Rural Digital Opportunity Fund, Connect America Fund

 
CONTENT
Federal Register, Volume 84 Issue 162 (Wednesday, August 21, 2019)
[Federal Register Volume 84, Number 162 (Wednesday, August 21, 2019)]
[Proposed Rules]
[Pages 43543-43563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17783]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket Nos. 19-126, 10-90; FCC 19-77]
Rural Digital Opportunity Fund, Connect America Fund
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) proposes to establish the Rural Digital Opportunity Fund
and seeks comment on its overall approach in doing so.
DATES: Comments are due on or before September 20, 2019 and reply
comments are due on or before October 21, 2019. If you anticipate that
you will be submitting comments, but find it difficult to do so within
the period of time allowed by this document, you should advise the
contact listed in the following as soon as possible.
ADDRESSES: Pursuant to sections 1.415 and 1.419 of the Commission's
rules, 47 CFR 1.415, 1.419, interested parties may file comments and
reply comments on or before the dates indicated on the first page of
this document. Comments may be filed using the Commission's Electronic
Comment Filing System (ECFS). See Electronic Filing of Documents in
Rulemaking Proceedings, 63 FR 24121 (1998).
     Electronic Filers: Comments may be filed electronically
using the internet by accessing the ECFS: https://www.fcc.gov/ecfs/.
     Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing. If more than one docket
or rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission.
     All hand-delivered or messenger-delivered paper filings
for the Commission's Secretary must be delivered to FCC Headquarters at
445 12th Street SW, Room TW-A325, Washington, DC 20554. The filing
hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held
together with rubber bands or fasteners. Any envelopes and boxes must
be disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9050 Junction Drive,
Annapolis Junction, MD 20701.
     U.S. Postal Service first-class, Express, and Priority
mail must be addressed to 445 12th Street SW, Washington, DC 20554.
    Comments and reply comments must include a short and concise
summary of the substantive arguments raised in the pleading. Comments
and reply comments must also comply with section 1.49 and all other
applicable sections of the Commission's rules. The Commission directs
all interested parties to include the name of the filing party and the
date of the filing on each page of their comments and reply comments.
All parties are encouraged to use a table of contents, regardless of
the length of their submission. The Commission also strongly encourages
parties to track the organization set forth in the Notice of Proposed
Rulemaking in order to facilitate its internal review process.
    People With Disabilities. To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an email to [email protected] or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition
Bureau, (202) 418-7400 or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking (NPRM) in WC Docket Nos. 19-126, 10-90; FCC 19-
77, adopted on August 1, 2019 and released on August 2, 2019. The full
text of this document is available for public inspection during regular
business hours in the FCC Reference Center, Room CY-A257, 445 12th
Street SW, Washington, DC 20554 or at the following internet address:
https://www.fcc.gov/document/fcc-proposes-204-billion-rural-digital-opportunity-fund-0.
I. Introduction
    1. Broadband access is critical to economic opportunity, job
creation, education and civic engagement. That is why closing the
digital divide is the Commission's top priority. For communities
throughout our nation to thrive and prosper, their residents must have
the option to obtain high-speed internet access.
    2. Last year, the Commission took a major step forward in expanding
broadband access to many parts of rural America. As a result of the
Commission's successful Connect America Fund (CAF) Phase II auction,
the Commission has begun providing $1.488 billion in universal service
support over ten years to build high-speed broadband service to over
700,000 households and small businesses in 45 states, with 99.75% of
locations receiving at least 25/3 Mbps service and more than half
receiving at least 100/20 Mbps service.
    3. But more work remains to be done. For example, more than 10
million households and small businesses in price cap areas still lack
access to critical broadband services that offer speeds of at least 25
megabits per second (Mbps) downstream and 3 Mbps upstream in unserved
census blocks, including more than 7 million in rural areas. In this
document, the Commission proposes to build on the success of the CAF
Phase II auction by establishing the Rural Digital Opportunity Fund,
which will commit at least $20.4 billion over the next decade to
support high-speed broadband networks in rural America. Because the CAF
Phase II auction secured higher quality services for consumers at a
lower cost to the Universal Service Fund (Fund), the Commission
proposes to conduct a multi-round, reverse, descending clock auction
that favors faster services with lower latency and encourages
intermodal competition. And in light of the need to bring service both
to consumers in wholly unserved areas as well as those living in
partially served areas, the Commission proposes to assign funding in
two phases: Phase I will target those areas that current data confirm
are wholly unserved, and Phase II will target those areas that are
partially served as well as any areas not won in the first phase. By
relying on a two-phase process, as the Commission did with the Connect
America Fund, the Commission can move expeditiously to commence an
auction in 2020 while
[[Page 43544]]
also ensuring that other areas are not left behind by holding a second
auction.
    4. The framework the Commission proposes in this document
represents its single biggest step yet to close the rural digital
divide and will connect millions more rural homes and small businesses
to high-speed broadband networks.
II. Discussion
    5. Closing the digital divide and bringing robust, affordable high-
speed broadband to all Americans is the Commission's top priority. By
improving access to modern communications services, the Commission can
help provide individuals living in rural America with the same
opportunities as their urban counterparts. The Rural Digital
Opportunity Fund the Commission proposes is a critical next step in its
high-cost program and ongoing effort to close the digital divide. By
committing at least $20.4 billion over the next ten years, the
Commission will bring broadband service at minimum speeds of 25/3 Mbps
to millions of Americans living in the areas that need it most--
including those living on Tribal lands. And the Commission's two-phase
approach will ensure that completely unserved areas are prioritized, so
that support can begin to flow quickly while it works to improve the
data needed to most efficiently target support over the longer term. At
the same time, by awarding support through a competitive bidding
mechanism and targeting investment to areas where there is currently no
private sector business case to deploy broadband without assistance,
the Commission will ensure that its limited universal service support
is awarded in an efficient and cost-effective manner, without
overbuilding to areas that already have service. Finally, the proposals
the Commission adopts in this document includes measures to require
accountability, so the Commission can ensure that its public
investments are used wisely to deliver intended results.
    6. The Commission seeks comment on its overall approach in
establishing a Rural Digital Opportunity Fund. The Commission proposes
that its adoption of a Rural Digital Opportunity Fund framework will be
guided by the following goals: (1) Ensuring that high-speed broadband
is made available to all Americans quickly, and at an affordable price;
(2) reducing waste and inefficiency in the high-cost program and
promoting the use of incentive-based mechanisms to award support; (3)
requiring accountability to ensure that public investments are used
wisely to deliver intended results; and (4) minimizing the contribution
burden. Does the framework the Commission proposes strike the right
balance in helping to achieve those proposed objectives? Are there any
other goals that should guide this process? How can the Commission
measure progress against these proposed goals? In commenting on the
detailed proposals that are in this document, parties are invited to
discuss how the proposals (or any alternatives) can best be focused to
achieve the Commission's proposed goals. Moreover, the Fund is a
federal-state partnership. Are there ways the Rural Digital Opportunity
Fund can facilitate that partnership?
    7. The approach the Commission takes in this document leverage its
experience with the CAF program, and the CAF Phase II auction in
particular. But it also acknowledges that market realities have changed
since the CAF framework was first established in 2011. Consumers'
demand for faster speeds has grown dramatically--and the market has
largely been able to deliver. Speeds of 25/3 Mbps are widely available,
and 25/3 Mbps is the Commission's current benchmark for evaluating
whether a fixed service is advanced-telecommunications capable. Thus,
the item proposes a 25/3 Mbps service availability threshold as the
basis for establishing eligible areas. Demand for greater speeds will
continue to rise. The framework the Commission proposes in this
document therefore takes a flexible approach that prioritizes faster,
gigabit speeds. The Commission's proposals also acknowledge that,
despite its expectation that broadband would be deployed to many areas
without high-cost support, some of these areas remain unserved. The
NPRM proposes including these areas in the Rural Digital Opportunity
Fund auction. In light of these dynamic marketplace changes, the
Commission believes that a new support mechanism is better able to meet
its objectives than continuing with the existing CAF framework. The
Commission seeks comment on this conclusion.
    8. The Commission proposes adopting a term of support of 10 years
for the Rural Digital Opportunity Fund. For the CAF Phase II auction,
the Commission acknowledged that ``some entities may be unwilling to
make necessary long-term investments to build robust future-proof
networks in areas that are uneconomic to serve absent continued support
beyond a five-year term'' and that ``providing support for a period of
ten years may stimulate greater interest'' in the auction. The
Commission believes that the 10-year term of support was partially
responsible for the robust participation that occurred in the CAF Phase
II auction and expect that the same principles regarding encouraging
long-term investments and auction participation will also apply to the
Rural Digital Opportunity Fund. Thus, the Commission proposes to adopt
the same support term here. The Commission seeks comment on this
proposal.
    9. The Commission proposes a budget of at least $20.4 billion for
the Rural Digital Opportunity Fund. The budget is premised on the CAM
estimated cost of deploying a high-speed broadband network to all
locations in wholly unserved price cap census blocks that exceed the
existing high-cost threshold of $52.50 per-location per-month, and with
that cost capped at $198.60. These census blocks are considered wholly
unserved because no provider is offering both voice service as well as
25/3 Mbps terrestrial fixed broadband service. The Wireline Competition
Bureau (Bureau) staff estimate that there are 3.9 million locations in
these census blocks. The Commission seeks comment on this budget and
this analysis.
    10. Of this budget, the Commission proposes to make available at
least $16 billion for Phase I of the Rural Digital Opportunity Fund,
and to make the remaining $4.4 billion from the total budget, as well
as any unawarded funds from Phase I, available for Phase II. Three
considerations guide the Commission. First, $16 billion reflects the
sum of the total amount of CAF Phase II model-based support currently
received by price cap carriers ($1.5 billion per year) and the support
amount the Commission once envisioned for the Remote Areas Fund (at
least $100 million per year). Second, the budget balances the
Commission's goals of ensuring greater broadband deployment in rural
America and efficient use of the Fund. The Commission proposes a budget
that will lead to more robust inter-area competition in the auction,
which will lead to service being provided at a lower cost in the areas
awarded support. In the CAF Phase II auction, much of the bidding was
driven by the fact that the total budget ($2 billion) was significantly
less than the aggregate reserve prices of all areas in the auction ($6
billion). The inter-area competition, as well as the intra-area
competition, ultimately drove down the support required to provide
service from a model-estimated $5 billion to only $1.488 billion. The
Commission seeks to have a similarly efficient outcome for Phase I of
the Rural Digital Opportunity Fund and hence proposes to have an
aggregate reserve price that well exceeds
[[Page 43545]]
the auction budget by expanding the eligible census blocks beyond those
used in calculation of the budget, modifying the reserve prices from
those used in the budget calculation, and adjusting the budget from
$20.4 billion to $16 billion. Third, the fact that any areas unawarded
in the Phase I auction will roll over into the Phase II auction
militates in favor of ensuring there is adequate inter-area competition
in Phase I--the Commission's two-phase plan for the Rural Digital
Opportunity Fund means it can ensure an efficient auction while
furthering its commitment to universal service. The Commission seeks
comment on this proposal, and on alternatives for how to appropriately
size the Phase I budget.
    11. Finally, the Commission recognizes that achieving its universal
service objectives is an ongoing process. As technologies and service
levels evolve, fulfilling the Commission's objective of providing
access in high-cost areas to services that are reasonably comparable to
those available in urban areas means continually assessing the need to
support services that compare to the ever-improving standard of
advanced services in urban areas. Will the methodology the Commission
proposes for the Rural Digital Opportunity Fund Phase I budget result
in a budget that will cost-effectively achieve coverage to additional
locations consistent with the public service obligations the Commission
proposes for the Rural Digital Opportunity Fund? Should the Commission
reassess the adequacy of the total budget after the Phase I auction?
    12. Given the success of the CAF Phase II auction, the Commission
proposes to use a substantially similar reverse auction mechanism to
distribute support to providers that commit to offer voice and
broadband services to fixed locations. Specifically, the Commission
proposes to use a multi-round, descending clock auction to identify the
providers that will be eligible to receive support and to establish the
amount of support that each bidder will be eligible to receive using
procedures substantially similar to those used in the CAF Phase II
auction. The Commission reiterates its preference for a multi-round
auction because multiple rounds enable bidders ``to make adjustments in
their bidding strategies to facilitate a viable aggregation of
geographic areas in which to construct networks and enable competition
to drive down support amounts.'' The Commission proposes that the Rural
Digital Opportunity Fund descending clock auction will consist of
sequential bidding rounds according to an announced schedule providing
the start time and closing time of each bidding round. And the
Commission proposes to rely on its existing general rules regarding
competitive bidding for universal service support, with specific
procedures to be developed through its standard Public Notice process.
    13. The Commission proposes that bids for different areas at
specified performance tier and latency levels will be compared to each
other based on area reserve prices, and performance tier and latency
weights. Likewise, the Commission proposes to use weights to account
for the different characteristics of service offerings that bidders
propose to offer when ranking bids. The Commission proposes that bids
for different service tiers will be considered simultaneously, so
bidders that propose to meet one set of performance standards will be
directly competing against bidders that propose to meet other
performance standards. As the Commission did in the CAF Phase II
auction, it proposes calculating the implied annual support amount at a
bid percentage by adjusting an area-specific reserve price for the bid
percentage and the weights for the performance tier and latency
combination of the bid, with implied support not exceeding the reserve
price.
    14. The Commission proposes to include all Phase I eligible areas
nationwide in one auction, so that bidders compete for support across
all areas at the same time. And the Commission seeks comment on whether
census block groups containing one or more eligible census blocks is an
appropriate minimum geographic unit for bidding for the Rural Digital
Opportunity Fund. Given that the Rural Digital Opportunity Fund
auctions will be much larger than the CAF Phase II auction, would a
larger minimum geographic unit, like census tracts or counties, be more
manageable? Are there other or more efficient ways to group census
blocks for purposes of the auction?
