The Federal Communications Commission recently proposed a new $20.4 billion fund for rural broadband expansion. This Rural Digital Opportunity Fund could represent the best chance over the next decade to narrow the digital divide for many rural communities. While much work remains to finalize the fund, the FCC’s proposal outlines a framework that will likely define federal broadband policy for rural America over the next decade.
The federal dollars that will support the fund are currently allocated to the largest wireline carriers (called price cap carriers) under a program called the Connect America Fund, Phase II (CAF II). In Arkansas, the price cap carriers are AT&T, CenturyLink and Windstream. No earlier than 2021, the fund would repurpose and reallocate these CAF II funds.
This is an Opinion
The most significant design feature of the fund would be its competitive bidding process, known as a reverse auction, to allocate its subsidies. Under CAF II, the price cap carriers had a first option to receive funding, and in 2015, the carriers declined some of the funds. In 2018, the FCC used these declined funds (approximately $1.488 billion) to test the waters for a reverse auction framework in the Connect America Fund 903 Auction. The FCC was pleased with the results of this reverse auction, which now appears to be the FCC’s preferred framework for allocating future broadband subsidies.
The fund would initially allocate 80% of its dollars to geographic areas lacking broadband. To define broadband service, the FCC proposes to use a speed of 25/3 Mbps (25 Mbps download, 3 Mbps upload). The FCC estimates that there are 3.9 million “unserved” locations nationwide under this definition. Importantly, a census block (the Census Bureau’s smallest unit of geography) must be wholly unserved to qualify, so if a single location in a census block receives broadband service, the entire census block is qualified as being “served.” In contrast, under CAF II, the FCC used 4/1 Mbps to define unserved census blocks, and if carriers accepted support, they had an obligation to deliver 10/1 Mbps service to a set number of locations in those census blocks.
Under the FCC’s proposed scoring formula, the fund would prioritize bids with higher speeds, higher usage allowances and lower latency. For example, bids will be scored for broadband speed based on three tiers, with gigabit service (1 Gbps/500 Mbps) at the highest tier, 100/20 Mbps service at the middle tier and 25/3 Mbps as the baseline tier. The FCC used a similar scoring framework in the 903 Auction, where bids for gigabit service fared well.
The FCC proposes that winning bidders receive funds annually over 10 years, with service milestones requiring that projects be 40% complete at year three and 100% complete at year six. The FCC is not likely to authorize funds until 2021, so it will be 2024 and beyond before the fund’s framework would require completion of these milestones.
Since the fund is modeled off the 903 Auction, its results may tell us what to expect from the fund. In that auction, the FCC awarded $1.488 billion for service to 713,176 locations across the U.S. Arkansas fared relatively well, with five bidders receiving approximately $56 million to provide service to 16,014 locations, for an average subsidy of $2,783 per location. Arkansas finished fourth among all states with respect to gigabit service and ninth in terms of total dollars awarded. All states that won more dollars of support have larger populations.
One key driver of this outcome was the participation of rural electric cooperatives in the 903 Auction. Because FCC rules do not allow bidders to share the same consultant, the cooperatives formed a consortium to make a joint bid. This consortium was the third most successful bidder in total awards ($186 million), winning every area for which it bid. It did so in part by offering the highest tier of service (gigabit). In Arkansas, the consortium won 80% of the awarded funds.
The proposed fund would be a major evolution of the federal universal service fund (USF), which historically supported landline voice service but has since been repurposed to support broadband deployments. Unlike the legacy voice USF program, there is no federal program to achieve universal broadband deployment, and at best the fund will only reduce (not eliminate) the digital divide. As a result, there will continue to be winners and losers in terms of broadband access, and this dynamic makes the fund even more important to a small rural state like Arkansas.
Email John Fletcher, an attorney with Kutak Rock in Little Rock, at John.Fletcher@KutakRock.com.