOF process and ensure their success. While it is prudent and right for government fiduciaries to closely shepherd the use of taxpayer funds, it is much more likely that RDOF recipients will default if it is too hard or expensive to obtain an LoC,” Mr. Aiken added.

“Other reported benefits for small innovators in the Order include the addition of the 50/5 megabit per second performance tier, the adoption of a streamlined application process, and rejection of a proposal to require RDOF recipients to meet specified subscription benchmarks,” he said.

However, Mr. Aiken said the decision to allocate funding to the bidder planning the fastest speed and lowest latency in an area once the clearing price is met “is more troubling. … [I] t does not adhere to the proven CAF II model. Instead, it institutes a novel feature which allows only the fastest broadband speeds to continue past the ‘clearing round,’ significantly limiting the players and diverse solutions brought to any given market. This could result in expensive networks which lock in today’s technology, hamstringing the future needs of communities. It sacrifices speed-to-market and cost-effectiveness in favor of expensive services that few Americans may fully utilize. Moreover, it could actually thwart broader extension of broadband in unserved and underserved communities by reducing funds available in the more targeted Phase II of the RDOF auction plan.”

Utilities Technology Council Vice President and General Counsel Brett Kilbourne said, “UTC supports the Commission’s decision to award funding to projects that will provide faster speeds and lower latency once the bidding has reached the clearing round stage of the auction. This will invest federal funding wisely in future-proof projects capable of meeting increasing consumer expectations on a cost-effective basis. Additionally, this will also avoid investments in technologies that become obsolete and must be replaced.”

Other parties that issued statements support the FCC’s action included AT&T, Inc., CenturyLink, Inc., Windstream, NCTA, the National Rural Electric Cooperative Association, the Fiber Broadband Association, and Connect Americans Now. —Lynn Stanton, [email protected]

MainStory: FederalNews FCC BroadbandDeployment

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