Funding the USF

The Universal Service Fund (USF) has a bleak future outlook if the FCC continues to ignore the funding crisis that supports the program. The fund continues to be funded with a fee levied against the combined Interstate and international portion of landlines, cellphones and certain kinds of traditional data connections sold by the big telcos. The ‘tax’ on Interstate services has grown to an indefensible 25% of the retail cost of the Interstate and international portion of these products.

The FCC maintains arcane rules to determine the interstate portion of things like a local phone bill or a cellular bill. There are only a tiny handful of consultants that specialize in ‘separations’ – meaning the separation of costs into jurisdictions – who understand the math behind the FCC’s determination of the base for assessing USF fees.

The USF has done a lot of good in the past and is poised to do even more. The segment of the program that brings affordable broadband to poor schools and libraries is a success in communities across the country. The USF is also used to subsidize broadband to non-profit rural health clinics and hospitals. I would argue that the Lifeline program that provides subsidized phone service has done a huge amount of good. The $9.25 per month savings on a phone or broadband bill isn’t as effective today as it once was because the subsidy isn’t pegged to inflation. But I’ve seen firsthand the benefits from this plan that provided low-cost cellphones to the homeless and connected them to the rest of society. There are numerous stories of how the subsidized cellphones helped homeless people find work and integrate back into society.

The biggest potential benefit of the fund is bringing broadband solutions to rural homes that still aren’t connected to workable broadband. We’ve gotten a hint of this potential in some recent grant programs, like the recent CAF II reverse auction. We’re ready to see the USF create huge benefits as the FCC starts awarding $20.4 billion in grants from the USF, to be dispersed starting in 2021. If that program is administered properly then huge numbers of homes are going to get real broadband.

This is not to say that the USF hasn’t had some problems. There are widespread stories about fraud in the Lifeline program, although many of those stories have been exaggerated in the press. A decent amount of what was called fraud was due to the ineptitude of the big phone companies that continued to collect USF funding for people who die or who are no longer eligible for the subsidy. The FCC has taken major steps to fix this problem by creating a national database of those who are eligible for the Lifeline program.

The biggest recent problem with the USF came when the FCC used the fund to award $11 billion to the big telcos in the CAF II program to upgrade rural broadband to speeds of at least 10/1 Mbps. I’ve heard credible rumors that some of the telcos pocketed much of that money and only made token efforts to tweak rural DSL speeds up to a level that households still don’t want to buy. It’s hard to find anybody in the country who will defend this colossal boondoggle.

However, we’ve learned that if used in a smart way that the USF can be used to bring permanent broadband to rural America. Every little pocket of customers that gets fiber due to this funding can be taken off the list of places with no broadband alternatives. Areas that get fixed wireless are probably good for a decade or more, and hopefully, those companies operating these networks will pour profits back into bringing fiber (which I know some USF fund recipients are doing).

But the USF is in real trouble if the FCC doesn’t fix the funding solution. As traditional telephone products with an interstate component continue to disappear the funds going into the USF will shrink. If the funding shrinks, the FCC is likely to respond by cutting awards. Somebody might win $1 million from the upcoming grant program but then collect something less as the fund decreases over time.

The fix for the USF is obvious and easy. If the FCC expands the funding base to include broadband products, the percentage contribution would drop significantly from the current 25% and the fund could begin growing again. The current FCC has resisted this idea vigorously and it’s hard to ascribe any motivation other than that they want to see the USF Fund shrink over time. This FCC hates the Lifeline program and would love to kill it. This FCC would prefer to not be in the business of handing out grants. At this point, I don’t think there is any alternative other than waiting for the day when there is a new FCC in place that embraces the good done by the USF rather than fight against it.

Comparing FCC Broadband Programs

I think it’s finally dawning on the big telcos that the days of being able to milk revenues from rural America while ignoring rural copper networks is finally ending. This becomes apparent when looking at the two most recent subsidy programs.

