FCC I/S/O Providers to Experiment with Rural Broadband Deployments Under Connect America Fund Phase II

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As we recently reported, the Federal Communications Commission’s (FCC) “IP Transition Order” includes an experiment designed to test the feasibility of directing Connect America Fund (CAF) subsidies to competitive providers that may present real opportunities (and/or challenges) for competitive cable, telco and wireless ISPs deploying broadband in unserved rural areas. Although much of the IP Transition Order is focused on the agency’s proposed IP network “service based” experiments and the transition to all-IP networks, the so-called “rural broadband experiment” will explore methods for distributing CAF subsidies to competitive providers deploying broadband in rural areas.

Providers interested in participating in the CAF experiment may file an “expression of interest” with the FCC no later than March 7, 2014, and submit formal proposals later in the year. As explained below, many details of the experiment remain unresolved. Nonetheless, the FCC wants to hear from those interested in applying for support, so interested parties should begin developing information about rural broadband deployment proposals they may pursue.

Background
Later this year, the FCC will disburse up to $4.5 billion dollars to support the deployment of broadband to unserved and underserved rural areas under Phase II of the CAF program. Initially, that support will only be available to incumbent telecom providers. If the incumbent declines support in its service area, competitive providers (including cable operators, telcos and wireless ISPs) may seek CAF support through a competitive bidding process. The rural broadband experiment is designed to test how a competitive bidding process might be used to disburse subsidies to competitors under Phase II of the CAF program.

Framework of CAF Rural Broadband Experiment
Although details are far from final, the FCC’s order identifies key elements of the program which provides a framework of the likely scope of the program:

Eligible entities. Support under the experiment may be directed to any non-incumbent providers of broadband services include cable operators, competitive telecom providers, wireless ISPs, municipalities, and other.

Eligible areas. Support will be focused on those areas unserved by broadband of at least 3 Mbps downstream/768 kbps upstream. The minimum project level will be by census tract, with support provided in eligible census blocks within the tract.

Last mile broadband facilities. Support will be directed towards those entities deploying last mile broadband facilities in unserved areas lacking access to 3 Mbps downstream/768 kbps upstream. Proposed deployment of so-called “middle mile” facilities will not be supported.

Potential allocation of $50 to $100 million. The FCC has not yet determined how much will be available for the experiment, but has suggested that somewhere between $50 and $100 million may be allocated to the experiment. The final total budget for the experiment will not be finalized until later in the year.

ETC designation required (though not a prerequisite). Recipients of subsidies will need to obtain additional regulatory approvals, including designation as an Eligible Telecommunications Carrier (ETC). However, potential applicants need not be ETCs when they apply for support; they may seek designation after they are selected.

Open Issues to Be Resolved Later
Many details of the rural broadband experiment, including total proposed funding, remain unresolved. However, we expect recipients will be required to comply with various reporting requirements, audits, and potential enforcement proceedings for non-compliance. Those requirements and many other questions remain unresolved. The FCC has issued a further notice seeking comment on such issues, and will use that input to decide the proper size of the budget for this experiment, what to require in the formal proposals, what selection criteria to use, and many other details.

Likely Timeline
The rural broadband experiment will unfold in two stages: an “expression of interest” stage and a formal proposal stage. The first stage begins immediately, and interested providers may file a non-binding letter of interest with the FCC by March 7, 2014. (Note, however, that filing an expression of interest is not a prerequisite to later filing an application for support.) In the second stage, formal proposals/applications will be accepted by the FCC some time later this year.

Later this year, probably in the second quarter, the FCC will finalize details of the rural broadband experiment and set a deadline for applications to be filed sometime in the summer. Applications would be subject to a challenge process, and would be open to review and scrutiny by third-party competitors. Final action by the agency could occur in the third or fourth quarter.

Next Steps
The FCC has released preliminary information identifying potentially suitable geographic areas that may be available for support under the CAF broadband experiment. Interested providers can review the FCC’s compilation of census tracts in price cap areas potentially suitable for the experiments, along with potential support amounts based on a recent cost model. This list should help you identify areas in which your company may wish to participate.

Entities interested in participating in this program should consider filing a non-binding expression of interest no later than March 7, 2014. Note that this filing does not commit the filer to participate in the program but allows the FCC to gauge interest in it.