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Rural Broadband Experiments Order

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Released: July 14, 2014
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Federal Communications Commission

FCC 14-98

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

)

)

Connect America Fund

)

WC Docket No. 10-90

)

)

ETC Annual Reports and Certifications

)

WC Docket No. 14-58

)

REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING

Adopted: July 11, 2014

Released:

July 14, 2014

Comment Date: (30 days after date of publication in the Federal Register)

Reply Comment Date: (45 days after date of publication in the Federal Register)

By the Commission: Chairman Wheeler and Commissioners Clyburn, Rosenworcel, and Pai issuing

separate statements; Commissioner O’Rielly concurring and issuing a statement.

TABLE OF CONTENTS

Heading

Paragraph #

I. INTRODUCTION.................................................................................................................................. 1

II. BACKGROUND.................................................................................................................................... 2

III. DISCUSSION ........................................................................................................................................ 6

A. Budget.............................................................................................................................................. 9

B. Support Term ................................................................................................................................. 12

C. Eligibility ....................................................................................................................................... 13

1. Eligible Areas.......................................................................................................................... 13

2. Applicant Eligibility................................................................................................................ 21

3. Three Types of Experiments ................................................................................................... 24

D. Selection Methodology and Bidding Process ................................................................................ 30

1. Selection Criteria..................................................................................................................... 30

2. Measures to Ensure Diversity of Projects ............................................................................... 39

3. Mechanics of the Bidding Process .......................................................................................... 45

4. Post-Selection Review............................................................................................................. 51

E. Conditions for Rural Broadband Experiment Support................................................................... 72

1. Build-Out Requirements.......................................................................................................... 73

2. Accountability Requirements.................................................................................................. 76

3. Data Gathering ........................................................................................................................ 86

F. Measures to Ensure Compliance.................................................................................................... 89

IV. FURTHER NOTICE OF PROPOSED RULEMAKING..................................................................... 97

V. PROCEDURAL MATTERS.............................................................................................................. 102

A. Paperwork Reduction Analysis.................................................................................................... 102

B. Congressional Review Act........................................................................................................... 104

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C. Final Regulatory Flexibility Analysis.......................................................................................... 105

D. Initial Regulatory Flexibility Analysis......................................................................................... 106

E. Filing Requirements..................................................................................................................... 107

VI. ORDERING CLAUSES..................................................................................................................... 111

APPENDIX A - Illustrative Form of Letter of Credit

APPENDIX B - Final Regulatory Flexibility Analysis

APPENDIX C - Initial Regulatory Flexibility Analysis

I.

INTRODUCTION

1.

Today we take further steps to implement the Connect America Fund to advance the

deployment of voice and broadband-capable networks in rural, high-cost areas, including extremely high-

cost areas, while ensuring that rural Americans benefit from the historic technology transitions that are

transforming our nation’s communications services. We finalize decisions to use on a limited scale

Connect America funding for rural broadband experiments in price cap areas that will deploy new, robust

broadband to consumers. This Report and Order (Order) establishes a budget for these experiments and

an objective, clear cut methodology for selecting winning applications, building on the record from the

Tech Transitions FNPRM.1 We describe the application process and announce that formal applications

must be submitted by 90 days from release of the Order. We will use these rural broadband experiments

to explore how to structure the Phase II competitive bidding process in price cap areas and to gather

valuable information about interest in deploying next generation networks in high-cost areas. In the

Further Notice of Proposed Rulemaking (FNPRM), we seek comment on how best to maximize the reach

of our existing Connect America budget and leverage non-Federal funding to extend broadband to as

many households as possible when we implement Phase II.

II.

BACKGROUND

2.

In the USF/ICC Transformation Order, the Commission concluded that it would use a

competitive bidding mechanism for Phase II of the Connect America Fund to award support in price cap

territories in those states where price cap carriers decline to make a state-level commitment in exchange

for model-based support.2 In the January 2014 Tech Transitions Order, the Commission adopted an

experiment to test how tailored economic incentives can advance the deployment of next generation

networks, both wireline and wireless, in rural, high-cost areas, including Tribal lands.3

3.

The Commission sought to gain useful information through these experiments to help

inform our policy decisions in various pending proceedings. For example, we sought to address the

extent of interest among providers in deploying high-capacity fiber-based services that deliver high

speeds to rural communities.4 In particular, we sought to learn whether providers are willing and able to

deliver services with performance characteristics well in excess of the minimum standards that price cap

carriers accepting model-based support are required to offer to all funded locations, for at most the same

amount of support as calculated by the model.5 We also sought to develop a greater understanding of the

geographic and demographic characteristics of where service providers (both incumbents and non-

1 See Technology Transitions et al., GN Docket No. 13-5 et al., Order et al., 29 FCC Rcd 1433, 1462-79, paras. 82-

136, 1498-1504, paras. 202-23 (2014) (Tech Transitions Order and/or FNPRM).

2 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed

Rulemaking, 26 FCC Rcd 17663, 17725, para. 156 (2011) (USF/ICC Transformation Order and/or FNPRM), aff’d

sub nom. In re FCC 11-161, ___ F.3d ___, 2014 WL 2142106 (10th Cir. May 23, 2014).

3 Tech Transitions Order, 29 FCC Rcd at 1463, para. 83.

4 Id. at 1466, para. 94.

5

Id.

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incumbents) would choose to offer wireless services at prices reasonably comparable to urban wireline

offerings.6

4.

The Commission adopted a framework for experiments to be conducted in price cap

territories.7 It stated an expectation that the funding to be made available would not exceed the amount of

model-calculated support associated with the relevant geographic area.8 The Commission sought

comment in the Tech Transitions FNPRM on the budget, selection criteria, and additional issues relating

to implementation of the rural broadband experiments.9

5.

In the Tech Transitions Order, we invited parties to file non-binding expressions of

interest regarding the rural broadband experiments, which have informed us as we finalize the details of

how to implement these experiments.10 As of May 31, 2014, we had received a total of 1,024 expressions

of interest from a wide range of entities, collectively requesting $11 billion in Federal funding.11 Of

these, nearly 60 percent proposed using fiber-to-the-premises (FTTP) to serve all or most of their

proposed service areas. Another 30 percent planned on using fixed wireless technologies to serve either

the entire proposed service area, or to augment proposed FTTP or mobile networks. The remaining 10

percent planned on using either mobile wireless, or some other type of technology, such as digital

subscriber line (DSL), or hybrid fiber coax (HFC). Forty-four percent of the expressions of interest were

from entities that self-identified as either incumbent local exchange carriers (LECs) or competitive LECs;

11 percent were electric utilities, 11 percent were wireless Internet service providers (WISPs), and 11

percent were agencies of state, county or local governments. Entities predominantly self-identifying as

Internet service providers (ISPs) constituted four percent, cable companies four percent, mobile carriers

two percent, and Tribal entities two percent. The remaining 11 percent were various forms of consortia or

research and education networks. We appreciate the interest of numerous stakeholders in these

experiments, but remind all parties that in order to compete for funding, they must file a formal

application as described more fully below.

III.

DISCUSSION

6.

We explained in the Tech Transitions Order that we must “ensure that all Americans

benefit from the technology transitions, and that we gain data on the impact of technology transitions in

rural areas, including Tribal lands, where residential consumers, small businesses and anchor institutions,

including schools, libraries and health care providers, may not have access to advanced broadband

services.”12

In this Order, we adopt certain parameters and requirements for the rural broadband

experiments that will assist us with accomplishing these goals. We expect these experiments to provide

critical information regarding which and what types of parties are willing to build networks that will

deliver services that exceed our current performance standards for an amount of money equal to or less

than the support amounts calculated by the adopted Phase II Connect America Cost Model.13 In addition

6 Id. at 1466-67, para. 95.

7 Id. at 1472, para. 111.

8 Id. at 1473, para. 112.

9 Tech Transitions FNPRM, 29 FCC Rcd at 1498-1504, paras. 202-23.

10 See Tech Transitions Order, 29 FCC Rcd at 1470, para. 105.

11 See Federal Communications Commission, Rural Broadband Experiments (updated as of Apr. 25, 2014),

http://www.fcc.gov/encyclopedia/rural-broadband-experiments. A substantial number of the expressions of interest,

however, lacked sufficient information to conduct a detailed analysis. For example, 30 percent of the expressions

did not indicate the total funding requested, and 50 percent did not indicate the number of homes to be passed.

12 Tech Transitions Order, 29 FCC Rcd at 1464, para. 87.

13 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, 28 FCC Rcd 5301 (Wireline

Comp. Bur. 2013) (CAM Platform Order); Connect America Fund et al., WC Docket No. 10-90 et al., Report and

Order, 29 FCC Rcd 3964 (Wireline Comp. Bur. 2014) (CAM Inputs Order).

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to gathering information relevant to broader questions implicated by technology transitions, we expect

these experiments also will inform key decisions that we will be making in the coming months regarding

the Connect America Fund. The experiments will not delay implementation of Connect America Phase II

or further reforms for rate-of-return carriers. We still expect to implement the offer of model-based

support to price cap carriers in the coming months, and we will resolve how the Connect America Fund

will address the challenges of providing service to the most remote, difficult to serve areas of the country.

In addition, in the coming months, we expect to be considering near-term reforms for rate-of-return

carriers, based on the record we will shortly receive in response to the recent Connect America Fund

FNPRM, while we continue to develop a Connect America Fund for those carriers.

7.

We adopt a budget of $100 million for funding experiments in price cap areas focused on

bringing robust, scalable broadband networks to residential and small business locations in rural

communities that are not served by an unsubsidized competitor that offers voice and Internet access

delivering at least 3 Mbps downstream/768 kbps upstream. As explained in detail below, the funding will

be available to serve locations in both high-cost and extremely high-cost areas, thereby advancing our

implementation of both Phase II and the Remote Areas Fund. We also determine the objective

methodology for selecting projects among the applications we receive for the experiments. Given the

manner in which we have structured the budget and the selection criteria, we believe that we will be able

to fund a range of diverse projects throughout the country. Finally, we outline the conditions that entities

participating in the experiments must meet in order to continue to receive such support, including specific

eligibility, build-out and accountability requirements, and establish the measures to ensure compliance

with these conditions.14

8.

In the Technology Transitions Order, we noted our desire to work cooperatively with

other governmental entities to advance our shared objectives of ensuring access to broadband services.

We noted that we were “particularly interested in how States, localities, Tribal governments, and other

non-federal governmental bodies can provide assistance, through matching funds, in-kind contributions or

other regulatory approvals and permits, to improve the business case for deployment of next generation

networks.”15 We will be monitoring the progress of the selected projects and hope that they may serve as

case studies for best practices in how coordinated governmental action can improve the business case for

the delivery of broadband services in rural, high-cost areas. We also seek comment in the attached

Further Notice of Proposed Rulemaking regarding measures we could take in the Phase II competitive

bidding process to create incentives for state and other governmental entities to contribute funding to

support the extension of broadband-capable networks.

A.

Budget

9.

In the Tech Transitions FNPRM, the Commission sought comment on the amount of

support it should make available for the rural broadband experiments.16

Here, we adopt a budget of $100

million for funding experiments. The Commission previously authorized two rounds of $300 million

Connect America Phase I funding to quickly bring broadband to unserved communities in price cap

territories.17 We now conclude it is appropriate to provide another round of funding in price cap

territories that will advance our swift implementation of Phase II.

14 The Commission’s rules in Part 1, Subpart AA regarding competitive bidding for universal service support

generally apply to the rural broadband experiments to the extent they are not modified for these experiments by the

Tech Transitions Order and this Order. See 47 C.F.R. §§ 1.21000-1.2004; Tech Transitions Order, 29 FCC Rcd

1433. In particular, we remind potential participants that they are subject to the Commission’s rules prohibiting

certain communications. See 47 C.F.R. § 1.21002.

15 Tech Transitions Order, 29 FCC Rcd at 1467, para. 97.

16 Tech Transitions FNPRM, 29 FCC Rcd at 1499, para. 204.

17 See USF/ICC Transformation Order, 26 FCC Rcd at 17712-13, para. 128; Connect America Fund, WC Docket

No. 10-90, Report and Order, 28 FCC Rcd 7766 (2013).

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10.

We conclude that adopting a budget of $100 million for these rural broadband

experiments will best balance our priorities and policy goals. Specifically, this budget should solicit

meaningful interest among a range of entities that will enable us to examine, on a limited scale, key policy

questions we identified in the Tech Transitions Order.18

We intend to test on a limited scale the use of a

competitive bidding process to award support to provide robust broadband to serve fixed locations using

both wireline and wireless technologies. Although many parties claim that we should maximize the

number of experiments that get funding and advocate adoption of a budget that exceeds the $100 million

we adopt today,19 we note that the Commission’s goal is not to fund as many experiments as possible, but

rather to advance implementation of the Connect America Fund.20

We are mindful of our commitment

not to delay the implementation of Phase II.21 It could be administratively burdensome to oversee the

necessary steps to authorize a large number of experiments, which likely would divert Commission

resources from resolving broader policy issues regarding implementation of the Connect America Fund in

both price cap and rate-of-return areas.22 Instead, our goal is to quickly gather data from submitted formal

proposals about various technologies in different geographic areas to inform our judgment as we address

important policy issues regarding how to maintain universal access in rural areas during technology

transitions.23 We expect that what we learn from the formal applications and selection process will

inform our decisions in the coming months as to how to implement a Phase II competitive bidding

18 Tech Transitions Order, 29 FCC Rcd at 1466-67, paras. 94-97. See, e.g., Comments of the Fiber to the Home

Council Americas, WC Docket No. 10-90, at 3-5 (filed Mar. 31, 2014) (FTTH Council Mar. 31, 2014 Comments);

Comments of the United States Telecom Association, WC Docket No. 10-90, at 4 (filed Mar. 31, 2014) (USTelecom

Mar. 31, 2014 Comments); Comments of American Cable Association, WC Docket No. 10-90, at 3-4 (filed Mar. 31,

2014) (ACA Mar. 31, 2014 Comments); Comments of CenturyLink, WC Docket No. 10-90, at 4 (filed Mar. 31,

2014) (CenturyLink Mar. 31, 2014 Comments); Comments of ITTA, WC Docket No. 10-90, at 2-4 (filed Mar. 31,

2014) (ITTA Mar. 31, 2014 Comments).

19 See, e.g., Comments of the Alaska Rural Coalition, WC Docket No. 10-90, at 7 (filed Mar. 31, 2014) (ARC Mar.

31, 2014 Comments); Comments of ValleyNet, WC Docket No. 10-90, at 1 (filed Mar. 31, 2014); Comments of

BARC Electric Cooperative, WC Docket No. 10-90 et al., at 2-3 (filed Mar. 31, 2014) (BARC Mar. 31, 2014

Comments); Comments of Co-Mo Comm, Inc., WC Docket No. 10-90 et al., at 1 (filed Mar. 31, 2014); Comments

of Douglas Service, Inc., WC Docket No. 10-90, at 1 (filed Mar. 31, 2014); Reply Comments of Johnson County

REMC, WC Docket No. 10-90, at 1 (filed Mar. 31, 2014); Comments of John Staurulakis, Inc., WC Docket No. 10-

90 et al., at 2-5 (filed Mar. 31, 2014); Comments of Midwest Energy Cooperative, WC Docket No. 10-90 et al., at 2

(filed Mar. 31, 2014); Comments of the Utilities Telecom Council, WC Docket No. 10-90 et al., at 3-4 (filed Mar.

31, 2014) (UTC Mar. 31, 2014 Comments); Comments of the Vermont Telecommunications Authority, WC Docket

No. 10-90 et al., at 2 (filed Mar. 31, 2014) (VTA Mar. 31, 2014 Comments); Comments of Lake Region Electric

Cooperative, Inc., WC Docket No. 10-90 et al., at 2 (filed Mar. 28, 2014) (LREC Mar. 28, 2014 Comments);

Comments of Atlantic Tele-Network, Inc., WC Docket No. 10-90 et al., at 5 (filed Mar. 31, 2014) (Atlantic Tele-

Network Mar. 31, 2014 Comments); Comments of the Rural Independent Competitive Alliance, WC Docket No. 10-

90 et al., at 6 (filed Mar. 31, 2014); Comments of the Wireless Internet Service Providers Association, WC Docket

No. 10-90 et al., at 5-6 (filed Mar. 31, 2014).

20 See Tech Transitions Order and FNPRM, 29 FCC Rcd at 1471, 1499, paras. 109, 204 (stating that the

Commission “expect[s] a relatively small number of projects . . . will be selected for funding” and that the

Commission does not “envision using all unallocated funds in the broadband reserve for experiments in rural areas,

but rather an amount that is sufficient to enable us to award funding to a limited number of projects that enable

evaluation” of the policy questions identified by the Commission).

21 Tech Transitions Order, 29 FCC Rcd at 1467, para. 98.

22 See Comments of NTCA—The Rural Broadband Association, The National Exchange Carrier Association, Inc.,

and the Eastern Rural Telecom Association, WC Docket No. 10-90 et al., at 4 (filed Mar. 31, 2014) (stating “that the

experiments must not divert much-needed funds or attention away from expanding broadband access to all

Americans in favor of a few, select projects”).

23 Tech Transitions Order, 29 FCC Rcd at 1467, 1471, paras. 98, 109.

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mechanism that will maximize the participation of a variety of entities and use targeted funding to expand

efficiently the availability of voice and broadband-capable infrastructure.24

11.

Source of Funds. As we proposed in the Tech Transitions FNPRM,25 the funding for the

rural broadband experiments will be drawn from the Connect America reserve account, which is projected

to have approximately $220 million in funding as of the third quarter of 2014 that has not already been

allocated to a specific program.26 We find that using the reserve account to fund the experiments will

help achieve the goals the Commission set for the Connect America Fund. Not only are the experiments

themselves designed to encourage the deployment of robust networks capable of offering voice and

broadband services to consumers in high-cost areas, the experiments will also help us design the Phase II

competitive bidding process and the Remote Areas Fund to efficiently achieve this goal throughout the

country.27 Using unallocated support from the reserve account will also ensure that we will not increase

the size of the Universal Service Fund or Connect America budget, that we will not increase the

contribution burden on consumers, and that we will not divert resources from other universal service

programs.28 We will consider appropriate treatment of any unallocated funds in the future.

B.

Support Term

12.

We conclude that we will focus the experiments on projects seeking 10 years of recurring

support, rather than proposals for projects seeking one-time support. In the Tech Transitions Order, the

Commission set a general framework for rural broadband experiments. The Commission adopted a

support term of “up to ten years” and indicated that it would accept proposals for one-time or recurring

support.29 Subsequently, in April, the Commission adopted a support term of 10 years for the competitive

bidding process in the Connect America Fund Order.30 One of our primary objectives for these

experiments is to learn how to structure a competitive bidding process for recurring support. We

therefore conclude that soliciting proposals for projects with the same 10-year term as will be available to

bidders in Phase II will best inform us regarding the level of interest among potential providers in the

Phase II competitive bidding process.31 Moreover, permitting entities to define the length of their support

terms would add to the complexity of administering the experiments.

24 Id. at 1473, para. 112.

25 Tech Transitions FNPRM, 29 FCC Rcd at 1498-99, para. 203.

26 The reserve account has a balance of $1.76 billion as of the third quarter of 2014, with $1.54 billion of those funds

already allocated to Connect America Phase I, Tribal Mobility Fund Phase I, and Mobility Fund Phase II. Universal

Service Administrative Company, Federal Universal Service Support Mechanisms Fund Size Projections for Third

Quarter 2014, at 9-11 (May 2, 2014),

http://www.usac.org/about/tools/fcc/filings/2014/Q3/USAC%203Q2014%20Federal%20Universal%20Service%20

Mechanism%20Quarterly%20Demand%20Filing.pdf.

27 See ARC Mar. 31, 2014 Comments at 7 (stating that “[g]iven the strong interest in the program and great need for

fiber deployment to reach rural citizens, it makes sense for the Commission to distribute unallocated Connect

America funding rather than continuing to hold those funds in reserve”).

28 Cf. UTC Mar. 31, 2014 Comments at 4 (urging “the Commission to find creative ways to increase the budget for

the rural broadband experiments” and citing as an example “draw[ing] funds from other programs within the

universal service fund in addition to the Connect America Fund”); VTA Mar. 31, 2014 Comments at 2-3 (suggesting

the Commission “draw future recurring support from future Connect America Funds”).

29 Tech Transitions Order, 29 FCC Rcd at 1476, paras. 124-25.

30 Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order et al., FCC 14-54, paras. 35-36 (rel.

June 10, 2014) (Connect America Fund Order and/or FNPRM).

31 See Tech Transitions Order, 29 FCC Rcd at 1477, para. 126 (concluding “that providing a longer term of support

in the experiment could provide us with valuable information regarding how to elicit greater participation in the

Connect America Phase II competitive bidding process in price cap territories, which will help ensure that funding is

(continued….)

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C.

Eligibility

1.

Eligible Areas

13.

In the USF/ICC Transformation FNPRM, we proposed that census blocks should be the

minimum geographic areas for which support will be provided through the Phase II competitive bidding

process, and sought comment on whether using census tracts, bidder-defined groups, or another approach

would best meet the needs of bidders in the competitive bidding process.32

A number of commenters

expressed a preference for using the same census blocks that are subject to the offer of model-based

support for the Phase II competitive bidding process.33 In the Tech Transitions Order, we concluded that

proposals for rural broadband experiments in price cap territories would be entertained at the census tract

level, with funding provided only for locations in eligible census blocks as determined by the Connect

America Cost Model.34 We did so because we were concerned that making larger geographic areas, such

as counties, the minimum geographic area for an experimental proposal potentially could deter

participation in this experiment from smaller providers.35 Census blocks where the model calculated an

average cost that exceeded the likely extremely high-cost threshold were not excluded from eligibility,

allowing applicants to submit proposals to serve locations in these areas if they determined it was

economically feasible to do so with the assurance of support.36

14.

The rural broadband experiments, in addition to providing robust last-mile broadband

service to consumers in rural communities, will be used to test a potential competitive bidding process for

Phase II, providing us the opportunity to make any adjustments that may be necessary before full-scale

implementation in Phase II. Based on our review of the expressions of interest, we now conclude that

(Continued from previous page)

targeted efficiently to expand broadband-capable infrastructure throughout the country”). We disagree with ITTA’s

claim “that it makes little sense to distribute the funding on a recurring basis” if we adopt a budget of $100 million.

ITTA Mar. 31, 2014 Comments at 3. We find that gauging competitive interest in how we intend to structure Phase

II, even on a smaller scale, will be helpful when making decisions for competitive bidding process.

32 See USF/ICC Transformation FNPRM, 26 FCC Rcd at 18806, para. 1192.

33 See, e.g., Comments of the American Cable Association, WC Docket No. 10-90 et al., at 8 (filed Jan. 18, 2012);

Comments of CenturyLink, WC Docket No. 10-90 et al., at 12-13 (filed Jan. 18, 2012) (CenturyLink Jan. 18, 2012

Comments); Comments of CTIA—The Wireless Association, WC Docket No. 10-90 et al., at 13 (filed Jan. 18,

2012); Comments of Frontier Corporation, WC Docket No. 10-90 et al., at 14-15 (filed Jan. 18, 2012) (Frontier Jan.

18, 2012 Comments); Comments of the National Cable and Telecommunications Association, WC Docket No. 10-

90 et al., at 12 (filed Jan. 18, 2012).