The original CAF II program was a huge boon to the big telcos. Companies like AT&T, CenturyLink, and Frontier collected $11 billion of subsidy to boost their rural copper networks up to speeds of at least 10/1 Mbps. This was a ridiculous program from the start since the FCC had established the definition of broadband to be at least 25/3 Mbps even before awarding this money. Perhaps the craziest thing about CAF II is that the telcos are still making the upgrades – they were required to be 60% complete with the required CAF II upgrades by the end 2018 and to be 100% complete by the end of 2020.

The big telcos report broadband customers to both the FCC and to stockholders, but the reporting is not in enough detail to know if the CAF II money has made any difference in rural America. All of the big telcos are losing broadband customers, but it’s hard to look under the hood to know if they are making any significant customer gains in the CAF II areas. We see little hints from time to time. For example, in the second quarter of this year, CenturyLink lost 56,000 net broadband customers but reports that it lost 78,000 customers with speeds below 20 Mbps and added 22,000 customers with speeds faster than that. That’s the first time they provided any color about their gains and losses. But even that extra detail doesn’t tell us how CenturyLink is doing in the CAF II areas. It’s obvious by looking at the customer losses that telcos aren’t adding the hundreds of thousands of new customers one would expect to see as the result of an $11 billion capital expenditure program. If CAF II is delivering broadband to areas that didn’t have it before, there should be a flood of new rural customers buying better broadband by now. I could be wrong, but when looking at the aggregate customers for each big telco I don’t think that flood of new customers is happening. If it was I think the telcos would be bragging about it.

The CAF II reverse auction took a different approach and awarded funding in those areas where the big telcos didn’t take the original CAF II funds. These subsidies were auctioned off in a reverse auction where the company willing to take the lowest amount of subsidy per customer got the funding. In the auction, most bidders offered to deploy broadband of 100 Mbps speeds or faster – a big contrast to the 10/1 Mbps speeds for CAF II. Some of the grant winners in the reverse auction like electric cooperatives are using the money to build fiber and offer gigabit speeds.

The original CAF II subsidy awards are probably the dumbest decision I’ve ever seen an FCC make (rivaling the recent decision to stop regulating broadband). If the original CAF II awards had been open to all applicants instead of being handed to the big telcos, then many of the homes that have been upgraded to 10/1 Mbps would have instead gotten fiber. Maybe even worse, CAF II basically put huge swaths of rural America on hold for seven years while the big telcos invested in minor tweaks to DSL.

The FCC will soon be handing out $20.4 billion for the new RDOF program to build better rural broadband. It should be press headlines that this money is going to many of the same areas that got the original $11 billion CAF II subsidies – the FCC is paying twice to upgrade the same areas.

Dan McCarthy, the CEO of Frontier Communications recently complained about the new RDOF grant program. He realizes that Frontier has little chance of winning the grants in a reverse auction.  Frontier doesn’t want to invest any of its cash for rural broadband and in an auction would be competing against ISPs willing to invest significant equity to match the RDOF grants. Frontier also recognizes that anything they might propose as upgrades can’t compete with technologies that will deliver speeds of 100 Mbps or faster.

At least the FCC is not handing the RDOF money directly to the big telcos again. It’s been five years since the start of CAF II and I’m still perplexed by the last FCC’s decision to hand $11 billion to the big telcos. Unfortunately, this FCC is still repeating the mistake of awarding grant money to support obsolete speeds. The FCC is proposing that RDOF money can be used to build broadband capable of delivering 25/3 Mbps broadband. In a recent blog, I predict that this is going to go into the books as another short-sighted decision by the FCC and that they’ll again be funding broadband that will be obsolete before it’s completed eight years from now. Hopefully most of the RDOF money will go towards building real broadband. Otherwise, in eight years we might see another giant FCC grant program to improve broadband for a third time in the same rural areas.

