Recently, the FCC released a full list of bidders in the Rural Broadband Experiment auction, collected information from the low bidders on that list, and released a notice providing an opportunity for those who bid to indicate by January 6 their interest in continuing with the Rural Broadband Experiment and participating in a future auction. Over the past year, I have often been asked what we sought to learn from this experiment. Let me answer that by starting with a little history.
For decades, Universal Service – access to telephone service for all – has been an obligation of telephone companies and federal funding has been provided to help meet that obligation. In 2011, the FCC decided to move to a competitive bidding process to award ongoing support to serve rural and high cost areas in certain circumstances. The FCC has become skilled at running auctions. But the auctions we typically run are spectrum auctions, and a Universal Service reverse auction is a different animal.
So, the Rural Broadband Experiment was designed to answer questions about auctions for Universal Service funding. How should such a bidding process be structured? Who would participate? Would incumbent telephone companies cross into neighboring service territories? Would other types of entities step in – cable companies, satellite broadband, electric utilities? What types of technologies would be proposed? What amount of support would be requested? What happens if the FCC's cost model, which we are currently using to allocate universal service funding, is used to set a reserve price? Is competitive bidding for universal service funds scalable to the nation? What happens in areas where there are no bids?
In size, the FCC experiment was small – $10 million a year over 10 years, or just over two-tenths of one percent of the FCC's $4.5 billion annual fund for rural universal service support. The auction bidding was aggressive and diverse. We received bids from telephone and electric co-ops, from mobile operators, from wireless internet service providers, from cable companies, from communities, and from a satellite provider. We received bids from start-ups and from companies that have been around for over 100 years. We received bids to provide broadband via copper, fiber, licensed and unlicensed spectrum. We received bids from national operators, but mostly the bids came from companies that were locally based, with more than an occasional effort to try new strategies to get broadband to unserved communities.
We received 575 bids from 181 different entities to cover homes and small businesses in over 75,000 census blocks in rural areas in every state in the country. The total amount requested far exceeded the budget, nearly nine times as much as was available to fund in the auction. And it appears that the auction succeeded in drawing bidders who believe they can provide service very economically. For example, when we compared the bids to the amount of support calculated by the FCC's cost model, the total requested in the auction in the aggregate is less than half the model-based support for those census blocks. And the total from the group of lowest bidders is just ten percent of the model-based support for those particular blocks.
Some expected that the bidding would focus on the lowest cost eligible census blocks, but that isn't what happened. In fact, bidders sought support in all types of geographic areas with varying cost characteristics, with the majority of bids in the most expensive to serve areas that will be eligible for Connect America Phase II support
We now begin the process of reviewing low bidder applications. We have required the provisionally selected bidders to demonstrate their technical and financial qualifications, as well as obtain a letter of credit and designation as an eligible telecommunications carrier, before they can receive funding. At the same, time, we are starting to design a rural broadband auction on a larger scale. While hard questions remain, we are glad to have results from this experiment to help guide our answers, and we are appreciative of the interest shown by every bidder in the auction.