$300 million to be available for areas with poor broadband access

Following up on the landmark USF Order last fall in which it first adopted a plan to distribute Universal Service Fund money for broadband build-outs, the FCC has released a Public Notice setting out the basic ground rules for the “reverse auction” by which the money will be distributed. The Notice fills in some important gaps in how the whole process is supposed to work.

As we have previously reported, the FCC is proceeding for the first time with an unusual reverse auction under which rights will be determined by the party which bids the lowest amount for the area in question.   In this case, carriers will be bidding to provide service to relatively high cost parts of the country provided they receive certain subsidies.   The company asking for the lowest subsidy to do the job will get the money and the attendant service obligation. Many of the key features of this auction remain subject to petitions for reconsideration, but the Wireless Bureau is nevertheless plunging forward to set the ground rules on the assumption that the auction will proceed largely as laid out in last fall’s USF Order.

In addition to the usual provisos, warnings, disclaimers, and notices that accompany every FCC auction, the Public Notice alerts us to the following:

  • The short form deadline for applications is July 11, 2012. This is curiously far in advance of the scheduled September 27 auction date.
  • The auction will be a single round, single bid, sealed auction. The bid you make on September 27 is your only bid and it cannot be withdrawn once your bid is final.
  • Bidders (other than Indian tribes) must have their high cost ETC designations in hand when they file their short forms. It is not good enough to have a pending application on that date.
  • ETCs which only have Lifeline authority are not eligible to participate.
  • The FCC has now identified as best it can the areas that are underserved and therefore eligible for build-out funds. Bidders will bid on census tracts identified by the FCC. The winning bidder will be the one which bids the lowest amount to serve the road-miles within that census block. A winner must commit to serving at least 75% of the road-miles. This simplifies the determination of the winner since bidders are bidding against each other for the same defined areas.
  • The FCC will begin awarding money starting with the lowest bids per census block and keep going till it is out of the $300 million.
  • Winning bidders must submit their entire network design, construction schedule and budget when they submit the “long form” applications ten business days after the winners are announced. Winning bidders will have a very busy couple of weeks to pull that information together.
  • Winning bidders must also at the same time put up a letter of credit from a bank guaranteeing their performance of their commitments. Again, this is not much time to get such a letter together.   To further complicate matters, the winning bidder must submit a legal opinion indicating that the letter of credit is free from bankruptcy claims if the bidder goes belly up without meeting its commitments.   The high cost of obtaining what is effectively insurance will have to be built into the bid amount.
  • A winning bidder which fails to qualify when it files its long form application will be subject to a penalty equal to 5% of its winning bid.
  • Finally, winning bidders must also certify that they can offer service in the areas they have won without the need for further federal funding. This effectively disqualifies them from the Phase II Mobility Funding that is supposed to support service to high cost areas. This seemingly counterproductive element of the Commission’s plan is currently under reconsideration.

While the prospect of free government money is usually attractive, the significant strings which the FCC has attached to this process make the decision to bid on the awards a difficult one. Potential bidders should consider all of the risks as well as the rewards of participating in this program.