Setting the Definition of Broadband

One of the commenters on my blog asked a good question – can’t we set the definition of broadband by looking at the broadband applications used by the typical household? That sounds like a commonsense approach to the issue and is exactly what the FCC did when they set the definition of broadband to 25/3 Mbps in 2015. They looked at combinations of applications that a typical family of four might use in an evening, with the goal that a household ought to have enough broadband to comfortably do those functions at the same time. This might best be described as a technical approach to defining broadband – look at what households are really using and make sure that the definition of broadband is large enough to cover the expected usage for a typical household.

Taking this approach raises the bigger question – what should the policy be for setting the definition of broadband? I don’t know that I have any answers, but I ask the following questions:

  • The FCC largely conducted a thought experiment when setting the 25/3 definition of broadband – they didn’t try to measure the bandwidth used in the scenarios they considered. If the FCC had measured real homes doing those functions they likely would have found that bandwidth needs were different than they had estimated. Some functions use less bandwidth than they had supposed. But usage also would have been larger than they had calculated, because the FCC didn’t compensate for WiFi overheads and machine-to-machine traffic. As a household makes use of multiple simultaneous broadband functions, the WiFi networks we all use bog down when those applications collide with each other inside the home network. The busy-hour behavior of our home networks needs to be part of a mathematical approach to measuring broadband.
  • The FCC could have gotten a better answer had they hired somebody to measure evening broadband usage in a million homes. We know that broadband usage is like anything else and there are households that barely use broadband and others that use it intentsely. The idea of pinpointing the usage of a typical family is a quaint idea when what’s needed is to understand the curve of broadband usage – what’s the percentage of homes that are light, average, and heavy users. I’m sure that one of the big companies that track broadband usage could measure this somehow. But even after making such measurements we need a policy. Should the definition of broadband be set to satisfy the biggest broadband users, or something else like the medium speed used by households? Analytics can only go so far and at some point there has to be a policy. It’s not an easy policy to establish – if the definition of broadband is set anywhere below the fastest speeds used by households, then policy makers are telling some households that they use too much broadband.
  • If we are going to use measurements to determine the definition of broadband, then this also has to be an ongoing effort. If 25/3 was the right definition of broadband in 2015, how should that definition have changed when homes routinely started watching 4K video? I don’t think anybody can deny that households use more broadband each year, and homes use applications that are more data intensive. The household need for speed definitely increases over time, so any policy for setting a definition of broadband needs to recognize that the definition must grow over time.
  • One fact that is easy to forget is that the big cable companies now serve two-thirds of the broadband customers in the country, and any discussion we have about a definition of broadband is only considering how to handle the remaining one-third of broadband users. There is a good argument to be made that the cable companies already define the ‘market’ speed of broadband. The big cable companies all have minimum broadband speeds for new customers in urban markets today between 100 – 200 Mbps. The companies didn’t set these speeds in a vacuum. The cable companies have unilaterally increased speeds every 3-4 years in response to demands from their customers for faster speeds. I think there is a valid argument to be made that the market speeds used to serve two-thirds of the customers in the country should be the target broadband speed for everybody else. Any policymaker arguing that 25/3 Mbps should still be the definition of broadband is arguing that one-third of the country should settle for second-class broadband.
  • In a related argument I harken back to a policy discussion the FCC used to have when talking about broadband speeds. I can remember a decade or more ago when the FCC generally believed that rural broadband customers deserved to have access to the same speeds as urban customers. That policy was easy to support when cable networks and telco copper networks both delivered similar speeds. However, as cable broadband technology leaped ahead of copper and DSL, these discussion disappeared from the public discourse.
  • When looking at grant programs like the upcoming RDOF program, where the funded networks won’t be completed until 2027, any definition of broadband for the grants needs to look ahead to what the speeds might be like in 2027. Unfortunately, since we can’t agree on how to set the definition of broadband today, we have no context for talking about future speeds.