34 Tech Transitions Order, 29 FCC Rcd at 1472, para. 111. In some limited circumstances, not all of the locations in

a census block will be eligible for support because the cost per location has been calculated on a sub-census-block

basis. For example, if only part of a block is served by a given price cap carrier, each carrier’s total costs and cost

per location are calculated independently. Similarly, if a block is served by multiple wire centers, the cost

associated with each wire center is calculated separately. Finally, if a block is served by more than one splitter

(node2), the cost is calculated separately. This was done to ensure that a block that includes both low-cost and

extremely high-cost locations would not be eligible for support if those costs averaged over the entire block fall into

the range where Phase II support is calculated. See CostQuest Associates, Inc., Connect America Cost Model:

Model Methodology at 16, n.16 (Apr. 11, 2014),

http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0417/DOC-326628A1.pdf. The list of eligible

census blocks that the Bureau will release will identify the number of locations that are eligible for funding in each

census block.

35 Tech Transitions Order, 29 FCC Rcd at 1472, para. 111. Incumbent carriers had argued that the minimum

geographic unit for competitive bidding should be a county. See Letter from Jonathan Banks, Senior Vice President

Law & Policy, USTelecom, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket

No. 10-90 et al. (filed Aug. 29, 2013) (submitting a White Paper titled: “Connect America Fund Phase II: A

Proposal for a State-and-County-Based Approach to Reverse Auctions for CAF Phase II Support”).

36 Tech Transitions Order, 29 FCC Rcd at 1472, para. 111.

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these objectives will best be realized by accepting rural broadband experiment proposals in price cap

areas at both the census tract level and the census block level. We recognize that some parties may be

able to submit cost-effective proposals that would encompass all of the eligible census blocks within a

tract, and we continue to encourage these parties to file such proposals. For entities whose current

operations do not allow them to design projects on this scale that make business sense, we waive the

requirement to file proposals at the census tract level.37 By accepting proposals at the census block level,

we hope to provide greater flexibility to parties and encourage a greater number of entities to participate

in the rural broadband experiments. For example, smaller entities may not be able to serve areas as large

as census tracts, but would be interested in submitting proposals for smaller neighborhoods that they may

already be well positioned to serve. Permitting applicants to aggregate census blocks themselves, rather

than having to work within the pre-defined framework of census tracts, will encourage greater

participation among these entities. Moreover, this approach provides an opportunity for entities to engage

in an incremental expansion into neighboring areas, allowing parties to leverage economies of scale to

provide broadband in an efficient manner that benefits consumers. Finally, allowing rural broadband

experiment proposals on the census block level will help us determine whether the census block approach

that the Commission proposed to use for the Phase II competitive bidding process is administratively

feasible and straightforward for both Commission staff and applicants.

15.

Proposals must be for census blocks eligible for funding in the rural broadband

experiments with a cost per location exceeding the Connect America Phase II funding threshold ($52.50),

but below the extremely high-cost threshold ($207.81), and not served by an unsubsidized competitor

offering voice service and Internet access providing 3 Mbps downstream/768 kbps upstream as identified

by the National Broadband Map.38 We require applicants to commit to serving the total number of

locations in a given census block. For instance, if a census block has 100 total locations, with 50 of those

locations eligible for funding, an entity must commit to serve 100 locations, with the understanding that

the support amount determined by the cost model covers only those 50 eligible locations. Entities also

may choose to include additional locations in adjacent census blocks where the average cost per location

exceeds the extremely high-cost threshold if they determine that it is economically feasible to do so with

the support they are requesting for the eligible census block.39

16.

In the Tech Transitions FNPRM, the Commission sought comment on whether to allow

applicants to propose to serve partially-served census blocks, which are not eligible for the offer of

37 We do not require these entities to file an individual petition for waiver to avail themselves of this option; rather,

we will automatically consider any proposal that does not propose to serve all of the eligible census blocks in a

given census tract.

38 Thus, we will not entertain proposals to serve census blocks that are shown on the most current version of the

National Broadband Map (data as of June 2013) as served by cable or fixed wireless providers offering 3 Mbps

downstream and 768 kbps upstream. For purposes of Connect America Phase II, the Wireline Competition Bureau

has already released a list and also a map detailing the eligible census blocks, with the number of locations eligible

for funding in each block. See Wireline Competition Bureau Commences Connect America Phase II Challenge

Process, WC Docket Nos. 10-90, 14-93, Public Notice, DA 14-942 (Wireline Comp Bur. rel. June 30, 2014); see

also Federal Communications Commission, Connect America Phase II – Initial Eligible Areas Map (updated July 7,

2014), http://www.fcc.gov/maps/fcc-connect-america-fund-phase-ii-initial-eligible-areas-map. We direct the

Bureau to release the amount of support determined by the model for each block, as well as a list of extremely high-

cost census blocks and Tribal census blocks eligible for the rural broadband experiments and the number of

locations in each of those blocks, within 15 days of release of this Order.

39 Thus, for instance, if $5,000 in Phase II support is available for a particular high-cost census block with 50

eligible locations, while an adjacent extremely high-cost census block contains seven extremely high-cost locations,

with five of those locations physically adjacent to the eligible census block, a bidder could bid $5,000 and commit to

serve 55 locations (50 locations in the eligible census block and five out of seven of the locations in the extremely

high-cost block). See infra para. 36.

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model-based support to price cap carriers because they are also served by an unsubsidized competitor.40

After reviewing the record, we conclude that the complexity of implementing such an approach would

likely delay implementation of the experiments.

As NCTA notes, allowing entities to bid on partially-

served census blocks would likely substantially increase the challenges of administering the experiments,

given the lack of a reliable source of data on broadband availability below the census block level.41

Further, CenturyLink observes that allowing partially-served blocks would require the Commission to

adjust model-based support amounts and conduct a challenge process.42

Because doing so would add

complexity and time, as well as divert Commission attention and resources, we decline to allow

applicants to propose to serve partially-served census blocks. Our focus for the experiments at this point

is to advance the deployment of next generation networks to areas unserved by an unsubsidized

competitor as quickly and efficiently as possible and to understand how the Phase II competitive bidding

process should be best fashioned. Allowing applicants to bid on partially-served census blocks would

pose a number of administrative burdens on Commission staff, and the potential obstacles to conducting

sub-census block challenges for these experiments outweigh the marginal benefits.

17.

We also decide that we will accept rural broadband experiment proposals only from

entities that seek to provide service in price cap territories.43 Over the coming months, we will be focused

on reviewing the record we will shortly receive regarding near term and longer term reforms to develop a

Connect America Fund for rate-of-return carriers. We believe it is prudent to focus our efforts on these

issues, rather than confronting the many difficult issues associated with the potential implementation of

rural broadband experiments in rate-of-return areas.

18.

The Commission sought comment in the Tech Transitions FNPRM on whether to adjust

the offer of support for a Phase II state-level commitment if rural broadband experiment funding is

awarded prior to the offer of model-based support to price cap carriers.44 A number of commenters

supported this proposal.45 We adopt this approach, concluding that it furthers our policy of not providing

duplicative support in a given area. Specifically, once winning bidders are identified, the Bureau will

remove the relevant census blocks from the list of eligible census blocks and make additional census

blocks available by raising the extremely high-cost threshold so as to maintain the overall the Phase II

budget.46

We also determine that we will exclude any area funded through the rural broadband

experiments from the Phase II competitive bidding process.

19.

We conclude that areas served by competitive eligible telecommunications carriers

(ETCs) will be eligible for support in the rural broadband experiments. We note that we received a

number of expressions of interest from competitive affiliates of rate-of-return carriers operating out of

region in price cap territories, and we recognize that these carriers may be interested in submitting rural

40 Tech Transitions Order, 29 FCC Rcd at 1503, para. 221.

41 Comments of the National Cable and Telecommunications Association, WC Docket No. 10-90 et al., at 4 (filed

Mar. 31, 2014) (NCTA Mar. 31, 2014 Comments).

42 CenturyLink Mar. 31, 2014 Comments at 8.

43 To the extent that there is a potential mismatch between the study area boundaries used by the cost model to

define the price cap carrier portion of a given census block and the actual boundaries, we prohibit any rural

broadband experiment winners from building in the portion of the census block that is served by a rate-of-return

incumbent; experiment funding is only to be used in price cap territories.

44 Tech Transitions FNPRM, 29 FCC Rcd at 1503-04, para. 223.

45 See, e.g., CenturyLink Mar. 31, 2014 Comments at 9; ITTA Mar. 31, 2014 Comments at 11; USTelecom Mar. 31,

2014 Comments at 11.

46 Tech Transitions FNPRM, 29 FCC Rcd at 1503-04, para. 223 n.348.

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broadband experiment proposals, alone or in partnership with other entities.47 We are interested in

learning the extent of interest among competitive ETCs to provide fixed voice and broadband services to

the home with recurring support, using both wireline and wireless technologies.

20.

The Commission has concluded that competitive ETCs awarded support through the

Phase II competitive bidding process will cease to receive legacy phase-down support for those specific

areas upon receiving its Phase II support.48 This rule will apply to participants in the rural broadband

experiments, given the rural broadband experiments represent the first step of implementing a competitive

bidding process for Phase II support in price cap territories. We believe it is important to implement the

measures that the Commission has already adopted for the Phase II competitive bidding process to the

extent possible in these experiments.

2.

Applicant Eligibility

21.

We concluded in the Tech Transitions Order that we would encourage participation in

the rural broadband experiments from a wide range of entities—including competitive local exchange

carriers, electric utilities, fixed and mobile wireless providers, WISPs, State and regional authorities,

Tribal governments, and partnerships among interested entities.49 We were encouraged to see the

diversity in the expressions of interest submitted by interested parties. Of the more than 1,000

expressions of interest filed, almost half were from entities that are not currently ETCs, including electric

utilities, WISPS, and agencies of state, county or local governments.

22.

We remind entities that they need not be ETCs at the time they initially submit their

formal proposals for funding through the rural broadband experiments, but that they must obtain ETC

designation after being identified as winning bidders for the funding award.50 As stated in the Tech

Transitions Order, we expect entities to confirm their ETC status within 90 days of the public notice

announcing the winning bidders selected to receive funding.51 Any winning bidder that fails to notify the

Bureau that it has obtained ETC designation within the 90 day timeframe will be considered in default

and will not be eligible to receive funding for its proposed rural broadband experiment. Any funding that

is forfeited in such a manner will not be redistributed to other applicants. We conclude this is necessary

so that we can move forward with the experiments in a timely manner. However, a waiver of this

deadline may be appropriate if a winning bidder is able to demonstrate that it has engaged in good faith to

obtain ETC designation, but has not received approval within the 90-day timeframe.52

23.

We sought comment in the Tech Transitions FNPRM on whether to adopt a presumption

that if a state fails to act on an ETC application from a selected participant within a specified period of

time, the state lacks jurisdiction over the applicant, and the Commission will address the ETC

application.53

Multiple commenters supported this proposal.54 We now conclude that, for purposes of

47 See, e.g., Letter from Michael R. Romano, Senior Vice President, NTCA, to Marlene H. Dortch, Secretary,

Federal Communications Commission, WC Docket No. 10-90, at 1 (filed July 1, 2014).

48 Connect America Fund Order, FCC 14-54, at paras. 53.

49 Tech Transitions Order, 29 FCC Rcd at 1474, para. 116.

50 Id. at 1474-75, para. 118.

51 Id. See also infra para. 54.

52 See 47 C.F.R. § 1.3. We expect entities selected for funding to submit their ETC applications to the relevant

jurisdiction as soon as possible after release of the public notice announcing winning bids, and will presume an

entity to have shown good faith if it files its ETC application within 15 days of release of the public notice. A

waiver of the 90-day deadline would be appropriate if, for example, if an entity has an ETC application pending with

a state, and the state’s next meeting at which it would consider the ETC application will occur after the 90-day

window.

53 Tech Transitions FNPRM, 29 FCC Rcd at 1503, para. 222.

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this experiment, if after 90 days a state has failed to act on a pending ETC application, an entity may

request that the Commission designate it as an ETC, pursuant to section 214(e)(6).55 Although we are

confident that states share our desire to work cooperatively to advance broadband, and we expect states to

expeditiously designate qualified entities that have expressed an interest in providing voice and

broadband to consumers in price cap areas within their states, we also recognize the need to adopt

measures that will provide a pathway to obtaining ETC designation in situations where there is a lack of

action by the state.56

3.

Three Types of Experiments

24.

The $100 million budget for the rural broadband experiments in price cap territories will

be divided into three separate categories: $75 million for projects meeting very high performance

standards; $15 million for projects meeting specified minimum performance standards that exceed our

current standards; and $10 million for projects dedicated to serving extremely high-cost locations. Below,

we outline the performance standards that entities interested in participating in the rural broadband

experiments must meet or exceed in order to be considered for funding in each category.

25.

We stated in the Tech Transitions Order that our focus for the rural broadband

experiments was to deploy robust, scalable networks in rural areas not served by an unsubsidized

competitor offering voice service and Internet access that delivers 3 Mbps downstream/768 kbps

upstream.57 To test whether providers are willing and able to deliver services with performance

characteristics in excess of the current minimum standards that price cap carriers accepting model-based

support are required to offer to all funded locations, we will require all recipients of funding in the rural

broadband experiments to offer, at a minimum, at least one standalone broadband service plan more

robust that the Commission’s current standard of 4 Mbps downstream/1 Mbps upstream to all locations

within the selected census blocks, with a specific amount of usage at a price no higher than the reasonable

comparability benchmarks for voice service and broadband service,58 and that meets defined quality

standards. The extent to which parties file formal proposals committing to meet these standards in the

rural broadband experiments might provide information relevant for the decisions we expect to make in

the coming months regarding proposals set forth in the Connect America Fund FNPRM.

(Continued from previous page)

54 See, e.g., ACA Mar. 31, 2014 Comments at 9; LREC Mar. 28, 2014 Comments at 5; UTC Mar. 31, 2014

Comments at 9.

55 See 47 U.S.C. § 214(e)(6).

56 See Connect America Fund FNPRM, FCC 14-54, at paras. 182-83.

57 Tech Transitions Order, 29 FCC Rcd at 1473, para. 113.

58 Connect America Fund FNPRM, FCC 14-54, at paras. 138-152. The current reasonable comparability benchmark

for standalone fixed voice services is $46.96. See Wireline Competition Bureau Announces Results of Urban Rate

Survey for Voice Services; Seeks Comment on Petition for Extension of Time to Comply with New Rate Floor, WC

Docket No. 10-90, Public Notice, DA 14-384 (Wireline Comp. Bur. rel. Mar. 20, 2014). The Bureau has proposed a

methodology for a reasonable comparability benchmark for standalone fixed broadband services that deliver 10

Mbps downstream/1 Mbps upstream at a price ranging from $74.63 to $77.99, depending on usage. Under an

alternative approach, the benchmark for standalone broadband services delivering 10 Mbps/1 Mbps, irrespective of

usage, would be $84.15. See Wireline Competition Bureau Announces Posting of Broadband Data from Urban Rate

Survey and Seeks Comment on Calculation of Reasonable Comparability Benchmark for Broadband Services, WC

Docket No. 10-90, Public Notice, DA 14-944 (Wireline Comp. Bur. rel. June 30, 2014). The Bureau expects to

adopt the reasonable comparability benchmark for fixed broadband services in the coming months; for purposes of

the rural broadband experiments, we establish an interim presumption for 10 Mbps downstream/1 Mbps upstream

service that an entity can charge no more than $85 for fixed broadband service, pending adoption of a final

benchmark. We expect that usage would be available in both peak and non-peak hours. Participants in Phase II are

free to offer bundled service offerings in addition to the required standalone offerings.

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26.

Given the number of providers that submitted expressions of interest for projects of

significant size to deploy fiber to the premises, and to ensure that our budget permits the selection of

several such projects to ensure diversity, we make the largest amount of funding—$75 million—available

for projects seeking to meet very high performance standards. These projects must propose to deploy a

network capable of delivering 100 Mbps downstream/25 Mbps upstream, while offering at least one

service plan that provides 25 Mbps downstream/5 Mbps upstream to all locations within the selected

census blocks.59 Recipients must provide usage and pricing that is reasonably comparable to usage and

pricing available for comparable wireline offerings (i.e., those with similar speeds) in urban areas, and

latency no greater than 100 milliseconds (ms).

27.

We will make $15 million available for projects where the provider would offer at least

one service plan that provides 10 Mbps downstream/1 Mbps upstream to all locations within the selected

census blocks. This service plan also must offer at least a 100 GB usage allowance, no more than 100 ms

of latency, and meet the reasonable comparability benchmarks for the pricing of voice and broadband.

28.

We also are interested in learning more about the extent of provider interest in serving

extremely high-cost census blocks, as defined by the Connect America Cost Model. We will make $10

million available for projects exclusively in such areas that propose to offer services delivering 10 Mbps

downstream/1 Mbps upstream, with 100 GB of usage and a price that meets our reasonable comparability

benchmarks. Projects seeking funding in this category must propose to serve all the locations within the

extremely high-cost block or blocks on which the applicant bids.60 These projects also must propose to

serve only extremely high-cost census blocks; a project will not become eligible for this category if it

proposes to serve one extremely high-cost census block as part of a larger project to serve other eligible

census blocks. We expect to receive a number of creative proposals that will inform us as to the types of

technologies that entities can most efficiently deploy to serve extremely high-cost areas, while still

meeting the proposed minimum performance standards. For example, we hope to learn more about

interest in the deployment of various fixed wireless solutions, including broadband services using TV

white space and/or hybrid solutions that combine fiber and fixed wireless technologies to offer broadband

services in extremely high-cost areas.

29.

Satellite providers that are interested in serving extremely high-cost locations may submit

proposals for participation in the rural broadband experiments. We recognize, however, that these

providers may not be able to satisfy the 100 ms latency standard that we establish for the other two

groups. Therefore, we will use other metrics for voice quality in the context of these experiments.

Specifically, any winning satellite provider may satisfy our requirements for quality of voice service by

demonstrating it can provide voice service that meets a Mean Opinion Score (MOS) of four or greater.

D.

Selection Methodology and Bidding Process

1.

Selection Criteria

30.

In the Tech Transitions NPRM, the Commission sought comment on four types of

selection criterion for the rural broadband experiments and proposed that cost-effectiveness should be the

primary criteria in evaluating which applications to select.61 The Commission noted that one potential

measure of cost-effectiveness is whether the applicant proposes to serve an area for an amount less than

model-based support.

59 If an entity determines it is economically feasible for it to serve locations in extremely high-cost census blocks in

addition to locations in funded census blocks, it will be subject to the same service requirements in those extremely

high-cost census blocks. See infra para. 36.

60 For purposes of the rural broadband experiments, only census blocks where all price cap locations are extremely

high-cost will be eligible in this third category.

61 Tech Transitions FNPRM, 29 FCC Rcd at 1501, paras. 213-16.

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31.

Based on further consideration and our review of the record, we conclude that we should

select winning bidders based on objective measures of cost-effectiveness, rather than using a more

complicated scheme of weighting or scoring applications on multiple dimensions. Because we have

structured our selection process to choose experiments from three separate categories, we expect to select

a diversity of projects in terms of geography and technologies. Recognizing unique challenges in serving

Tribal lands, we provide a bidding credit for entities that propose projects that will serve only Tribal

census blocks, which will have the effect of making such projects more cost-effective relative to

proposals from other entities. Rather than using subjective criteria to evaluate the financial and technical

qualifications of each applicant before selection, we require selected applicants to submit additional

information demonstrating that they have the technical and financial qualifications to successfully

complete their proposed projects within the required timeframes.

32.

We conclude that we should use cost-effectiveness to select applications, and we will

calculate this measure in two ways for different categories of applications. As detailed below, for those

applications proposing to serve census blocks identified by the Connect America Cost Model as eligible

for Phase II support, we will compare requested amounts to model-based support amounts. For

applications proposing to serve only census blocks the model identifies as “extremely high-cost,” for

which there is no model-determined level of support, we will select applications based on the lowest-cost

per location.62 We find that using these objective, straightforward, and easily measurable criteria will best

meet our goals to efficiently distribute support in these experiments and to test on a limited scale a

competitive bidding process that can be implemented quickly to inform our decisions regarding how to

design the Phase II competitive bidding mechanism. We sought comment in the Tech Transitions

FNPRM on ways to leverage non-Federal governmental sources of funding, but the record was

insufficient for us to determine how best to implement measures that would create incentives for non-

Federal governmental entities to assist in advancing universal service. We seek more focused comment in

the attached FNPRM on the use of bidding credits in the Phase II competitive bidding process that will

occur after the offer of model-based support to price cap carriers.

33.

Many commenters agree that cost-effectiveness should be the primary, or even only,

criterion in evaluating which applications to select, although some commenters advocate for an approach

that would select winning bidders based on the lowest cost per location without comparison to model-

based support.63 We conclude that we should use cost-effectiveness – defined as requested dollars per

location divided by model-based support per location – to select applications in categories one and two.

We recognize that we could potentially extend the availability of broadband-capable networks to more

locations if we were to use only lowest-cost per location to select projects in all three groups. In addition

to using our limited budget for these rural broadband experiments efficiently, however, we also hope to

select projects in a variety of geographic areas. Using lowest-cost alone would likely result in selecting

proposals for experiments with similar cost characteristics – specifically, those areas that just barely meet

the threshold for being “high-cost.” By selecting winning bidders based on the ratio of requested support

to support calculated by the cost model, we expect to award funding to projects in areas with varying cost

profiles, with greater geographic diversity, which will be informative to our consideration of the impact of

technology transitions in different parts of the country. Moreover, comparing the amounts bid to the

62 As discussed below, proposals in categories one and two may include locations in census blocks with costs above

the extremely high-cost threshold, although no additional support would be provided to serve these locations. See

infra para. 36.

63 See, e.g., USTelecom Mar. 31, 2014 Comments at 4-5 (arguing that rural broadband experiments should be

evaluated solely on cost-effectiveness); Comments of the Competitive Carriers Association, WC Docket No. 10-90,

at 7 (filed Mar. 31, 2014) (agreeing that cost-effectiveness should be primary); Atlantic Tele-Network Mar. 31, 2014

Comments at 3; FTTH Council Americas Mar. 31, 2014 Comments at 5; Comments of SPITwSPOTS, Inc, WC

Docket No. 10-90, at 4 (filed Mar. 31, 2014); NCTA Mar. 31, 2014 Comments at 8-9.

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model-determined support will enable us to test the use of the cost model for purposes of setting reserve

prices for future implementation of the Phase II competitive bidding process.

34.

Some commenters suggest that we should measure cost-effectiveness in relation to

broadband speeds.64 We conclude that the approach we adopt today, however – setting aside the largest

portion of our budget for those projects proposing to meet very high performance standards – is a more

straightforward method of encouraging the deployment of robust, scalable networks in areas that would

be eligible for Phase II support and testing the extent of interest in deploying such networks in these

areas. Directly including robustness as a selection criterion would increase the complexity of the

competitive bidding process by requiring the Commission to determine how much of a bidding credit

should be provided for proposals offering service at different speeds.

35.

For purposes of evaluating cost-effectiveness in comparison to the model, among

applicants in each of the first two experiment categories, we will calculate the ratio of requested support

per location to model-based support per location in the census blocks the applicant proposes to serve.

First, we will divide the total amount of support requested for each proposal by ten so we can compare

proposals to annual model-based support amounts. Then we will calculate each proposal’s requested

support per location and divide that number by the model-based support per location.65 Using these

ratios, we will rank the proposals from the lowest to highest in each category — where the lowest ratio

indicates the greatest cost-effectiveness — and select those projects with the lowest ratio within the $75

million budget for the first category of projects, and within the $15 million budget for the second category

of projects.66

36.