    15. The Commission seeks comment on all these proposals. The
Commission also seeks comment on whether there are any rule changes
that it should consider for the Rural Digital Opportunity Fund auction
that would lead to greater efficiency or better outcomes for the Fund
and rural consumers.
    16. Public Interest Obligations. Given the success of the CAF Phase
II auction in obtaining commitments from winning bidders for the
deployment of robust service from a variety of service providers, the
Commission proposes to adopt similar technology-neutral standards for
services supported by the Rural Digital Opportunity Fund. Specifically,
the Commission proposes to permit bids in the Baseline, Above-Baseline,
and Gigabit performance tiers with the same speed and usage allowance
requirements as the CAF Phase II auction and to place low latency or
high latency bids meeting the same latency requirements as the CAF
Phase II auction high and low latency bidders. Specifically, Baseline
performance means 25/3 Mbps speeds with a 150 gigabytes (GB) monthly
usage allowance or a monthly usage allowance that reflects the average
usage of a majority of fixed broadband customers, whichever is higher,
Above-Baseline performance means 100/20 Mbps speeds with 2 terabytes
(TB) of monthly usage, and Gigabit performance means 1 Gbps/500 Mbps
speeds with a 2 TB monthly usage allowance. In turn, low latency means
95% or more of all peak period measurements of network round trip
latency are at or below 100 milliseconds, and high-latency means 95% or
more of all peak period measurements of network round trip latency are
at or below 750 milliseconds and a demonstration of a score of four or
higher using the Mean Opinion Score with respect to voice performance.
Authorized support recipients would have the flexibility to use any
fixed broadband technology to meet the required performance obligations
and service milestones associated with their winning bids. Like all
high-cost eligible telecommunications carriers (ETC), Rural Digital
Opportunity Fund support recipients would be required to offer
standalone voice service and offer voice and broadband services at
rates that are reasonably comparable to rates offered in urban areas.
The Commission seeks comment on these proposals. The Commission also
seeks comment on whether it should tie the capacity requirements of all
tiers to the average usage of a majority of fixed broadband customers,
should it increase above the minimums the Commission establishes here.
    17. The Commission proposes not to include a Minimum performance
tier, which required 10/1 Mbps broadband in the CAF Phase II auction.
The Commission has since recognized that ``access to 25/3 Mbps
broadband service is not a luxury for urban areas, but important to
[all] Americans where they live.'' The Commission seeks comment on this
proposal.
    18. As in the CAF Phase II auction, the Commission proposes using
weights to reflect its preference for higher speeds, higher usage
allowances, and low latency. There the Commission
[[Page 43546]]
adopted weights of 65 for the Minimum performance tier, 45 for the
Baseline performance tier, 15 for the Above Baseline performance tier,
and 0 for the Gigabit performance tier, as well as a weight of 25 for
high latency bids and 0 for low latency bids. Accordingly, the spread
between the best and least performing tiers was 90 points. With the
Commission's proposed elimination of the Minimum performance tier, it
can maintain that same 90-point spread between the best and least
performing tiers in the Rural Digital Opportunity Fund auction by
adjusting the weights for each tier as proposed in the following. To
encourage the deployment of higher speed services, and in recognition
that terrestrial fixed networks may serve as a backbone for 5G
deployments, these proposed weights favor higher-than Baseline speeds
and low-latency services. The Commission seeks comment on this
proposal. Alternatively, should the Commission increase the 90-point
spread between the best and least performing tiers to something
higher--e.g., 95% or more? BILLING CODE 6712-01-P
[GRAPHIC] [TIFF OMITTED] TP21AU19.001
    BILLING CODE 6712-01-C19. To ensure that Rural Digital Opportunity
Fund support recipients meet the relevant speed, usage allowance, and
latency requirements, the Commission proposes subjecting them to the
same framework for measuring speed and latency performance and the
accompanying compliance framework as are applicable to all other
recipients of high-cost support required to serve fixed locations. The
adopted framework generally provides high-cost support recipients
flexibility in choosing solutions to conduct the required testing.
    20. The Commission seeks comment on these proposals and on whether
any alternative deployment obligations, performance requirements,
weights, or testing methodologies should be adopted for recipients of
Rural Digital Opportunity Fund support. Commenters proposing
alternatives should explain how their proposal will balance the
objectives of maximizing the Commission's limited budget and guarding
against widening the digital divide by ensuring that rural Americans do
not fall further behind those living in urban areas.
    21. Service Milestones. The Commission also proposes to adopt the
same service milestones for the Rural Digital Opportunity Fund that it
adopted for the CAF Phase II auction. Specifically, the Commission
proposes that support recipients complete construction and commercially
offer
[[Page 43547]]
voice and broadband service to 40% of the requisite number of locations
in a state by the end of the third year of funding authorization, and
an additional 20% in subsequent years, with 100% by the sixth year. As
an alternative, should the Commission require support recipients to
build out more quickly earlier in their support terms by offering voice
and broadband to 50% of the requisite number of locations in a state by
the end of the third year of funding authorization? A support recipient
would be deemed to be commercially offering voice and/or broadband
service to a location if it provides service to the location or could
provide it within 10 business days upon request. All support recipients
would also have to advertise the availability of their services through
their service areas. Compliance would be determined on a state-level
basis so that a support recipient would be in compliance with a service
milestone if it offers service meeting the relevant performance
requirements to the required number of locations across all of the
awarded areas included in its winning bids in a state.
    22. The Commission also gave CAF Phase II auction support
recipients some flexibility in their service obligations to address
unforeseeable challenges to meeting those obligations. The Commission
proposes to adopt the same flexibility with an accompanying reduction
in support that it adopted for the CAF Phase II auction in recognition
that facts on the ground may necessitate some flexibility regarding the
final service milestone. Specifically, support recipients that have
offered service to at least 95%, but less than 100%, of the number of
funded locations at the end of the support term will be required to
refund support based on the number of funded locations left unserved in
that state. The Commission seeks comment on these proposals.
    23. The Commission recognizes that there may be some disparity
between the number of locations specified by the Connect America Cost
Model (CAM) and the ``facts on the ground.'' For the offer of model-
based support, the Commission directed the Bureau to address situations
where a price cap carrier brings to the Bureau's attention any known
disparity. The Commission notes that no price cap carrier receiving CAF
Phase II model-based support has asked the Bureau to modify its number
of required locations in a state. For the CAF Phase II auction, the
Commission will permit support recipients to bring to its attention
disparities between the number of locations estimated by the CAM and
the number of locations actually on the ground in the eligible census
blocks within their winning bid areas in a state. If a support
recipient could sufficiently demonstrate that it is unable to identify
enough actual locations on the ground across all of the census blocks
for which it won support in a state, its deployment obligation and
support will be reduced on a pro rata basis. The Commission proposes to
follow this same course here and directs the Bureau to establish a
process for such adjustments. As an alternative, should the Commission
use a different source to address location disparities? Likewise, if
the Digital Opportunity Data Collection is adopted, should different
rules apply for Phase I and Phase II of the proposed auction?
    24. The Commission also seeks comment on whether there are
additional measures it could adopt that would help ensure that Rural
Digital Opportunity Fund support recipients will meet their third-year
service milestones, and further seeks comment on what steps the
Commission should take if it appears support recipients will not be
able to meet their service milestones.
    25. Reporting Requirements. To ensure that support recipients are
meeting their deployment obligations, the Commission proposes to adopt
the same reporting requirements for the Rural Opportunity Digital Fund
that the Commission adopted for the CAF Phase II auction. Specifically,
the Commission proposes requiring Rural Digital Opportunity Fund
support recipients to annually file the same location and technology
data in the High Cost Universal Broadband (HUBB) portal and to make the
same certifications when they have met their service milestones, and
the Commission would encourage them to file such data on a rolling
basis. The Commission also proposes requiring Rural Digital Opportunity
Fund support recipients to file the same information in their annual
FCC Form 481s that it requires of the CAF Phase II auction support
recipients. Specifically, in addition to the certifications and
information required of all high-cost ETCs in the FCC Form 481, Rural
Digital Opportunity Fund support recipients would be required to
certify each year after they have met their final service milestone
that the network they operated in the prior year meets the Commission's
performance requirements, and support recipients would be required to
identify the number, names, and addresses of community anchor
institutions to which they newly began providing access to broadband
service in the preceding calendar year as well as identify the total
amount of support that they used for capital expenditures in the
previous calendar year. Moreover, support recipients would need to
certify that they have available funds for all project costs that will
exceed the amount of support they will receive in the next calendar
year.
    26. Additionally, Rural Digital Opportunity Fund support recipients
would be subject to the annual section 54.314 certifications, the same
record retention and audit requirements, and the same support
reductions for untimely filings as all other high-cost ETCs. In
addition, support recipients that are designated by the Commission
would need to self-certify.
    27. The Commission seeks comment on these proposals and whether it
needs to make any adjustments to this reporting framework for Rural
Digital Opportunity Fund support recipients. To the extent commenters
propose that the Commission adopts different public interest
obligations or service milestones or make other changes to relevant
proposals, they should also address whether the Commission needs to
make any adjustments to its reporting framework to account for the
proposed changes.
    28. To minimize the administrative burden on the Commission, the
Universal Service Administrative Company (USAC), and Rural Digital
Opportunity Fund support recipients, the Commission also seeks comment
on how it can align service milestones, service milestone
certifications, and location reporting deadlines for all Rural Digital
Opportunity Fund support recipients, even though the long-form
applicants may be authorized to receive support on different dates. For
example, to minimize administrative burdens on the Commission and USAC
and to simplify reporting for support recipients, should the Commission
align the service milestones and reporting deadlines for the Rural
Digital Opportunity Fund with those for other high-cost programs?
Specifically, regardless of when a Rural Digital Opportunity Fund
recipient is authorized to receive support, should each service
milestone occur on a date certain, such as June 30 or December 31?
Should support recipients be required to certify that they have met the
applicable service milestone and to submit a list of locations where
they offer service within two months of such a deadline? Are there any
adjustments the Commission should make to better align the support
reductions applicable to late filers with the filing deadlines?
    29. Non-Compliance Measures. The Commission also proposes to apply
the same non-compliance measures that are
[[Page 43548]]
applicable to all high-cost ETCs, the framework for support reductions
that is applicable to high-cost ETCs that are required to meet defined
service milestones, and the process the Commission adopted for drawing
on letters of credit for the CAF Phase II auction. Specifically, the
Commission proposes to rely on the following non-compliance tiers:
                        Non-Compliance Framework
------------------------------------------------------------------------
        Compliance gap                   Non-compliance measure
------------------------------------------------------------------------
Tier 1: 5% to less than 15%    Quarterly reporting.
 required number of locations.
Tier 2: 15% to less than 25%   Quarterly reporting + withhold 15% of
 required number of locations.  monthly support.
Tier 3: 25% to less than 50%   Quarterly reporting + withhold 25% of
 required number of locations.  monthly support.
Tier 4: 50% or more required   Quarterly reporting + withhold 50% of
 number of locations.           monthly support for six months; after
                                six months withhold 100% of monthly
                                support and recover percentage of
                                support equal to compliance gap plus 10%
                                of support disbursed to date.
------------------------------------------------------------------------
    30. A support recipient would have the opportunity to move tiers as
it comes into compliance and will receive any support that has been
withheld if it moves from one of the higher tiers to Tier 1 status
during the build-out period. If a support recipient misses the final
service milestone, it would have 12 months from the date of the final
service milestone deadline to come into full compliance. If it does not
report that it has come into full compliance, USAC would recover an
amount of support that is equal to 1.89 times the average amount of
support per location received in the state for that ETC over the
support term for the relevant number of locations, plus 10% of the
support recipient's total relevant high-cost support over the support
term for that state. The same support reduction would apply if USAC
later determines in the course of a compliance review that a support
recipient does not have sufficient evidence to demonstrate that it is
offering service to all of the locations required by the final
milestone.
    31. As in the CAF Phase II auction, USAC would be authorized to
draw on the letter of credit to recover all of the support that has
been disbursed in the event that a support recipient does not meet the
relevant service milestones, does not come into compliance during the
cure period, and does not repay the Commission the support associated
with the non-compliance gap within a certain amount of time. If a
support recipient is in Tier 4 status during the build-out period or
has missed the final service milestone, and USAC has initiated support
recovery as described in this document, the support recipient would
have six months to pay back the support that USAC seeks to recover. If
the support recipient does not repay USAC by the deadline, the Bureau
would issue a letter to that effect and USAC would draw on the letter
of credit to recover all of the support that has been disbursed. If a
support recipient has closed its letter of credit and it is later
determined that the a support recipient does not have sufficient
evidence to demonstrate that it is offering service to the total number
of required locations, that support recipient would be subject to
additional non-compliance measures if it does not repay the Commission
after six months. And like other high-cost ETCs, support recipients
would be subject to other sanctions for non-compliance with the terms
and conditions of high-cost funding, including but not limited to the
Commission's existing enforcement procedures and penalties, reductions
in support amounts, potential revocation of ETC designations, and
suspension or debarment.
    32. The Commission seeks comment on these proposals. To the extent
that commenters recommend any changes to the proposed service
milestones or other rules, they should also comment on whether their
proposals would require any changes to these non-compliance measures.
Commenters should also explain how their proposals encourage support
recipients to comply with the Commission's rules and accomplish the
Commission's oversight responsibilities, including protecting the
integrity of the Fund.