These are not easy questions. If the FCC was doing its job we would be having vigorous discussions on the topic. Sadly, I don’t foresee any real discussions at the FCC about the policy for setting the definition of broadband. The FCC has hunkered down and continues to support the 25/3 definition of broadband even when it’s clear that it’s grown obsolete. This FCC is unlikely to increase the definition of broadband, because in doing so they would be declaring that millions of homes have something less than broadband. It seems that our policy for setting the definition of broadband is to keep it where it is today because that’s politically expedient.

FCC – Please Don’t Fund 25/3 Broadband

The current FCC recognizes the disaster that was created when the original CAF II grant program subsidized the construction of broadband that supports speeds of only 10/1 Mbps. Several FCC commissioners have said that they don’t want to repeat that disaster. Had the CAF II grant monies been allowed for companies other than the big telcos, much of the money would have gone to fiber ISPs and we’d see a lot more areas covered with good broadband today (meaning fewer headaches for the FCC).

Today I ask the question: what speeds should the new $20.4 billion RDOF grant fund support? In the NPRM for the RDOF grant program, the FCC suggests that the minimum speed they will fund is 25/3 Mbps. It looks like the funding for these grants will start in 2021, and like the CAF II program, anybody taking the money will have six years to complete the broadband construction. I think the right way to think about the speeds for these grants is to look at likely broadband speeds at the end of the construction period in 2027, not at where the world is at two years before the RDOF is even started. If the FCC bases the program on broadband speeds today, they will be making the same error as on the original CAF II – they will use federal money to build broadband that is obsolete before it’s even constructed.

I start by referring to a recent blog where I challenge the idea that 25/3 should be the definition of broadband today. To quickly summarize that blog, we know that broadband demand has been growing constantly since the days of dial-up – and the growth in broadband demand applies to speeds as well as volume of monthly downloading. Both Cisco and Ookla have shown that broadband demand has been growing at a rate if about 21% annually for many years.

At a bare minimum, the definition of broadband today ought to be 50 Mbps download – and that definition is a minimum speed, not a goal that should be used for building tomorrow’s broadband. As I said earlier, in a world where demand continues to grow, today’s definition of broadband shouldn’t matter – what matters is the likely demand for broadband in 2027 when the RDOF networks are operational.

Trending the demand curve chart for download speeds forward presents a story that the FCC doesn’t want to hear. The need for speed is going to continue to increase. If the growth trend holds (and these trends have been steady since the days of dial-up), then the definition of broadband by 2027 ought to be 250 Mbps – meaning by then nobody should build a network that can’t meet that speed.

2019 2020 2021 2022 2023 2024 2025 2026 2027
54 65 78 95 115 139 168 204 246

The big cable companies already recognize what the FCC won’t acknowledge. The minimum speed offered to new customers on urban cable networks today is at least 100 Mbps, and most users can order a gigabit. The cable companies know that if they provide fast speeds they get a lot fewer complaints from customers. In my city of Asheville, NC, Charter unilaterally increased the speed of broadband in 2018 from 60/6 Mbps to 135/20 Mbps. Anybody who has watched the history of cable company broadband knows that they will increase speeds at least once before 2027 to stay ahead of the demand curve. It wouldn’t be surprising by 2027 if cable company minimum speeds are 300 – 500 Mbps. Do we really want to be funding 25/3 rural broadband when speeds in cities will be fifteen times faster?

Will the world behave exactly like this chart – not likely. But will homes in 2027 be happy with 25/3 Mbps broadband – most definitely not. Given a choice, homes don’t even want 25/3 Mbps broadband today. We are already seeing hordes of urban customers abandoning urban DSL that delivers speeds between 25 Mbps and 50 Mbps.

If the FCC funds 25/3 Mbps broadband in the RDOF grant they will be duplicating one of the dumbest FCC decisions ever made – when CAF II funded 10/1 Mbps broadband. The FCC will be funding networks that are massively obsolete before they are even built, and they will be spending scarce federal dollars to again not solve the rural digital divide. There will continue to be cries from rural America to bring real broadband that works and by 2027 we’ll probably be talking about CAF IV grants to try this all over again.