As discussed above, support recipients are required to offer the requisite service to the

total number of locations in the census blocks that they propose to serve, but may choose to add some

locations in adjacent census blocks with costs above the extremely high-cost threshold. We anticipate

that there may be areas in which a provider can cost-effectively provide service in extremely high-cost

census blocks that are adjacent to funded census blocks. To encourage entities to do so, we will permit

applicants that commit to serve locations in extremely high-cost census blocks (which receive no model-

based support) to add these locations to the calculation of their requested support per location for the

project.67 The effect of including these extremely high-cost locations would be to lower the support per

location of the project and improve the overall cost-effectiveness.68

64 See, e.g., BARC Mar. 31, 2014 Comments at 3; LREC Mar. 28, 2014 Comments at 3; UTC Mar. 31, 2014

Comments at 5-6.

65 Each proposal’s requested support per location will be determined by dividing the total request support by the

number of funded locations the entity proposes to serve, even if the proposal includes census blocks where the total

number of locations is greater than the number of funded locations. See supra para. 14.

66 In the event we do not exhaust the entire $75 million budget for the first category due to per project or per entity

funding limits, or insufficient amounts remaining in the budget to fund the next ranked project, we will not roll over

any unused funds to the second category. Similarly, we will not roll over any unused funding in the second category

to the third category.

67 See supra n.60 (limiting eligibility of extremely high-cost census blocks to those blocks where all locations are

extremely high-cost).

68 The cost per location will be lower if the project’s cost does not increase significantly to serve those locations

over the extremely high-cost threshold, and the requested support per location will be lower as well. For example,

assume the cost model estimates the annual support available to serve 100 funded locations is $10,000, i.e., $100 per

location per year. Bidder A proposes serving those 100 funded locations for $9,000, or $90 per location. This

scores a 0.9 (=$90/$100). Bidder B also proposes to serve the 100 funded locations but additionally will serve 10

extremely high-cost locations in an adjacent census block. Bidder B requests $9,000 to serve these 110 locations,

resulting in $80.18 per location, for a score of 0.818 (=$80.18/$100).

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37.

For purposes of evaluating proposals in category three, we will calculate the cost per

location, and rank these applications on a dollar requested per location basis, from lowest to highest. We

will select projects based on the lowest cost per location, until the budget is exhausted.69 Parties that

submit proposals for both category one or two along with a proposal for category three may identify their

category three proposal as contingent on their being a winning bidder for a category one or two proposal.

In that case, a party that would otherwise be selected in category three based on its cost-effectiveness

score, but that fails to win for a category one or two proposal, would not win; instead, the next most cost-

effective proposal in category three would be selected.

38.

No census block will receive support from more than one proposal. Accordingly, once a

proposal has been selected, any other proposals that would cover any of the census blocks in the selected

proposals will no longer be eligible. We do not anticipate that our evaluation criteria will result in ties

among winners, but if two or more applications result in identical rankings of cost-effectiveness, we will

select the project that proposes to serve the most locations if the budget would not permit funding all the

tied proposals. If more than one tied proposal includes the same census block, we would select the

project that proposes to serve the most locations. In the unlikely event that tied and overlapping proposals

serve the identical number of locations, we will select the supported project randomly.

2.

Measures to Ensure Diversity of Projects

39.

Given our interest in testing how a variety of entities use Connect America funds in

various geographic locations, and deploy different types of technologies, we find that it will be

advantageous to award support to a diverse group of projects within the $100 million budget.70 Below,

we adopt certain measures that aim to ensure that the projects funded through the rural broadband

experiments bring robust broadband networks to the widest range of price cap areas possible.

40.

Funding Limits. There has been a wide variety in the funding amounts requested by

interested entities.71 To preclude one entity or one project from exhausting the entire budget, we place

limits on the amount of funding that each project and each entity can receive. With these limits, we

balance our interest in permitting multiple projects and entities to receive funding, with our interest in

learning from projects that request varying levels of support. By adopting these per project and per entity

limits and deciding to award support based on cost-effectiveness compared to the model determined

support, we expect that the projects that ultimately win support will be geographically diverse.

41.

First, we adopt project limits for each experiment category we adopt above to ensure that

we award support to multiple projects within each category. We place a limit of $20 million per project

for those projects submitted to the very high performance standards category, a limit of $7.5 million per

project for those projects submitted to the minimum performance standards category, and a limit of $5

million per project for those projects submitted to the extremely high-cost areas category. We choose

these numbers to ensure that we are able to select at least two projects in each category, to provide greater

diversity.

69 The Commission sought comment on whether to limit the support available in areas where the average cost per

location is higher than the extremely-high-cost threshold to the amount per location equal to that the extremely high-

cost threshold. Tech Transitions NPRM, 29 FCC Rcd at 1502, para. 220. While we decline to adopt a hard cap for

purposes of these experiments, we reserve the right not to select any projects that significantly exceed that threshold.

70 See ACA Mar. 31, 2014 Comments, at 3-4 (suggesting that 25 experiments would be reasonable to administer and

“determine the value of new deployment models for robust, scalable broadband networks”); FTTH Council Mar. 31,

2014 Comments, at 4-5 (suggesting that 20 to 30 experiments are “reasonable to administer and will provide a

sufficient sample size to test a wide array of business models in areas reflecting a real diversity of geographic and

demographic characteristics”).

71 See Federal Communications Commission, Rural Broadband Experiments (updated as of Apr. 25, 2014),

http://www.fcc.gov/encyclopedia/rural-broadband-experiments.

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42.

Second, we adopt an overall limit of $20 million per entity, including its affiliates.72

Each entity and its affiliates will be precluded from being awarded more than $20 million in support

across all three experiment categories.73 This limit also applies in situations where an entity is in more

than one consortium.74

43.

Service to Tribal Lands. In the Tech Transitions FNPRM, we sought comment on

including as a selection criterion whether applicants propose to offer high-capacity connectivity to Tribal

lands.75 Rather than a separate selection criterion that we would have to measure against cost-

effectiveness, we now conclude that using a bidding credit is more consistent with the type of objective

selection criteria we are adopting for the experiments and the Commission’s precedent.76 This is

consistent with our Connect America Fund FNPRM, which sought comment on using bidding credits for

service to Tribal lands.77

44.

For the purposes of the rural broadband experiments, we adopt a 25-percent credit for

those seeking support for proposed experiments that serve only Tribal census blocks. The credit will

effectively reduce the bid amount of qualifying experiments by 25 percent for purpose of comparing it to

other bids, thus increasing the likelihood that experiments serving Tribal blocks will receive funding.

This credit will be available with respect to eligible census blocks located within the geographic area

defined by the boundaries of the Tribal land. As noted above, we direct the Bureau to release the list of

census blocks that will be eligible for this credit in the rural broadband experiments within 15 days of

releasing this Order.78 Because we are focused on swiftly implementing these experiments, we will not

entertain any proposals to modify this list.

3.

Mechanics of the Bidding Process

45.

To participate in the rural broadband experiments, entities must submit a formal

application to the Commission.79 The formal application must be submitted no later than 90 days from

72 An affiliate is defined as a person that (directly or indirectly) owns or controls, is owned or controlled by, or is

under common ownership or control with, another person. The term “own” means to own an equity interest (or the

equivalent thereof) of more than 10 percent. Person is defined to include an individual, partnership, association,

joint-stock company, trust, or corporation. 47 U.S.C. §§ 153(2), (39).

73 For example, if an entity is awarded $18 million in the very high performance standards category, that entity and

any of its affiliates would be precluded from winning support for another project that exceeds $2 million, regardless

of whether the second project was also submitted in the very high performance standards category, or was submitted

in category two or three.

74 For example, if an entity that is part of consortium A wins $15 million in support for its project because it is one

of the most cost-effective projects, and that entity is also part of consortium B (with an entirely different group of

entities than consortium A) that submitted a less cost-effective project that requests $10 million in support,

consortium B would be precluded from winning because otherwise the entity that is in both consortia would exceed

the $20 million limit.

75 Tech Transitions FNPRM, 29 FCC Rcd at 1501, para. 216.

76 See USF/ICC Transformation Order, 26 FCC Rcd at 17807, para. 430; Tribal Mobility Fund Phase I Auction

Rescheduled for Dec. 19, 2013; Notice and Filing Requirements and Other Procedures for Auction 902, AU Docket

No. 13-53, Public Notice, 28 FCC Rcd at 11628, 11664, paras. 115-19 (Wireless Tel. Bur. and Wireline Comp. Bur.

2013) (Tribal Mobility Fund Phase I Auction Procedures Public Notice).

77 Connect America Fund FNPRM, FCC 14-54, at para. 232.

78 See supra note 38.

79 We expect the Wireline Competition Bureau will implement a process for electronic submission of the formal

applications similar to what was used for the Mobility Fund auctions.

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the release of the Order.80 As part of this formal application, entities will be required to submit

confidential bids requesting a certain amount of support to serve specified census blocks. Additionally,

entities will be required to provide information regarding any agreements or joint bidding arrangements

with other parties, disclose any ownership interests in or by Commission-regulated companies, declare

whether their project will serve only Tribal census blocks, submit a proposal containing basic information

that would be informative to the general public and will be released publicly only if they win support, and

certify that they meet certain threshold requirements, including being in compliance with all the statutory

and regulatory requirements and being financially and technically capable of meeting the required public

interest obligations in each area they seek support.81

46.

We require all entities submitting proposals to utilize a FCC Registration Number (FRN)

to ensure that each application has a unique identifier. Any entity that currently does not have a FRN

must first register with the Commission’s “Commission Registration System” (CORES), upon which it

will be assigned a FRN. In the case of multiple entities forming a partnership to submit a single bid, we

require only one entity in the partnership to be registered with a FRN.

47.

Entities must specify the type of project for which they are submitting a proposal (i.e.,

very high performance, minimum performance, or extremely high-cost). Entities may choose to submit

multiple proposals in the same category, as well as different proposals in multiple categories. However,

in determining who is the winning bidder for funding in each category, proposals will only be compared

to proposals in the same category, i.e., a proposal to serve census blocks with very high performance

service will only be compared against other proposals in that category if the applicant chose not to submit

the proposal in another category. Proposals that do not meet the criteria for selection in one category will

not be automatically considered in another group. For example, if an entity proposes to serve certain

census blocks with very high performance service, but is not a winning bidder for funding in that

category, that project will not be considered for funding in the minimum performance category, even if it

might be a winning bidder for that category.

48.

Entities must provide the census block IDs for each census block they propose to serve,

the number of eligible locations determined by the model in each of those blocks, and the total amount of

support they request.82 We note that, even if an entity is proposing to serve the entire census tract, it must

list the IDs of all the census blocks within that tract. As noted above, the Bureau will release the list of

eligible census blocks, the associated number of locations eligible for funding in each block, and the

associated amount of support by block. The amount of funding made available for any experiment will

not exceed the amount of model-calculated support for the given geographic area.83 Applications with a

total request for funding that exceeds the model-based support calculation will not be considered.

Therefore, we expect entities to consult the list released by the Bureau to ensure that bids on any group of

census blocks do not exceed the amount of support calculated by the model to serve those census blocks.

80 The contents of the formal application are subject to approval by the Office of Management and Budget under the

Paperwork Reduction Act (PRA). We delegate authority to the Bureau to adjust this deadline as necessary to be

consistent with the timing of PRA requirements.

81 Any entity proposing to serve Tribal land areas must demonstrate they have meaningfully engaged the Tribal

government(s) in the areas they plan to serve. See, e.g., USF/ICC Transformation Order, 26 FCC Rcd at 17822-24,

17858, 17868-69, at paras. 489-92, 604, 636-37 (adopting and describing the Tribal Engagement Obligation).

82 As discussed above, entities may include in their proposals locations within extremely high-cost census blocks if

they determine it is economically feasible to serve these locations with the amount of support requested. See supra

para. 36. These entities must also include the census block IDs of those extremely high-cost census blocks, as well

as the number of locations they are proposing to serve. We remind entities that the support requested must not

exceed the model-determined support for the funded census blocks they are also proposing to serve, even if they

choose to serve locations in extremely high-cost census blocks.

83 Tech Transitions FNPRM, 29 FCC Rcd at 1502, para. 220.

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49.

The formal proposal should include background information on the applicant and its

qualifications to provide voice and broadband service; a description of the proposed project, service area,

planned voice and broadband service offerings, and technology to be used; and the number of locations,

including community anchor institutions, within the project area.84

As we noted in the Tech Transitions

Order, rural areas are home to a higher proportion of low-income Americans.85 We seek to learn how

providers intend to serve low-income consumers if they receive rural broadband experiment support.

Thus, the formal proposal should include a description of what Lifeline services the applicant intends to

offer if awarded support,86 whether it will have a broadband offering for low-income consumers,87 and

whether it will permit qualifying consumers to apply the Lifeline discount to bundled voice and data

services.88

50.

The information in the formal proposal will not be used to select winning bidders; as

discussed above, winning bidders will be selected solely on their numerical score. All bids for the rural

broadband experiments will be considered confidential, and bidders should not disclose their bids to other

bidders. However, once the Bureau has issued a public notice listing the winning bidders, the winning

bidders’ proposals will be released to the public. We conclude that making the winning bidders’

proposals public will provide an increased level of transparency and enable parties outside the process to

hold winning bidders publicly accountable for not fulfilling the requirements of the experiments.

However, all other proposals will remain confidential, pending the completion of the Phase II competitive

bidding process, in order to prevent these proposals from affecting a potential bidder’s behavior in the

Phase II competitive bidding process.

4.

Post-Selection Review

51.

The Wireline Competition Bureau (Bureau) will issue a public notice identifying the

winning bidders, as specified above, that may be authorized to receive support and the list of census

blocks included in their proposed projects, which are presumptively unserved by an unsubsidized

competitor. As the Commission determined in the Tech Transitions Order, the Bureau then will conduct

a challenge process similar to the process it used for determining eligible areas for model-based support.89

To the extent that a challenge is granted in whole or in part, funding for those locations will be adjusted

proportionately.90

84 In the Connect America Fund FNPRM, we sought comment on whether we should exclude from the offer of

model-based support areas in which we receive well-developed formal proposals. Connect America Fund FNPRM,

FCC 14-54, at paras. 220-23. We do not prejudge here whether we may adopt such an approach.

85 Tech Transitions Order, 29 FCC Rcd at 1464, para. 88.

86 We note that all ETCs are required to offer Lifeline services to qualifying low income consumers throughout their

designated service areas. 47 C.F.R. § 54.405.

87 In the Tech Transitions FNPRM, we sought comment on requiring recipients of the rural broadband experiments

to offer discounted broadband services to low-income customers. Tech Transitions FNPRM, 29 FCC Rcd at 1503,

para. 222. Recipients of support should offer a discounted broadband plan to low-income households, but we

decline to mandate specific requirements for such plans. Rather, the experiments will be an additional learning

opportunity to gather more information about the types of low-cost broadband offerings that providers receiving

support to extend broadband are willing to offer to low-income households.

88 See 47 C.F.R. 54.401(b) (permitting ETCs to allow qualifying consumers to apply the Lifeline discount to voice

and data bundles).

89 See Tech Transitions Order, 29 FCC Rcd at 1473, para. 113. The Commission reasoned that it would not be

efficient to conduct a challenge to the eligibility of census blocks within a census tract when formal proposals are

initially, which could place a burden on outside parties and Commission staff. Id.

90 For example, if a challenger establishes that one census block in a project actually is served and that census block

would be eligible for one tenth of the total model-based support for the proposed areas, the requested support would

be reduced by one tenth.

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52.

Technical and Financial Review. The Bureau will determine whether each selected

applicant has demonstrated that it has the technical and financial qualifications to successfully complete

the proposed project within the required timeframes and is in compliance with all statutory and regulatory

requirements for the universal service support that the applicant seeks. Commission staff will perform a

review to ensure that the selected applicants meet our expectations for technical and financial capability

to conduct an experiment before any support is provided.

53.

The Commission has recognized network security as an imperative in technology

transitions.91 For broadband networks across the nation to be considered advanced, robust, and scalable,

they must also be secure and resilient in the face of rapidly evolving cybersecurity threats. Here, we seek

to promote the sustainability of rural broadband through early planning to incorporate effective

cybersecurity risk management measures. We commit to support entities selected for these rural

broadband experiments with training resources and guidance to that end. Incorporating adequate security

early in the design and throughout the deployment of broadband networks is more effective than

addressing security problems retrospectively, and ultimately lowers costs by hardening networks against

preventable outages and catastrophic failures that could threaten the viability of smaller and/or new

market entrants in rural broadband.92 Small providers in diverse service areas play a key role because any

point of weakness in today’s interconnected broadband ecosystem may introduce risk into the entire

network of interconnected service providers. Security improvements reduce risk to all interconnected

service providers, their customers and the nation as a whole. The support that the Commission commits

in this Order to provide to selected applicants is limited to sharing information and resources regarding

cybersecurity risk management measures that the selected applicants may find beneficial as they plan

their deployments. No applicant will be required to make changes to its network design or infrastructure

based on such measures, nor will any applicant be rejected for not addressing cyber risk management best

practices in its proposal. The Commission’s engagement with selected entities should help inform

CSRIC’s ongoing efforts to remove cybersecurity barriers for small companies competing in the

broadband services market, but the Commission will not share any applicant’s proprietary or sensitive

information related to cybersecurity, or any cybersecurity information that would identify the applicant,

with CSRIC or other companies or government agencies.93

54.

Within 10 business days of public notice of winning bidders, we require all winning

bidders to provide the most recent three consecutive years of audited financial statements, including

balance sheets, net income, and cash flow, and to submit a description of the technology and system

design used to deliver voice and broadband service, including a network diagram, which must be certified

by a professional engineer. Winning bidders proposing to use wireless technologies also must provide a

description of spectrum access in the areas for which the applicant seeks support. Within 60 days of

public notice of winning bidders, we require all winning bidders to submit a letter from an acceptable

bank committing to issue an irrevocable stand-by original letter of credit (LOC) to that entity.94 Finally,

each selected applicant is required to provide within 90 days of public notice of winning bidders

91 See Tech Transitions Order, 29 FCC Rcd at 1448, para. 43 (observing that “[n]etwork security must be

maintained in experiments and as technologies evolve”).

92 The Commission has a history of working collaboratively with providers of all sizes to encourage the

development and implication of sound cybersecurity practices, most notably through multi-stakeholder bodies such

as the Communications Security, Reliability and Interoperability Council (CSRIC) and the Technological Advisory

Council (TAC), and also was a key participant in the development of the Framework for Improving Critical

Infrastructure Cybersecurity related by the National Institute of Standards and Technology in February 2014.

93 This would not preclude the Commission from sharing information, however, as required for law enforcement or

national security purposes or otherwise required by Federal law.

94 The commitment letter will at a minimum provide the dollar amount of the LOC and the issuing bank’s agreement

to follow the terms and conditions of the Commission’s model LOC, found in Appendix A. The requirements that a

bank must meet to be deemed acceptable are described below.

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appropriate documentation of its ETC designation in all the areas for which it will receive support and

certify that the information submitted is accurate.95 Once the Bureau has determined that the entity is

financially and technically qualified to receive experiment support and that the LOC commitment letter is

sufficient, it will release a public notice stating that the entity is ready to be authorized for support.

Within 10 business days of this public notice, we require that the winning bidder submit an irrevocable

stand-by original LOC that has been issued and signed by the issuing bank along with the opinion letter

from legal counsel that we describe below. Once the Universal Service Administrative Company

(USAC) has verified the sufficiency of the LOC and the opinion letter, the Bureau will issue a public

notice authorizing the entity to receive its first disbursement.

55.

Requirements for Letters of Credit. We require a winning bidder to secure an irrevocable

stand-by original LOC for its winning project before support will be disbursed.96 Our decision to require

entities to obtain a LOC is consistent with the requirements we have adopted for other competitive

bidding processes we have conducted to distribute Connect America funds, where both existing providers

and new entrants were required to obtain LOCs.97 The LOC must be issued in substantially the same

form as set forth in the model LOC provided in Appendix A of this Order, by a bank that is acceptable to

the Commission.98 As explained below, if an entity fails to meet the terms and conditions of the rural

broadband experiments after it begins receiving support, including the build-out milestones and

performance obligations we adopt in this Order, and fails to cure within the requisite time period,99 the

Bureau will issue a letter evidencing the failure and declaring a default, which letter, when attached by

USAC to a LOC draw certificate, shall be sufficient for a draw on the LOC to recover all support that has

been disbursed to the entity.100

Once the recipient’s support term has ended, the LOC must remain open

and renewed to secure the amount of support disbursed for 120 days to allow time to validate that the

rural broadband experiment recipients have met the experiment’s public service obligations and build-out

milestones.

56.

As the Commission found when it established Mobility Fund Phase I,101 LOCs are an

effective means of securing our financial commitment to provide Connect America support. LOCs permit

the Commission to protect the integrity of universal service funds that have been disbursed and

immediately reclaim support that has been provided in the event that the recipient is not using those funds

in accordance with the Commission’s rules and requirements to further the objectives of universal service.

Moreover, LOCs have the added advantage of minimizing the possibility that the support becomes

property of a recipient’s bankruptcy estate for an extended period of time, thereby preventing the funds

95 As discussed above, a winning bidder may file a petition for waiver for this 90-day deadline pursuant to section

1.3 of the Commission’s rules if it believes that it will be unable to obtain an ETC designation within this 90-day

timeframe due to circumstances outside its control. See supra Section III.C.2. See also 47 C.F.R. § 1.3. We

delegate authority to the Wireline Competition Bureau to act on any such waivers.

96 The Commission sought comment on requiring all recipients of Connect America Fund support to post financial

security as a condition of receiving support from the Fund, specifically an irrevocable stand-by LOC. USF/ICC

Transformation Order, 26 FCC Rcd at 18066-68, paras. 1103-16.

97 See USF/ICC Transformation Order, 26 FCC Rcd at 17810-12, paras. 444-51; Tribal Mobility Fund Phase I

Auction Procedures Public Notice, 28 FCC Rcd at 11680, para. 187.

98 See infra Appendix A. The rules we adopt today provide specific requirements for a bank to be acceptable to the

Commission to issue the LOC. Those requirements vary for U.S. banks and non-U.S. banks.

99 See infra Sections III.E.1. See also supra Section III.C.3;

100 See infra Section III.F. While such letter may not foreclose an appeal or challenge by the recipient, it will not

prevent a draw on the LOC.

101 USF/ICC Transformation Order, 26 FCC Rcd at 17810-12, para. 444-51.

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from being used promptly to accomplish our goals.102 These concerns are relevant to both new entrants

and established providers.

57.

While our existing accountability measures help ensure that Connect America funds are

being used to deploy or sustain broadband and voice-capable networks,103 we conclude that additional

measures are necessary to protect the ability of the Commission to recover support from parties that fail to

perform. The Commission required winners of the Mobility Fund Phase I and Tribal Mobility Phase I

auctions to obtain LOCs, and we see no reason to depart from this practice for the rural broadband

experiments.104 We continue to view them as beneficial and our experience has shown that winning

bidders are able to obtain LOCs.

58.

