December 10, 2015 - 4:15 pm
By Michael O'Rielly | Commissioner

A funny thing is happening on the way to enacting a reverse auction for a key portion of the high-cost Connect America Fund (CAF).  Instead of installing a program based on competitive forces and free market principles, some people want the Commission staff to select winners and losers with an inappropriate bias against certain technologies.  Such manipulation would be the surest way to produce greater inefficiency, overpay for service and leave many consumers unserved.  Further, this would set bad precedent and undermine future Commission universal service efforts.  Accordingly, I suggest that we reject this approach, focus on the sound, broad principles that everyone should support, and then turn to implementing the details.

Background

For those who don't follow the ins and outs of the Commission’s attempt to modernize its universal service fund, here is a quick synopsis of this key portion:

  • The Commission’s Connect America Fund (as opposed to Lifeline, E-Rate or rural healthcare) has separate programs for price cap carriers and rate of return carriers. 
  • Earlier this year, incumbent price cap carriers had the right-of-first-refusal (ROFR) to elect – on a state by state basis – to take CAF support to provide broadband within their territories.  
  • For those areas not selected by the incumbents, and potentially some additional high-cost areas, the Commission is set to hold a reverse auction by which broadband providers would be selected to offer service in these areas.  In a reverse auction, providers would bid down on how much Commission CAF support they would receive to serve an area with broadband.
  • The Commission has talked about making available $175 million per year (or $1.75 billion over 10 years) for the CAF Post-ROFR Reverse Auction.

Fundamental Principles

  1. Maximize Coverage:  Overall direction must be to serve as many unserved consumers as possible with service that meets specified baseline performance requirements.
  • Today, millions of Americans, especially in rural areas, lack sufficient broadband, as they struggle with slow speeds or no service at all.  Since there is a limited pot of funding and many areas that need support, the Commission needs to stretch scarce CAF dollars as far as possible.  In other words, we should buy fewer Lamborghinis and more Chevys.  After all, the statute directs us to promote universal service.
  1. No Categories:  Must start with a level playing field.  Eliminate artificial categories, which could discount providers capable of providing the requisite service, and are based on unsupported assumptions.
  • In its “Rural Broadband Experiments” and in other efforts, the Commission has shown a fondness of setting up categories or tiers by which funding would be sliced up in an arbitrary, predetermined manner.  But in a true market-based reverse auction, the auction process decides which type of providers prevail rather than some set allocation.  The most fulsome auction is one in which every interested provider that can meet the baseline requirements competes at once.  The auction structure, rather than staff, can account for the different technologies and cost points. 
  1. Open to All Technologies:  Fiber should not be the default, nor should unlicensed, satellite or other qualified providers be sidelined.
  • While some may see this as similar to the previous point, it can be quite different.  Specifically, the Commission could bestow preferences for service offerings that provide higher speeds or greater capacity, without respect to technology (e.g., bidding credits, bonus payments, point systems).  Fiber is a wonderful technology but there is no way the Commission can afford it for all of the areas in the CAF Post-ROFR Auction.  More importantly, if satellite or unlicensed wireless offerings are able to do the job, they should not be arbitrarily excluded.  And by the way, consumers seem to love wireless technologies when given the choice.   
  1. Multi-round Auction:  Establish a real auction – not sealed bids or subjective staff review.  Multi-round structure enables competition, where it exists, to achieve greater cost-efficiencies.
  • It is hard to fathom that there is even discussion of allowing staff to select fund recipients in a sealed bid-like process, like how a city might select a garbage company, and calling it an auction.  Think about this: the Commission is preparing to hold highly complex, simultaneous reverse and forward auctions to sell broadcast licenses to wireless providers, but somehow here it's too difficult to do a standalone reverse auction for a small subset of the country.  Really? 
  1. No Overbuilding:  Funding should not flow to areas that already have broadband (i.e., 10/1 service for price cap areas).
  • Given the reasonable constraints on funding, the Commission should exclude areas that are already being served by broadband.  While updating already served territories could be beneficial, it puts at risk bringing service to more unserved Americans.  Why should some places get CAF-funded network upgrades before all Americans have some broadband availability?   

 

Updated: 
December 10, 2015