FCC plunges ahead despite pending appeals and reconsideration petitions
The FCC has released a Public Notice announcing proposed ground rules for its planned “reverse auction” to award $300 million in funding for mobile service to under-served parts of the country. In a reverse auction, bidders vie to accept the lowest payment from the FCC to provide a slate of designated services by a certain date. The Commission is inviting comments on its proposed approach, but interested parties will have to act fast (as will the Commission): the auction is tentatively scheduled for September 17, 2012, but there is a lot of work to be done before the auction can actually take place.
No one can say the FCC isn’t moving quickly on this auction – perhaps too quickly. It issued this public notice only a month after the new Mobility Phase I process became effective as part of the watershed USF/ICC reform order adopted last fall. The problem is that petitions for reconsideration were filed in December challenging the timing and structure of the proposed auction. Until those are resolved, the FCC can hardly proceed too far with the auction.
At the same time, the source of the funds to be distributed in the auction remains up in the air. Long-time observers of this space will recall that the FCC in 2010 took the unusual step of “re-purposing” some $500 million dollars that has been designated under the USF program for CETCs. (When Verizon and Sprint agreed to forgo USF payments that would have been due to them over the next five years, the FCC decided to put that money into a rainy day fund for broadband build-out rather than distributing it to the remaining CETCs.) That highly unusual and suspect action remains under review by the U.S. Court of Appeals for the D.C. Circuit. Depending on the outcome of that case, there may not be any money to hand out.
Curiously, the FCC failed to alert folks interested in the auction that the auction and the money are both still very much up in the air.
Assuming that the auction proceeds in something like its present form, however, the FCC’s notice sheds some light on what is likely to be in store.
First, the FCC auction website depicts on a county by county basis the areas where road miles are unserved by 3G or better service. While this map is subject to further refinement based on input from the public, it at least provides a preliminary basis for prospective applicants to identify areas that are eligible for build-out funding.
As the Commission reminds interested parties, reverse auction bidders must both (a) be eligible telecommunications carriers (ETCs) and (b) have rights to spectrum in the areas they bid on, so if they don’t have that status now, they need to move quickly on those fronts. The map alerts prospective bidders as to whether this is even something they should be interested in pursuing.
For the auction itself, the FCC proposes to have only a single round. Unlike all other FCC auctions, here participants would have one chance to make one bid, and that’s it. This encourages parties to make their solitary offer the best one they can reasonably live with. The identities of bidders will also be kept secret (presumably except to the extent necessary to implement the anti-collusion rules). Since there is only one round, though, the secrecy rule is essentially meaningless.
The biggest question mark for the FCC is how to aggregate eligible areas for bidding. This problem has been a perennial one for auctions that cover applicant-defined geographic areas: how do you compare bids from people who are bidding on different areas? The FCC proposes bidder-defined aggregations, predefined aggregations, and a variant of the first option where bidder-defined aggregations can nevertheless be awarded in subsets. The FCC seeks other options as well.
The bottom line is that any method must allocate the money within the cap of $300 million that the FCC says will be available for this Fund. This cap indirectly undercuts the FCC’s assertion that no maximum bids are being set; you can bid as high as you want, but if there is insufficient money in the pool to pay you, you aren’t going to win. It remains unclear how the FCC will decide winners if, as it expects, the total bids exceed the cap.
Lastly, the FCC proposes that lucky winners who default on the performance of their obligations after winning the auction not only must pay back the money received from the FCC in full, but must also pay a 10% performance penalty. The lucky winner’s ability to meet these penalties must be guaranteed by a letter of credit – a feature which has been challenged on reconsideration.
Interested parties have until February 24, 2012 to get their comments in and until March 9 to file replies.