LOC Opinion Letter. Consistent with our requirements for Mobility Fund Phase I and

Tribal Mobility Fund Phase I, winning bidders must also submit with their LOCs an opinion letter from

legal counsel.105 That opinion letter must clearly state, subject only to customary assumptions,

limitations, and qualifications, that in a proceeding under the Bankruptcy Code, the bankruptcy court

would not treat the LOC or proceeds of the LOC as property of the account party’s bankruptcy estate, or

the bankruptcy estate of any other rural broadband experiment recipient-related entity requesting issuance

of the LOC under section 541 of the Bankruptcy Code.106

59.

Issuing Bank Eligibility. The LOCs for winning bidders must be obtained from a

domestic or foreign bank meeting the requirements adopted here for purposes of the rural broadband

experiments. The criteria we adopt are largely the same as the requirements the Commission adopted for

Mobility Fund Phase I and Tribal Mobility Fund Phase I, although we adopt several modifications to

102 As the Commission noted in the USF/ICC Transformation Order, in a proper draw upon a LOC, the issuer

honors a draft under the LOC from its own assets and not from the assets of the debtor who caused the LOC to be

issued. Thus, absent extreme circumstances such as fraud, neither the LOC nor the funds drawn down under it are

subject to the automatic stay provided by the Bankruptcy Code. See id. at 17812, para. 450 (citing 11 U.S.C. § 541

and Kellog v. Blue Quail Energy, Inc., 831 F.2d 586, 589 (5th Cir. 1987)).

103 When the Commission proposed requiring LOCs for Connect America recipients generally, a number of

commenters suggested that the Commission already has adequate safeguards in place by requiring carriers to receive

ETC designation, requiring carriers to meet reporting obligations, or through our general forfeiture powers. See,

e.g., Comments of Adtran, Inc., WC Docket No. 10-90 et al., at 18 (filed Jan. 18, 2012) (Adtran Jan. 18, 2012

Comments); Comments of ITTA, WC Docket No. 10-90 et al., at 11-13 (filed Jan. 18,2012) (ITTA Jan. 18, 2012

Comments); Reply Comments of GVNW Consulting, Inc., WC Docket No. 10-90 et al., at 7 (filed Feb. 17, 2012).

None of these measures, however, guarantee that the Commission will be able to recover past support disbursements

from a defaulting recipient. Other commenters encouraged the Commission to adopt alternative methods of

securing Connect America funds, such as performance bonds, field inspections, or denials of certification. See, e.g.,

Comments of the Satellite Broadband Providers, WC Docket No. 10-90 et al., at 18 (filed Jan. 18, 2012); Comments

of the Wireless Internet Service Providers Association, WC Docket No. 10-90 et al., at 15 (filed Jan. 18, 2012);

Comments of AT&T, WC Docket No. 10-90 et al., at 31 n.46 (filed Jan. 18, 2012) (AT&T Jan. 18, 2012

Comments); Comments of Alaska Communications Systems Group, Inc., WC Docket No. 10-90 et al., at 14 (filed

Jan. 18, 2012); Comments of the Indiana Utility Regulatory Commission, WC Docket No. 10-90 et al., at 7 (filed

Jan. 18, 2012) (IURC Jan. 18, 2012 Comments). Based on our experience to date, we conclude that requiring LOCs

is an effective means of protecting the government’s interests.

104 USF/ICC Transformation Order, 26 FCC Rcd at 17810-12, paras. 443-51; Tribal Mobility Fund Phase I Auction

Procedures Public Notice, 28 FCC Rcd at 11681-82, paras. 188-91.

105 See 47 C.F.R. § 54.1007(b). See also Mobility Fund Phase I Auction Scheduled for Sept. 27, 2012; Notice and

Filing Requirements and Other Procedures for Auction 901, AU Docket No. 12-25, Public Notice 27 FCC Rcd

4725, 4771, para. 171 (Wireless Tel. Bur. and Wireline Comp. Bur. 2012) (Mobility Fund Phase I Auction

Procedures Public Notice); Tribal Mobility Fund Phase I Auction Procedures Public Notice, 28 FCC Rcd at 11680,

para. 189.

106 11 U.S.C. § 541.

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enlarge the potential pool of eligible banks for purposes of these experiments.

First, we require that for

U.S. banks, the bank must be among the 100 largest banks in the U.S. (determined on the basis of total

assets as of the end of the calendar year immediately preceding the issuance of the LOC) and must be

insured by the Federal Deposit Insurance Corporation (FDIC) and for non-U.S. banks, the bank must be

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 LOC, determined on a U.S. dollar

equivalent basis as of such date). We expand the pool of eligible banks from the top 50 to the top 100

banks for purposes of these rural broadband experiments because we expect the projects to be small in

scale,107 and thus drawing on the LOC is unlikely to exhaust the assets of any bank in the top 100. We

have also seen through our experience with Mobility Fund Phase I and Tribal Mobility Fund Phase I that

entities have used a number of banks. Because we expect that a number of smaller entities will be

winning bidders and may not have established relationships with some of the largest banks, for purposes

of these experiments we find that it is beneficial to increase the number of options from which they can

choose. We also require that the selected U.S. bank have a credit rating issued by Standard & Poor’s of

BBB- or better (or the equivalent from a nationally recognized credit rating agency). For non-U.S. banks,

we require that the bank has a branch in the District of Columbia or other agreed-upon location in the

United States, has a long-term unsecured credit rating issued by a widely-recognized credit rating agency

that is equivalent to an BBB- or better rating by Standard & Poor’s, and that it issues the LOC payable in

United States dollars. By allowing banks to have a BBB- rating instead of an A- rating, we will enlarge

the pool of eligible issuing banks, without significantly increasing risk to the universal service fund.

60.

To provide more flexibility, we also conclude that winning bidders for the rural

broadband experiments may obtain a LOC from agricultural credit banks in the United States that serve

rural utilities and are members of the United States Farm Credit System (which is modeled after the

FDIC). We find that Farm Credit System Insurance Corporation (FCSIC) insurance provides protection

that is equivalent to those indicated by holding FDIC-insured deposits.108 Thus, the agricultural credit

bank must have its deposits insured by the FCSIC. The agricultural credit bank must also meet the other

requirements that we have adopted for U.S. banks, including that they have 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), and that their total assets are equal to or exceed the total assets of any of

the 100 largest United States banks.109 This will permit rural broadband experiment recipients to obtain

LOCs from, for example, CoBank, a bank with which many small rural carriers have a relationship.110

61.

If a recipient has been issued a LOC from a bank that is no longer able to honor the letter

of credit at any point during its support term, that recipient will have 60 days to secure a LOC from

another issuing bank that meets our eligibility requirements. We also reserve the right to temporarily

cease disbursements of monthly support until the recipient submits to us a new LOC that meets our

requirements.

62.

Value of LOC. When a winning bidder first obtains a LOC, it must be equal to the

amount of the first disbursement. Before the winning bidder can receive additional disbursements, it must

modify or renew its LOC to ensure that it is valued at the total amount of money that has already been

107 See supra Section III.D.2.

108 The Wireless Telecommunications Bureau reached a similar conclusion in the context of Mobility Fund Phase I.

Mobility Fund Phase I, et al., WC Docket No. 10-90, Order, 27 FCC Rcd 13457, 13461, para. 10 (Wireless Tel. Bur.

2012) (CoBank Waiver Order).

109 This determination will be made on the basis of total assets as of the end of the calendar year immediately

preceding the issuance of the LOC.

110 The Wireless Telecommunications Bureau granted waiver of the bank eligibility requirements for Mobility Fund

Phase I and permitted carriers to obtain LOCs from CoBank. See CoBank Waiver Order. CoBank was initially

excluded from eligibility because it was not FDIC-insured. Id.

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disbursed plus the amount of money that is going to be provided for the next disbursement.

To reduce

administrative costs, a recipient may choose to renew its LOC on an annual rather than monthly basis so

that it is valued at the amount of money to be disbursed in the coming year plus the total disbursements it

has received so far.

63.

Procedure for Drawing on LOC. As described below, the Bureau will notify an entity

that it has failed to comply with the terms and conditions of the rural broadband experiments, including

public interest obligations and build-out milestones, and will provide an opportunity for cure before

issuing a finding of default. Once the Bureau has determined that the entity has defaulted, the Bureau

Chief will send a letter to the entity to notify it of the default. USAC will then issue the form letter

attached as Appendix A of this Order to the issuing bank with the Bureau Chief’s letter attached, initiating

the draw on the LOC.

64.

Costs of Obtaining LOCs. Now that we have experience with LOCs in the Mobility Fund

Phase I and Tribal Mobility Fund Phase I auction, we are confident that winning bidders will be able to

secure LOCs. We note that no winning bidders defaulted in Mobility Fund Phase I and Tribal Mobility

Fund Phase I auctions because they were unable to secure a LOC. We recognize that banks charge fees

for obtaining LOCs and also may charge renewal fees. But we find that the advantages of LOCs in

ensuring that Connect America support can quickly be reclaimed to protect the Universal Service Fund,

and that the support is protected from being included in a bankruptcy estate, outweigh the potential costs

of LOCs for the winning bidders.111 And as the Commission noted in the USF/ICC Transformation

Order, LOCs are regularly used in the course of business, and companies that use existing lenders are

able to use multiple forms of financing.112 Moreover, requiring that winning bidders obtain LOCs that

only secure the sum of money that has been (and soon will be) disbursed will help alleviate the cost of the

LOCs. We also note that applicants can factor in the costs of LOCs when submitting their bids.

65.

Applicability to All Winning Bidders. Our paramount objective is to establish strong

safeguards to protect against misuse of the Connect America Fund.113 We conclude that requiring all

entities to obtain a LOC is a necessary measure to ensure that we can recover support from any recipient

that cannot meet the build-out obligations and public service obligations of the rural broadband

experiments. We also agree with those commenters that argue that requiring all recipients to obtain a

111 In response to the USF/ICC Transformation FNPRM, a number of commenters suggested that imposing a LOC

requirement on Connect America recipients could be costly and may deter parties from seeking Connect America

funding. See, e.g., IURC Jan. 18, 2012 Comments at 7; ITTA Jan. 18, 2012 Comments at 11; Frontier Jan. 18, 2012

Comments at 12; Reply Comments of AT&T, WC Docket No. 10-90 et al., at 12 (filed Feb. 17, 2012); Comments of

the National Exchange Carrier Association, Inc., National Telecommunications Cooperative Association,

Organization for the Promotion and Advancement of Small Telecommunications Companies, and the Western

Telecommunications Alliance, WC Docket 10-90 et al., at 43-44 (filed Jan. 18, 2012) (The Rural Associations Jan.

18, 2012 Comments). Some commenters also claimed that banks may require carriers to keep the value of the LOC

on deposit with the bank for the time that the LOC is open, and that having open LOCs affect debt ratings and

constrain recipients’ borrowing capacity. See, e.g., Adtran Jan. 18, 2012 Comments at 16; ITTA Jan. 18, 2012

Comments at 11; Comments of the United States Telecom Association, WC Docket No. 10-90 et al., at 22 (filed Jan.

18, 2012); Comments of United States Cellular Corporation, WC Docket No. 10-90 et al., at 50-51 (filed Jan. 18,

2012) (US Cellular Jan. 18, 2012 Comments); Reply Comments of the National Exchange Carrier Association, Inc.,

National Telecommunications Cooperative Association, Organization for the Promotion and Advancement of Small

Telecommunications Companies, and the Western Telecommunications Alliance, WC Docket No. 10-90, at 51-52

(filed Feb. 17, 2012).

112 USF/ICC Transformation Order, 26 FCC Rcd at 17811, para. 446.

113 See The National Association of State Utility Consumer Advocates, Maine Office of the Public Advocate, the

New Jersey Division of Rate Counsel, and the Utility Reform Network, WC Docket No. 10-90 et al., at 59-60 (filed

Jan. 18, 2012) (NASUCA et al. Jan. 18, 2012 Comments).

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LOC will ensure that all recipients are subject to the same default process if they do not comply with the

experiments’ terms and conditions.114

66.

We are not persuaded by arguments that we should only require certain entities to obtain

LOCs, particularly recipients that have not met the Commission’s rules in the past or cannot meet a

specified financial threshold.115 Compliance with existing universal service rules has no bearing on

whether an entity necessarily is financially qualified to undertake the obligations of the rural broadband

experiments. Moreover, it is possible that some of the winning bidders for the rural broadband

experiments may not have participated in Commission programs before. We find that a LOC provides the

safeguard of allowing the Commission to immediately take back support if it turns out that the recipient

fails to meet the requirements. The requirement will also impress upon all entities participating in the

experiments the significant undertaking to which they are committing.

67.

Tribal Nations and Tribally-Owned Applicants. Based on our experience in

implementing LOCs for Mobility Fund Phase I and Tribal Mobility Fund Phase I, we recognize there may

be a need for greater flexibility regarding LOCs for Tribally-owned or -controlled winning bidders. In

many situations, requiring a LOC from Tribally-owned entities may be impractical because Tribal

Nations are subject to various somewhat unique economic challenges, including the inability to levy

income taxes on their citizenry and to collateralize their lands.116 When title to Tribal lands is vested in

the United States or such lands are subject to trust restrictions against encumbrances, Tribal Nations are

not in a position to provide them as collateral for such a letter of credit.117

We find that such situations

with respect to Tribal Nations are best handled on a case-by-case basis through the waiver process.118

68.

If any Tribal Nation or Tribally-owned or -controlled applicant for the rural broadband

experiments is unable to obtain a LOC, it may file a petition for a waiver of the LOC requirement.

Waiver applicants must show that the Tribal Nation is unable to obtain a LOC because of limitations on

the ability to collateralize its real estate, that rural broadband experiment support will be used for its

intended purposes, and that the funding will be used in the best interests of the Tribal Nation and will not

be wasted. Tribal applicants could establish this showing by providing, for example, a clean audit, a

business plan including financials, provision of financial and accounting data for review (under protective

order, if requested), or other means to assure the Commission that the rural broadband experiment is a

viable project. Given the number of expressions of interest filed by Tribally-owned or -controlled entities

to serve areas within price cap territories, we conclude that it will be manageable to address this situation

on a waiver basis if such entities become winning bidders.

69.

Due Process Concerns. By virtue of entering into a LOC, the recipient has notice that the

Bureau may choose to draw on the LOC if it finds that the recipient has defaulted on its rural broadband

experiment obligations or it fails to timely replace an expiring LOC. Because the experiments are purely

114 See, e.g., US Cellular Jan. 18, 2012 Comments at 51 (urging the Commission, if it chooses to adopt a LOCs

requirement, to apply the requirement “in a uniform manner, so that all funding recipients face the same

consequences in the event of non-compliance”). See infra Section III.F.

115 See, e.g., ARC Mar. 31, 2014 Comments at 16; AT&T Jan. 18, 2012 Comments at 30-31; Frontier Jan. 18, 2012

Comments at 11-12; CenturyLink Jan. 18, 2012 Comments at 11.

116 We note that Standing Rock Telecommunications, Inc., a Tribally-owned entity, was able to obtain a LOC for the

Mobility Fund Phase I auction after receiving a four week extension to obtain a bank commitment letter. Standing

Rock Telecommunications, Inc. Request for Limited Extension of Time to Submit Bank Commitment Letter for

Mobility Fund Phase I Support, Order, 28 FCC Rcd 12853 (Wireless Tel. Bur. 2013).

117 Navajo Nation Telecommunications Regulatory Commission, WC Docket No. 10-90 et al., at 8 n.22 (filed Mar.

31, 2014) (stating that Tribally-owned entities have difficulty obtaining financing instruments “because they are

unable to provide collateral, since so many Tribal assets are held in trust by the federal government”).

118 47 C.F.R. § 1.3.

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voluntary, participants that find that these terms and conditions are too burdensome can choose not to

participate. By filing an application to be authorized for support with the Commission, an applicant

knowingly accepts that the Bureau can exercise its right to recover distributed support by drawing on the

LOC in the event of non-compliance. We also adopt a process whereby recipients will have the

opportunity for cure if they later come into compliance with the terms and conditions of the rural

broadband experiments.119

70.

Instead of having to bring a legal action against the recipient if the rural broadband

experiment obligations are not met after the time for cure has passed, the LOC allows the Bureau

immediately to reclaim the support. A LOC merely shifts the risk associated with non-compliance from

the Commission to the recipient. To the extent that recipients believe that the Bureau has unnecessarily

drawn on their LOC, they will have the opportunity to take recourse through the regular Commission

review process.

71.

Moreover, we are not persuaded that LOCs raise due process concerns.120 For a LOC,

USAC must present the proper draw documentation to the issuing bank demonstrating, inter alia, that the

terms and conditions of the rural broadband experiments have not been met. The issuing bank will then

provide USAC with a sum of money equal to the value of the LOC. As we discuss above, the Bureau will

release a letter finding default before USAC draws on the LOC. Providing for a lengthy process that

would permit recipients to dispute the Bureau’s findings of default prior to seeking recovery would

unnecessarily hold up the process of recovering support disbursed for these rural broadband experiments.

E.

Conditions for Rural Broadband Experiment Support

72.

In the Tech Transitions Order the Commission stated that funding for the rural broadband

experiments will be “subject to the applicable requirements of sections 214 and 254 of the Act and will be

conditioned on complying with all relevant universal service rules that the Commission has adopted or

may adopt in the future in relevant rulemaking proceedings . . . .”121

The Commission also sought

comment on whether it should adopt any rules or requirements specific to the rural broadband

experiments.122 Here, we adopt several conditions that winning bidders must meet to receive rural

broadband experiment support. The conditions we adopt for the purposes of these limited experiments

are tailored for ensuring that experiment funds are used for their intended purpose of deploying robust

networks to high-cost areas; detecting waste, fraud, and abuse; and permitting us to quickly gather data

and other information about the experiments that we can leverage when making key policy decisions

regarding both universal service and technology transitions.

119 See NASUCA et al. Jan. 18, 2012 Comments at 60 (stating that they did not oppose the Commission giving

recipients the opportunity to cure deficiencies).

120 Comments of the Blooston Rural Broadband Carriers, WC Docket 10-90 et al., at 11-12 (filed Jan. 18, 2012); The

Rural Associations Jan. 18, 2012 Comments at 44-45.

121 Tech Transitions Order, 29 FCC Rcd at 1477, para. 128. The Commission noted that such relevant universal

service rules included but were not limited to “ETC requirements to the extent that they apply to recipients of high-

cost and Lifeline support, reporting requirements, audits, and enforcement mechanisms for non-compliance with

rules.” Id. Similarly, all Connect America recipients, including participants in the rural broadband experiments, are

required to demonstrate on an annual basis that they have meaningfully engaged Tribal governments in their

supported areas. See USF/ICC Transformation Order, 26 FCC Rcd at 17868, para. 637; 47 C.F.R. § 54.313(a)(9).

Moreover, all recipients of Connect America support, including participants in the rural broadband experiments, and

are expected to engage with community anchor institutions in the network planning stages and are required to report

on the community anchor institutions that newly gain access to fixed broadband service in their project areas.

USF/ICC Transformation Order, 26 FCC Rcd at 17700-01, para. 102; 47 C.F.R. §§ 54.313(e)(3)(ii), (f)(1)(ii). See

also infra Section III.E.2.

122 Tech Transitions FNPRM, 29 FCC Rcd at 1503, para. 222.

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1.

Build-Out Requirements

73.

We require winning bidders to meet certain build-out requirements during their support

term. Consistent with the build-out requirements we have already adopted for the Connect America

Fund,123 we find that establishing clearly defined build-out requirements will ensure that recipients remain

on track to meet their public service obligations and that Connect America funds are being used to deploy

robust networks consistent with their intended purpose.

74.

Build-Out Requirements for all Recipients. As we discuss above, all recipients of rural

broadband support will receive support in 120 equal monthly disbursements over a 10-year support term,

consistent with the support term we have adopted for the Phase II competitive bidding process.124 The

support term will begin with the first disbursement of support after the entities have been notified that

they are the winning bidders and that they have met the requirements outlined above.125 During this

support term, the recipients will be required to meet interim build-out requirements consistent with the

build-out requirements we have adopted generally for recipients of Connect America Phase II funding.126

By the end of the third year, the recipients must offer service meeting the public service obligations we

adopted for the relevant experiment category to at least 85 percent of the number of required locations

and submit the required certifications and evidence. By the end of the fifth year, the recipients must offer

service meeting the public service obligations we adopted for the relevant experiment category to 100

percent of the number of required locations and submit the required certifications and evidence.

Recipients must comply with the terms and conditions of rural broadband experiment support for the full

10-year support term.

75.

Accelerated Disbursement Option. Although we adopt the above build-out requirements

for recipients of the rural broadband experiments to conform to our existing requirements for Phase II,

based on our review of the expressions of interest, it appears that some entities may be in a position to

complete deployment in the 18 to 24 month timeframe. To provide an additional incentive for parties to

build out their projects quickly so that we can learn from these deployments and leverage that knowledge

when making policy decisions regarding technology transitions,127 we also provide the option of

accelerating disbursement of support for winning bidders in the experiments for those entities that commit

to deploying to at least 25 percent of the requisite number of locations within the first 15 months. Entities

will be required to indicate whether they are electing this option when they submit their application. If

parties elect this option, we will advance 30 percent of their support upfront, at the time they are first

authorized to receive funding; the remaining 70 percent will be provided in 120 equal monthly

installments over the 10-year term. Parties that elect this option will be required to obtain a LOC for the

30 percent advance payment before funding is authorized. To ensure that these funds are being used in

accordance with the objectives of the rural broadband experiments, we require that recipients choosing

this option deploy to 25 percent of the number of required locations and submit the required certifications

and evidence within 15 months of their first disbursement of support. These recipients then must meet

the same build-out obligations that are required of all recipients of rural broadband experiment support

(i.e., 85 percent of locations within three years and 100 percent of locations within five years).

123 USF/ICC Transformation Order, 26 FCC Rcd at 17701, para. 103.

124 Connect America Fund Order, FCC 14-54, at paras. 34-36.

125 See supra Section III.D.4.

126 47 C.F.R. § 54.310(c).

127 ACA Mar. 31, 2014 Comments at 3-4; Letter from Thomas W. Cohen, Counsel for Fiber to the Home Council

Americas, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 10-90, at 1

(filed May 29, 2014).

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2.

Accountability Requirements

76.

In the Tech Transitions Order, the Commission noted that rural broadband experiment

support will be conditioned on complying with all relevant universal service fund rules including

reporting requirements and audits.128 Here, we provide more details regarding the framework for

accountability that we adopt for recipients of the rural broadband experiments. The reports, certifications,

and other accountability measures we adopt serve a dual purpose. First, a framework for accountability

“is critical to ensure appropriate use of high-cost support” and allows us to detect and deter waste, fraud,

and abuse.129 Second, the framework we adopt below will permit us to quickly gather data about how the

experiment funds are being put to use, which will inform policy decisions we ultimately make for Phase II

and our other universal service programs.

77.

Annual Reports. All recipients of Connect America support are required to file an annual

report pursuant to section 54.313 of the Commission’s rules by July 1st of each year.130 This requirement

also applies to recipients of support in the rural broadband experiments. We find there is good cause,

however, to waive on our own motion section 54.313(a)(1) of the Commission’s rules for recipients of

rural broadband experiment support.131 Because we adopt other requirements for the rural broadband

experiments recipients that will ensure that we will be kept apprised of their build-out progress, we find

that it is unnecessary to require these entities to file a five-year service quality plan.

78.

As we require of price cap carriers accepting model-based support, we also require

participants in the rural broadband experiments to demonstrate that the services they offer in their project

areas meet the Commission’s latency standard. The participants must submit a certification with each

annual report certifying that 95 percent or more of all peak period measurements (also referred to as

observations) of network round trip latency are at or below 100 ms.132 Recipients may use the approach

adopted in the Bureau’s Phase II Service Obligations Order to measure latency.133

79.