    33. Additional Performance Targets. The Commission also seeks
comment on whether it should adopt additional performance targets to
provide better incentives for Rural Digital Opportunity Fund support
recipients to sign up customers in the eligible areas. Specifically,
the Commission seeks comment on how to ensure that support recipients
have sufficient incentives for support recipients to pursue customers
in the eligible areas. For example, spectrum-based bidders may have
capacity constraints on their systems deterring them from continuing to
pursue new subscribers should an increase in capacity (but not
coverage, which is already mandated by the deployment milestones)
require additional capital expenditures. Since Rural Digital
Opportunity Fund support may require certain providers to offer much
higher data caps than they do to non-Rural Digital Opportunity Fund
subscribers and price the services similarly, such providers may have
an incentive to limit Rural Digital Opportunity Fund subscribers to
sell their capacity to more profitable non-Rural Digital Opportunity
Fund subscribers. Spectrum-based providers that do not have a network
sufficient to serve most locations in a geographic area would also have
an incentive to limit subscription if expanding capacity would be less
profitable than limiting subscription and collecting Rural Digital
Opportunity Fund subsidies based purely on deployment. Even wireline
bidders may lack the proper incentives to serve additional customers in
some areas, given that it may not be profitable without a per-
subscriber payment to run wires from the street to the customer
location and install customer premises equipment. The Commission seeks
comment on whether these theoretical concerns are likely to bear out in
reality and what to do to address them.
    34. The Commission seeks comment on a proposal to also adopt
subscribership milestones for Rural Digital Opportunity Fund support
recipients. For example, such a proposal could set milestones at 70%
(the subscribership level assumed by the CAM) of the yearly deployment
benchmarks. Hence the first subscribership benchmark could be 28% in
year three, and increase 14% each year through year six, where it could
remain at 70% through the end of
[[Page 43549]]
the term of support. Would a subscribership rate that is lower than 70%
be more appropriate to account for the unique challenges of serving
rural areas? If so, what subscribership rate would better reflect such
challenges? Rural Digital Opportunity Fund support recipients would
have the flexibility to offer a variety of broadband service offerings
as long as they offer at least one standalone voice plan and one
service plan that provides broadband at the relevant performance tier
and latency requirements at rates that are reasonably comparable to
rates offered in urban areas. Would it be appropriate to credit
subscribers to any of the broadband services that are eligible for
Rural Digital Opportunity Fund support in calculating adoption rates?
To account for subscriber churn that may occur during the support term,
should the adoption rate be represented as a percentage of the total
potential subscriber months of the locations deployed? How should the
Commission and USAC account for the fact that some support recipients
may meet their service milestones more quickly than the six-year build-
out schedule, and the fact that some support recipients may take
advantage of the flexibility to serve only 95% of the required number
of locations? The Commission seeks comment on addressing this by using
the minimum required deployed locations rather than actual locations
deployed in the calculation of adoption rates.
    35. Under this proposal, the Commission would condition a portion
of the recipient's support on meeting the subscribership milestones.
Specifically, the Commission would withhold an amount of support equal
to however many percentage points the recipient missed its
subscribership milestone by. For example, if a recipient only had 27%
subscribership in year three, only 1% (28%-27%) of support would be
withheld. In contrast, if a recipient only had 17% subscribership in
year six, then 53% (70%-27%) would be withheld. Notably, a recipient
would receive its full annual support amount in monthly payments for
the first two years of initial buildout. Such an approach could be
structured by providing a monthly minimum guaranteed level of funding
and an additional quarterly per-subscriber payment. The Commission
seeks comment on this proposal.
    36. Commenters proposing that the Commission adopt such performance
targets or similar measures should describe specifically how their
proposals could be implemented within the Rural Digital Opportunity
Fund framework to minimize the potential administrative burdens on the
Commission, USAC, and service providers. For example, what type of
reporting obligations should the Commission impose and what types of
information should it collect to verify that a consumer is subscribing
to a service as claimed? How could the Commission minimize the amount
of personally identifiable information that is collected by support
recipients to demonstrate that a consumer is subscribing to a service?
Moreover, what measures could the Commission and USAC take to verify
quickly but sufficiently a recipient's claimed subscription rate so as
not to delay the disbursement of the support that is dependent on
subscription rates? When should the support that is dependent on a
subscription target be disbursed during the ten-year support term if an
applicant's subscription rate and its build-out compliance will not be
reported and verified until after the relevant support year has ended?
What non-compliance measures should be taken if it is determined that
an applicant has overreported its subscription rate? How should the
requirement for a letter of credit be structured to provide adequate
protection for the support that is guaranteed to be disbursed and the
support that is dependent on meeting the subscription rate? What other
safeguards should the Commission put in place?
    37. Alternatively, do other aspects of the Rural Digital
Opportunity Fund framework that the Commission has proposed address
these concerns? For example, would the requirement that a recipient be
prepared to provide service meeting the relevant public interest
obligations within 10 business days of request in order to count a
location as served, as well as the requirement that an ETC advertise
the availability of its services throughout its service area provide
adequate incentives for Rural Digital Opportunity Fund support
recipients to pursue customers? Would additional performance targets
deter service provider participation in the auction? Would bidders that
participate in the auction increase their bids to compensate for such
uncertainty? Would the further complexity added to the auction by such
an approach make it difficult for bidders, particularly small bidders
with limited resources, to determine how much support to bid for? Are
there particular challenges associated with marketing and encouraging
broadband adoption in rural areas that the Commission should consider
in evaluating a subscription benchmark? The Commission seeks comment on
these issues and any other issues related to adopting additional
performance targets or similar measures for Rural Digital Opportunity
Fund support recipients and providing incentives for support recipients
to meet their obligations and sign-up customers.
    38. The Commission proposes to target Rural Digital Opportunity
Fund support to areas that lack access to both fixed voice and 25/3
Mbps broadband services in two stages. For Phase I, the Commission
proposes to target census blocks that are wholly unserved with
broadband at speeds of 25/3 Mbps. For Phase II, the Commission proposes
to target census blocks that it later determines are only partially
served through the Digital Opportunity Data Collection, as well as
census blocks unawarded in the Phase I auction. Because the Commission
will have an additional opportunity to seek comment on how best to
target Phase II support as it gathers more granular data on where
broadband has been actually deployed, the Commission focuses here on
the areas eligible for Phase I of the auction. The Commission seeks
comment on this proposal.
    39. The Commission proposes to make several areas initially
eligible for Phase I of the Rural Digital Opportunity Fund auction.
First, the Commission proposes to include the census blocks for which
price cap carriers currently receive CAF Phase II model-based support.
Second, the Commission proposes to include any census blocks that were
eligible for, but did not receive, winning bids in the CAF Phase II
auction. Third, the Commission proposes to include any census blocks
where a CAF Phase II auction winning bidder has defaulted. Fourth, the
Commission proposes to include the census blocks excluded from the
offers of model-based support and the CAF Phase II auction because they
were served with voice and broadband of at least 10/1 Mbps. Fifth, the
Commission proposes to include census blocks served by both price cap
carriers and rate-of-return carriers to the extent that census block is
in the price cap carrier's territory. The Commission proposes to use
the most recent study area boundary data filed by the rate-of-return
carriers to identify their service areas and determine the portion of
each census block that is outside this service area. Sixth, the
Commission proposes to include any census blocks that are currently
unserved outside of price cap carriers where there is no certified
high-cost ETC providing service, such as the Hawaiian Homelands, and
any other
[[Page 43550]]
populated areas unserved by either a rate-of-return or price cap
carrier. Seventh, the Commission proposes to include any census blocks
identified by rate-of-return carriers as ones where they do not expect
to extend broadband (as the Commission did with the CAF Phase II
auction). The Commission seeks comment on these proposals.
    40. Are there any other areas that the Commission should include in
the initial list of eligible areas? For example, the Commission decided
to assign support by auction to areas in legacy rate-of-return areas
that are almost entirely overlapped by an unsubsidized competitor in
the December 2018 Rate-of-Return Reform Order, 84 FR 4711, February 19,
2019. The Commission seeks comment on whether it should include these
areas in the Rural Digital Opportunity Fund Phase I auction.
    41. For all census blocks on the initial list of eligible areas,
the Commission proposes to exclude those census blocks where a
terrestrial provider offers voice and 25/3 Mbps broadband service. The
Commission proposes to use the most recent publicly available FCC Form
477 data to identify these areas. The Commission also proposes to
exclude census blocks where a winning bidder in the CAF Phase II
auction is obligated to deploy broadband service. The Commission
proposes to conduct a challenge process for the Rural Digital
Opportunity Fund Phase I auction consistent with the process Commission
conducted for the CAF Phase II auction, in which the Bureau released a
preliminary list and map of initially eligible census blocks based on
the most recent publicly available FCC Form 477 data. Because there is
an inevitable lag between the reported deployment as of a certain date
and when the data are publicly released, parties would be given an
opportunity to identify areas that have subsequently become served. For
example, the most recent publicly available FCC Form 477 was released
on June 2, 2019, and reports deployment as of December 31, 2017.
Similar to the CAF Phase II auction, it is likely that more recent FCC
Form 477 data will be available prior to the Rural Digital Opportunity
Fund auction. The final list of eligible areas would be based on the
most recent publicly available FCC Form 477 data, but this would give
the Bureau an opportunity to compare the preliminary list of eligible
areas with the final list to identify any obvious reporting errors. The
Commission seeks comment on this proposal.
    42. The Commission notes one caveat in its approach: The Commission
proposes to treat price cap carriers differently from other providers
in the areas where they have received model-based support because it
already has more granular service availability data available from such
carriers. Specifically, such carriers are required to report geocoded
served locations to USAC through the HUBB portal. Although price cap
carriers receiving model-based support were only required to offer
broadband of at least 10/1 Mbps, some may have deployed higher speeds
in their supported areas. The Commission proposes to include in the
Rural Digital Opportunity Fund Phase I auction census blocks in which
the price cap carrier receiving model-based support is the only
terrestrial provider reporting the deployment of 25/3 Mbps broadband
service in that block, but has not deployed such service to all
locations in the block. Locations reported as served by 25/3 Mbps
service in the HUBB portal would be considered served for purposes of
the Rural Digital Opportunity Fund, and the reserve price and
deployment obligations associated with the census block would be
adjusted accordingly. The Commission proposes to establish a filing
deadline for reporting 25/3 Mbps service in price cap areas that would
be equivalent to what other providers report in their FCC Form 477
filings. The Commission seeks comment on this proposal. Specifically,
the Commission seeks comment on whether the use of HUBB portal data
here, coupled with its broader FCC Form 477 reporting, would better
determine the areas and locations that are actually unserved.
    43. As in the CAF Phase II auction, the Commission proposes to
include both high-cost (i.e., those where the CAM estimates the cost
per location to exceed $52.50 per month) and extremely-high cost
locations (i.e., those where the CAM estimates the cost per location to
equal or exceed $198.60 per month) in the Rural Digital Opportunity
Fund auction. CAF Phase II support was targeted to ``census blocks
where the cost of service is likely to be higher than can be supported
through reasonable end-user rates alone'' through the use of a cost
benchmark that reflected the expected amount of revenue that could
reasonably be recovered from end users. Given that these areas are
interspersed with lower-cost locations and with areas served by
unsubsidized competitors, the Commission expects that potential bidders
are best able to identify the areas where they could deploy broadband-
capable networks to the unserved areas in price cap territories.
Moreover, the Commission notes that most of the areas that did not
receive winning bids in the CAF Phase II auction are in areas the CAM
identified as high-cost, and not extremely high-cost. Therefore, the
Commission finds that it would be inefficient to conduct a separate
Remote Areas Fund auction for so few locations.
    44. In turn, the Commission proposes to include at least some
census blocks where the CAM suggests the costs of deployment are below
the high-cost threshold but deployment has nonetheless not yet
occurred. Broadband deployment data indicate that there are 6.3 million
locations with costs below the $52.50 per month benchmark that still
lack high-speed broadband (including 3.4 million locations that lack
even 10/1 Mbps broadband), suggesting that potential end-user revenue
alone has not incentivized deployment despite the model's predictions.
The Commission proposes to include at least two subsets of such census
blocks in rural areas in the Rural Digital Opportunity Fund.
    45. First, consistent with the approach the Commission established
for Tribal areas for carriers that elected model-based rate-of-return
support, it proposes to implement a Tribal Broadband Factor for the
Rural Digital Opportunity Fund that accounts for the unique challenges
of deploying broadband to rural Tribal communities. The Commission
therefore proposes to include in the auction census blocks on Tribal
lands meeting a $39.38 per month benchmark, which reflects a 25%
decrease compared to the $52.50 funding benchmark for locations in non-
Tribal census blocks.
    46. Second, the Commission seeks comment on including other wholly
unserved census blocks with estimated costs below the $52.50 benchmark.
One way to do so would be to include all such census blocks that are
not part of an urbanized area (with a population equal to or greater
than 50,000) or an urban cluster. Another way would be to include all
wholly-unserved census blocks with a particular cost benchmark below
$52.50, such as $45 or $40. What approach would better serve the
Commission's goal of bringing high-speed broadband service to those
without such service in rural America? The Commission seeks comment on
how best to ensure that rural census blocks that are wholly unserved by
high-speed broadband are appropriately included in the Rural Digital
Opportunity Fund.
    47. For Phase I of the Rural Digital Opportunity Fund auction, the
Commission proposes to use the CAM to determine the reserve prices and
number of locations for each area eligible for support in the auction.