The Definition of Broadband

When the FCC set the definition of broadband at 25/3 Mbps in January of 2015, I thought it was a reasonable definition. At the time the FCC said that 25/3 Mbps was the minimum speed that defined broadband, and anything faster than 25/3 Mbps was considered to be broadband, and anything slower wasn’t broadband.

2015 was forever ago in terms of broadband usage and there have been speed increases across the industry since then. All of the big cable companies have unilaterally increased their base broadband speeds to between 100 Mbps and 200 Mbps. Numerous small telcos have upgraded their copper networks to fiber. Even the big telcos have increased speeds in rural America through CAF II upgrades that increased speeds to 10/1 Mbps – and the telcos all say they did much better in some places.

The easiest way to look at the right definition of broadband today is to begin with the 25/3 Mbps level set at the beginning of 2015. If that was a reasonable definition at the beginning of 2015, what’s a reasonable definition today? Both Cisco and Ookla track actual speeds achieved by households and both say that actual broadband speeds have been increasing nationally about 21% annually. Apply a 21% annual growth rate to the 25 Mbps download speeds set in 2015 would predict that the definition of broadband today should be 54 Mbps:

2015 2016 2017 2018 2019
25 30 37 44 54

We also have a lot of anecdotal evidence that households want faster speeds. Households have been regularly bailing on urban DSL and moving to faster cable company broadband. A lot of urban DSL can be delivered at speeds between 25 and 50 Mbps, and many homes are finding that to be inadequate. Unfortunately, the big telcos aren’t going to provide the detail needed to understand this phenomenon, but it’s clearly been happening on a big scale.

It’s a little sketchier to apply this same logic to upload speeds. There was a lot of disagreement about using the 3 Mbps download speed standard established in 2015. It seems to have been set to mollify the cable companies that wanted to assign most of their bandwidth to download. However, since 2015 most of the big cable companies have upgraded to DOCSIS 3.1 and they can now provide significantly faster uploads. My home broadband was upgraded by Charter in 2018 from 60/6 Mbps to 135/20 Mbps. It seems ridiculous to keep upload speed goals low, and if I was magically put onto the FCC, I wouldn’t support an upload speed goal of less than 20 Mbps.

You may recall that the FCC justified the 25/3 Mbps definition of broadband by looking at the various download functions that could be done by a family of four. The FCC examined numerous scenarios that considered uses like video streaming, surfing the web, and gaming. The FCC scenario was naive because they didn’t account for the fact that the vast majority of homes use WiFi. Most people don’t realize that WiFi networks generate a lot of overhead due to collisions of data streams – particularly when a household is trying to do multiple big bandwidth applications at the same time. When I made my judgment about the 25/3 Mbps definition back in 2015, I accounted for WiFi overheads and I still thought that 25/3 Mbps was a reasonable definition for the minimum speed of broadband.

Unfortunately, this FCC is never going to unilaterally increase the definition of broadband, because by doing so they would reclassify millions of homes as not having broadband. The FCC’s broadband maps are dreadful, but even with the bad data, it’s obvious that if the definition of broadband was 50/20 Mbps today that a huge number of homes would fall below that target.

The big problem with the failure to recognize the realities of household broadband demand is that the FCC is using the already-obsolete definition of 25/3 Mbps to make policy decisions. I have a follow-up blog to this one that will argue that using that speed as the definition of the upcoming $20.4 billion RDOF grants will be as big of a disaster as the prior FCC decision to hand out billions to upgrade to 10/1 Mbps DSL in the CAF II program.

The fact that household broadband demand grows over time is not news. We have been on roughly the same demand curve growth since the advent of dial-up. It’s massively frustrating to see politics interfere with what is a straight engineering issue. As homes use more broadband, particularly when they want to do multiple broadband tasks at the same time, their demand for faster broadband grows. I can understand that no administration wants to recognize that things are worse than they want them to be – so they don’t want to set the definition of broadband at the right speed. But it’s disappointing to see when the function of the FCC is supposed to be to make sure that America gets the broadband infrastructure it needs. If the agency was operated by technologists instead of political appointees we wouldn’t even be having this debate.