In addition, because these rural broadband experiments represent the first implementation

of Phase II of the Connect America Fund, we require participants in the experiments to comply with the

existing requirement for Phase II recipients of providing in their annual reports the number, names, and

addresses of community anchor institutions to which the recipients newly began providing access to

broadband service in the preceding year.134 We conclude this requirement will be a valuable way to

monitor how the experiment recipients are engaging with community anchor institutions, and learn how

the networks supported by the experiments will impact anchor institutions and the communities they

serve.135

128 Tech Transitions Order, 29 FCC Rcd at 1477, para. 128.

129 USF/ICC Transformation Order, 26 FCC Rcd at 17850, para. 573.

130 47 C.F.R. §§ 54.313(a), (j). All required reports and certifications must be filed in WC Docket No. 14-58.

Recipients will need to continue to file these reports until the year after their support term ends. Thus, recipients of

will file their last report by July 1st following their tenth year of support.

131 See 47 C.F.R. §§ 1.3, 54.313(a)(1).

132 In lieu of this requirement, any satellite providers that are winning bidders in category three may submit an

annual certification that they are delivering service with a MOS of four or better.

133 Connect America Fund, WC Docket No. 10-90, Order, 28 FCC Rcd 15060, 15069-75, paras. 19-36 (Wireline

Comp. Bur. 2013) (Phase II Service Obligations Order).

134 47 C.F.R. § 54.313(e)(3)(ii).

135 Tech Transitions Order, 29 FCC Rcd at 1467, para. 96. Moreover, we reiterate, as for all recipients of Connect

America support, we expect that experiment recipients will likely offer broadband at greater speeds to the

community anchor institutions in their project areas and that they will engage with community anchor institutions in

the network planning stages. USF/ICC Transformation Order, 26 FCC Rcd at 17700-01, para. 102.

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80.

We will also require recipients to file build-out information with their reports. This

requirement will enable us to gather data faster on how the geographic and demographic characteristics of

certain rural areas affect how experiment recipients build their networks.136 This requirement will also

help us monitor recipients’ progress toward meeting their build-out requirements and that experiment

funds are being used for their intended purpose.

Specifically, we require all recipients of the rural

broadband experiments to file with their annual reports evidence demonstrating to which locations they

have deployed facilities.137

This information must be current as of the June 1st immediately preceding the

July 1st deadline.138 Recipients must also submit evidence with the report that demonstrates they are

meeting the relevant public service obligations. For instance, recipients may submit marketing materials

with their reports that show the voice and broadband packages that are available to each location that

meet the relevant public service obligations.139 The materials must at least detail the pricing, offered

broadband speed, and data usage allowances available in the relevant geographic area.

81.

To ensure that rural broadband experiment funds are being used for their intended

purposes, we also find that it would be helpful to monitor the recipients’ progress in deploying their

networks prior to the deadline for the first annual report, which we anticipate will be July 2016.140

Thus,

we will require all recipients to file an interim report on the November 1st after they receive their first

disbursement.141 This report will only be filed this one time and must describe the status of their project

(i.e., whether vendors have been hired, permits have been obtained, construction has begun) and include

evidence demonstrating which locations (if any) that the recipients have built out to in their project areas

where the recipient is offering at least one voice service and one broadband service that meets the public

service obligations adopted above for the relevant experiment category.142 To the extent locations are

newly served by the time of this interim report, recipients must also submit evidence with the report as

described above that demonstrates they are meeting the relevant public service obligations, including a

certification that demonstrates the service they offer complies with the Commission’s latency

requirements. This information should be current as of the September 30th immediately preceding the

November 1st deadline. Because this is information that recipients will already need to collect to certify

compliance with their build-out requirements, the value to the Commission in being able to gather this

data on a more frequent basis outweighs the burden that one additional report will impose on experiment

recipients.

82.

Certifications. Like all recipients of Connect America support, all rural broadband

experiment recipients that have been designated as ETCs by the Commission are required to file an

annual certification pursuant to section 54.314 of the Commission’s rules stating that “all federal high-

136 Tech Transitions Order, 29 FCC Rcd at 1466, para. 94.

137 Recipients should ensure that the submission of this data protects customer privacy consistent with applicable

privacy laws and regulations. See, e.g., 47 U.S.C. § 222; 47 C.F.R. §§ 64.2001-64.2011. Providers should also

consider the applicability of the Electronic Communications Privacy Act as well as prohibitions related to customer

privacy described in 47 U.S.C. § 551. See 18 U.S.C. § 2702(a)(3), (c); 47 U.S.C. § 551. This is not an exhaustive

list of statutes and regulations related to subscriber privacy. Each provider must exercise its own due diligence in

ensuring its submissions comply with applicable law.

138 Thus if an annual report is filed July 1, 2016, the data must include all locations that the recipient has deployed to

as of June 1, 2016.

139 See supra Section III.C.3.

140 We expect that winning bidders will be identified before the end of 2014 and authorized to receive support in the

first half of 2015. Because an entity must submit information and certifications related to the preceding year in its

annual report, the first annual report would be due in July 2016.

141 Thus recipients that begin receiving support in early 2015 will file this report on November 1, 2015. The data

that will need to be submitted must reflect all locations that the recipient has deployed to as of September 30, 2015.

142 See supra Section III.C.3.

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cost support provided to such carrier was used in the preceding calendar year and will be used in the

coming calendar year only for the provision, maintenance, and upgrading of facilities and services for

which the support is intended.”143 If an entity selected for a rural broadband experiment is designated an

ETC by a state, that state must file this certification on behalf of the entity selected for the rural

broadband experiment recipient.144

83.

We also require experiment recipients to certify when they have met the build-out

requirements defined above.145 All recipients must submit a certification to the Commission by the end of

their third year of support that they offer service to at least 85 percent of their required number of

locations with the required level of service and will need to submit a certification by the end of their fifth

year of support that they offer service to 100 percent of their required number of locations with the

required level of service.146 Additionally, recipients that opt to receive 30 percent of their support upfront

must submit a certification to the Commission stating that they have met their 25 percent build-out

requirement within 15 months of the first disbursement. With these certifications, all recipients must

present the same build-out information that must be included in their annual reports that we describe

above: evidence demonstrating that they have deployed facilities to the required number of locations and

evidence that demonstrates compliance with the relevant public service obligations, including a

certification demonstrating compliance with the Commission’s latency requirement. We expect to use a

variety of methods to verify that recipients of support are in fact meeting the terms and conditions of the

rural broadband experiments, including verification of the build-out evidence that they will submit with

their annual reports and certifications.

84.

Compliance Reviews. We reiterate that all recipients of rural broadband experiment

support are subject to compliance reviews and other investigations so that we can detect and deter waste,

fraud, and abuse, and ensure that rural broadband experiment support is being used for its intended

purpose.147

85.

Record Retention. We also reiterate that rural broadband experiment recipients are

subject to the 10 year record retention requirement adopted in the USF/ICC Transformation Order.148

This requirement will ensure that documents related to the experiments are available to facilitate USAC

audits and other oversight measures.

3.

Data Gathering

86.

When adopting the service-based experiments, the Commission noted that “[t]he need for

quality data regarding the effect on customers of adopting next generation technologies is perhaps greater

now than ever before,” and held that it intended that the service-based experiments would be “open data”

experiments.149 In the Tech Transitions Order, the Commission sought comment on whether issues

discussed in the context of the service-based experiments should also be addressed in the rural broadband

experiments.150 We find that collecting data from the rural broadband experiments would similarly help

143 47 C.F.R. § 54.314(b).

144 47 C.F.R. § 54.314(a).

145 The Commission adopted build-out certification requirements for recipients of Connect America Phase I and

Phase II funding, and Mobility Fund Phase I. See 47 C.F.R. §§ 54.313(b)-(c), (e), 54.1008(b); see also supra

Section III.E.1.

146 See supra Section III.E.1.

147 Tech Transitions Order, 29 FCC Rcd at 1477, para. 126; 47 C.F.R. § 54.320(a).

148 USF/ICC Transformation Order, 26 FCC Rcd at 17864, paras. 620-21; 47 C.F.R. § 54.320(b).

149 Tech Transitions Order, 29 FCC Rcd at 1458, para. 73.

150 Tech Transitions FNPRM, 29 FCC Rcd at 1503, para. 222. The Commission adopted service-based experiments

in the Tech Transitions Order “to advance new network technologies and learn how best to protect and enhance the

(continued….)

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us answer some of the key policy questions we identified in the Tech Transitions Order.151 We therefore

require that as a condition of receiving funding in the rural broadband experiments, recipients cooperate

with the Commission in any efforts to gather data that may help inform future decisions regarding the

impact of technology transitions on achievement of our universal access objectives.

87.

As the Wireline Competition Bureau reported at the Commission’s open meeting on June

13, 2014, a competitive procurement process is underway to select a third party data evaluator to assist

the Commission in collecting and analyzing data in connection with service-based experiments and other

technology transitions contexts. This third party will be working with the Bureau to develop a research

methodology using, among other things, surveying techniques. We believe surveys could be useful in the

context of the rural broadband experiments. For example, the issues to be surveyed might include

consumer purchasing decisions, speed of adoption of new broadband services, service usage, and

customer satisfaction with fixed wireless compared to alternatives, both landline and satellite. To

minimize the burden on rural broadband experiment recipients, we expect that they would need only to

provide information that will permit the third party data evaluator to identify the locations to survey or

certain metrics related to their services, including customer purchase options and service usage. This

information might include customer contact information, when the recipient expects such locations might

be offered service, and other specifics about the locations served. We note that when recipients submit

data to the Commission or its designated third party data evaluator, they should ensure that their

submission protects customer privacy consistent with applicable privacy laws and regulations.152

F.

Measures to Ensure Compliance

88.

In the Tech Transitions Order, the Commission stated that support for the rural

broadband experiments would be conditioned on “complying with all relevant universal service rules that

the Commission has adopted or may adopt in the future in relevant rulemaking proceedings, including . . .

enforcement mechanisms for non-compliance with rules.”153 Here, we adopt specific measures to ensure

participants meet the terms and conditions of the rural broadband experiments.

89.

The Commission has previously held that funds that are disbursed from the high-cost

program in violation of a Commission rule that “implements the statute or a substantive program goal”

should be recovered from the recipient.154 Thus, here we adopt a process to recover support from

recipients that do not comply with the terms and conditions of the rural broadband experiments after they

begin receiving support. We also note that we intend to enforce the terms and conditions vigorously.

(Continued from previous page)

core statutory values of public safety, universal access, competition, and consumer protection when the time comes

that legacy systems may no longer be available.” Tech Transitions Order, 29 FCC Rcd at 1446-62, paras. 37-81.

151 Tech Transitions Order, 29 FCC Rcd at 1466-67, paras. 94-97.

152 See, e.g., 47 U.S.C. § 222; 47 C.F.R. §§ 64.2001-64.2011. Providers should also consider the applicability of the

Electronic Communications Privacy Act as well as prohibitions related to customer privacy described in 47 U.S.C. §

551. See 18 U.S.C. § 2702(a)(3), (c); 47 U.S.C. § 551. This is not an exhaustive list of statutes and regulations

related to subscriber privacy. Each provider must exercise its own due diligence in ensuring its submissions comply

with applicable law.

153 Tech Transitions Order, 29 FCC Rcd at 1477, para. 128. In the USF/ICC Transformation Order, the

Commission adopted a rule requiring support reductions in the event that recipients of Connect America support

failed to file the required reports and certifications on time. USF/ICC Transformation Order and FNPRM, 26 FCC

Rcd at 17862, para. 617; 47 C.F.R. §§ 54.313(j), 54.314(d). The Commission also adopted a rule that entities

receiving high-cost support, including Connect America support, would “receive reduced support should they fail to

fulfill their public interest obligations.” USF/ICC Transformation Order, 26 FCC Rcd at 17863, para. 618; 47

C.F.R. § 54.320(c).

154 Comprehensive Review of the Universal Service Fund Management, Administration, and Oversight et al., WC

Docket No. 05-195 et al., Report and Order, 22 FCC Rcd 16372, 16386, para. 30 (2007).

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Such measures uphold the integrity of the Fund by ensuring that recipients of high-cost support are using

those funds for the purposes for which they are provided.

90.

Trigger for Performance Default. A performance default will occur if the winning bidder

begins receiving support and then fails to meet the terms and conditions of the rural broadband

experiments. For example, if the winning bidder has failed to meet the build-out obligations adopted

above,155 or the winning bidder failed to keep open and renew its LOC as required above,156 it will be a

performance default.157 A performance default will also occur if the winning bidder does not offer service

to the required number of locations that meet the public interest obligations we have adopted for the

experiments, including speed, latency, data usage, and reasonably comparable pricing.158 We expect to

verify that recipients of support are in fact meeting the terms and conditions of the rural broadband

experiments by verifying the build-out evidence that they will submit with their annual reports and

certifications.

91.

For purposes of the rural broadband experiments, a Connect America recipient can

demonstrate compliance with the speed, latency, data usage, and pricing requirements if it has met the

build-out milestones by deploying robust networks that are capable of meeting the required public interest

obligations, and its annual reports, certifications, and marketing materials demonstrate that the recipient is

offering at least one package to the eligible locations at the required speeds, with a data usage allowance

that meets the requirements for these experiments at reasonably comparable prices.159

92.

Support Reductions and Recovery of Support. If a recipient begins receiving support, and

the Bureau subsequently determines that it fails to meet the terms and conditions of its experiment, the

Bureau will issue a letter evidencing the default, and USAC will begin withholding support. For the first

six months that the entity is not in compliance, USAC will withhold five percent of the entity’s total

monthly support. For the next six months that the entity is not in compliance, USAC will withhold 25

percent of the entity’s total monthly support.

If at any point during the year that the support is being

withheld the winning bidder comes into compliance, the Bureau will issue a letter to that effect; the entity

then will be entitled to have its full support restored and will be able to recover all the support that USAC

withheld.

93.

If at the end of this year period, the entity is still not in compliance, the Bureau will issue

a letter to that effect, and USAC will draw on the entity’s LOC for the recovery of all support that has

been authorized.160 If after USAC recovers the support under the LOC, the winning bidder is able to

155 See supra Section III.E.1.

156 See supra Section III.D.4.

157 There are a number of different ways that a default could come to the Commission’s attention. For example, the

winning bidder may be unable to make the required certifications that it is in compliance, a Commission or USAC

compliance review or a Commission investigation may show that the bidder is not in compliance, or an outside party

like a customer or competitor may report to the Commission or USAC that the winning bidder has failed to meet the

experiment’s terms and conditions. In all cases, the Bureau will release a letter finding default before USAC draws

on the LOC.

158 See supra Section III.C.3.

159 As we discuss above, the Wireline Competition Bureau has specified how price cap carriers that accept model-

based support may demonstrate that they are meeting the Commission’s latency requirements. See supra Section

III.E.2. See also Phase II Service Obligations Order, 28 FCC Rcd at 15068-75, paras. 19-36. Recipients of funding

in the rural broadband experiments may use the same approach to demonstrate they are meeting latency

requirements. The Wireline Competition Bureau, Wireless Telecommunications Bureau, and Office of Engineering

and Technology have not adopted a methodology to test compliance with the Commission’s other public interest

obligations. USF/ICC Transformation Order, 26 FCC Rcd at 17708, para. 112.

160 See supra Section III.D.4.

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demonstrate that it has come into compliance with the experiment’s terms and conditions at any time

before the support period ends, it will be entitled to have its past support restored and will be eligible for

any remaining disbursements of authorized support. But if the winning bidder is unable to demonstrate

compliance at any point during the support term after its support has been recovered by the Bureau, the

entity will not be eligible to have any of its recovered support restored or to receive any remaining

disbursements. An entity may only exercise this cure opportunity once. The recovered support, along

with the remaining authorized support that has not yet been disbursed, will not be authorized for another

experiment.

94.

Forfeiture. To further impress upon recipients the importance of complying with the

rural broadband experiments’ terms and conditions, we note that we will enforce these requirements

vigorously. The Enforcement Bureau may initiate an enforcement proceeding in the event of a default or

after the Wireline Competition Bureau issues a letter evidencing the recipient’s default. In proposing any

forfeiture, consistent with the Commission’s rules, the Enforcement Bureau shall take into account the

nature, circumstances, extent, and gravity of the violations.161

95.

Waiver. In the event a recipient is unable to meet the terms and conditions of the rural

broadband experiments due to circumstances beyond its control (e.g., a severe weather event), that entity

may petition for a waiver of the relevant terms and conditions prior to the relevant build-out milestone

pursuant to section 1.3 of the Commission’s rules.162 The petitioning entity will then have the cure period

described above to meet the terms and conditions of the experiment. We encourage entities that submit

petitions for waiver to continue to work diligently towards meeting the terms and conditions of their

experiments while their petitions are pending. If the petitioning entity is unable to meet the terms and

conditions during the relevant cure period, and no decision has been issued a decision on the waiver

petition, the Bureau will issue a letter finding default, USAC will draw on the LOC, and the Enforcement

Bureau may initiate forfeiture proceedings. If the waiver subsequently is granted, the petitioning entity

will have all of the funds that have been recovered restored and will be entitled to receive its subsequent

disbursements. We note that a winning bidder’s inability to secure the proper permits and other

permissions to build its network would not constitute grounds for waiver and will be considered a default

if the winning bidder is unable to meet its build-out and public interest obligations due to its inability to

secure such permits. We expect that entities choosing to participate in the rural broadband experiments

will do their due diligence and determine which permits and other permissions will be required and what

steps they will need to take to obtain such permissions before submitting their applications.

96.

Other Consequences for Non-Compliance. Recipients of funding in the rural broadband

experiments will be subject to the Commission’s rules related to reductions in support in the event that

they fail to meet reporting and certification deadlines.163 Recipients may also be subject other sanctions

for non-compliance with the terms and conditions of the rural broadband experiments or the

161 47 C.F.R. § 1.80(b)(8).

162 Generally, the Commission’s rules may be waived if good cause is shown. 47 C.F.R. § 1.3. The Commission

may exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent with the

public interest. Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990) (Northeast

Cellular). In addition, the Commission may take into account considerations of hardship, equity, or more effective

implementation of overall policy on an individual basis. WAIT Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir.

1969); Northeast Cellular, 897 F.2d at 1166. Waiver of the Commission’s rules is appropriate only if both (i) special

circumstances warrant a deviation from the general rule, and (ii) such deviation will serve the public interest.

Northeast Cellular, 897 F.2d at 1166.

163 See 47 C.F.R. §§ 54.313(j), 54.314(d). In the Connect America Fund FNPRM, the Commission proposed to

modify these support reductions. See Connect America Fund FNPRM, FCC 14-54, at paras. 318-325. If those

proposals are adopted, the rules would apply to recipients of support through the rural broadband experiments as

well as other recipients of high-cost support.

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Commission’s rules, including, but not limited to, potential revocation of ETC designation and

disqualification from future competitive bidding for universal service support.164

IV.

FURTHER NOTICE OF PROPOSED RULEMAKING

97.

The Commission recognized in the USF/ICC Transformation Order that universal service

is a shared Federal and state responsibility, and that “it is critical to our reforms’ success that states

remain key partners even as these programs evolve and traditional roles shift.”165 We sought comment in

the Tech Transitions FNPRM on how to leverage non-Federal governmental sources of funding for the

rural broadband experiments,166 but did not receive a sufficient record to enable us to resolve the

implementation details associated with this proposal. We remain committed to working with our state

and other governmental partners to advance our mutually shared goals of preserving voice service and

extending broadband-capable infrastructure to consumers across the nation. We thus wish to further

explore how best to maximize the reach of our existing Connect America budget and leverage non-

Federal funding to extend broadband to as many households as possible.

98.

We now seek more focused comment on how to create inducements for state action to

assist in the expansion of broadband. We seek comment on providing bidding credits in the Phase II

competitive bidding process that will occur after the offer of model-based support to price cap carriers in

order to create incentives for states to share financial responsibility for preserving and extending

broadband-capable infrastructure. In particular, we seek comment on providing a bidding credit to any

bidder that is leveraging governmental support from non-Federal sources to lower the amount of funding

requested from the Connect America Fund. For example, we could provide a 10 percent bidding credit in

situations where an applicant has obtained a commitment from a non-Federal government entity to match

Federal dollars on a four-to-one basis, and a 5 percent bidding credit an applicant has obtained a

commitment to match Federal dollars on an eight-to-one basis.167 If we were to adopt such a bidding

credit, what documentation would the bidder need to provide when submitting its bid so that the

Commission could confirm its eligibility for the bidding credit? For instance, should the bidder be

required to provide a letter indicating that non-Federal funding has been authorized, contingent on the

entity being a winning bidder?

99.

For purposes of awarding such a bidding credit, we propose to consider all forms of non-

Federal assistance, including but not limited to support from a state universal service fund, state

broadband authority, other state institutions that provide funding for communications infrastructure

development, appropriated funds, regional and local governmental authorities, or Tribal government

funding. We seek comment on this proposal.168

164 See 47 C.F.R. §§ 1.21004, 54.320.

165 USF/ICC Transformation Order, 26 FCC Rcd at 17671, para. 15.

166 Tech Transitions FNPRM, 29 FCC Rcd at 1501, para. 215

167 Thus, if a bidder is seeking $20 million in Federal support and demonstrates the availability of $5 million of state

funding, it would get a 10 percent bidding credit, which effectively lowers its bid to $18 million for purposes of

comparison to other bids. If a bidder is seeking $20 million in Federal support and demonstrates the availability of

$2.5 million in state funding, it would get a 5 percent bidding credit, which would lower its effective bid to $19

million for purposes of comparison to other bids.

168 We note that for purposes of the Healthcare Connect Fund, we require health care providers to contribute 35

percent of the cost of services and infrastructure, and allow providers to utilize state grants, funding, or

appropriations; Federal funding, grants, loans or appropriations except for other Federal universal service funds;

Tribal governmental funding; and other grant funding, including private grants, as their required contribution. 47

C.F.R. § 54.633. See also TCA Comments, WC Docket 10-90, at 3-4 (filed March 31, 2014) (urging Commission

to require that the funding amount requested be no more than 75 percent of the total cost to deploy the network).

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100.

In order to qualify for the bidding credit, must the matching funds be in the form of a

grant, or should we also provide a credit if the bidder has a commitment for a loan from the relevant state

or other non-Federal governmental authority?

101.

As an alternative, should we award a bidding credit to any bidder in a state that is a net

donor to the universal service fund?169 This would be simple to administer and would provide one means

of creating greater equity between states in terms of their respective net draws from the fund. If we were

to adopt such an approach, we propose to utilize the most recent Universal Service Monitoring Report to

determine which states are net donors.

V.

PROCEDURAL MATTERS

A.

Paperwork Reduction Analysis

102.

The Report and Order contains new and modified information collection requirements

subject to the Paperwork Reduction Act of 1995 (PRA). It will be submitted to the Office of

Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public,

and other Federal agencies are invited to comment on the new or modified information collection

requirements contained in this proceeding. In addition, we note that pursuant to the Small Business

Paperwork Relief Act of 2002,170 we previously sought specific comment on how the Commission might

further reduce the information collection burden for small business concerns with fewer than 25

employees. We describe impacts that might affect small businesses, which includes most businesses with

fewer than 25 employees, in the Final Regulatory Flexibility Analysis (FRFA) in Appendix B, infra.

103.