The
[[Page 43551]]
CAM uses a combination of commercial data and census data to determine
the number of residential and small business locations within each
census block. Specifically, the model incorporated an address-based
data set of households and business building locations and census
housing unit estimates to adjust the residential locations upward or
downward to match the census data. The Commission used these data to
determine the deployment obligations in a state for CAF Phase II model-
based support as well as the number of locations and reserve prices for
the CAF Phase II auction. Consistent with this approach, the Commission
proposes to rely on the CAM for the Rural Digital Opportunity Fund
Phase I auction.
    48. Pursuant to the Commission's general competitive bidding rules
and consistent with the CAF Phase II auction procedures, it has the
discretion to establish reserve prices, i.e., maximum acceptable per-
unit bid amounts. For the Rural Digital Opportunity Fund, an area-
specific reserve price should reflect the maximum price the Commission
is willing to provide in support to the area. The Commission seeks to
set area-specific reserve prices that are high enough to promote
participation and competition in the auction, but not so high as to
violate its commitment to fiscal responsibility. As in the CAF Phase II
auction, because the sum of the reserve prices for all eligible areas
in the auction exceeds the budget, bidders will have to compete across
areas for the limited budget. This competition serves the Commission's
universal service goals and the public interest because the support
amounts that result are more cost-effective than the model-based
reserve prices.
    49. Consistent with the CAF Phase II auction, the Commission
proposes using the CAM to establish the area-specific reserve prices
based on the annual cost per location, less a benchmark to account for
end-user revenue, for high-cost and extremely high-cost areas.
Additionally, as the Commission proposes to include census blocks that
are split between a price cap carrier and rate-of-return carrier in
Phase I of the auction, it proposes to use the CAM to set the reserve
price for the eligible price cap portion of the respective block.
Similar to the CAF Phase II auction, the Commission proposes to set a
per-location per-month cap for the reserve prices of census blocks with
average costs that exceed the extremely high-cost threshold.
Specifically, the Commission proposes to set a reserve price equal to
the difference between the high-cost threshold of $52.50 ($39.98 in
Tribal areas) and the CAM-estimated cost of deployment, up to a $200
cap ($212.52 in Tribal areas). This proposal differs from the
Commission's setting of reserve prices in the CAF Phase II auction in
two respects. First, it accounts for the lower likely end-user revenues
in Tribal areas (in the CAF Phase II auction, all areas had the same
high-cost funding threshold). Second, it raises the cap from $146.10 to
$200 (in the CAF Phase II auction, all areas were capped at the
difference between the high-cost funding threshold and the extremely
high-cost threshold of $198.60). Both of these changes are consistent
with the Commission's recent decision to adjust model-based support for
its second A-CAM offering to rate-of-return carriers. The Commission
seeks comment on these proposals.
    50. To the extent the Commission includes rural census blocks with
estimated costs below the $52.50 high-cost funding threshold, it seeks
comment on a methodology for using the CAM to establish reserve prices.
If the Commission decides to lower the high-cost threshold outside of
Tribal lands, it would propose to set reserve prices based on the new,
lower threshold, such as $40 or $45. This approach would allocate an
amount of support to incentivize providers to include these unserved
blocks in their bids, and ultimately deploy to these areas. Likewise,
this approach would have the practical effect of making only census
blocks that are above the new funding threshold eligible for the
auction.
    51. In the alternative, if the Commission includes such census
blocks based on whether they qualify as rural under a population
metric, it would propose to use a uniform reserve price--e.g., $5 or
$10 per-location per-month--for all such wholly unserved census blocks.
If the Commission were to adopt such an approach, it seeks comment on
adding the same flat per-location amount to the reserve price of all
areas so that areas with reserve prices above, but close to, the
support threshold of $52.50 would have a minimum reserve price of at
least the flat amount. What would be an appropriate uniform per-
location reserve price for such areas? Should the Commission consider
other means of establishing reserve prices and, if so, what values are
appropriate?
    52. The Commission seeks comment on its proposals for setting
reserve prices and on alternatives. Commenters that propose an
alternative methodology for determining the reserve price for each
eligible area should explain how their methodology recognizes the
variation in cost to serve different locations and how their
methodology provides the Commission with the ability to establish
reserve prices that reflect a maximum allowable amount of support for
specific eligible areas nationwide while preserving its commitment to
fiscal responsibility.
    53. The Commission seeks comment on prioritizing support to certain
eligible areas where broadband is significantly lacking. Specifically,
the Commission seeks comment on prioritizing areas that entirely lack
10/1 Mbps or better fixed service, either at the census block or census
block group level. As a way to prioritize support, the Commission seeks
comment on setting a reserve price for such areas that is higher than
that based strictly on the model. If the Commission were to do adopt
such approach, it seeks comment on how much the reserve price should be
increased. Would a 10% increase give bidders a sufficiently greater
incentive to bid for support for those areas? How should the Commission
consider the tradeoff between awarding more support to prioritized
areas and awarding support to fewer areas overall? Should the
Commission consider using targeted bidding credits instead? Should the
Commission also prioritize areas entirely lacking 4G LTE mobile
wireless broadband? The Commission seeks comment on other approaches
that it could consider and request that parties discuss how each
mechanism could best address its goal of spurring broadband deployment
to areas that entirely lack broadband service, as well as the
complexity of each option for bidders and how simple each would be to
implement and administer as leverage the bidding system the Commission
initially developed for the CAF Phase II auction.
    54. The Commission expects to publish in conjunction with the final
eligible areas list the reserve price for each eligible area. The
Commission seeks comment on this proposal.
    55. The Commission seeks comment on including a Tribal bidding
credit to incentivize parties in the Rural Digital Opportunity Fund
auction to bid on and serve Tribal census blocks. The Commission has
previously used Tribal bidding credits in the context of spectrum
auctions, as well as in the Rural Broadband Experiments. Is a Tribal
bidding credit an appropriate approach for incentivizing parties to
serve Tribal lands? The Commission's goal for the Rural Digital
Opportunity Fund is to increase deployment to rural, low-density Tribal
areas that disproportionally lack access to
[[Page 43552]]
adequate broadband services. The Commission seeks comment on
implementing a Tribal bidding credit specifically for these rural, less
dense Tribal areas.
    56. In the event the Commission adopts a Tribal bidding credit for
rural Tribal areas, it seeks comment on the appropriate credit to
incentivize carriers to bid on and serve these areas. The Commission
adopted a 25% bidding credit for the Rural Broadband Experiments and
has implemented bidding credits ranging from 15% to 35% in the context
of spectrum auctions. What would be an appropriate Tribal bidding
credit for carriers committing to serve Tribal census blocks? How much
of an increase would incentivize carriers to commit to serve rural
Tribal areas? Would a 25% bidding credit for rural Tribal areas be
appropriate or would a different amount be appropriate?
    57. The Commission seeks comment on other proposals to ensure
Tribal areas receive bids for support in the Rural Digital Opportunity
Fund, especially those rural Tribal areas that are in the most need of
increased deployment. The Commission encourages parties to be mindful
of the Commission's competing goals of promoting deployment to Tribal
lands and ensuring that scarce universal service funds are used
efficiently and appropriately. The Commission asks commenters to fully
consider and discuss the mechanics and implementation of any proposed
approach, including how it would operate within the Commission's
overall universal service budget and how, or if, it should leverage any
of the Commission's existing programs or infrastructure. With this
information, the Commission will be able to properly consider how to
allocate most efficiently the universal service budget to bring high-
speed broadband service to Indian country.
    58. In this section, the Commission describes and seeks comment on
the information it proposes to collect from each Rural Digital
Opportunity Fund auction applicant in its short-form and long-form
applications, considering lessons it learned from the CAF Phase II
auction. The Commission proposes to adopt generally the same two-step
application process that it adopted for the CAF Phase II auction, which
the Commission found an appropriate but not burdensome screen to ensure
participation by qualified applicants while protecting the Fund, the
integrity of the auction, and rural consumers.
    59. For the CAF Phase II auction, the Commission used a two-stage
application process, consisting of a short-form and long-form process.
The Commission required a pre-auction short-form application to
establish eligibility to participate in the auction, relying primarily
on disclosures as to identity and ownership, as well as on applicant
certifications. The short-form application was reviewed as part of the
Commission's initial screening process to determine the applicant's
eligibility to bid for support. The short-form application helped
promote an effective, efficient, and fair auction, facilitating
Commission staff's evaluation of whether a potential bidder was
qualified to participate in the CAF Phase II auction. Applicants whose
short-form applications were deemed incomplete were given a limited
opportunity to cure defects and to resubmit correct applications. Only
minor modifications to an applicant's short-form application were
permitted after the deadline.
    60. The Commission then performed a more extensive, post-auction
review of the winning bidders' qualifications based on the required
long-form application, which was an in-depth presentation of the
applicants' eligibility and qualifications to receive high-cost
universal service support. For the CAF Phase II auction, all winning
bidders were required to provide detailed information showing that they
are legally, technically and financially qualified to receive support.
    61. The Commission proposes that all applicants for the Rural
Digital Opportunity Fund auction provide basic information in their
short-form applications that will enable it to review and assess
whether the applicant is eligible to participate in the auction, before
an applicant commits time and resources to participating in the
auction. The Commission also seeks more detailed comment in the
following on whether to require less information at the short-form
stage from existing providers that have been offering a voice and/or
broadband service for a certain period of time as demonstrated by the
applicants' FCC Form 477. The Commission also proposes to apply the
same post-auction long-form application process adopted for the CAF
Phase II auction. Accordingly, winning bidders applying for Rural
Digital Opportunity Fund support would be required to provide the same
showing in their long-form applications that they are legally,
technically and financially qualified to receive support as required of
applicants for CAF Phase II auction support.
    62. The Commission proposes that its existing universal service
competitive bidding rules should apply so that applicants will be
required to provide information that will establish their identity,
including disclosing parties with ownership interests and any
agreements the applicants may have relating to the support to be sought
through the Rural Digital Opportunity Fund auction competitive bidding
process.
    63. Ownership. The Commission proposes that its existing universal
service competitive bidding rules should apply to the Rural Digital
Opportunity Fund auction so that applicants will be required to provide
information about ownership and agreements to establish their identity.
The Commission's rules require each applicant to disclose in its short-
form application information concerning its real parties in interest
and its ownership, and to identify all real parties in interest to any
agreements relating to the participation of the applicant in the
competitive bidding. The Commission proposes requiring an applicant to
also provide in its short-form application a brief description of any
such agreements, including any joint bidding arrangements. Commission
staff used such information to identify and resolve impermissible state
overlaps prior to the CAF Phase II auction. The Commission further
proposes to require every applicant to certify in its short-form
application that it has not entered into any explicit or implicit
agreements, arrangements, or understandings of any kind related to the
support to be sought through the Rural Digital Opportunity Fund
auction, other than those disclosed in the short-form application. The
Commission seeks comment on this process and whether its proposals
efficiently and effectively promote straightforward bidding and
safeguard the integrity of the auction.
    64. Technical and Financial Qualifications Certification. The
Commission's CAF Phase II auction rules required an applicant for CAF
Phase II auction support to certify that it is technically and
financially capable of meeting the CAF Phase II auction public interest
obligations in each area for which it seeks support. Likewise, the
Commission proposes also requiring Rural Digital Opportunity Fund
applicants to certify that they are technically and financially capable
of meeting the applicable public interest obligations using the
standards and certification criteria proposed in the following.
    65. Type of Technologies. Next, consistent with the CAF Phase II
auction, the Commission proposes that all applicants indicate the
performance tier and latency for the bids that they
[[Page 43553]]
plan to make and describe the technology or technologies that will be
used to provide service for each bid. Moreover, the Commission proposes
that applicants submit with their short-form applications any
information or documentation to establish their eligibility for any
bidding weights or preferences that it ultimately adopts. Consistent
with the CAF Phase II auction, the Commission also proposes allowing an
applicant to use different technologies within a state and use hybrid
networks to meet its public interest obligations.
    66. Access to Spectrum. If a Rural Digital Opportunity Fund
applicant intends to use spectrum to offer voice and broadband
services, the Commission proposes, consistent with the CAF Phase II
auction, that the applicant indicate the spectrum band(s) and total
amount of uplink and downlink bandwidth (in megahertz) that it has
access to for the last mile for each performance tier and latency
combination it selected in each state. The Commission also proposes
that an applicant must disclose whether it currently holds licenses for
or leases spectrum. The Commission proposes the applicant must
demonstrate it has the proper authorizations, if applicable, and access
to operate on the spectrum it intends to use, and that the spectrum
resources will be sufficient to cover peak network usage and meet the
minimum performance requirements to serve all of the fixed locations in
eligible areas, and the applicant must certify that it will retain its
access to the spectrum for at least 10 years from the date of the
funding authorization.
    67. Operational History and Submission of Financial Documents.
Consistent with the CAF Phase II auction, the Commission proposes
establishing two pathways for an applicant to demonstrate its
operational experience and financial qualifications to participate in
the Rural Digital Opportunity Fund auction. With the first pathway, an
applicant would certify, if applicable, in its short-form application
that it (or its parent company if it is a wholly-owned subsidiary) has
provided voice, broadband, and/or electric distribution or transmission
services for at least two years prior to the short-form application
filing deadline. If the applicant certifies that it (or its parent
company) has been providing voice and/or broadband service for at least
two years, the Commission proposes requiring it to demonstrate that it
has filed FCC Form 477s as required during the relevant time period. If
an applicant certifies that it (or its parent company) has been
providing only electric distribution or transmission services for at
least two years, the Commission proposes requiring it to submit
qualified operating or financial reports that it or its parent company
(if it is a wholly-owned subsidiary) filed with the relevant financial
institution to demonstrate its two years of operational history along
with a certification that the submission is a true and accurate copy of
the forms that were submitted to the relevant financial institution.
The Commission expects that this information would provide it with
sufficient assurance before the auction that an entity has demonstrated
that it has the ability to build and maintain a network.
