On July 13, 2017, the FCC released a preliminary draft of a Public Notice detailing the information it plans to require from bidders for the Connect America Fund Phase II reverse auction, as well as the procedures for that auction. The draft is a “tentative” document that may be changed before the FCC votes on it at its August 3rd open meeting. That said, we do not anticipate significant changes to the procedures it outlines. As we have noted in prior advisories, the FCC has already released a significant amount of information about the auction, such as the bidding criteria, areas eligible for support, and bid weighting. The FCC’s draft Public Notice addresses five additional topics:

  • Minimum Geographic Area for Bids 

The Public Notice proposes to use census block groups as the minimum geographic unit for bidding, consistent with the FCC’s earlier Phase II Auction Order. The eligible bidding units will therefore be the 36,000 census block groups (containing 300,000 eligible census blocks) identified by the Wireline Competition Bureau in its August 2016 Public Notice. This list is subject to final, likely minor, revision before the auction.

  • Information Required for Short-form Applications

The Public Notice includes new proposed details about the information that will be required in bidders’ initial short-form application. Required information will include:

  • The state(s) in which the applicant intends to bid;
  • Commonly-controlled entities and entities that intend to coordinate strategies or supported-services during or after the auction (to prevent undisclosed coordinated bidding);
  • Performance tier and latency combinations to be offered as well as technologies to be deployed;
  • High-level operational information to demonstrate how the bidder will provide service on a state-by-state basis;
  • Proof of spectrum authorization, access, and resources for bidders that plan to use their own spectrum;
  • Other data previously submitted to the FCC including Form 477 filings for the past two years, Study Area Codes associated with the bidder, and 499 filer IDs; and
  • Financial statements. Bidders that have provided voice, broadband, or electric services for at least two years must produce audited financial statements for the past year, including balance sheets and statements of net income and cash flow (unless the bidder has not obtained such information in the ordinary course of business). Bidders without this track record must submit three years of audited financial statements and a letter of interest from a qualified bank indicating that it would provide a letter of credit to the bidder.

The Public Notice provides a detailed proposal of how staff may evaluate this financial data to determine whether a bidder should be eligible to participate in the program.

In addition, the Public Notice proposes to bar short-form applicants from selecting a technology that cannot currently provide the performance metrics proposed in their bids (citing satellite services specifically).

  • Reserve Prices 

The Public Notice proposes a reserve price for each census block group equal to the sum of the support amounts calculated by the Connect America Cost Model for all blocks in the group (excluding extremely high-cost locations). For extremely high-cost blocks, the FCC proposes a $146.10 per-location-per-month cap.

  • Bidding procedures 

The Public Notice includes a highly-detailed and technical proposal for the mechanics of the reverse auction, will take place over the Internet, and will use a “descending clock” system that will reset the bid ceiling with each new lower bid. The system will incorporate the weights announced in the FCC’s March Order. The Public Notice seeks comments on allowing proxy bidding by which a bidder could submit instructions for the system to automatically bid based on its proposed performance characteristics and support requirements (a familiar analog is the automatic bidding system on eBay).

The FCC will seek comment on all of these proposals once it adopts the final version of the Public Notice in August. DWT will continue to monitor the auction, and provide updates as necessary. Please contact DWT to inquire further about the FCC’s Connect America Fund Phase II Auction.