The FNPRM contains proposed new information collection requirements. The

Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and

OMB to comment on the proposed information collection requirements contained in this document, as

required by the PRA. In addition, pursuant to the Small Business Paperwork Relief Act, we seek specific

comment on how we might further reduce the information collection burden for small business concerns

with fewer than 25 employees.

B.

Congressional Review Act

104.

The Commission will send a copy of this Report and Order and Further Notice of

Proposed Rulemaking to Congress and the Government Accountability Office pursuant to the

Congressional Review Act.171

C.

Final Regulatory Flexibility Analysis

105.

The Regulatory Flexibility Act of 1980 (RFA) requires that an agency prepare a

regulatory flexibility analysis for notice and comment rulemakings, unless the agency certifies that “the

rule will not, if promulgated, have a significant economic impact on a substantial number of small

entities.” Accordingly, we have prepared a FRFA concerning the possible impact of the rule changes

contained in the Report and Order. The FRFA is set forth in Appendix B.

D.

Initial Regulatory Flexibility Analysis

106.

As required by the RFA, the Commission has prepared an Initial Regulatory Flexibility

Analysis (IRFA) of the possible significant economic impact on small entities of the policies and rules

proposed in the FNPRM. The analysis is found in Appendix C. We request written public comment on

the analysis. Comments must be filed in accordance with the same deadlines as comments filed in

response to the FNPRM, and must have a separate and distinct heading designating them as responses to

169 See Comments of California Public Utility Commission, WC Docket 10-90, at 5-6 (filed Mar. 28, 2014).

170 Public Law 107-198, see 44 U.S.C. § 3506(c)(4).

171 See 5 U.S.C. § 801(a)(1)(A).

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the IRFA. The Commission’s Consumer and Governmental Affairs Bureau, Reference Information

Center, will send a copy of this Report and Order and Further Notice of Proposed Rulemaking, including

the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration.

E.

Filing Requirements

107.

Comments and Replies. Pursuant to sections 1.415 and 1.419 of the Commission’s

rules,172 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).173

Electronic Filers: Comments may be filed electronically using the Internet by accessing the

ECFS: http://fjallfoss.fcc.gov/ecfs2/.

Paper Filers: Parties who choose to file by paper must file an original and one copy of each

filing. Because more than one docket number appears in the caption of this proceeding, filers

must submit two additional copies for each additional docket 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.

o

All hand-delivered or messenger-delivered paper filings for the Commission’s Secretary

must be delivered to FCC Headquarters at 445 12th St., 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.

o

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority

Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

o

U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th

Street, SW, Washington DC 20554.

108.

People with Disabilities. To request materials in accessible formats for people with

disabilities (braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call

the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

109.

Availability of Documents. Comments, reply comments, and ex parte submissions will be

publically available online via ECFS.174 These documents will also be available for public inspection

during regular business hours in the FCC Reference Information Center, which is located in Room CY-

A257 at FCC Headquarters, 445 12th Street, SW, Washington, DC 20554. The Reference Information

Center is open to the public Monday through Thursday from 8:00 a.m. to 4:30 p.m. and Friday from 8:00

a.m. to 11:30 a.m.

110.

Additional Information. For additional information on this proceeding, contact

Alexander Minard of the Wireline Competition Bureau, Telecommunications Access Policy Division,

Alexander.Minard@fcc.gov, (202) 418-7400.

VI.

ORDERING CLAUSES

111.

Accordingly, IT IS ORDERED that, pursuant to sections 1, 2, 4(i), 4(j), 214, 218-220,

251, 254 and 303(r) of the Communications Act of 1934, as amended, and section 706 of the

Telecommunications Act of 1996, 47 U.S.C. §§ 151, 152, 154(i), 154(j), 214, 218-220, 251, 254, 303(r),

172 47 C.F.R. §§ 1.415, 1.419.

173 See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

174 Documents will generally be available electronically in ASCII, Microsoft Word, and/or Adobe Acrobat.

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1302 this Report and Order and Further Notice of Proposed Rulemaking in WC Docket No. 10-90 and

WC Docket No. 14-58 IS ADOPTED, effective thirty (30) days after publication of the text or summary

thereof in the Federal Register, except for those rules and requirements involving Paperwork Reduction

Act burdens, which shall become effective immediately upon announcement in the Federal Register of

OMB approval.

112.

IT IS FURTHER ORDERED, that, pursuant to the authority contained in sections 1, 2,

4(i), 218-220, 214, 254, 303(r), 403 of the Communications Act of 1934 as amended, and section 706 of

the Telecommunications Act of 1996, 47 U.S.C. §§ 151, 152, 154(i), 214, 218-220, 254, 303(r), 403, and

1302, and sections 1.1 and 1.421 of the Commission’s rules, 47 C.F.R. §§ 1.1, 1.42, NOTICE IS

HEREBY GIVEN of the proposals and tentative conclusions described in this Further Notice of Proposed

Rulemaking.

113.

IT IS FURTHER ORDERED, that pursuant to section 1.3 of the Commission’s rules, 47

C.F.R. § 1.3, the Commission waives on its own motion section 54.313(a)(1) of the Commission’s rules,

47 C.F.R. § 54.313(a)(1) for all recipients of the rural broadband experiments.

114.

IT IS FURTHER ORDERED, that the Commission SHALL SEND a copy of this Report

and Order in WC Docket No. 10-90 and WC Docket No. 14-58 to Congress and the Government

Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

115.

IT IS FURTHER ORDERED, that the Commission’s Consumer and Governmental

Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Report and Order in WC

Docket No. 10-90 and WC Docket No. 14-58, including the Initial Regulatory Flexibility Analysis, to the

Chief Counsel for Advocacy of the Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

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APPENDIX A

Illustrative Form of Letter Of Credit

[Subject to Issuing Bank Requirements]

No. __________

[Name and Address of Issuing Bank]

[Date of Issuance]

[AMOUNT]

[EXPIRATION DATE]

BENEFICIARY

[USAC]

[Address]

LETTER OF CREDIT PROVIDER

[Winning Bidder Name]

[Address]

Ladies and Gentlemen:

We hereby establish, at the request and for the account of [Winning Bidder], in your favor, as required

under the [Report and Order, adopted on July 11, 2014 issued by the Federal Communications

Commission (“FCC”) in the matter of [Connect America Fund, WC Docket 10-90] (the “Order”), our

Irrevocable Standby Letter of Credit No. _________, in the amount of [State amount of Letter of Credit in

words and figures. NOTE: The amount of the Letter of Credit shall increase/additional letter(s) of credit

shall be issued as additional funds are disbursed pursuant to the terms of the Order], expiring at the close

of banking business at our office described in the following paragraph, on [the date which is ___ years

from the date of issuance/ or the date which is one year from the date of issuance, provided the Issuing

Bank includes an evergreen clause that provides for automatic renewal unless the Issuing Bank gives

notice of non-renewal to USAC by a nationally recognized overnight delivery service, with a copy to the

FCC, at least sixty days but not more than 90 days prior to the expiry thereof], or such earlier date as the

Letter of Credit is terminated by [USAC] (the “Expiration Date”). Capitalized terms used herein but not

defined herein shall have the meanings accorded such terms in the Order.

Funds under this Letter of Credit are available to you against your draft in the form attached hereto as

Annex A, drawn on our office described below, and referring thereon to the number of this Letter of

Credit, accompanied by your written and completed certificate signed by you substantially in the form of

Annex B attached hereto. Such draft and certificates shall be dated the date of presentation or an earlier

date, which presentation shall be made at our office located at [BANK ADDRESS] and shall be effected

either by personal delivery or delivery by a nationally recognized overnight delivery service. We hereby

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commit and agree to accept such presentation at such office, and if such presentation of documents

appears on its face to comply with the terms and conditions of this Letter of Credit, on or prior to the

Expiration Date, we will honor the same not later than the first banking day after presentation thereof in

accordance with your payment instructions. Payment under this Letter of Credit shall be made by

[check/wire transfer of Federal Reserve Bank of New York funds] to the payee and for the account you

designate, in accordance with the instructions set forth in a draft presented in connection with a draw

under this Letter of Credit.

Partial drawings are not permitted under this Letter of Credit. This Letter of Credit is not transferable or

assignable in whole or in part.

This Letter of Credit shall be canceled and terminated upon receipt by us of the [USAC’s] certificate

purportedly signed by two authorized representatives of [USAC] in the form attached as Annex C.

This Letter of Credit sets forth in full the undertaking of the Issuer, and such undertaking shall not in any

way be modified, amended, amplified or limited by reference to any document, instrument or agreement

referred to herein, except only the certificates and the drafts referred to herein and the ISP (as defined

below); and any such reference shall not be deemed to incorporate herein by reference any document,

instrument or agreement except for such certificates and such drafts and the ISP.

This Letter of Credit shall be subject to, governed by, and construed in accordance with, the International

Standby Practices 1998, International Chamber of Commerce Publication No. 590 (the “ISP”), which is

incorporated into the text of this Letter of Credit by this reference, and, to the extent not inconsistent

therewith, the laws of the State of New York, including the Uniform Commercial Code as in effect in the

State of New York. Communications with respect to this Letter of Credit shall be addressed to us at our

address set forth below, specifically referring to the number of this Letter of Credit.

[NAME OF BANK]

[BANK SIGNATURE]

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ANNEX A

Form of Draft

To: [Issuing Bank]

DRAWN ON LETTER OF CREDIT No: ______________

AT SIGHT

PAY TO THE ORDER OF [USAC] BY [CHECK/WIRE TRANSFER OF FEDERAL

RESERVE BANK OF NEW YORK]

FUNDS TO: _____________

_______________

_______________

Account (__________________________)

AS [RURAL BROADBAND EXPERIMENT REPAYMENT]

[AMOUNT IN WORDS] DOLLARS AND NO/CENTS

$[AMOUNT IN NUMBERS]

Universal Service Administrative Company

By:________________________________

Name:

Title:

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ANNEX B

Draw Certificate

The undersigned hereby certifies to [Name of Bank] (the “Bank”), with reference to (a) Irrevocable

Standby Letter of Credit No. [Number] (the “Letter of Credit”) issued by the Bank in favor of the

Universal Service Administrative Company (“USAC”) and (b) [paragraph ___] of the [Report and

Order, adopted on July 11, 2014 issued by the Federal Communications Commission in the matter of

[Connect America Fund, WC Docket 10-90] (the “Order”), pursuant to which [Name of Winning

Bidder] (the “LC Provider”) has provided the Letter of Credit (all capitalized terms used herein but

not defined herein having the meaning stated in the Order), that:

[The [Name of Winning Bidder] has [describe the event that triggers the draw],and is evidenced

by a letter signed by the Chief of the [Wireline Competition Bureau] or [his/her] designee, dated _ ,

20__ , a true copy of which is attached hereto.] Accordingly, a draw of the entire amount of the Letter of

Credit No. _______ is authorized.]

OR

[USAC certifies that given notice of non-renewal of Letter of Credit No.

______________ and failure of the account party to obtain a satisfactory replacement thereof, pursuant to

the Order, USAC is entitled to receive payment of $_______________ representing the entire amount of

Letter of Credit No. ________________.]

IN WITNESS WHEREOF, the undersigned has executed this certificate as of [specify time of

day] on the ____ day of _____________, 20__.

Universal Service Administrative Company

By: _____________________________________

Name:

Title:

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ANNEX C

Certificate Regarding Termination of Letter of Credit

The undersigned hereby certifies to [Name of Bank] (the “Bank”), with reference to (a)

Irrevocable Standby Letter of Credit No. [Number] (the “Letter of Credit”) issued by the Bank in favor of

the Universal Service Administrative Company (“USAC”), and (b) paragraph [____] of the [Report and

Order adopted on July 11, 2014 issued by the Federal Communications Commission (“FCC”) in the

matter of [Connect America Fund, WC Docket 10-90] (the “Order”), (all capitalized terms used herein

but not defined herein having the meaning stated or described in the Order), that:

(1)

[include one of the following clauses, as applicable]

(a)

The Order has been fulfilled in accordance with the provisions thereof; or

(b)

[LC Provider/Winning Bidder] has provided a replacement letter of credit

satisfactory to the FCC.

(2)

By reason of the event or circumstance described in paragraph (1) of this certificate and

effective upon the receipt by the Bank of this certificate (countersigned as set forth below), the Letter of

Credit is terminated.

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the ____ day of

_____________, 20__.

Universal Service Administrative Company

By:____________________________________

Name:

Title:

By:____________________________________

Name:

Title:

COUNTERSIGNED:

Federal Communications Commission

By: __________________________________

Name:

Its Authorized Signatory

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APPENDIX B

Final Regulatory Flexibility Analysis

1.

As required by the Regulatory Flexibility Act of 1980 (RFA),1 as amended, an Initial

Regulatory Flexibility Analyses (IRFA) was incorporated in the Further Notice of Proposed Rulemaking

(USF/ICC Transformation FNPRM).2 The Commission sought written public comment on the proposals

in the USF/ICC Transformation FNPRM, including comment on the IRFA. The Commission also invited

parties to file comments on this IRFA in the Tech Transitions FNPRM.3 The Commission did not receive

any relevant comments on the USF/ICC Transformation FNPRM IRFA. This Final Regulatory

Flexibility Analysis (FRFA) conforms to the RFA.4

A.

Need for, and Objectives of the Report and Order

2.

We explained in the Tech Transitions Order that we must “ensure that all Americans

benefit from the technology transitions, and that we gain data on the impact of technology transitions in

rural areas, including Tribal lands, where residential consumers, small businesses and anchor institutions,

including schools, libraries and health care providers, may not have access to advanced broadband

services.”5 In this Order, we adopt certain parameters and requirements for the rural broadband

experiments that will assist us with accomplishing these goals. We expect these experiments to provide

critical information regarding which and what types of parties are willing to build networks that will

deliver services that exceed our current performance standards for an amount of money equal to or less

than the support amounts calculated by the adopted Phase II Connect America Cost Model.6 In addition

to gathering information relevant to broader questions implicated by technology transitions, we expect

these experiments also will inform key decisions that we will be making in the coming months regarding

the Connect America Fund.

3.

We adopt a budget of $100 million for funding experiments in price cap areas focused on

bringing robust, scalable broadband networks to residential and small business locations in rural

communities that are not served by an unsubsidized competitor that offers voice and Internet access

delivering at least 3 Mbps downstream/768 kbps upstream.7

The funding will be available to serve

locations in both high-cost and extremely high-cost areas, thereby advancing our implementation of both

Phase II and the Remote Areas Fund.8 Applications will be due 90 days from the release of this Order.

1 5 U.S.C. § 603. The RFA, 5 U.S.C. §§ 601-612 has been amended by the Contract With America Advancement

Act of 1996, Public Law No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small

Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).

2 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed

Rulemaking, 26 FCC Rcd 17663, 18364-95, paras. 1-97 (2011) (USF/ICC Transformation Order and/or FNPRM),

aff’d sub nom. In re FCC 11-161, __ F.3d__, 2014 WL 2142106 (10th Cir. May 23, 2014).

3 Technology Transitions et al., WC Docket No. 10-90 et al., Order et al., 29 FCC Rcd 1433, 1508, para. 239 (2014)

(Tech Transitions Order and/or FNPRM).

4 See 5 U.S.C. § 604.

5 Tech Transitions Order, 29 FCC Rcd at 1464, para. 87.

6 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order, 28 FCC Rcd 5301 (Wireline

Comp. Bur. 2013) (CAM Platform Order); Connect America Fund et al., WC Docket No. 10-90 et al., Report and

Order, 29 FCC Rcd 3964 (Wireline Comp. Bur. 2014) (CAM Inputs Order).

7 See supra Section III.A.

8 See supra Section III.C.1.

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We also determine the objective methodology for selecting projects among the applications we receive for

the experiments.9 Given the manner in which we have structured the budget and the selection criteria, we

believe that we will be able to fund a range of diverse projects throughout the country. Finally, we

outline the conditions that entities participating in the experiments must meet in order to continue to

receive such support, including specific eligibility, build-out and accountability requirements, and

establish the measures to ensure compliance with these conditions.10

B.

Summary of Significant Issues Raised by Public Comments in Response to the IRFA

4.

There were no relevant comments filed that specifically addressed the rules and policies

proposed in the USF/ICC Transformation FNPRM IRFA.

C.

Description and Estimate of the Number of Small Entities to which the Rules Will

Apply

5.

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 rules adopted herein.11 The RFA generally

defines the term “small entity” as having the same meaning as the terms “small business,” “small

organization,” and “small governmental jurisdiction.”12 In addition, the term “small business” has the

same meaning as the term “small-business concern” under the Small Business Act.13 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.14

6.

Small Businesses. Nationwide, there are a total of approximately 28.2 million small

businesses, according to the SBA.15

7.

Wired Telecommunications Carriers. The SBA has developed a small business size

standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or

fewer employees.16 According to Census Bureau data for 2007, there were 3,188 firms in this category,

total, that operated for the entire year.17 Of this total, 3144 firms had employment of 999 or fewer

employees, and 44 firms had employment of 1000 employees or more.18 Thus, under this size standard,

the majority of firms can be considered small.

9 See supra Section III.D.

10 See supra Sections III.E, III.F.

11 See 5 U.S.C. § 603(b)(3).

12 See 5 U.S.C. § 601(6).

13 See 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small

Business Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies

“unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after

opportunity for public comment, establishes one or more definitions of such term which are appropriate to the

activities of the agency and publishes such definition(s) in the Federal Register.”

14 See 15 U.S.C. § 632.

15 See SBA, Office of Advocacy, “Frequently Asked Questions,”

http://www.sba.gov/sites/default/files/FAQ_March_2014_0.pdf (accessed July 2014).

16 13 C.F.R. § 121.201, NAICS code 517110.

17 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm

Size: Employment Size of Firms for the United States: 2007 NAICS Code 517110” (issued Nov. 2010).

18 See id.

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8.

Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed

a size standard for small businesses specifically applicable to local exchange services. The closest

applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size

standard, such a business is small if it has 1,500 or fewer employees.19 According to Commission data,

1,307 carriers reported that they were incumbent local exchange service providers.20 Of these 1,307

carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees.21

Consequently, the Commission estimates that most providers of local exchange service are small entities

that may be affected by the rules and policies proposed in the Order.

9.

Incumbent Local Exchange Carriers (incumbent LECs). Neither the Commission nor

the SBA has developed a size standard for small businesses specifically applicable to incumbent local

exchange services. The closest applicable size standard under SBA rules is for Wired

Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer

employees.22 According to Commission data, 1,307 carriers reported that they were incumbent local

exchange service providers.23 Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees

and 301 have more than 1,500 employees.24 Consequently, the Commission estimates that most providers

of incumbent local exchange service are small businesses that may be affected by rules adopted pursuant

to the Order

10.

We have included small incumbent LECs in this present RFA analysis. As noted above,

a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard

(e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its

field of operation.”25 The SBA’s Office of Advocacy contends that, for RFA purposes, small incumbent

LECs are not dominant in their field of operation because any such dominance is not “national” in

scope.26 We have therefore included small incumbent LECs in this RFA analysis, although we emphasize

that this RFA action has no effect on Commission analyses and determinations in other, non-RFA

contexts.

11.

Competitive Local Exchange Carriers (competitive LECs), Competitive Access

Providers (CAPs), Shared-Tenant Service Providers, and Other Local Service Providers. Neither

the Commission nor the SBA has developed a small business size standard specifically for these service

providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications

Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees.27

19 13 C.F.R. § 121.201, NAICS code 517110.

20 See Industry Analysis and Technology Division, Wireline Competition Bureau, , Trends in Telephone Service, at

Table 5.3 (Sept. 2010) (Trends in Telephone Service).

21 See id.

22 See 13 C.F.R. § 121.201, NAICS code 517110.

23 See Trends in Telephone Service at Table 5.3.

24 See id.

25 5 U.S.C. § 601(3).

26 See Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to William E. Kennard, Chairman, Federal

Communications Commission (May 27, 1999). The Small Business Act contains a definition of “small business

concern,” which the RFA incorporates into its own definition of “small business.” See 15 U.S.C. § 632(a); see also

5 U.S.C. § 601(3). SBA regulations interpret “small business concern” to include the concept of dominance on a

national basis. See 13 C.F.R. § 121.102(b).

27 See 13 C.F.R. § 121.201, NAICS code 517110.

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According to Commission data, 1,442 carriers reported that they were engaged in the provision of either

competitive local exchange services or competitive access provider services.28 Of these 1,442 carriers, an

estimated 1,256 have 1,500 or fewer employees and 186 have more than 1,500 employees.29 In addition,

17 carriers have reported that they are Shared-Tenant Service Providers, and all 17 are estimated to have

1,500 or fewer employees.30 In addition, 72 carriers have reported that they are Other Local Service

Providers.31 Of the 72, seventy have 1,500 or fewer employees and two have more than 1,500

employees.32 Consequently, the Commission estimates that most providers of competitive local exchange

service, competitive access providers, Shared-Tenant Service Providers, and Other Local Service

Providers are small entities that may be affected by rules adopted pursuant to the Order.

12.

Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a

size standard for small businesses specifically applicable to interexchange services. The closest

applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size

standard, such a business is small if it has 1,500 or fewer employees.33 According to Commission data,

359 companies reported that their primary telecommunications service activity was the provision of

interexchange services.34 Of these 359 companies, an estimated 317 have 1,500 or fewer employees and

42 have more than 1,500 employees.35 Consequently, the Commission estimates that the majority of

interexchange service providers are small entities that may be affected by rules adopted pursuant to the

Order.

13.

Prepaid Calling Card Providers. Neither the Commission nor the SBA has developed

a small business size standard specifically for prepaid calling card providers. The appropriate size

standard under SBA rules is for the category Telecommunications Resellers. Under that size standard,

such a business is small if it has 1,500 or fewer employees.36 According to Commission data, 193 carriers

have reported that they are engaged in the provision of prepaid calling cards.37 Of these, an estimated all

193 have 1,500 or fewer employees and none have more than 1,500 employees.38 Consequently, the

Commission estimates that the majority of prepaid calling card providers are small entities that may be

affected by rules adopted pursuant to the Order.

14.

Local Resellers. The SBA has developed a small business size standard for the category

of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or

fewer employees.39 According to Commission data, 213 carriers have reported that they are engaged in

the provision of local resale services.40 Of these, an estimated 211 have 1,500 or fewer employees and

28 See Trends in Telephone Service at Table 5.3.

29 See id.

30 See id.

31 See id.

32 See id.

33 See 13 C.F.R. § 121.201, NAICS code 517110.

34 See Trends in Telephone Service at Table 5.3.

35 See id.

36 See 13 C.F.R. § 121.201, NAICS code 517911.

37 See Trends in Telephone Service at Table 5.3.

38 See id.

39 See 13 C.F.R. § 121.201, NAICS code 517911.

40 See Trends in Telephone Service at Table 5.3.

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two have more than 1,500 employees.41 Consequently, the Commission estimates that the majority of

local resellers are small entities that may be affected by rules adopted pursuant to the Order.

15.

Toll Resellers. The SBA has developed a small business size standard for the category

of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or

fewer employees.42 According to Commission data, 881 carriers have reported that they are engaged in

the provision of toll resale services.43 Of these, an estimated 857 have 1,500 or fewer employees and 24

have more than 1,500 employees.44 Consequently, the Commission estimates that the majority of toll

resellers are small entities that may be affected by rules adopted pursuant to the Order.

16.