    68. As with the CAF Phase II auction, the Commission proposes that
applicants that meet the foregoing requirements and that are audited in
the ordinary course of business must also submit their (or their parent
company's) financial statements from the prior fiscal year. These would
include the balance sheets, income statements, and cash flow
statements, that were audited by an independent certified public
accountant, along with the audit opinion. If an applicant (or its
parent company) is not audited in the ordinary course of business and
the applicant does not submit its audited financial statements with the
short-form application, the Commission proposes requiring the applicant
to certify that it will submit audited financial statements during the
long-form application process and requiring such applicants to submit
unaudited financial statements from the prior fiscal year with their
short-form application. The Commission also proposes that applicants
that make such a certification and fail to submit the audited financial
statements as required would be subject to the same base forfeiture of
$50,000 that it adopted for the CAF Phase II auction. As with the CAF
Phase II auction, the Commission expects that the additional cost of
obtaining audited financial statements is outweighed by the importance
of being able to assess the financial health of Rural Digital
Opportunity Fund auction support recipients. The Commission notes the
vast majority of CAF Phase II auction support recipients were able to
obtain audited financial statements by the required deadlines.
    69. If an applicant does not have at least two years of operational
experience, consistent with the CAF Phase II auction, the Commission
proposes requiring such applicants to submit with their short-form
application their (or their parent company's) financial statements that
were audited by an independent certified public accountant from the
three prior fiscal years, including the balance sheets, income
statement, and cash flow statements, along with a qualified opinion
letter. Such applicants would also be required to submit a letter of
interest from a bank meeting the Commission's eligibility requirements
stating that the bank would provide a letter of credit to the applicant
if the applicant becomes a winning bidder and is awarded support of a
certain dollar magnitude.
    70. As with the CAF Phase II auction, the Commission recognizes
that if it were to adopt these two pathways, the Commission would
potentially be precluding from participating in the auction interested
bidders that have not been in operation long enough to meet these
requirements or that are unable to meet these requirements for other
reasons. However, these concerns are outweighed by the Commission's
duties as the steward of universal service support. Commenters
proposing alternative eligibility requirements should explain how their
proposals would similarly further the Commission's responsibility to
implement safeguards to ensure the public's funds are being provided to
ETCs that have the requisite operational and financial qualifications
and to protect consumers in rural and high-cost areas against being
stranded without a service provider in the event a winning bidder or
long-form applicant defaults.
    71. Due diligence certification. Consistent with the procedures
adopted for the CAF Phase II auction, the Commission proposes requiring
an applicant to certify that it has performed due diligence concerning
its potential participation in the Rural Digital Opportunity Fund
auction so the applicant understands its obligations in this regard.
Specifically, the Commission proposes that each applicant make the
following certification in its short-form application under penalty of
perjury:
    The applicant acknowledges that it has sole responsibility for
investigating and evaluating all technical and marketplace factors
that may have a bearing on the level of Rural Digital Opportunity
Fund support it submits as a bid, and that if the applicant wins
support, it will be able to build and operate facilities in
accordance with the Rural Digital Opportunity Fund obligations and
the Commission's rules generally.
    72. This proposed certification will help ensure that each
applicant acknowledges and accepts responsibility for its bids and any
forfeitures imposed in the event of
[[Page 43554]]
default, and that the applicant will not attempt to place
responsibility for the consequences of its bidding activity on either
the Commission or third parties. The Commission seeks comment on this
proposal.
    73. Changes to Short-Form Application. Building on lessons learned
from the CAF Phase II auction, the Commission seeks comment on whether
to require less technical and financial information at the short-form
stage from applicants that are existing providers. The Commission
proposes to define an existing provider as an entity that has been
offering a voice and/or broadband service for a certain period of time
as demonstrated by its FCC Form 477 data. If the Commission were to
adopt this approach, how long should an applicant be required to
demonstrate that it has been filing FCC Form 477 data and would thus be
considered an existing provider? Should a provider be required to
demonstrate that it has submitted FCC Form 477 data that demonstrates
it has offered both voice and broadband services for a certain period
of time, or is it sufficient if the provider has offered only broadband
services? Likewise, the Commission seeks comment on requiring less
information at the short-form stage from applicants that qualified to
participate in the CAF Phase II auction. Similarly, are there any
eligibility restrictions that should be placed on CAF Phase II auction
winning bidders that defaulted on their winning bids? Should the
Commission require such defaulters to submit additional information?
Should the Commission prohibit them from participating at all?
    74. The Commission seeks to balance the burdens on applicants of
completing a short-form application with the Commission's statutory
obligation to protect the Fund, the integrity of the auction, and rural
consumers. Commenters should consider what information the Commission
can credibly rely on to evaluate an applicant's likeliness to perform
without defaulting or to meet service milestones or service quality
metrics. What presumptions can the Commission make from information
that it already collects? To the extent commenters propose that the
Commission adopt fewer obligations for certain applicants than it has
proposed here, they should also address whether the Commission needs to
make any adjustments to its application process in general to account
for the proposed changes, and why the requirement is unnecessary for
the Commission to determine whether an applicant is qualified to bid.
    75. After the Rural Digital Opportunity Fund auction concludes, the
Commission proposes that each winning bidder submit a long-form
application, which Commission staff will review to determine whether
the winning bidder meets the eligibility requirements for receiving
Rural Digital Opportunity Fund support and has the financial and
technical qualifications to meet the obligations associated with such
support. Consistent with the CAF Phase II auction, in its long-form
application, each Rural Digital Opportunity Fund winning bidder would
be required to submit information about its qualifications, funding,
and the network it intends to use to meet its obligations. In addition,
prior to being authorized to receive Rural Digital Opportunity Fund
support, each winning bidder would demonstrate that it has been
designated as an ETC in the area(s) for which it is a winning bidder
and obtain a letter of credit from a bank meeting the Commission's
eligibility requirements. Similar to the CAF Phase II auction, the
Commission proposes to adopt the rules in Appendix A that apply to the
long-form application. The Commission seeks comment on these proposals
and on whether any changes should be made to the long-form application
process for the Rural Digital Opportunity Fund.
    76. If a winning bidder is not authorized to receive Rural Digital
Opportunity Fund support (e.g., the bidder fails to file or prosecute
its long-form application or its long-form application is dismissed or
denied), the Commission proposes the winning bidder would be in default
and subject to the same forfeitures as CAF Phase II auction long-form
applicants.
    77. The Commission proposes to adopt here the same letter of credit
rules it adopted for the CAF Phase II auction. For the CAF Phase II
auction, the Commission adopted a requirement that all long-form
applicants obtain a letter of credit, explaining that letters of credit
``are an effective means for accomplishing [the Commission's] role as
stewards of the public's funds'' because they ``permit the Commission
to immediately reclaim support'' from support recipients that are not
meeting their CAF Phase II auction obligations. Before a CAF Phase II
auction support recipient could receive its next year's support and
each year's support thereafter, it had to modify, renew, or obtain a
new letter of credit to ensure that it is valued at a minimum at the
total amount of support that has already been disbursed plus the amount
of support that is going to be provided in the next year, subject to
certain reductions when the support recipient has substantially met its
service milestones. If a CAF Phase II auction support recipient does
not meet its service milestones or take advantage of the opportunities
to cure or pay back the relevant support, the Commission will draw on
the letter of credit. A CAF Phase II auction support recipient must
only maintain an open letter of credit until the recipient has
certified it has met the final service milestone and the certification
has been verified.
    78. The Commission proposes that a Rural Digital Opportunity Fund
long-form applicant obtain an irrevocable stand-by letter of credit
that must be issued in substantially the same form as set forth in the
Commission's Phase II Auction Order, 81 FR 44414, July 7, 2016, model
letter of credit and that a long-form applicant submit a bankruptcy
opinion letter from outside legal counsel. The Commission would also
require that the letter of credit be issued by a bank that meets the
same CAF Phase II auction bank eligibility requirements. Before they
can receive their next year's support, Rural Digital Opportunity Fund
support recipients would also be required to modify, renew, or obtain a
new letter of credit to ensure that it is valued at a minimum of the
total amount of money that has already been disbursed plus the amount
of money that is going to be provided in the next year.
    79. The Commission proposes adopting the same phase-down schedule
that was used in the CAF Phase II auction, allowing the value of the
letter of credit to decrease over time as a support recipient satisfies
its minimum coverage and service requirements. For the CAF Phase II
auction, once the auction recipient has met its 60% service milestone,
its letter of credit may be valued at 90% of the total support amount
already disbursed plus the amount that will be disbursed in the coming
year. Once the auction recipient has met its 80% service milestone, its
letter of credit may be valued at 60% of the total support amount
already disbursed plus the amount that will be disbursed in the coming
year. The Commission also proposes that the letter of credit remain in
place until USAC and the Commission verify that a Rural Digital
Opportunity Fund recipient has met its minimum coverage and service
requirements at the end of the six-year milestone. The Commission seeks
comment on these proposals and on whether any adjustments should be
made to the CAF Phase II auction letter of credit rules for the Rural
Digital Opportunity Fund.
[[Page 43555]]
    80. The Commission also seeks comment on whether it should make any
changes to streamline the Commission and USAC's review and
administration of letters of credit. For example, the CAF Phase II
auction rules currently permit a long-form applicant to submit multiple
letters of credit that cover all the bids in a state. Should Rural
Digital Opportunity Fund support recipients be required to submit one
letter of credit that covers all the bids in a state to reduce the
number of letters of credit that USAC and the Commission must review
and track throughout the build-out period? The Commission seeks comment
on these issues and on whether any other adjustments are appropriate,
including adjustments to timing or the process for submitting letters
of credit to USAC for review.
    81. The Commission seeks comment on adopting the same letter of
credit waiver opportunity for Tribal Nations or Tribally-owned and -
controlled winning bidders. Specifically, should the Commission permit
any Tribal Nation or Tribally-owned and -controlled long-form applicant
that is unable to obtain a letter of credit to file a petition for
waiver of the letter of credit requirement using the same standard the
Commission adopted for the CAF Phase II auction? What alternative could
the Commission use to secure the federal funding going to these support
recipients in the event of non-performance or default? The Commission
notes that a number of Tribally-owned and -controlled winning bidders
were able to obtain letters of credit for the CAF Phase II auction.
    82. Finally, the CAF Phase II auction provides a basis for lessons
learned that can inform the letter of credit requirements in the Rural
Digital Opportunity Fund. The Commission observed in the CAF Phase II
auction process that companies with existing lending relationships
often use letters of credit in the normal course of operating their
businesses and, generally, are able to maintain multiple forms of
financing for varying purposes. On the other hand, the Commission also
found that winning bidders complained of the high cost of obtaining and
maintaining a letter of credit, such that it would ``consume too much
of the limited capital available to . . . [and] leave [in]sufficient
funds for . . . [CAF Phase II auction] construction.'' The Commission
therefore seeks comment on whether it should decline to require a
letter of credit for the Rural Digital Opportunity Fund. Are there
viable, less costly alternatives that still minimize risk to public
funds?
    83. The Commission proposes to adopt the same ETC designation
procedures for the Rural Digital Opportunity Fund that the Commission
adopted for the CAF Phase II auction. Only ETCs designated pursuant to
section 214(e) of the Communications Act of 1934, as amended (the Act)
are eligible to receive support from the high-cost program. For the CAF
Phase II auction, the Commission did not require that service providers
become ETCs to apply to participate and then bid in the auction.
However, all long-form applicants were required to obtain an ETC
designation that covers all of the areas where they won support prior
to being authorized to receive support. Similarly, the Commission
proposes that service providers that want to apply to bid in the Rural
Digital Opportunity Fund auction would not be required to be ETCs, but
that long-form applicants would be required, within 180 days of the
release of the public notice announcing winning bidders, to obtain an
ETC designation from the relevant state commission, or this Commission
if the state commission lacks jurisdiction, that covers the areas where
they won support.
    84. As in the CAF Phase II auction, the Commission expects that
allowing service providers that are not ETCs (such as electric
utilities) to apply to bid in the auction will encourage participation
from service providers that may be hesitant to invest resources in
applying for an ETC designation without knowing if they would be likely
to win Rural Digital Opportunity Fund support. The Commission also
proposes that the Bureau waive the deadline where long-form applicants
demonstrate good faith efforts to obtain their ETC designations, but
the proceeding is not complete by the deadline. Good faith would be
presumed if the long-form applicant filed its ETC application with the
relevant authority within 30 days of the release of the public notice
announcing winning bidders.
    85. The Commission also proposes to forbear from the statutory
requirement that the ETC service area of a Rural Digital Opportunity
Fund participant conform to the service area of the rural telephone
company serving the same area. As in the CAF Phase II auction, the
Commission will be maximizing the use of Rural Digital Opportunity Fund
support by making it available for only one provider per geographic
area. Moreover, the Commission expects that the incumbent rural
telephone company's service area will no longer be relevant because the
incumbent service provider may be replaced by another Rural Digital
Opportunity Fund recipient in portions of its service area.
    86. The Commission seeks comment on these proposals and on whether
any changes should be made to the ETC designation procedures for the
Rural Digital Opportunity Fund.
    87. In this section, the Commission seeks comment on two
transitions that may occur as a result of the Rural Digital Opportunity
Fund. First, the Commission examines how to transition incumbent price
cap carriers from legacy high-cost support in areas where Rural Digital
Opportunity Fund support is awarded. Second, the Commission examines
how to transition price cap carriers from CAF Phase II model-based
support in areas where Rural Digital Opportunity Fund support is
awarded.
