On March 2, the FCC released an Order finalizing the competitive bidding framework for the Connect America Fund (CAF) Phase II auction. Under the Phase II auction the FCC will distribute nearly two billion dollars to providers (including competitive providers) able to deploy broadband and voice services to unserved areas of the country.

As we have previously reported, the Phase II auction, unlike most previous CAF initiatives, will be open to all broadband providers, including cable-based and fixed wireless broadband providers. The FCC’s bidding framework is structured to provide an advantage for high-speed, low latency broadband service, like that offered by many cable providers, by assigning numerical weights to bids for slower, lower-latency services, making them less competitive in the auction. This means that providers of high-speed broadband, including particularly fiber-based service, will enjoy a significant benefit in their bids under the final weighting method, which mirrors that proposed by the American Cable Association.

Specifically, the FCC will evaluate auction bids for services offered at one of four performance tiers (download speed/upload speed): 10/1 Mbps, 25/3 Mbps, 100/20 Mbps, and 1 Gbps/500 Mbps. In addition, the agency will also evaluate the latency tiers (set at 100 milliseconds or below and 750 milliseconds or below (with a voice performance score of four or higher using the Mean Opinion Score (MOS)) for services bid in this auction.

Weighting Criteria for CAF Phase II Bidding

Performance Tier

Speed

Usage Allowance

Weight

Minimum

≥ 10/1 Mbps

≥ 150 GB

65

Baseline

≥ 25/3 Mbps

≥ 150 GB or U.S. median, whichever is higher

45

Above Baseline

≥ 100/20 Mbps

2 TB

15

Gigabit

≥ 1 Gbps/500 Mbps

2 TB

0

Latency

Requirement

Weight

Low Latency

≤ 100 ms

0

High Latency

≤ 750 ms & MOS of ≥ 4

25

The FCC declined a number of suggestions for additional weights or a modified method. First, it decided against a suggestion to base the bid weights on consumer preference data, concluding that doing so would require a complicated data-gathering process that would delay the auction. Second, it declined to adopt weights based on the geographic size of the service provider’s coverage map. Third, the FCC rejected the suggestion that it weight more heavily bids for projects that may also receive state support. Fourth, it declined to adopt specific preferences for individual states with hard-to-serve areas and tribal lands.

The Order indicates that a further public notice will spell out the type of evidence that providers must submit to claim a bidding weight, which will go beyond the data required in the short-form and long-form applications.

The FCC also granted two petitions for reconsideration, one to make eligible for the auction those areas with high-latency, low-subscriber broadband service, and another to set a minimum monthly usage limit of 2 terabytes. It denied a third petition asking the Commission to reconsider its decision to score bids relative to an applicable reserve price.

This auction is still many months away, but with this order potential participants can now finalize plans and strategy for participating. This auction will likely serve as a model for the FCC’s anticipated Remote Areas Fund auction, and possibly for the Commission to disburse other dedicated support in the future.

Notably, Commissioner O’Rielly suggested that this order may be subject to a risk of reconsideration because the weighted bidding criteria was, according to the commissioner, decided without the benefit of public comment. Commissioner O’Rielly also warned against further direct support to states (such as the recent set-aside for California), which could limit the remaining support available for the upcoming Remote Areas Fund.