Other Toll Carriers. Neither the Commission nor the SBA has developed a size

standard for small businesses specifically applicable to Other Toll Carriers. This category includes toll

carriers that do not fall within the categories of interexchange carriers, operator service providers, prepaid

calling card providers, satellite service carriers, or toll resellers. The closest applicable size standard

under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is

small if it has 1,500 or fewer employees.45 According to Commission data, 284 companies reported that

their primary telecommunications service activity was the provision of other toll carriage.46 Of these, an

estimated 279 have 1,500 or fewer employees and five have more than 1,500 employees.47 Consequently,

the Commission estimates that most Other Toll Carriers are small entities that may be affected by the

rules and policies adopted pursuant to the Order.

17.

800 and 800-Like Service Subscribers.48 Neither the Commission nor the SBA has

developed a small business size standard specifically for 800 and 800-like service (toll free) subscribers.

The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under

that size standard, such a business is small if it has 1,500 or fewer employees.49 The most reliable source

of information regarding the number of these service subscribers appears to be data the Commission

collects on the 800, 888, 877, and 866 numbers in use.50 According to our data, as of September 2009, the

number of 800 numbers assigned was 7,860,000; the number of 888 numbers assigned was 5,588,687; the

number of 877 numbers assigned was 4,721,866; and the number of 866 numbers assigned was

7,867,736.51 We do not have data specifying the number of these subscribers that are not independently

owned and operated or have more than 1,500 employees, and thus are unable at this time to estimate with

greater precision the number of toll free subscribers that would qualify as small businesses under the SBA

size standard. Consequently, we estimate that there are 7,860,000 or fewer small entity 800 subscribers;

5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer small entity 877 subscribers; and

7,867,736 or fewer small entity 866 subscribers.

41 See id.

42 See 13 C.F.R. § 121.201, NAICS code 517911.

43 See Trends in Telephone Service at Table 5.3.

44 See id.

45 See 13 C.F.R. § 121.201, NAICS code 517110.

46 See Trends in Telephone Service at Table 5.3.

47 See id.

48 We include all toll-free number subscribers in this category, including those for 888 numbers.

49 See 13 C.F.R. § 121.201, NAICS code 517911.

50 See Trends in Telephone Service at Tables 18.7-18.10.

51 See id.

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18.

Wireless Telecommunications Carriers (except Satellite). Since 2007, the SBA has

recognized wireless firms within this new, broad, economic census category.52 Prior to that time, such

firms were within the now-superseded categories of Paging and Cellular and Other Wireless

Telecommunications.53 Under the present and prior categories, the SBA has deemed a wireless business

to be small if it has 1,500 or fewer employees.54 For this category, census data for 2007 show that there

were 1,383 firms that operated for the entire year.55

Of this total, 1,368 firms had employment of 999 or

fewer employees and 15 had employment of 1000 employees or more.56 Similarly, according to

Commission data, 413 carriers reported that they were engaged in the provision of wireless telephony,

including cellular service, Personal Communications Service (PCS), and Specialized Mobile Radio

(SMR) Telephony services.57 Of these, an estimated 261 have 1,500 or fewer employees and 152 have

more than 1,500 employees.58 Consequently, the Commission estimates that approximately half or more

of these firms can be considered small. Thus, using available data, we estimate that the majority of

wireless firms can be considered small.

19.

Broadband Personal Communications Service. The broadband personal

communications service (PCS) spectrum is divided into six frequency blocks designated A through F, and

the Commission has held auctions for each block. The Commission defined “small entity” for Blocks C

and F as an entity that has average gross revenues of $40 million or less in the three previous calendar

years.59 For Block F, an additional classification for “very small business” was added and is defined as an

entity that, together with its affiliates, has average gross revenues of not more than $15 million for the

preceding three calendar years.60 These standards defining “small entity” in the context of broadband

PCS auctions have been approved by the SBA.61 No small businesses, within the SBA-approved small

business size standards bid successfully for licenses in Blocks A and B. There were 90 winning bidders

that qualified as small entities in the Block C auctions. A total of 93 small and very small business

bidders won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F.62 In 1999, the

52 See 13 C.F.R. § 121.201, NAICS code 517210.

53 U.S. Census Bureau, 2002 NAICS Definitions, “517211 Paging”;

http://www.census.gov/epcd/naics02/def/NDEF517.HTM; U.S. Census Bureau, 2002 NAICS Definitions, “517212

Cellular and Other Wireless Telecommunications”; http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

54 13 C.F.R. § 121.201, NAICS code 517210. The now-superseded, pre-2007 C.F.R. citations were 13 C.F.R. §

121.201, NAICS codes 517211 and 517212 (referring to the 2002 NAICS).

55 U.S. Census Bureau, Subject Series: Information, Table 5, “Establishment and Firm Size: Employment Size of

Firms for the United States: 2007 NAICS Code 517210” (issued Nov. 2010).

56 Id. Available census data do not provide a more precise estimate of the number of firms that have employment of

1,500 or fewer employees; the largest category provided is for firms with “100 employees or more.”

57 See Trends in Telephone Service at Table 5.3.

58 See id.

59 See generally Amendment of Parts 20 and 24 of the Commission’s Rules – Broadband PCS Competitive Bidding

and the Commercial Mobile Radio Service Spectrum Cap, WT Docket No. 96-59, GN Docket No. 90-314, Report

and Order, 11 FCC Rcd 7824 (1996) (Broadband PCS Auction Order); see also 47 C.F.R. § 24.720(b)(1).

60 See generally Broadband PCS Auction Order; see also 47 C.F.R. § 24.720(b)(2).

61 See, e.g., Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket No. 93-

253, Fifth Report and Order, 9 FCC Rcd 5532 (1994).

62 See FCC News, Broadband PCS, D, E and F Block Auction Closes, No. 71744 (rel. Jan. 14, 1997). See also

Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications

(continued….)

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Commission re-auctioned 347 C, E, and F Block licenses.63 There were 48 small business winning

bidders. In 2001, the Commission completed the auction of 422 C and F Broadband PCS licenses in

Auction 35.64 Of the 35 winning bidders in this auction, 29 qualified as “small” or “very small”

businesses. Subsequent events, concerning Auction 35, including judicial and agency determinations,

resulted in a total of 163 C and F Block licenses being available for grant. In 2005, the Commission

completed an auction of 188 C block licenses and 21 F block licenses in Auction 58. There were 24

winning bidders for 217 licenses.65 Of the 24 winning bidders, 16 claimed small business status and won

156 licenses. In 2007, the Commission completed an auction of 33 licenses in the A, C, and F Blocks in

Auction 71.66 Of the 14 winning bidders, six were designated entities.67 In 2008, the Commission

completed an auction of 20 Broadband PCS licenses in the C, D, E and F block licenses in Auction 78.68

20.

Advanced Wireless Services. In 2008, the Commission conducted the auction of

Advanced Wireless Services (“AWS”) licenses.69 This auction, which as designated as Auction 78,

offered 35 licenses in the AWS 1710-1755 MHz and 2110-2155 MHz bands (AWS-1). The AWS-1

licenses were licenses for which there were no winning bids in Auction 66. That same year, the

Commission completed Auction 78. A bidder with attributed average annual gross revenues that

exceeded $15 million and did not exceed $40 million for the preceding three years (“small business”)

received a 15 percent discount on its winning bid. A bidder with attributed average annual gross revenues

that did not exceed $15 million for the preceding three years (“very small business”) received a 25

percent discount on its winning bid. A bidder that had combined total assets of less than $500 million and

combined gross revenues of less than $125 million in each of the last two years qualified for entrepreneur

status.70 Four winning bidders that identified themselves as very small businesses won 17 licenses.71

Three of the winning bidders that identified themselves as a small business won five licenses.

Additionally, one other winning bidder that qualified for entrepreneur status won 2 licenses.

21.

Narrowband Personal Communications Services. In 1994, the Commission conducted

an auction for Narrowband PCS licenses. A second auction was also conducted later in 1994. For

purposes of the first two Narrowband PCS auctions, “small businesses” were entities with average gross

(Continued from previous page)

Services (PCS) Licensees, WT Docket No. 97-82, Second Report and Order and Further Notice of Proposed

Rulemaking, 12 FCC Rcd 16436 (1997).

63 See C, D, E, and F Block Broadband PCS Auction Closes, Public Notice, 14 FCC Rcd 6688 (Wireless Tel. Bur.

1999).

64 See C and F Block Broadband PCS Auction Closes; Winning Bidders Announced, Public Notice, 16 FCC Rcd

2339 (Wireless Tel. Bur. 2001).

65 See Broadband PCS Spectrum Auction Closes; Winning Bidders Announced for Auction No. 58, Public Notice, 20

FCC Rcd 3703 (Wireless Tel. Bur. 2005).

66 See Auction of Broadband PCS Spectrum Licenses Closes; Winning Bidders Announced for Auction No. 71,

Public Notice, 22 FCC Rcd 9247 (Wireless Tel. Bur. 2007).

67 Id.

68 See Auction of AWS-1 and Broadband PCS Licenses Rescheduled For August 13, 3008, Notice of Filing

Requirements, Minimum Opening Bids, Upfront Payments and Other Procedures For Auction 78, AU Docket No.

08-46, Public Notice, 23 FCC Rcd 7496 (Wireless Tel. Bur. 2008).

69 See id. Auction 78 also included an auction of Broadband PCS licenses.

70 Id. at 7521-22.

71 See Auction of AWS-1 and Broadband PCS Licenses Closes, Winning Bidders Announced for Auction 78, Public

Notice, 23 FCC Rcd 12749 (Wireless Tel. Bur. 2008).

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revenues for the prior three calendar years of $40 million or less.72 Through these auctions, the

Commission awarded a total of 41 licenses, 11 of which were obtained by four small businesses.73 To

ensure meaningful participation by small business entities in future auctions, the Commission adopted a

two-tiered small business size standard in the Narrowband PCS Second Report and Order.74 A “small

business” is an entity that, together with affiliates and controlling interests, has average gross revenues for

the three preceding years of not more than $40 million.75 A “very small business” is an entity that,

together with affiliates and controlling interests, has average gross revenues for the three preceding years

of not more than $15 million.76 The SBA has approved these small business size standards.77 A third

auction was conducted in 2001. Here, five bidders won 317 (Metropolitan Trading Areas and

nationwide) licenses.78 Three of these claimed status as a small or very small entity and won 311 licenses.

22.

Paging (Private and Common Carrier). In the Paging Third Report and Order, we

developed a small business size standard for “small businesses” and “very small businesses” for purposes

of determining their eligibility for special provisions such as bidding credits and installment payments.79

A “small business” is an entity that, together with its affiliates and controlling principals, has average

gross revenues not exceeding $15 million for the preceding three years. Additionally, a “very small

business” is an entity that, together with its affiliates and controlling principals, has average gross

revenues that are not more than $3 million for the preceding three years. The SBA has approved these

small business size standards.80 According to Commission data, 291 carriers have reported that they are

engaged in Paging or Messaging Service.81 Of these, an estimated 289 have 1,500 or fewer employees,

and two have more than 1,500 employees.82 Consequently, the Commission estimates that the majority of

paging providers are small entities that may be affected by our action. An auction of Metropolitan

Economic Area licenses commenced on February 24, 2000, and closed on March 2, 2000. Of the 2,499

licenses auctioned, 985 were sold. Fifty-seven companies claiming small business status won 440

72 Implementation of Section 309(j) of the Communications Act – Competitive Bidding Narrowband PCS, PP Docket

No. 93-253, GEN Docket No. 90-314, ET Docket No. 92-100, Third Memorandum Opinion and Order and Further

Notice of Proposed Rulemaking, 10 FCC Rcd 175, 196, para. 46 (1994).

73 See Announcing the High Bidders in the Auction of Ten Nationwide Narrowband PCS Licenses, Winning Bids

Total $617,006,674, Public Notice, PNWL 94-004 (rel. Aug. 2, 1994); Announcing the High Bidders in the Auction

of 30 Regional Narrowband PCS Licenses; Winning Bids Total $490,901,787, Public Notice, PNWL 94-27 (rel.

Nov. 9, 1994).

74 Amendment of the Commission’s Rules to Establish New Personal Communications Services, GEN Docket No.

90-314, ET Docket No. 92-100, PP Docket No. 93-253, Narrowband PCS, Second Report and Order and Second

Further Notice of Proposed Rule Making, 15 FCC Rcd 10456, 10476, para. 40 (2000) (Narrowband PCS Second

Report and Order).

75 Id.

76 Id.

77 See Letter to Amy Zoslov, Chief, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau,

Federal Communications Commission, from A. Alvarez, Administrator, SBA (Dec. 2, 1998) (Alvarez Letter 1998).

78 See Narrowband PCS Auction Closes, Public Notice, 16 FCC Rcd 18663 (Wireless Tel. Bur. 2001).

79 See Revision of Part 22 and Part 90 of the Commission’s Rules to Facilitate Future Development of Paging

Systems, WT Docket No. 96-18, PR Docket No. 93-253, Memorandum Opinion and Order on Reconsideration and

Third Report and Order, 14 FCC Rcd 10030, 10085–88, paras. 98–107 (1999) (Paging Third Report and Order)

80 See Alvarez Letter 1998.

81 See Trends in Telephone Service at Table 5.3.

82 See id.

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licenses.83 A subsequent auction of MEA and Economic Area (“EA”) licenses was held in the year 2001.

Of the 15,514 licenses auctioned, 5,323 were sold.84 One hundred thirty-two companies claiming small

business status purchased 3,724 licenses. A third auction, consisting of 8,874 licenses in each of 175 EAs

and 1,328 licenses in all but three of the 51 MEAs, was held in 2003. Seventy-seven bidders claiming

small or very small business status won 2,093 licenses.85 A fourth auction, consisting of 9,603 lower and

upper paging band licenses was held in the year 2010. Twenty-nine bidders claiming small or very small

business status won 3,016 licenses.86.

23.

220 MHz Radio Service – Phase I Licensees. The 220 MHz service has both Phase I

and Phase II licenses. Phase I licensing was conducted by lotteries in 1992 and 1993. There are

approximately 1,515 such non-nationwide licensees and four nationwide licensees currently authorized to

operate in the 220 MHz band. The Commission has not developed a small business size standard for

small entities specifically applicable to such incumbent 220 MHz Phase I licensees. To estimate the

number of such licensees that are small businesses, we apply the small business size standard under the

SBA rules applicable to Wireless Telecommunications Carriers (except Satellite). Under this category,

the SBA deems a wireless business to be small if it has 1,500 or fewer employees.87 The Commission

estimates that nearly all such licensees are small businesses under the SBA’s small business size standard

that may be affected by rules adopted pursuant to the Order.

24.

220 MHz Radio Service – Phase II Licensees. The 220 MHz service has both Phase I

and Phase II licenses. The Phase II 220 MHz service is subject to spectrum auctions. In the 220 MHz

Third Report and Order, we adopted a small business size standard for “small” and “very small”

businesses for purposes of determining their eligibility for special provisions such as bidding credits and

installment payments.88 This small business size standard indicates that a “small business” is an entity

that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15

million for the preceding three years.89 A “very small business” is an entity that, together with its

affiliates and controlling principals, has average gross revenues that do not exceed $3 million for the

preceding three years.90 The SBA has approved these small business size standards.91 Auctions of Phase

83 See id.

84 See Lower and Upper Paging Band Auction Closes, Public Notice, 16 FCC Rcd 21821 (Wireless Tel. Bur. 2002).

85 See Lower and Upper Paging Bands Auction Closes, Public Notice, 18 FCC Rcd 11154 (Wireless Tel. Bur. 2003).

The current number of small or very small business entities that hold wireless licenses may differ significantly from

the number of such entities that won in spectrum auctions due to assignments and transfers of licenses in the

secondary market over time. In addition, some of the same small business entities may have won licenses in more

than one auction.

86 See Auction of Lower and Upper Paging Bands Licenses Closes, Public Notice, 25 FCC Rcd 18164 (Wireless Tel.

Bur. 2010).

87 See 13 C.F.R. § 121.201, NAICS code 517210.

88 See Amendment of Part 90 of the Commission’s Rules to Provide for the Use of the 220-222 MHz Band by the

Private Land Mobile Radio Service, PR Docket No. 89-552, GN Docket No. 93-252, PP Docket No. 93-253, Third

Report and Order and Fifth Notice of Proposed Rulemaking, 12 FCC Rcd 10943, 11068–70, paras. 291–295 (1997)

(220 MHz Third Report and Order).

89 See id. at 11068–69, para. 291.

90 See id. at 11068–70, paras. 291–95.

91 See Letter from Aida Alvarez, Administrator, SBA, to D. Phythyon, Chief, Wireless Telecommunications Bureau,

Federal Communications Commission (Jan. 6, 1998) (Alvarez to Phythyon Letter 1998).

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II licenses commenced on September 15, 1998, and closed on October 22, 1998.92 In the first auction,

908 licenses were auctioned in three different-sized geographic areas: three nationwide licenses, 30

Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908

licenses auctioned, 693 were sold. Thirty-nine small businesses won licenses in the first 220 MHz

auction. The second auction included 225 licenses: 216 EA licenses and 9 EAG licenses. Fourteen

companies claiming small business status won 158 licenses.93

25.

Specialized Mobile Radio. The Commission awards small business bidding credits in

auctions for Specialized Mobile Radio (“SMR”) geographic area licenses in the 800 MHz and 900 MHz

bands to entities that had revenues of no more than $15 million in each of the three previous calendar

years.94 The Commission awards very small business bidding credits to entities that had revenues of no

more than $3 million in each of the three previous calendar years.95 The SBA has approved these small

business size standards for the 800 MHz and 900 MHz SMR Services.96 The Commission has held

auctions for geographic area licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction

was completed in 1996.97 Sixty bidders claiming that they qualified as small businesses under the $15

million size standard won 263 geographic area licenses in the 900 MHz SMR band.98 The 800 MHz SMR

auction for the upper 200 channels was conducted in 1997. Ten bidders claiming that they qualified as

small businesses under the $15 million size standard won 38 geographic area licenses for the upper 200

channels in the 800 MHz SMR band.99 A second auction for the 800 MHz band was conducted in 2002

and included 23 BEA licenses. One bidder claiming small business status won five licenses.100

26.

The auction of the 1,053 800 MHz SMR geographic area licenses for the General

Category channels was conducted in 2000. Eleven bidders won 108 geographic area licenses for the

General Category channels in the 800 MHz SMR band qualified as small businesses under the $15

million size standard.101 In an auction completed in 2000, a total of 2,800 Economic Area licenses in the

lower 80 channels of the 800 MHz SMR service were awarded.102 Of the 22 winning bidders, 19 claimed

92 See Phase II 220 MHz Service Auction Closes, Public Notice, 14 FCC Rcd 605 (Wireless Tel. Bur. 1998).

93 See Phase II 220 MHz Service Spectrum Auction Closes, Public Notice, 14 FCC Rcd 11218 (Wireless Tel.

Bur.1999).

94 47 C.F.R. §§ 90.810, 90.814(b), 90.912.

95 47 C.F.R. §§ 90.810, 90.814(b), 90.912.

96 See Letter from Aida Alvarez, Administrator, SBA, to Thomas Sugrue, Chief, Wireless Telecommunications

Bureau, Federal Communications Commission (Aug. 10, 1999) (Alvarez Letter 1999).

97 FCC Announces Winning Bidders in the Auction of 1,020 Licenses to Provide 900 MHz SMR in Major Trading

Areas, Public Notice, 11 FCC Rcd 18599 (Wireless Tel. Bur. 1996).

98 Id.

99 See Correction to Public Notice DA 96-586 “FCC Announces Winning Bidders in the Auction of 1020 Licenses to

Provide 900 MHz SMR in Major Trading Areas,” Public Notice, 11 FCC Rcd 18637 (Wireless Tel. Bur. 1996).

100 See Multi-Radio Service Auction Closes, Public Notice, 17 FCC Rcd 1446 (Wireless Tel. Bur. 2002).

101 See 800 MHz Specialized Mobile Radio (SMR) Service General Category (851-854 MHz) and Upper Band (861-

865 MHz) Auction Closes; Winning Bidders Announced, Public Notice, 15 FCC Rcd 17162 (Wireless Tel. Bur.

2000).

102 See 800 MHz SMR Service Lower 80 Channels Auction Closes; Winning Bidders Announced, Public Notice, 16

FCC Rcd 1736 (Wireless Tel. Bur. 2000).

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small business status and won 129 licenses. Thus, combining all three auctions, 40 winning bidders for

geographic licenses in the 800 MHz SMR band claimed status as small business.

27.

In addition, there are numerous incumbent site-by-site SMR licensees and licensees with

extended implementation authorizations in the 800 and 900 MHz bands. We do not know how many

firms provide 800 MHz or 900 MHz geographic area SMR pursuant to extended implementation

authorizations, nor how many of these providers have annual revenues of no more than $15 million. One

firm has over $15 million in revenues. In addition, we do not know how many of these firms have 1,500

or fewer employees.103 We assume, for purposes of this analysis, that all of the remaining existing

extended implementation authorizations are held by small entities, as that small business size standard is

approved by the SBA.

28.

Broadband Radio Service and Educational Broadband Service. Broadband Radio

Service systems, previously referred to as Multipoint Distribution Service (“MDS”) and Multichannel

Multipoint Distribution Service (“MMDS”) systems, and “wireless cable,” transmit video programming

to subscribers and provide two-way high speed data operations using the microwave frequencies of the

Broadband Radio Service (“BRS”) and Educational Broadband Service (“EBS”) (previously referred to as

the Instructional Television Fixed Service (“ITFS”)).104 In connection with the 1996 BRS auction, the

Commission established a small business size standard as an entity that had annual average gross

revenues of no more than $40 million in the previous three calendar years.105 The BRS auctions resulted

in 67 successful bidders obtaining licensing opportunities for 493 Basic Trading Areas (“BTAs”). Of the

67 auction winners, 61 met the definition of a small business. BRS also includes licensees of stations

authorized prior to the auction. At this time, we estimate that of the 61 small business BRS auction

winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA

authorizations, there are approximately 392 incumbent BRS licensees that are considered small entities.106

After adding the number of small business auction licensees to the number of incumbent licensees not

already counted, we find that there are currently approximately 440 BRS licensees that are defined as

small businesses under either the SBA or the Commission’s rules. The Commission has adopted three

levels of bidding credits for BRS: (i) a bidder with attributed average annual gross revenues that exceed

$15 million and do not exceed $40 million for the preceding three years (small business) is eligible to

receive a 15 percent discount on its winning bid; (ii) a bidder with attributed average annual gross

revenues that exceed $3 million and do not exceed $15 million for the preceding three years (very small

business) is eligible to receive a 25 percent discount on its winning bid; and (iii) a bidder with attributed

average annual gross revenues that do not exceed $3 million for the preceding three years (entrepreneur)

is eligible to receive a 35 percent discount on its winning bid.107 In 2009, the Commission conducted

Auction 86, which offered 78 BRS licenses.108 Auction 86 concluded with ten bidders winning 61

103 See generally 13 C.F.R. § 121.201, NAICS code 517210.

104 Amendment of Parts 21 and 74 of the Commission’s Rules with Regard to Filing Procedures in the Multipoint

Distribution Service and in the Instructional Television Fixed Service and Implementation of Section 309(j) of the

Communications Act – Competitive Bidding, MM Docket No. 94-131 and PP Docket No. 93-253, Report and Order,

10 FCC Rcd 9589, 9593 para. 7 (1995).

105 47 C.F.R. § 21.961(b)(1).