    88. To begin the process of transitioning legacy high-cost support
to the CAF, the Commission implemented CAF Phase I by freezing support
for price cap carriers under then-existing high-cost support mechanisms
(legacy support) and decided that this frozen support would transition
to CAF Phase II support upon completion of the CAF Phase II auction. To
implement this transition, the Commission adopted a methodology for
disaggregating the frozen support in states where price cap carriers
declined model-based support and allocated a portion of each incumbent
price cap carrier's existing frozen support to each CAF Phase II
auction-eligible census block in the declined state based on the
relative costs of providing service across all auction-eligible census
blocks within the same state. Incumbent price cap carriers were given
the option of declining this support on state-by-state basis.
    89. In areas where an incumbent price cap carrier receiving
disaggregated legacy support is the long-form applicant that is
authorized to receive CAF Phase II auction support, the incumbent price
cap carrier will cease receiving disaggregated legacy support the first
day of the month after the price cap carrier is authorized to receive
CAF Phase II auction support in that area. Similarly, in areas won in
the CAF Phase II auction by a carrier other than the incumbent price
cap carrier, the incumbent price cap carrier will cease receiving
disaggregated legacy support the first day of the month after the long-
form applicant is authorized to receive CAF Phase II auction support in
that area. In areas where the incumbent price cap carrier receives
disaggregated legacy support and there was no authorized long-form
applicant, the incumbent price cap carrier will continue to receive
such support until the Commission
[[Page 43556]]
takes further action. Finally, in all census blocks determined to be
ineligible for the CAF Phase II auction, price cap carriers that
declined CAF Phase II model-based support ceased receiving legacy
support starting the first day of the month following the first
authorization of CAF Phase II auction support nationwide.
    90. The Commission proposes to adopt a similar transition period
for the Rural Digital Opportunity Fund for incumbent price cap carriers
that are receiving disaggregated legacy support. The Commission
proposes that an incumbent price cap carrier currently receiving
disaggregated legacy support will no longer receive such support in any
census block that is deemed ineligible for the Rural Digital
Opportunity Fund. This approach is consistent with the Commission's
decision to stop providing legacy support in areas deemed ineligible
for the CAF Phase II auction because by excluding those areas from the
auction, the Commission had already determined not to offer ongoing
high-cost support for those areas. For the Rural Digital Opportunity
Fund, the Commission proposes ceasing such support in the first day of
the month after the final Rural Digital Opportunity Fund eligible areas
list is released. Although the Commission waited until the first CAF
Phase II auction recipient was authorized to stop providing legacy
support in areas deemed ineligible for the CAF Phase II auction, the
Commission had not yet adopted a methodology for transitioning from
legacy support to CAF Phase II auction support when the Bureau released
the final CAF Phase II auction eligible areas list and there is no
reason to continue paying a carrier through the Rural Digital
Opportunity Fund auction if the Commission has already determined an
area is ineligible for support.
    91. In areas where an incumbent price cap carrier is receiving
disaggregated legacy support and it becomes the authorized Rural
Digital Opportunity Fund recipient, the Commission proposes that the
incumbent price cap carrier will cease receiving disaggregated legacy
support the first day of the month after the price cap carrier is
authorized to receive Rural Digital Opportunity Fund support.
Similarly, in areas where an incumbent price cap carrier is receiving
disaggregated legacy support and another long-form applicant is
authorized to receive Rural Digital Opportunity Fund support, the
Commission proposes that the incumbent price cap carrier will cease
receiving disaggregated legacy support the first day of the month after
that long-form applicant is authorized to receive Rural Digital
Opportunity Fund support. Finally, if no long-form applicant is
authorized to receive Rural Digital Opportunity Fund support in an
area, the Commission proposes that the incumbent price cap carrier
receiving disaggregated support in that area would continue to receive
such support until further Commission action.
    92. The Commission seeks comment on these proposals and on whether
any adjustments should be made for the transition from disaggregated
legacy support to Rural Digital Opportunity Fund support.
    93. In the December 2014 Connect America Order, 80 FR 4446, January
17, 2015, the Commission adopted a transition period for price cap
carriers that accepted CAF Phase II model-based support. If a price cap
carrier was a winning bidder in the subsequent auction, it would
commence receiving the auction support in 2021, after the model-based
support term ended at the end of 2020. If the price cap carrier did not
win in the auction or chose not to bid, it would have the option of
electing one additional year of support, with CAF Phase II model-based
support continuing in calendar 2021.
    94. Given that a Rural Digital Opportunity Fund auction is unlikely
to conclude before model-based support for price cap carriers is
expected to end, the Commission seeks comment on whether to revisit the
transition period from CAF Phase II model-based support to Rural
Digital Opportunity Fund support. As a threshold matter, the Commission
seeks comment on which price cap carriers should be eligible for the
optional seventh year of support. The optional support year was only to
be made available to price cap carriers that did not bid or did not win
support in the subsequent auction. But by the end of 2020, the
Commission may not know which price cap carriers fall in these
categories. Should all price cap carriers have the option to elect an
additional year of support or should the option only be available to a
subset of price cap carriers? If the option should only be available to
a subset of price cap carriers, what criteria should the Commission use
to determine which price cap carriers should have the option of
electing one more year of support?
    95. The Commission emphasized the ``limited scope and duration'' of
the CAF Phase II offer of model-based support. Price cap carriers had
no expectation of receiving ongoing support beyond the additional
optional year in these areas once the CAF Phase II support term had
ended because the Commission expected that it would have conducted the
subsequent auction before the support term had ended. Price cap
carriers were provided the option of receiving six years of support,
with an optional seventh year, in exchange for fulfilling specific
service obligations which each price cap carrier had the opportunity to
evaluate and accept or decline. Price cap carriers were also on notice
that other service providers could win support to serve these areas in
the subsequent auction so that ongoing support would not be made
available once the optional year had ended. Because price cap carriers
accepted CAF Phase II model-based support without an expectation of
sustained ongoing support, the Commission does not believe it is
necessary to provide any transitional support to price cap carriers
beyond the optional seventh year of support. The Commission seeks
comment on this view.
    96. Given the potential time period between the end of the CAF
Phase II model-based support term and the authorization of Rural
Digital Opportunity Fund support recipients, how should the Commission
adjust the offer of an optional seventh year of support? Should it be
available to all price cap carriers until the completion of the Rural
Digital Opportunity Fund Phase I auction? Should it be available only
until a specific time (e.g., June 30, 2021) with the remaining six
months available only to price cap carriers that are not support
recipients in the Phase I auction? Is a full year of support in 2021
appropriate or should the Commission reduce the support to some lesser
amount? Are there any additional obligations that are in the public
interest that price cap carriers should also be subject to as a
condition of receiving the extra year of 2021 support?
    97. The Commission also seeks comment on whether there are any
other issues that it should address in the context of this proceeding
that will facilitate the transition from CAF Phase II model-based
support to Rural Digital Opportunity Fund support and will ensure that
consumers retain access to voice and broadband services that are
reasonably comparable to those offered in urban areas.
III. Procedural Matters
A. Paperwork Reduction Act Analysis
    98. This document contains proposed new information collection
requirements. The Commission as part of its continuing effort to reduce
paperwork burdens, invites the general
[[Page 43557]]
public and OMB to comment on the information collection requirements
contained in this document, as required by the Paperwork Reduction Act
of 1995, Public Law 104-13. In addition, pursuant to the Small Business
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C.
3506(c)(4), the Commission seeks specific comment on how it might
further reduce the information collection burden for small business
concerns with fewer than 25 employees.
    99. Initial Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act of 1980, as amended (RFA), the Commission
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the
possible significant economic impact on a substantial number of small
entities from the policies and rules proposed in the NPRM. The
Commission requests written public comment on this IRFA. Comments must
be identified as responses to the IRFA and must be filed by the
deadlines for comments for the NPRM. The Commission will send a copy of
the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the
Small Business Administration (SBA). In addition, the NPRM and IRFA (or
summaries thereof) will be published in the Federal Register.
    100. Broadband access is critical to economic opportunity, job
creation, education and civic engagement. That is why closing the
digital divide is the Commission's top priority. For communities
throughout our nation to thrive and prosper, their residents must have
the option to obtain high-speed internet access.
    101. Last year, the Commission took a major step forward in
expanding broadband access to many parts of rural America. As a result
of the Commission's successful CAF Phase II auction, the Commission has
begun providing $1.488 billion in universal service support over ten
years to build high-speed broadband service to over 700,000 households
and small businesses in 45 states, with 99.75% of locations receiving
at least 25/3 Mbps service and more than half receiving at least 100/20
Mbps service.
    102. But more work remains to be done. For example, more than 10
million households and small businesses in price cap areas still lack
access to critical broadband services that offer speeds of at least 25
megabits per second (Mbps) downstream and 3 Mbps upstream in unserved
census blocks, including more than 7 million in rural areas. In this
document, the Commission proposes to build on the success of the CAF
Phase II auction by establishing the Rural Digital Opportunity Fund,
which will commit at least $20.4 billion over the next decade to
support high-speed broadband networks in rural America. Because the CAF
Phase II auction secured higher quality services for consumers at a
lower cost to the Fund, the Commission proposes to conduct a multi-
round, reverse, descending clock auction that favors faster services
with lower latency and encourages intermodal competition. And in light
of the need to bring service both to consumers in wholly unserved areas
as well as those living in partially served areas, the Commission
proposes to assign funding in two phases: Phase I will target those
areas that current data confirms are wholly unserved, and Phase II will
target those areas that are partially served as well as any areas not
won in the first phase. By relying on a two-phase process, as the
Commission did with the Connect America Fund, it can move expeditiously
to commence an auction in 2020 while also ensuring that other areas are
not left behind by holding a second auction.
    103. The framework the Commission proposes in this document
represents its single biggest step yet to close the rural digital
divide and will connect millions more rural homes and small businesses
to high-speed broadband networks.
    104. The legal basis for any action that may be taken pursuant to
the NPRM is contained in sections 4(i), 214, 254, 303(r), and 403 of
the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254,
303(r), and 403, and sections 1.1 and 1.412 of the Commission's rules,
47 CFR 1.1 and 1.412.
    105. The RFA directs agencies to provide a description of, and
where feasible, an estimate of the number of small entities that may be
affected by the proposed rule revisions, if adopted. The RFA generally
defines the term ``small entity'' as having the same meaning as the
terms ``small business,'' ``small organization,'' and ``small
governmental jurisdiction.'' In addition, the term ``small business''
has the same meaning as the term ``small-business concern'' under the
Small Business Act. A ``small-business concern'' is one which: (1) Is
independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the
SBA.
    106. The Commission's actions, over time, may affect small entities
that are not easily categorized at present. The Commission therefore
describes here, at the outset, three comprehensive small entity size
standards that could be directly affected herein. First, while there
are industry specific size standards for small businesses that are used
in the regulatory flexibility analysis, according to data from the
SBA's Office of Advocacy, in general a small business is an independent
business having fewer than 500 employees. These types of small
businesses represent 99.9% of all businesses in the United States which
translates to 28.8 million businesses.
    107. Next, the type of small entity described as a ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
Nationwide, as of August 2016, there were approximately 356,494 small
organizations based on registration and tax data filed by nonprofits
with the Internal Revenue Service (IRS).
    108. Finally, the small entity described as a ``small governmental
jurisdiction'' is defined generally as ``governments of cities, towns,
townships, villages, school districts, or special districts, with a
population of less than fifty thousand.'' U.S. Census Bureau data from
the 2012 Census of Governments indicate that there were 90,056 local
governmental jurisdictions consisting of general purpose governments
and special purpose governments in the United States. Of this number
there were 37, 132 General purpose governments (county, municipal and
town or township) with populations of less than 50,000 and 12,184
Special purpose governments (independent school districts and special
districts) with populations of less than 50,000. The 2012 U.S. Census
Bureau data for most types of governments in the local government
category show that the majority of these governments have populations
of less than 50,000. Based on this data the Commission estimates that
at least 49,316 local government jurisdictions fall in the category of
``small governmental jurisdictions.''
    109. The small entities that may be affected are Wireline and
Wireless Providers, Broadband internet Access Service Providers,
Satellite Telecommunications, Electric Power Generators, Transmitters,
and Distributors, and All Other Telecommunications.
    110. In the NPRM the Commission begins the process of seeking
comment on rules that will apply in the Rural Digital Opportunity Fund
auction. The Commission proposes establishing three technology-neutral
tiers of bids available for bidding with varying broadband speed and
usage allowances, and for each tier propose differentiating
[[Page 43558]]
between bids that would offer either lower or higher latency. Like all
high-cost ETCs, the Commission proposes that Rural Digital Opportunity
Fund support recipients would be required to offer standalone voice
service and offer voice and broadband services meeting the relevant
performance requirements at rates that are reasonably comparable to
rates offered in urban areas. The Commission also proposes that Rural
Digital Opportunity Fund support recipients will be subject to the same
uniform framework for measuring speed and latency performance along
with the accompanying compliance framework as all other recipients of
high-cost support required to serve fixed locations.
    111. The Commission also proposes adopting a 10-year support term
for Rural Digital Opportunity Fund support recipients along with
interim service milestones by which support recipients must offer the
required voice and broadband service to a required number of locations.
The Commission seeks comment on whether it should adopt additional
performance requirements to provide incentive for Rural Digital
Opportunity Fund support recipients to pursue customers in eligible
areas.
    112. For entities that are interested in participating in the Rural
Digital Opportunity Fund, the Commission proposes adopting a two-step
application process and seek comment on whether any adjustments should
be made or if the application process should be streamlined for certain
entities. The Commission proposes requiring applicants to submit a pre-
auction short-form application that includes information regarding
their ownership, technical and financial qualifications, the
technologies they intend to use and the types of bids they intend to
place, their operational history, and an acknowledgement of their
responsibility to conduct due diligence. Commission staff will review
the applications to determine if applicants are qualified to bid in the
auction.
