On August 2 the FCC released a Notice of Proposed Rulemaking (NPRM) that proposes rules for the upcoming grant program that will award $20.4 billion for rural broadband. Since every FCC program needs a name, this grant program is now designated as the Rural Digital Opportunity Fund (RDOF). An NPRM is theoretically only a list of suggestions by the FCC, and there is a comment period that will commence 30 days after the NPRM is posted in the Federal Register. However, realistically, the rules that are proposed in the NPRM are likely to be the rules of the grant program. Here are a few of the highlights:
Timing of Award. The FCC proposes awarding the money in two phases. The Phase I award will be awarded late next year and will award over $16 billion. The Phase II will award will follow and award the remaining $4.4 billion. I know a lot of folks were hoping for a $2 billion annual grant award – but most of the money will be awarded next year. Anybody interested in this program should already be creating a network design and a financial business plan because the industry resources to create business plans are going to soon be too busy to help.
The money will be paid out to grant recipients over 10 years, similar to the ACAM program for small telcos. Grant recipients need to understand the time value of money. If an ISP wins a $1 million grant and borrows money at a rate of 5.5% interest, then the actual value of the grant in today’s dollars is a little more than $750,000.
Areas Eligible for Award. The Phase I auction will only be awarded in areas that are wholly unserved using the definition of broadband as 25/3 Mbps or faster. The areas covered can’t have anybody capable of getting broadband faster than that. The FCC is likely to publish a list of areas eligible for the Phase I grants. Unfortunately, the FCC will use its flawed mapping program to make this determination. This is likely to mean that many parts of the country that ought to be eligible for these grants might not be part of the program.
Phase II is likely to be targeted at areas that did not see awards in Phase I. One of the open questions in the NPRM that is not yet firm is the size of award areas. The NPRM asks if the minimum coverage area should be a census block or a county. It also asks if applicants can bundle multiple areas into one grant request.
The FCC is considering prioritizing areas it thinks are particularly needy. For example, it may give extra grant weighting to areas that don’t yet have 10/1 Mbps broadband. The FCC is also planning on giving extra weighting to some tribal areas.
Weighting for Technology. Like with the CAF II reverse auction, the grant program is going to try to give priority to faster broadband technologies. The FCC is proposing extra weighting for technologies that can deliver at least 100 Mbps and even more weighting for technologies that can deliver gigabit speeds. They are also proposing a grant disincentive for technologies with a latency greater than 100 milliseconds.
Use of Funds. Recipients will be expected to complete construction to 40% of the grant eligible households by the end of the third year, with 20% more expected annually and the whole buildout to be finished by the end of the sixth year.
Reverse Auction. The FCC is proposing a multi-round, descending clock reverse auction so that bidders who are willing to accept the lowest amount of subsidy per passing will win the awards. This is the same process used in the CAF II reverse auctions.
Overall Eligibility. It looks like the same rules for eligibility will apply as with previous grants. Applicants must be able to obtain Eligible Telecommunications Carrier (ETC) status to apply, meaning they must be a facilities-based retail ISP. This will exclude entities such as open access networks where the network owner is a different entity than the ISP. Applicants will also need to have a financial track record, meaning start-up companies need not apply. Applicants must also provide proof of financing.
Measurement Requirements. Grant winners will be subject to controlled speed tests to see if they are delivering what was promised. The FCC is asking if they should keep the current test – where only 70% of customers must meet the speed requirements for an applicant to keep full funding.
I see problems with a few of these requirements that I’ll cover in upcoming blogs.