106 47 U.S.C. § 309(j). Hundreds of stations were licensed to incumbent MDS licensees prior to implementation of

Section 309(j) of the Communications Act of 1934, 47 U.S.C. § 309(j). For these pre-auction licenses, the

applicable standard is SBA’s small business size standard.

107 47 C.F.R. § 27.1218. See also Auction of Broadband Radio Service (BRS) Licenses, Scheduled for October 27,

2009, Notice and Filing Requirements, Minimum Opening Bids, Upfront Payments, and Other Procedures for

Auction 86, Public Notice, 24 FCC Rcd 8277, 8296 (Wireless Tel. Bur. 2009).

108 Id. at 8280.

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licenses.109 Of the ten, two bidders claimed small business status and won 4 licenses; one bidder claimed

very small business status and won three licenses; and two bidders claimed entrepreneur status and won

six licenses.

29.

In addition, the SBA’s Cable Television Distribution Services small business size

standard is applicable to EBS. There are presently 2,032 EBS licensees. All but 100 of these licenses are

held by educational institutions. Educational institutions are included in this analysis as small entities.110

Thus, we estimate that at least 1,932 licensees are small businesses. Since 2007, Cable Television

Distribution Services have been defined within the broad economic census category of Wired

Telecommunications Carriers; that category is defined as follows: “This industry comprises

establishments primarily engaged in operating and/or providing access to transmission facilities and

infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using

wired telecommunications networks. Transmission facilities may be based on a single technology or a

combination of technologies.”111 The SBA defines a small business size standard for this category as any

such firms having 1,500 or fewer employees. The SBA has developed a small business size standard for

this category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau

data for 2007, there were a total of 955 firms in this previous category that operated for the entire year.112

Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had employment of

1000 employees or more.113 Thus, under this size standard, the majority of firms can be considered small

and may be affected by rules adopted pursuant to the Order.

30.

Lower 700 MHz Band Licenses. The Commission previously adopted criteria for

defining three groups of small businesses for purposes of determining their eligibility for special

provisions such as bidding credits.114 The Commission defined a “small business” as an entity that,

together with its affiliates and controlling principals, has average gross revenues not exceeding $40

million for the preceding three years.115 A “very small business” is defined as an entity that, together with

its affiliates and controlling principals, has average gross revenues that are not more than $15 million for

the preceding three years.116 Additionally, the Lower 700 MHz Band had a third category of small

business status for Metropolitan/Rural Service Area (“MSA/RSA”) licenses, identified as “entrepreneur”

and defined as an entity that, together with its affiliates and controlling principals, has average gross

revenues that are not more than $3 million for the preceding three years.117 The SBA approved these

109 Auction of Broadband Radio Service Licenses Closes; Winning Bidders Announced for Auction 86,, Public

Notice, 24 FCC Rcd 13572 (Wireless Tel. Bur. 2009).

110 The term “small entity” within SBREFA applies to small organizations (nonprofits) and to small governmental

jurisdictions (cities, counties, towns, townships, villages, school districts, and special districts with populations of

less than 50,000). 5 U.S.C. §§ 601(4)-(6). We do not collect annual revenue data on EBS licensees.

111 U.S. Census Bureau, 2007 NAICS Definitions, “517110 Wired Telecommunications Carriers” (partial

definition); http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.

112 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, Employment Size of Firms

for the United States: 2007, NAICS code 5171102 (issued Nov. 2010).

113 See id.

114 See Reallocation and Service Rules for the 698-746 MHz Spectrum Band (Television Channels 52-59), GN

Docket No. 01-74, Report and Order, 17 FCC Rcd 1022 (2002).

115 See id. at 1087-88, para. 172.

116 See id.

117 See id. at 1088, para. 173.

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small size standards.118 The Commission conducted an auction in 2002 of 740 Lower 700 MHz Band

licenses (one license in each of the 734 MSAs/RSAs and one license in each of the six Economic Area

Groupings (EAGs)). Of the 740 licenses available for auction, 484 licenses were sold to 102 winning

bidders.119 Seventy-two of the winning bidders claimed small business, very small business or

entrepreneur status and won a total of 329 licenses.120 The Commission conducted a second Lower 700

MHz Band auction in 2003 that included 256 licenses: 5 EAG licenses and 476 Cellular Market Area

licenses.121 Seventeen winning bidders claimed small or very small business status and won 60 licenses,

and nine winning bidders claimed entrepreneur status and won 154 licenses.122 In 2005, the Commission

completed an auction of 5 licenses in the Lower 700 MHz Band, designated Auction 60. There were

three winning bidders for five licenses. All three winning bidders claimed small business status.123

31.

In 2007, the Commission reexamined its rules governing the 700 MHz band in the 700

MHz Second Report and Order.124 The 700 MHz Second Report and Order revised the band plan for the

commercial (including Guard Band) and public safety spectrum, adopted services rules, including

stringent build-out requirements, an open platform requirement on the C Block, and a requirement on the

D Block licensee to construct and operate a nationwide, interoperable wireless broadband network for

public safety users.125 An auction of A, B and E block licenses in the Lower 700 MHz band was held in

2008.126 Twenty winning bidders claimed small business status (those with attributable average annual

gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years).

Thirty three winning bidders claimed very small business status (those with attributable average annual

gross revenues that do not exceed $15 million for the preceding three years). In 2011, the Commission

conducted Auction 92, which offered 16 Lower 700 MHz band licenses that had been made available in

Auction 73 but either remained unsold or were licenses on which a winning bidder defaulted. Two of the

118 See Alvarez Letter 1999.

119 See Lower 700 MHz Band Auction Closes; Winning Bidders Announced, Public Notice, 17 FCC Rcd 17272

(Wireless Tel. Bur. 2002).

120 Id.

121 See Lower 700 MHz Band Auction Closes; Winning Bidders Announced, Public Notice, 18 FCC Rcd 11873

(Wireless Tel. Bur. 2003).

122 See id.

123 Auction of Lower 700 MHz Band Licenses Closes; Winning Bidders Announced for Auction No. 60, Public

Notice, 20 FCC Rcd 13424 (Wireless Tel. Bur. 2005).

124 See Service Rules for the 698-746, 747-762 and 777-792 MHz Band, WT Docket No. 06-150, Revision of the

Commission’s Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems, CC Docket No. 94-

102, Section 68.4(a) of the Commission’s Rules Governing Hearing Aid-Compatible Telephone, Biennial Regulatory

Review – Amendment of Parts 1, 22, 24, 27, and 90 to Streamline and Harmonize Various Rules Affecting Wireless

Radio Services, Former Nextel Communications, Inc. Upper700 MHz Guard Band Licenses and Revisions to Part

27 of the Commission’s Rules, Implementing a Nationwide, Broadband Interoperable Public Safety Network in the

700 MHz Band, Development of Operational, Technical and Spectrum Requirements for Meeting Federal, State,

and Local Public Safety Communications Requirements Through the Year 2010, WT Docket Nos. 96-86, 01-309,

03-264, 06-169, PS Docket No. 06-229, Second Report and Order, 22 FCC Rcd 15289 (2007) (700 MHz Second

Report and Order).

125 Id.

126 See Auction of 700 MHz Band Licenses Closes; Winning Bidders Announced for Auction 73, Public Notice, 23

FCC Rcd 4572 (Wireless Tel. Bur. 2008) (Auction 73 Closure PN).

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seven winning bidders in Auction 92 claimed very small business status, winning a total of four

licenses.127

32.

Upper 700 MHz Band Licenses. In the 700 MHz Second Report and Order, the

Commission revised its rules regarding Upper 700 MHz band licenses.128 In 2008, the Commission

conducted Auction 73 in which C and D block licenses in the Upper 700 MHz band were available.129

Three winning bidders claimed very small business status (those with attributable average annual gross

revenues that do not exceed $15 million for the preceding three years).

33.

700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, we adopted a

small business size standard for “small businesses” and “very small businesses” for purposes of

determining their eligibility for special provisions such as bidding credits and installment payments.130 A

“small business” is an entity that, together with its affiliates and controlling principals, has average gross

revenues not exceeding $40 million for the preceding three years.131 Additionally, a “very small

business” is an entity that, together with its affiliates and controlling principals, has average gross

revenues that are not more than $15 million for the preceding three years.132 An auction of 52 Major

Economic Area (MEA) licenses commenced on September 6, 2000, and closed on September 21, 2000.133

Of the 104 licenses auctioned, 96 licenses were sold to nine bidders. Five of these bidders were small

businesses that won a total of 26 licenses. A second auction of 700 MHz Guard Band licenses

commenced on February 13, 2001 and closed on February 21, 2001. All eight of the licenses auctioned

were sold to three bidders. One of these bidders was a small business that won a total of two licenses.134

34.

Cellular Radiotelephone Service. Auction 77 was held to resolve one group of

mutually exclusive applications for Cellular Radiotelephone Service licenses for unserved areas in New

Mexico.135 Bidding credits for designated entities were not available in Auction 77.136 In 2008, the

Commission completed the closed auction of one unserved service area in the Cellular Radiotelephone

Service, designated as Auction 77. Auction 77 concluded with one provisionally winning bid for the

unserved area totaling $25,002.137

127 See Auction of 700 MHz Band Licenses Closes, Winning Bidders Announced for Auction 92, Public Notice, 26

FCC Rcd 10494 (Wireless Tel. Bur. 2011).

128 700 MHz Second Report and Order.

129 See Auction 73 Closure PN.

130 See Service Rules for the 746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commission’s Rules,

WT Docket No. 99-168, Second Report and Order, 15 FCC Rcd 5299 (2000) (700 MHz Guard Band Order).

131 See id. at 5343–45, paras. 106–10.

132 See id.

133 See 700 MHz Guard Band Auction Closes; Winning Bidders Announced, Public Notice, 15 FCC Rcd 18026

(Wireless Tel. Bur. 2000).

134 See 700 MHz Guard Bands Auction Closes; Winning Bidders Announced, Public Notice, 16 FCC Rcd 4590

(Wireless Tel. Bur. 2001).

135 See Closed Auction of Licenses for Cellular Unserved Service Area Scheduled for June 17, 2008, Notice and

Filing Requirements, Minimum Opening Bids, Upfront Payments, and Other Procedures for Auction 77, Public

Notice, 23 FCC Rcd 6670 (Wireless Tel. Bur. 2008).

136 Id. at 6685.

137 See Auction of Cellular Unserved Service Area License Closes, Winning Bidder Announced for Auction 77, Down

Payment due July 2, 2008, Final Payment due July 17, 2008, Public Notice, 23 FCC Rcd 9501 (WTB 2008).

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35.

Private Land Mobile Radio (“PLMR”). PLMR systems serve an essential role in a

range of industrial, business, land transportation, and public safety activities. These radios are used by

companies of all sizes operating in all U.S. business categories, and are often used in support of the

licensee’s primary (non-telecommunications) business operations. For the purpose of determining

whether a licensee of a PLMR system is a small business as defined by the SBA, we use the broad census

category, Wireless Telecommunications Carriers (except Satellite). This definition provides that a small

entity is any such entity employing no more than 1,500 persons.138 The Commission does not require

PLMR licensees to disclose information about number of employees, so the Commission does not have

information that could be used to determine how many PLMR licensees constitute small entities under

this definition. We note that PLMR licensees generally use the licensed facilities in support of other

business activities, and therefore, it would also be helpful to assess PLMR licensees under the standards

applied to the particular industry subsector to which the licensee belongs.139

36.

As of March 2010, there were 424,162 PLMR licensees operating 921,909 transmitters in

the PLMR bands below 512 MHz. We note that any entity engaged in a commercial activity is eligible to

hold a PLMR license, and that any revised rules in this context could therefore potentially impact small

entities covering a great variety of industries.

37.

Rural Radiotelephone Service. The Commission has not adopted a size standard for

small businesses specific to the Rural Radiotelephone Service.140 A significant subset of the Rural

Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS).141 In the present

context, we will use the SBA’s small business size standard applicable to Wireless Telecommunications

Carriers (except Satellite), i.e., an entity employing no more than 1,500 persons.142 There are

approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that

there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected

by the rules and policies proposed herein.

38.

Air-Ground Radiotelephone Service. The Commission has not adopted a small

business size standard specific to the Air-Ground Radiotelephone Service.143 We will use SBA’s small

business size standard applicable to Wireless Telecommunications Carriers (except Satellite), i.e., an

entity employing no more than 1,500 persons.144 There are approximately 100 licensees in the Air-

Ground Radiotelephone Service, and we estimate that almost all of them qualify as small under the SBA

small business size standard and may be affected by rules adopted pursuant to the Order.

39.

Aviation and Marine Radio Services. Small businesses in the aviation and marine

radio services use a very high frequency (VHF) marine or aircraft radio and, as appropriate, an emergency

position-indicating radio beacon (and/or radar) or an emergency locator transmitter. The Commission has

not developed a small business size standard specifically applicable to these small businesses. For

purposes of this analysis, the Commission uses the SBA small business size standard for the category

Wireless Telecommunications Carriers (except Satellite), which is 1,500 or fewer employees.145 Census

138 See 13 C.F.R. § 121.201, NAICS code 517210.

139 See generally 13 C.F.R. § 121.201.

140 The service is defined in 47 C.F.R. § 22.99.

141 BETRS is defined in 47 C.F.R. §§ 22.757, 22.759.

142 13 C.F.R. § 121.201, NAICS code 517210.

143 See 47 C.F.R. § 22.99.

144 See 13 C.F.R. § 121.201, NAICS code 517210.

145 See 13 C.F.R. § 121.201, NAICS code 517210.

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data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that

operated that year.146 Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than

100 employees. Most applicants for recreational licenses are individuals. Approximately 581,000 ship

station licensees and 131,000 aircraft station licensees operate domestically and are not subject to the

radio carriage requirements of any statute or treaty. For purposes of our evaluations in this analysis, we

estimate that there are up to approximately 712,000 licensees that are small businesses (or individuals)

under the SBA standard. In addition, between December 3, 1998 and December 14, 1998, the

Commission held an auction of 42 VHF Public Coast licenses in the 157.1875-157.4500 MHz (ship

transmit) and 161.775-162.0125 MHz (coast transmit) bands. For purposes of the auction, the

Commission defined a “small” business as an entity that, together with controlling interests and affiliates,

has average gross revenues for the preceding three years not to exceed $15 million dollars.147 In addition,

a “very small” business is one that, together with controlling interests and affiliates, has average gross

revenues for the preceding three years not to exceed $3 million dollars.148 There are approximately

10,672 licensees in the Marine Coast Service, and the Commission estimates that almost all of them

qualify as “small” businesses under the above special small business size standards and may be affected

by rules adopted pursuant to the Order.

40.

Fixed Microwave Services. Fixed microwave services include common carrier,149

private operational-fixed,150 and broadcast auxiliary radio services.151 At present, there are approximately

22,015 common carrier fixed licensees and 61,670 private operational-fixed licensees and broadcast

auxiliary radio licensees in the microwave services. The Commission has not created a size standard for a

small business specifically with respect to fixed microwave services. For purposes of this analysis, the

Commission uses the SBA small business size standard for Wireless Telecommunications Carriers

(except Satellite), which is 1,500 or fewer employees.152 The Commission does not have data specifying

the number of these licensees that have more than 1,500 employees, and thus is unable at this time to

estimate with greater precision the number of fixed microwave service licensees that would qualify as

small business concerns under the SBA’s small business size standard. Consequently, the Commission

estimates that there are up to 22,015 common carrier fixed licensees and up to 61,670 private operational-

fixed licensees and broadcast auxiliary radio licensees in the microwave services that may be small and

146 U.S. Census Bureau, 2007 Economic Census, Sector 51, 2007 NAICS code 517210 (rel. Oct. 20, 2009),

http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=700&-

ds_name=EC0751SSSZ5&-_lang=en.

147 See generally Amendment of the Commission’s Rules Concerning Maritime Communications, PR Docket No. 92-

257, Third Report and Order and Memorandum Opinion and Order, 13 FCC Rcd 19853, 19884–88 paras. 64–73

(1998).

148 See id.

149 See 47 C.F.R. §§ 101 et seq. (formerly, Part 21 of the Commission’s Rules) for common carrier fixed microwave

services (except Multipoint Distribution Service).

150 Persons eligible under parts 80 and 90 of the Commission’s Rules can use Private Operational-Fixed Microwave

services. See 47 C.F.R. Parts 80 and 90. Stations in this service are called operational-fixed to distinguish them

from common carrier and public fixed stations. Only the licensee may use the operational-fixed station, and only for

communications related to the licensee’s commercial, industrial, or safety operations.

151 Auxiliary Microwave Service is governed by Part 74 of Title 47 of the Commission’s Rules. See 47 C.F.R. Part

74. This service is available to licensees of broadcast stations and to broadcast and cable network entities.

Broadcast auxiliary microwave stations are used for relaying broadcast television signals from the studio to the

transmitter, or between two points such as a main studio and an auxiliary studio. The service also includes mobile

television pickups, which relay signals from a remote location back to the studio.

152 See 13 C.F.R. § 121.201, NAICS code 517210.

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may be affected by the rules and policies adopted herein. We note, however, that the common carrier

microwave fixed licensee category includes some large entities.

41.

Offshore Radiotelephone Service. This service operates on several UHF television

broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the

Gulf of Mexico.153 There are presently approximately 55 licensees in this service. The Commission is

unable to estimate at this time the number of licensees that would qualify as small under the SBA’s small

business size standard for the category of Wireless Telecommunications Carriers (except Satellite).

Under that SBA small business size standard, a business is small if it has 1,500 or fewer employees.154

Census data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383

firms that operated that year.155 Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had

more than 100 employees. Thus, under this category and the associated small business size standard, the

majority of firms can be considered small.

42.

39 GHz Service. The Commission created a special small business size standard for 39

GHz licenses – an entity that has average gross revenues of $40 million or less in the three previous

calendar years.156 An additional size standard for “very small business” is: an entity that, together with

affiliates, has average gross revenues of not more than $15 million for the preceding three calendar

years.157 The SBA has approved these small business size standards.158 The auction of the 2,173 39 GHz

licenses began on April 12, 2000 and closed on May 8, 2000. The 18 bidders who claimed small business

status won 849 licenses. Consequently, the Commission estimates that 18 or fewer 39 GHz licensees are

small entities that may be affected by rules adopted pursuant to the Order.

43.

Local Multipoint Distribution Service. Local Multipoint Distribution Service (LMDS)

is a fixed broadband point-to-multipoint microwave service that provides for two-way video

telecommunications.159 The auction of the 986 LMDS licenses began and closed in 1998. The

Commission established a small business size standard for LMDS licenses as an entity that has average

gross revenues of less than $40 million in the three previous calendar years.160 An additional small

business size standard for “very small business” was added as an entity that, together with its affiliates,

has average gross revenues of not more than $15 million for the preceding three calendar years.161 The

SBA has approved these small business size standards in the context of LMDS auctions.162 There were 93

153 This service is governed by Subpart I of Part 22 of the Commission’s Rules. See 47 C.F.R. §§ 22.1001-22.1037.

154 Id.

155 U.S. Census Bureau, 2007 Economic Census, Sector 51, 2007 NAICS code 517210 (rel. Oct. 20, 2009),

http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=700&-

ds_name=EC0751SSSZ5&-_lang=en.

156 See Amendment of the Commission’s Rules Regarding the 37.0-38.6 GHz and 38.6-40.0 GHz Bands, ET Docket

No. 95-183, PP Docket No. 93-253, Report and Order, 12 FCC Rcd 18600, 18661–64, paras. 149–151 (1997).

157 See id.

158 See Letter from Aida Alvarez, Administrator, SBA, to Kathleen O’Brien Ham, Chief, Auctions and Industry

Analysis Division, Wireless Telecommunications Bureau, Federal Communications Commission (Feb. 4, 1998).

159 See Rulemaking to Amend Parts 1, 2, 21, 25, of the Commission’s Rules to Redesignate the 27.5-29.5 GHz

Frequency Band, Reallocate the 29.5-30.5 Frequency Band, to Establish Rules and Policies for Local Multipoint

Distribution Service and for Fixed Satellite Services, CC Docket No. 92-297, Second Report and Order, Order on

Reconsideration, and Fifth Notice of Proposed Rule Making, 12 FCC Rcd 12545, 12689-90, para. 348 (1997).

160 See id.

161 See id.

162 See Alvarez to Phythyon Letter 1998.

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winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very small

business bidders won approximately 277 A Block licenses and 387 B Block licenses. In 1999, the

Commission re-auctioned 161 licenses; there were 32 small and very small businesses winning that won

119 licenses.

44.

218-219 MHz Service. The first auction of 218-219 MHz spectrum resulted in 170

entities winning licenses for 594 Metropolitan Statistical Area (MSA) licenses. Of the 594 licenses, 557

were won by entities qualifying as a small business. For that auction, the small business size standard

was an entity that, together with its affiliates, has no more than a $6 million net worth and, after federal

income taxes (excluding any carry over losses), has no more than $2 million in annual profits each year

for the previous two years.163 In the 218-219 MHz Report and Order and Memorandum Opinion and

Order, we established a small business size standard for a “small business” as an entity that, together with

its affiliates and persons or entities that hold interests in such an entity and their affiliates, has average

annual gross revenues not to exceed $15 million for the preceding three years.164 A “very small business”

is defined as an entity that, together with its affiliates and persons or entities that hold interests in such an

entity and its affiliates, has average annual gross revenues not to exceed $3 million for the preceding three

years.165 These size standards will be used in future auctions of 218-219 MHz spectrum.

45.

2.3 GHz Wireless Communications Services. This service can be used for fixed,

mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission defined “small

business” for the wireless communications services (“WCS”) auction as an entity with average gross

revenues of $40 million for each of the three preceding years, and a “very small business” as an entity

with average gross revenues of $15 million for each of the three preceding years.166 The SBA has

approved these definitions.167 The Commission auctioned geographic area licenses in the WCS service.

In the auction, which was conducted in 1997, there were seven bidders that won 31 licenses that qualified

as very small business entities, and one bidder that won one license that qualified as a small business

entity.

46.

1670-1675 MHz Band. An auction for one license in the 1670-1675 MHz band was

conducted in 2003. The Commission defined a “small business” as an entity with attributable average

annual gross revenues of not more than $40 million for the preceding three years and thus would be

eligible for a 15 percent discount on its winning bid for the 1670-1675 MHz band license. Further, the

Commission defined a “very small business” as an entity with attributable average annual gross revenues

of not more than $15 million for the preceding three years and thus would be eligible to receive a 25

percent discount on its winning bid for the 1670-1675 MHz band license. One license was awarded. The

winning bidder was not a small entity.

47.

3650–3700 MHz band. In March 2005, the Commission released a Report and Order

and Memorandum Opinion and Order that provides for nationwide, non-exclusive licensing of terrestrial

163 See generally Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket

No. 93-253, Fourth Report and Order, 9 FCC Rcd 2330 (1994).

164 See generally Amendment of Part 95 of the Commission’s Rules to Provide Regulatory Flexibility in the 218-219

MHz Service, WT Docket No. 98-169, Report and Order and Memorandum Opinion and Order, 15 FCC Rcd 1497

(1999) (218-219 MHz Report and Order and Memorandum Opinion and Order).

165 See id.

166 Amendment of the Commission’s Rules to Establish Part 27, the Wireless Communications Service (WCS), GN

Docket No. 96-228, Report and Order, 12 FCC Rcd 10785, 10879 para. 194 (1997).

167 See Alvarez Letter 1998.

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operations, utilizing contention-based technologies, in the 3650 MHz band (i.e., 3650–3700 MHz).168

As

of April 2010, more than 1270 licenses ha