Proposal: Dole out up to $300 million through reverse auction to bring 3G to underserved areas

As we have reported, the FCC decided last month that, instead of re-distributing to CETC’s the $500 million or so in USF funds which Verizon and Sprint renounced as a condition of getting their mergers approved, it would keep the money in a rainy day fund to support broadband mobility. The FCC’s action in that regard was highly suspect on legal grounds (full disclosure: FHH represented the lead proponent of re-distribution of the money to CETCs). Nevertheless, the Commission initiated a rulemaking to try retroactively to justify its unprecedented action.   And now it has opened another rulemaking to determine where and how the so-called “Mobility Fund” will be distributed.

This proceeding may be a classic case of pre-natal chicken enumeration, since the Commission’s original palming of the Verizon/Sprint funds remains very much in contest. A spate of petitions for reconsideration have been filed, and the matter is likely to go to the Court of Appeals if the FCC remains unmoved. That process could easily take two years, maybe longer.   So no matter what happens in the new rulemaking, Mobility Fund dollars are not going to be finding their way into anyone’s pockets soon, if ever.

That said, the Commission’s proposal for distributing the Mobility Fund is a solid step forward in tailoring the distribution of Universal Service Fund support to those precise areas that most need it without wasteful duplicative support payments. The FCC proposes to distribute $100-$300 million dollars from the Fund by conducting a reverse auction. Bidders would propose to offer 3G-level service in census tracts around the country that have been designated by the FCC as underserved.  The bidder who proposes to provide the service with the lowest amount of support from the Mobility Fund would be awarded the subsidy at that level. There would be only one recipient in each census tract.

Some specifics from the Commission’s proposal:

  • Only Eligible Telecommunications Entities (ETC’s) or entities which have applied to be ETC’s could participate in the auction. Because this is a “mobility” project, participants would have to demonstrate that they have access to broadband spectrum (either owned or leased) in the areas where they propose to receive support. Before being awarded the grant, the proposed recipient would have to demonstrate its financial ability to construct the build-out necessary to deliver the 3G service.
  • Bidders would bid on a per unit basis and be compared against anybody else bidding for the same census tracts. For example, one bidder could bid to provide service with a subsidy of $50 per person over the underserved areas in the whole state of Nevada, while another bidder might propose to offer service to underserved areas of Washoe County for $55 per person. Someone else might propose service to underserved areas in all of the mountain states for $48 per person. The last bidder would get the nod in both the county and the state since he was the low bidder in census tracts where there was overlap with other bidders. This process nicely avoids the problem of trying to compare bids on differing geographic areas. The award would then be the winning bid ($48) times the number of people in the underserved census tracts covered by the bid.
  • Winning bidders will likely be required to demonstrate that they will provide the 3G service to a set percentage of the population by a set date (possibly two years), but the FCC seeks input on that. For this purpose, 3G-level service is deemed to be 200 kbps up and 768 kbps down while travelling at 70 MPH over 90% of the designated coverage area. The FCC considers these relatively slow rates to be comparable to HSPA and EV-DO. Both voice and data must be supported.
  • Interestingly, towers constructed with support money must be made available to competitors, and data roaming must be permitted at reasonable and non-discriminatory rates. These measures are designed to ensure that other carriers are not frozen out of the supported markets.
  • The actual money will be doled out in thirds – once right after your grant, once when you are 50% complete, and once when you are finished. Note that these funds are intended to be used for construction of infrastructure – not long-term support – so the award is a one-time thing.
  • As always, the FCC will require annual status reports and awardees will be subject to audits.

None of this is set in stone, since the FCC is just beginning the process and seems genuinely interested in getting input as to how to make this process work efficiently and effectively. Earlier efforts to use reverse auctions to award USF funds have always fallen flat, but because this effort leaves wireline LECs unaffected, it may stand a greater chance of success. We notice that in many ways the process mirrors last year’s stimulus money program which was designed to shovel out $7 billion to fund broadband in unserved and underserved areas. Surely the stimulus awards and the resulting build-outs should be taken into account in awarding these new funds.

Despite the many uncertainties that still surround this Fund (and which may ultimately make it evaporate), this rulemaking merits the careful attention of low cost carriers who cannot otherwise make a business case for serving marginal areas.

Comments will be due 45 days after publication of the Notice of Proposed Rulemaking in the Federal Register; reply comments will be due 75 days after publication. Check back here for updates.