    113. The Commission also proposes requiring winning bidders to
submit a long-form application in which they will submit information
about their qualifications, funding, and the networks they intend to
use to meet their obligations. During the long-form application period,
the Commission also proposes requiring long-form applicants to obtain
an ETC designation from the state or the Commission as relevant that
covers the eligible areas in their winning bids. Prior to being
authorized to receive support, the Commission proposes requiring long-
form applicants to obtain an irrevocable stand-by letter of credit that
meets its requirements from an eligible bank along with a bankruptcy
opinion letter. The letter of credit would cover the support that has
been disbursed and that will be disbursed in the coming year, subject
to modest adjustments as support recipients substantially build out
their networks, until the Commission and USAC verify that the applicant
has met its service milestones. The Commission seeks comment on whether
the Commission should use alternative measures to protect disbursed
funds. Commission staff will review the applications and submitted
documentation to determine whether long-form applicants are qualified
to be authorized to receive support. The Commission proposes subjecting
winning bidders or long-form applicants that default during the long-
form application process to forfeiture.
    114. To monitor the use of Rural Digital Opportunity Fund support
to ensure that it is being used for its intended purposes, the
Commission proposes to require support recipients to file location and
technology data on an annual basis in the online HUBB portal and to
make certifications when they have met their service milestones. The
Commission also proposes requiring applicants to file certain
information in their annual FCC Form 481 reports including information
regarding the community anchor institutions they serve, the support
they used for capital expenditures, and certifications regarding
meeting the Commission's performance obligations and available funds.
Support recipients would also be subject to the annual section 54.314
certifications, the same record retention and audit requirements, and
the same support reductions for untimely filings as other high-cost
ETCs. The Commission seeks comment on whether any adjustments should be
made to this reporting framework.
    115. For support recipients that do not meet their Rural Digital
Opportunity Fund obligations, the Commission proposes subjecting such
support recipients to the framework for support reductions that is
applicable to all high-cost ETCs that are required to meet defined
service milestones and to the process the Commission adopted for
drawing on letters of credit for the Connect America Fund (CAF) Phase
II auction. The Commission seeks comment on alternatives to this
proposal.
    116. The Commission also seeks comment on substantive proposals to
address the impediments to broadband deployment that have resulted in a
Tribal digital divide.
    117. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include (among others) the following four alternatives: (1)
The establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities. The Commission expects to consider all of these factors when
it has received substantive comment from the public and potentially
affected entities.
    118. The Commission seeks comment on a number of issues to ensure
that small entities have the opportunity to participate in the Rural
Digital Opportunity Fund auction. For example, the Commission proposes
to adopt different performance standards for bidders to maximize the
types of entities that can participate in the Rural Digital Opportunity
Fund auction.
    119. Based on lessons learned from the CAF Phase II auction, the
Commission also seeks comment on a two-step application process that
will allow entities interested in bidding to submit a short-form
application to be qualified in the auction that it found to be an
appropriate but not burdensome screen to ensure participation by
qualified providers, including small entities. Only if an applicant
becomes a winning bidder would it be required to submit a long-form
application which requires a more fulsome review of an applicant's
qualifications to be authorized to receive support. Like the CAF Phase
II auction, the Commission proposes providing two pathways for
eligibility for the auction--both (1) for entities that have at least
two years' experience providing a voice, broadband, and/or electric
transmission or distribution service, and (2) for entities that have at
least three years of audited financials and can obtain an acceptable
letter of interest from an eligible bank. The Commission expects that
by proposing to adopt two pathways for eligibility and to permit
experienced entities that do not audit their financial statements in
the ordinary course of business to wait to submit audited financials
until after they are announced as winning bidders, more small entities
will be able to participate in the auction. The
[[Page 43559]]
Commission also seeks comment on whether it should take measures to
collect less information during the application process from certain
experienced entities or entities that qualified for the CAF Phase II
auction, which may also include small entities.
    120. The Commission also proposes permitting all long-form
applicants, including small entities, to obtain their ETC designations
after becoming winning bidders so that they do not have to go through
the ETC designation process prior to finding out if they won support
through the auction. Recognizing that some CAF Phase II auction
participants, including small entities, have expressed concerns about
the costs of obtaining and maintaining a letter of credit, the
Commission also seeks comment on whether there are viable, less costly
alternatives that still minimize risk to public funds.
    121. The Commission invites comment from all parties, including
small entities and participants in the CAF Phase II auction, on
adopting for the Rural Digital Opportunity Fund generally the same
service milestones, reporting obligations, and non-compliance measures
that it adopted for CAF Phase II. The Commission seeks to learn from
the experience of small entities so that it can balance its
responsibility to monitor the use of universal service funds with
minimizing administrative burdens on Rural Digital Opportunity Fund
participants.
    122. Additionally, the Commission seeks comment on potential
measures for incentivizing carriers, including small entities, to bid
on and serve Tribal lands. These measures include implementing a Tribal
Broadband Factor that accounts for the unique challenges of deploying
broadband to rural Tribal communities and a Tribal bidding credit.
    123. More generally, the Commission expects to consider the
economic impact on small entities, as identified in comments filed in
response to the NPRM and this IRFA, in reaching its final conclusions
and taking action in this proceeding. The proposals and questions laid
out in the NPRM were designed to ensure the Commission has a complete
understanding of the benefits and potential burdens associated with the
different actions and methods.
    124. Ex Parte Presentations--Permit-But-Disclose. The proceeding
this NPRM initiates shall be treated as a ``permit-but-disclose''
proceeding in accordance with the Commission's ex parte rules. Persons
making ex parte presentations must file a copy of any written
presentation or a memorandum summarizing any oral presentation within
two business days after the presentation (unless a different deadline
applicable to the Sunshine period applies).
    125. In light of the Commission's trust relationship with Tribal
Nations and its commitment to engage in government-to-government
consultation with them, it finds the public interest requires a limited
modification of the ex parte rules in this proceeding. Tribal Nations,
like other interested parties, should file comments, reply comments,
and ex parte presentations in the record to put facts and arguments
before the Commission in a manner such that they may be relied upon in
the decision-making process consistent with the requirements of the
Administrative Procedure Act. However, at the option of the Tribe, ex
parte presentations made during consultations by elected and appointed
leaders and duly appointed representatives of federally recognized
Indian Tribes and Alaska Native Villages to Commission decision makers
shall be exempt from disclosure in permit-but-disclose proceedings and
exempt from the prohibitions during the Sunshine Agenda period. To be
clear, while the Commission recognizes consultation is critically
important, it emphasizes that it will rely in its decision-making only
on those presentations that are placed in the public record for this
proceeding.
    126. Persons making oral ex parte presentations are reminded that
memoranda summarizing the presentation must (1) list all persons
attending or otherwise participating in the meeting at which the ex
parte presentation was made, and (2) summarize all data presented and
arguments made during the presentation. If the presentation consisted
in whole or in part of the presentation of data or arguments already
reflected in the presenter's written comments, memoranda, or other
filings in the proceeding, the presenter may provide citations to such
data or arguments in his or her prior comments, memoranda, or other
filings (specifying the relevant page and/or paragraph numbers where
such data or arguments can be found) in lieu of summarizing them in the
memorandum. Documents shown or given to Commission staff during ex
parte meetings are deemed to be written ex parte presentations and must
be filed consistent with rule 1.1206(b). In proceedings governed by
rule 1.49(f) or for which the Commission has made available a method of
electronic filing, written ex parte presentations and memoranda
summarizing oral ex parte presentations, and all attachments thereto,
must be filed through the electronic comment filing system available
for that proceeding, and must be filed in their native format (e.g.,
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding
should familiarize themselves with the Commission's ex parte rules.
I. Ordering Clauses
    127. Accordingly, it is ordered that, pursuant to the authority
contained in sections 4(i), 214, 254, 303(r), and 403 of the
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254,
303(r), and 403, and sections 1.1 and 1.412 of the Commission's rules,
47 CFR 1.1 and 1.412, this Notice of Proposed Rulemaking is adopted,
effective thirty (30) days after publication of the text or summary
thereof in the Federal Register.
    128. It is further ordered that, pursuant to the authority
contained in sections 4(i), 214, 254, 303(r), and 403 of the
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254,
303(r), and 403, and sections 1.1 and 1.412 of the Commission's rules,
47 CFR 1.1 and 1.412, notice is hereby given of the proposals and
tentative conclusions described in this Notice of Proposed Rulemaking.
List of Subjects in 47 CFR Part 54
    Communications common carriers, Health facilities, Infants and
children, internet, Libraries, Reporting and recordkeeping
requirements, Schools, Telecommunications, Telephone.
Federal Communications Commission.
Marlene Dortch,
Secretary.
Proposed Rules
    For the reasons discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR part 54 to read as
follows:
PART 54--UNIVERSAL SERVICE
0
1. The authority citation for part 54 continues to read as follows:
    Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220,
254, 303(r), 403, and 1302 unless otherwise noted.
0
2. Amend Sec.  54.313 by revising paragraph (e) introductory text,
paragraph (e)(2) introductory text, and paragraph (e)(2)(iii) to read
as follows:
Sec.  54.313   Annual reporting requirements for high-cost recipients.
* * * * *
    (e) In addition to the information and certifications in paragraph
(a) of this section, the following requirements
[[Page 43560]]
apply to Connect America Phase II and Rural Digital Opportunity Fund
recipients:
* * * * *
    (2) Any recipient of Connect America Phase II or Rural Digital
Opportunity Fund support awarded through a competitive bidding process
shall provide:
* * * * *
    (iii) Starting the first July 1st after meeting the final service
milestone in Sec.  54.310(c) or Sec.  54.802(c) of this chapter until
the July 1st after the Connect America Phase II recipient's or Rural
Digital Opportunity Fund recipient's support term has ended, a
certification that the Connect America Phase II-funded network that the
Connect America Phase II auction recipient operated in the prior year
meets the relevant performance requirements in Sec.  54.309 of this
chapter, or that the network that the Rural Digital Opportunity Fund
recipient operated in the prior year meets the relevant performance
requirements for the Rural Digital Opportunity Fund.
* * * * *
0
3. Amend Sec.  54.316 by revising paragraphs (a)(4) and (b)(5) to read
as follows:
Sec.  54.316   Broadband deployment reporting and certification
requirements for high-cost recipients.
    (a) * * *
    (4) Recipients subject to the requirements of Sec.  54.310(c) or
Sec.  54.802(c) shall report the number of locations for each state and
locational information, including geocodes, where they are offering
service at the requisite speeds. Recipients of Connect America Phase II
auction support and Rural Digital Opportunity Fund support shall also
report the technology they use to serve those locations.
* * * * *
    (b) * * *
    (5) Recipients of Rural Digital Opportunity Fund support shall
provide: By the last business day of the second calendar month
following each service milestone specified by the Commission, a
certification that by the end of the prior support year, it was
offering broadband meeting the requisite public interest obligations to
the required percentage of its supported locations in each state.
* * * * *
0
4. Revise subpart J, consisting of Sec. Sec.  54.801 through 54.806, to
read as follows:
Subpart J--Rural Digital Opportunity Fund
Sec.  54.801  Use of competitive bidding for Rural Digital Opportunity
Fund.
    The Commission will use competitive bidding, as provided in part 1,
subpart AA of this chapter, to determine the recipients of Rural
Digital Opportunity Fund support and the amount of support that they
may receive for specific geographic areas, subject to applicable post-
auction procedures.
Sec.  54.802  Rural Digital Opportunity Fund geographic areas,
deployment obligations, and support disbursements.
    (a) Geographic areas eligible for support. Rural Digital
Opportunity Fund support may be made available for census blocks or
other areas identified as eligible by public notice.
    (b) Term of support. Rural Digital Opportunity Fund support shall
be provided for ten years.
    (c) Deployment obligation. (1) Recipients of Rural Digital
Opportunity Fund support must complete deployment to 40 percent of
supported locations by the end of the third year, to 60 percent of
supported locations by the end of the fourth year, to 80 percent of
supported locations by the end of the fifth year, and to 100 percent of
supported locations by the end of the sixth year. Compliance shall be
determined based on the total number of supported locations in a state.
    (2) Recipients of Rural Digital Opportunity Fund support may elect
to deploy to 95 percent of the number of supported locations in a given
state with a corresponding reduction in support computed based on the
average support per location in the state times 1.89.
    (d) Disbursement of Rural Digital Opportunity Fund funding. An
eligible telecommunications carrier will be advised by public notice
when it is authorized to receive support. The public notice will detail
how disbursements will be made.
Sec.  54.803  Rural Digital Opportunity Fund provider eligibility.
    (a) Any eligible telecommunications carrier is eligible to receive
Rural Digital Opportunity Fund support in eligible areas.
    (b) An entity may obtain eligible telecommunications carrier
designation after public notice of winning bidders in the Rural Digital
Opportunity Fund auction.
    (c) To the extent any entity seeks eligible telecommunications
carrier designation prior to public notice of winning bidders for Rural
Digital Opportunity Fund support, its designation as an eligible
telecommunications carrier may be conditioned subject to receipt of
Rural Digital Opportunity Fund support.
Sec.  54.804   Rural Digital Opportunity Fund application process.
    (a) In addition to providing information specified in Sec.