Some Problems with the RDOF

The FCC recently published a set of proposed rules for conducting the $20.4 billion broadband grant program it has labeled as the Rural Digital Opportunity Zone (RDOF). While the FCC is to be applauded for redirecting the funding that formerly was used to support the CAF II program, there are still some problems I foresee in the grant program as proposed.

Reverse Auction. Many of my problems come because of the use of a reverse auction. I understand why politicians and policymakers like this idea. The general concept that those willing to take the least amount of subsidy get the funding somehow sounds fair, but a reverse auction is not going to result in the best use of these funds to bring permanent broadband solutions to rural America:

  • Favors Those Who Don’t Need the Money. We saw this in the CAF II reverse auction where satellite broadband won a significant amount of funding. This time around there’s a good chance that a large amount of grant money might go to Elon Musk’s Starlink and the other low orbit satellite providers. By definition, for satellite technology to work they have to cover everywhere – and so they are going to be launching the satellites anyway without subsidy. These companies can easily be the low bidders because getting anything out of the grant fund is still a great result for them. As we going to be happy of the result of the reverse auction results in billions of dollars handed to Elon Musk?
  • Favors Lowest Cost Technology. By definition, those planning to spend less per customer to bring broadband can take accept money from the grants and still be happy. This means the grants will favor solutions the big telcos again tweaking DSL over ancient copper if they choose to participate. This would allow AT&T and Verizon to grab a lot of money to support rural cellular upgrades. While the FCC is planning to weight the bidding to promote faster technologies like fiber, if the weighting isn’t done right, then the funding will automatically favor lower-cost yet slower technologies. Maybe that’s what the FCC wants – to bring some broadband solution to the largest number of people – but the best policy is to bring a permanent broadband solution to a smaller subset of areas.
  • Discriminates Against High Cost Areas. The areas that need broadband the most are where it costs the most to build any infrastructure. Areas like Appalachia and Alaska are high cost because of topology, and anybody applying for grants in these areas likely can’t afford to reduce the percentage of grant funding their receive. The entire concept of reverse auction, by definition, favors parts of the country with the lowest construction costs. Applicants in the wide-open plains of the Midwest have a built-in advantage.

The Sheer Size of the One-Time Award. The grant awards are likely to be about a year away. I wonder if there will be enough ISPs ready to bid in that short time frame? Bidders need to develop an engineering estimate and business plan of sufficient quality to also attract financing. If there are not enough ISPs able to be ready for the auction in that time frame, even more of the money is likely to flow to big companies like the satellite providers who would be glad to take the whole pot of funding. A better plan would have been to break this into several grant years and award some 10-year grants, some 9-year grants, and some 8-year grants.

No Real Penalties for Cheating. Companies don’t get penalized much for lying about the speeds they can deliver. We saw a few wireless providers in the CAF II reverse auction claim they can deliver 100 Mbps broadband to everybody. Unless somebody develops that technology in the next 2-3 years they are going to deliver something less, at least to a large percentage of their coverage area. If a company gets a bidding credit by making a false claim, they should lose all of their funding and have to repay the FCC. The proposed penalties are not much more than a slap on the wrist and encourage companies to claim faster speeds than they can deliver.

Likely Excludes Some Bidders. The rules still seem to exclude entities that can’t get Eligible Telecommunications Carrier (ETC) status – a regulatory designation required to get money from the Universal Service Fund – a status only available to entities that own the network, and which are also the retail ISP. This would preclude entities like the PUDs, the rural municipal electric companies in Washington that are required by law to operate open access networks. It also could preclude certain kinds of partnerships where the retail ISP is different than the network owner – an arrangement we’re seeing a lot in partnerships between telcos and electric cooperatives. Anybody willing to invest in rural broadband should be eligible to participate.

FCC Proposes Rules for $20.4 Billion Broadband Grants

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.