1.21001(b) of this chapter and any other information required by the
Commission, any applicant to participate in competitive bidding for
Rural Digital Opportunity Fund support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a)
of this chapter;
    (2) Certify that the applicant is financially and technically
qualified to meet the public interest obligations established for Rural
Digital Opportunity Fund support;
    (3) Disclose its status as an eligible telecommunications carrier
to the extent applicable and certify that it acknowledges that it must
be designated as an eligible telecommunications carrier for the area in
which it will receive support prior to being authorized to receive
support;
    (4) Describe the technology or technologies that will be used to
provide service for each bid;
    (5) Submit any information required to establish eligibility for
any bidding weights adopted by the Commission in an order or public
notice;
    (6) To the extent that an applicant plans to use spectrum to offer
its voice and broadband services, demonstrate it has the proper
authorizations, if applicable, and access to operate on the spectrum it
intends to use, and that the spectrum resources will be sufficient to
cover peak network usage and deliver the minimum performance
requirements to serve all of the fixed locations in eligible areas, and
certify that it will retain its access to the spectrum for the term of
support;
    (7) Submit operational and financial information.
    (i) If applicable, the applicant should submit a certification that
it has provided a voice, broadband, and/or electric transmission or
distribution service for at least two years or that it is a wholly-
owned subsidiary of such an entity, and specifying the number of years
the applicant or its parent company has been operating, and submit the
financial statements from the prior fiscal year that are audited by a
certified public accountant. If the applicant is not audited in the
ordinary course of business, in lieu of submitting audited financial
statements it must submit unaudited financial statements from the prior
fiscal year and certify that it will provide financial statements from
the prior fiscal year that are audited by
[[Page 43561]]
a certified independent public accountant by a specified deadline
during the long-form application review process.
    (A) If the applicant has provided a voice and/or broadband service
it must certify that it has filed FCC Form 477s as required during this
time period.
    (B) If the applicant has operated only an electric transmission or
distribution service, it must submit qualified operating or financial
reports that it has filed with the relevant financial institution for
the relevant time period along with a certification that the submission
is a true and accurate copy of the reports that were provided to the
relevant financial institution.
    (ii) If an applicant cannot meet the requirements in paragraph
(a)(7)(i) of this section, in the alternative it must submit the
audited financial statements from the three most recent fiscal years
and a letter of interest from a bank meeting the qualifications set
forth in paragraph (c)(2) of this section, that the bank would provide
a letter of credit as described in paragraph (c) of this section to the
bidder if the bidder were selected for bids of a certain dollar
magnitude.
    (8) Certify that the applicant has performed due diligence
concerning its potential participation in the Rural Digital Opportunity
Fund.
    (b) Application by winning bidders for Rural Digital Opportunity
Fund support--
    (1) Deadline. As provided by public notice, winning bidders for
Rural Digital Opportunity Fund support or their assignees shall file an
application for Rural Digital Opportunity Fund support no later than
the number of business days specified after the public notice
identifying them as winning bidders.
    (2) Application contents. An application for Rural Digital
Opportunity Fund support must contain:
    (i) Identification of the party seeking the support, including
ownership information as set forth in Sec.  1.2112(a) of this chapter;
    (ii) Certification that the applicant is financially and
technically qualified to meet the public interest obligations for Rural
Digital Opportunity Fund support in each area for which it seeks
support;
    (iii) Certification that the applicant will meet the relevant
public interest obligations, including the requirement that it will
offer service at rates that are equal or lower to the Commission's
reasonable comparability benchmarks for fixed wireline services offered
in urban areas;
    (iv) A description of the technology and system design the
applicant intends to use to deliver voice and broadband service,
including a network diagram which must be certified by a professional
engineer. The professional engineer must certify that the network is
capable of delivering, to at least 95 percent of the required number of
locations in each relevant state, voice and broadband service that
meets the requisite performance requirements for Rural Digital
Opportunity Fund support;
    (v) Certification that the applicant will have available funds for
all project costs that exceed the amount of support to be received from
the Rural Digital Opportunity Fund for the first two years of its
support term and that the applicant will comply with all program
requirements, including service milestones;
    (vi) A description of how the required construction will be funded,
including financial projections that demonstrate the applicant can
cover the necessary debt service payments over the life of the loan, if
any;
    (vii) Certification that the party submitting the application is
authorized to do so on behalf of the applicant; and
    (viii) Such additional information as the Commission may require.
    (3) No later than the number of days provided by public notice, the
long-form applicant shall submit a letter from a bank meeting the
eligibility requirements outlined in paragraph (c) of this section
committing to issue an irrevocable stand-by letter of credit, in the
required form, to the long-form applicant. The letter shall at a
minimum provide the dollar amount of the letter of credit and the
issuing bank's agreement to follow the terms and conditions of the
Commission's model letter of credit.
    (4) No later than the number of days provided by public notice, if
a long-form applicant or a related entity did not submit audited
financial statements in the relevant short-form application as
required, the long-form applicant must submit the financial statements
from the prior fiscal year that are audited by a certified independent
public accountant.
    (5) No later than 180 days after the public notice identifying it
as a winning bidder, the long-form applicant shall certify that it is
an eligible telecommunications carrier in any area for which it seeks
support and submit the relevant documentation supporting that
certification.
    (6) Application processing. (i) No application will be considered
unless it has been submitted in an acceptable form during the period
specified by public notice. No applications submitted or demonstrations
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either
does not identify the applicant seeking support as specified in the
public notice announcing application procedures or does not include
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor
modifications to amend its application or correct defects noted by the
applicant, the Commission, the Administrator, or other parties. Minor
modifications include correcting typographical errors in the
application and supplying non-material information that was
inadvertently omitted or was not available at the time the application
was submitted.
    (iv) Applications to which major modifications are made after the
deadline for submitting applications shall be denied. Major
modifications include, but are not limited to, any changes in the
ownership of the applicant that constitute an assignment or change of
control, or the identity of the applicant, or the certifications
required in the application.
    (v) After receipt and review of the applications, a public notice
shall identify each long-form applicant that may be authorized to
receive Rural Digital Opportunity Fund support after the long-form
applicant submits a letter of credit and an accompanying opinion letter
as described in paragraph (c) of this section, in a form acceptable to
the Commission. Each such long-form applicant shall submit a letter of
credit and accompanying opinion letter as required by paragraph (c) of
this section, in a form acceptable to the Commission no later than the
number of business days provided by public notice.
    (vi) After receipt of all necessary information, a public notice
will identify each long-form applicant that is authorized to receive
Rural Digital Opportunity Fund support.
    (c) Letter of credit. Before being authorized to receive Rural
Digital Opportunity Fund support, a winning bidder shall obtain an
irrevocable standby letter of credit which shall be acceptable in all
respects to the Commission.
    (1) Value. Each recipient authorized to receive Rural Digital
Opportunity Fund support shall maintain the standby letter of credit or
multiple standby letters of credit in an amount equal to at a minimum
the amount of Rural Digital Opportunity Fund support that has been
disbursed and that will be disbursed in the coming year, until the
Universal Service Administrative
[[Page 43562]]
Company has verified that the recipient met the final service milestone
as described in Sec.  54.802(c).
    (i) Once the recipient has met its 60 percent service milestone, it
may obtain a new letter of credit or renew its existing letter of
credit so that it is valued at a minimum at 90 percent of the total
support amount already disbursed plus the amount that will be disbursed
in the coming year.
    (ii) Once the recipient has met its 80 percent service milestone,
it may obtain a new letter of credit or renew its existing letter of
credit so that it is valued at a minimum at 60 percent of the total
support that has been disbursed plus the amount that will be disbursed
in the coming year.
    (2) The bank issuing the letter of credit shall be acceptable to
the Commission. A bank that is acceptable to the Commission is:
    (i) Any United States bank
    (A) That is insured by the Federal Deposit Insurance Corporation,
and
    (B) That has a bank safety rating issued by Weiss of B- or better;
or
    (ii) CoBank, so long as it maintains assets that place it among the
100 largest United States Banks, determined on basis of total assets as
of the calendar year immediately preceding the issuance of the letter
of credit and it has a long-term unsecured credit rating issued by
Standard & Poor's of BBB- or better (or an equivalent rating from
another nationally recognized credit rating agency); or
    (iii) The National Rural Utilities Cooperative Finance Corporation,
so long as it maintains assets that place it among the 100 largest
United States Banks, determined on basis of total assets as of the
calendar year immediately preceding the issuance of the letter of
credit and it has a long-term unsecured credit rating issued by
Standard & Poor's of BBB- or better (or an equivalent rating from
another nationally recognized credit rating agency); or
    (iv) Any non-United States bank:
    (A) That is among the 100 largest non-U.S. banks in the world,
determined on the basis of total assets as of the end of the calendar
year immediately preceding the issuance of the letter of credit
(determined on a U.S. dollar equivalent basis as of such date);
    (B) Has a branch office in the District of Columbia or such other
branch office agreed to by the Commission;
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to a BBB- or better
rating by Standard & Poor's; and
    (D) Issues the letter of credit payable in United States dollars.
    (3) A long-form applicant for Rural Digital Opportunity Fund
support shall provide with its letter of credit an opinion letter from
its legal counsel clearly stating, subject only to customary
assumptions, limitations, and qualifications, that in a proceeding
under Title 11 of the United States Code, 11 U.S.C. 101 et seq. (the
``Bankruptcy Code''), the bankruptcy court would not treat the letter
of credit or proceeds of the letter of credit as property of the
winning bidder's bankruptcy estate under section 541 of the Bankruptcy
Code.
    (4) Authorization to receive Rural Digital Opportunity Fund support
is conditioned upon full and timely performance of all of the
requirements set forth in this section, and any additional terms and
conditions upon which the support was granted.
    (i) Failure by a Rural Digital Opportunity Fund support recipient
to meet its service milestones as required by Sec.  54.802 will trigger
reporting obligations and the withholding of support as described in
Sec.  54.320(d). Failure to come into full compliance within 12 months
will trigger a recovery action by the Universal Service Administrative
Company. If the Rural Digital Opportunity Fund recipient does not repay
the requisite amount of support within six months, the Universal
Service Administrative Company will be entitled to draw the entire
amount of the letter of credit and may disqualify the Rural Digital
Opportunity Fund support recipient from the receipt of Rural Digital
Opportunity Fund support or additional universal service support.
    (ii) The default will be evidenced by a letter issued by the Chief
of the Wireline Competition Bureau, or its respective designees, which
letter, attached to a standby letter of credit draw certificate, shall
be sufficient for a draw on the standby letter of credit for the entire
amount of the standby letter of credit.
Sec.  54.805  Rural Digital Opportunity Fund public interest
obligations.
    (a) Recipients of Rural Digital Opportunity Fund support are
required to offer broadband service with latency suitable for real-time
applications, including Voice over internet Protocol, and usage
capacity that is reasonably comparable to comparable offerings in urban
areas, at rates that are reasonably comparable to rates for comparable
offerings in urban areas. For purposes of determining reasonable
comparable usage capacity, recipients are presumed to meet this
requirement if they meet or exceed the usage level announced by public
notice issued by the Wireline Competition Bureau. For purposes of
determining reasonable comparability of rates, recipients are presumed
to meet this requirement if they offer rates at or below the applicable
benchmark to be announced annually by public notice issued by the
Wireline Competition Bureau, or no more than the non-promotional prices
charged for a comparable fixed wireline service in urban areas in the
state or U.S. Territory where the eligible telecommunications carrier
receives support.
    (b) Recipients of Rural Digital Opportunity Fund support are
required to offer broadband service meeting the performance standards
for the relevant performance tier.
    (1) Winning bidders meeting the baseline performance tier standards
are required to offer broadband service at actual speeds of at least 25
Mbps downstream and 3 Mbps upstream and offer a minimum usage allowance
of 150 GB per month, or that reflects the average usage of a majority
of fixed broadband customers, using Measuring Broadband America data or
a similar data source, whichever is higher, and announced annually by
public notice issued by the Wireline Competition Bureau over the 10-
year term.
    (2) Winning bidders meeting the above-baseline performance tier
standards are required to offer broadband service at actual speeds of
at least 100 Mbps downstream and 20 Mbps upstream and offer at least 2
terabytes of monthly usage.
    (3) Winning bidders meeting the Gigabit performance tier standards
are required to offer broadband service at actual speeds of at least 1
Gigabit per second downstream and 500 Mbps upstream and offer at least
2 terabytes of monthly usage.
    (4) For each of the tiers in paragraphs (b)(1) through (3) of this
section, bidders are required to meet one of two latency performance
levels:
    (i) Low latency bidders will be required to meet 95 percent or more
of all peak period measurements of network round trip latency at or
below 100 milliseconds; and
    (ii) High latency bidders will be required to meet 95 percent or
more of all peak period measurements of network round trip latency at
or below 750 ms and, with respect to voice performance, demonstrate a
score of four or higher using the Mean Opinion Score (MOS).
    (c) Recipients of Rural Digital Opportunity Fund support are
required to bid on category one
[[Page 43563]]
telecommunications and internet access services in response to a posted
FCC Form 470 seeking broadband service that meets the connectivity
targets for the schools and libraries universal service support program
for eligible schools and libraries (as described in Sec.  54.501)
located within any area in a census block where the carrier is
receiving Rural Digital Opportunity Fund support. Such bids must be at
rates reasonably comparable to rates charged to eligible schools and
libraries in urban areas for comparable offerings.
Sec.  54.806  Rural Digital Opportunity Fund reporting obligations,
compliance, and recordkeeping.
    (a) Recipients of Rural Digital Opportunity Fund support shall be
subject to the reporting obligations set forth in Sec. Sec.  54.313,
54.314, and 54.316.
    (b) Recipients of Rural Digital Opportunity Fund support shall be
subject to the compliance measures, recordkeeping requirements, and
audit requirements set forth in Sec.  54.320.
[FR Doc. 2019-17783 Filed 8-20-19; 8:45 am]
BILLING CODE 6712-01-P