Connect America Fund, ETC Annual Reports and Certifications, 45705-45728 [2014-18328]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 79, Number 151 (Wednesday, August 6, 2014)]
[Rules and Regulations]
[Pages 45705-45728]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18328]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 14-58; FCC 14-98]


Connect America Fund, ETC Annual Reports and Certifications

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) finalizes 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. The Commission 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.

DATES: Effective September 5, 2014, except for the application process 
and reporting requirements that contain new or modified information 
collection requirements that will not be effective until approved by 
the Office of Management and Budget. The Commission will publish a 
document in the Federal Register announcing OMB approval.

FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition 
Bureau, (202) 418-7400 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in WC Docket Nos. 10-90, 14-58; FCC 14-98, adopted on July 
11, 2014 and released on July 14, 2014. The full text of this document, 
including all appendices, is available for public inspection during 
regular business hours in the FCC Reference Center, Room CY-A257, 445 
12th Street SW., Washington, DC 20554. Or at the following Internet 
address: https://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0714/FCC-14-98A1.pdf. The Further Notice of Proposed Rulemaking 
(FNPRM) that was adopted concurrently with the Report and Order will be 
published elsewhere in the Federal Register.

I. Introduction

    1. Today the Commission takes 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. The Commission finalizes 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. 
The 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, 
79 FR 11366, February 28, 2014. The Commission describes the 
application process and announces that formal applications must be 
submitted by 90 days from release of the Order. The Commission 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.

II. Discussion

    2. The Commission explained in the Tech Transitions Order, 79 FR 
11327, February 28, 2014, that it must ``ensure that all Americans 
benefit from the technology transitions, and that it gains 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.'' In the Order, the 
Commission adopts certain parameters and requirements for the rural 
broadband experiments that will assist us with accomplishing these 
goals. The Commission expects 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. In addition to gathering information relevant to broader 
questions implicated by technology transitions, the Commission expects 
these experiments also will inform key decisions that the Commission 
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. The Commission still 
expects to implement the offer of model-based support to price cap 
carriers in the coming months, and it 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, the Commission expects to be considering near-term 
reforms for rate-of-return carriers, based on the record it will 
shortly receive in response to the recent Connect America Fund FNPRM, 
79 FR 39196, July 9, 2014, while it continues to develop a Connect 
America Fund for those carriers.
    3. The Commission adopts 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. The Commission also determines the objective 
methodology for selecting projects among the applications it receives 
for the experiments. Given the manner in which the Commission has 
structured the budget and the selection criteria, it believes that it 
will be able to fund a range of diverse projects throughout the 
country. Finally, the Commission outlines 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.
    4. In the Technology Transitions Order, the Commission noted our 
desire to work cooperatively with other governmental entities to 
advance our shared objectives of ensuring access to broadband services. 
The Commission noted that it was ``particularly interested in how 
States, localities, Tribal governments, and other non-federal 
governmental bodies can provide assistance, through matching

[[Page 45706]]

funds, in-kind contributions or other regulatory approvals and permits, 
to improve the business case for deployment of next generation 
networks.'' The Commission 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. The Commission also seeks comment in the concurrently 
adopted FNPRM regarding measures the Commission 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

    5. In the Tech Transitions FNPRM, the Commission sought comment on 
the amount of support it should make available for the rural broadband 
experiments. Here, the Commission adopts 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. The Commission now 
concludes it is appropriate to provide another round of funding in 
price cap territories that will advance our swift implementation of 
Phase II.
    6. The Commission concludes 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 the Commission identified in the 
Tech Transitions Order. The Commission intends 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 the 
Commission should maximize the number of experiments that get funding 
and advocate adoption of a budget that exceeds the $100 million the 
Commission adopts today, it notes that the Commission's goal is not to 
fund as many experiments as possible, but rather to advance 
implementation of the Connect America Fund. The Commission is mindful 
of our commitment not to delay the implementation of Phase II. 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. Instead, the Commission's goal is to quickly gather 
data from submitted formal proposals about various technologies in 
different geographic areas to inform our judgment as it addresses 
important policy issues regarding how to maintain universal access in 
rural areas during technology transitions. The Commission's expect that 
what it learns 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 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.
    7. Source of Funds. As the Commission proposed in the Tech 
Transitions FNPRM, 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. The 
Commission finds 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 the Commission design the Phase II competitive bidding process and 
the Remote Areas Fund to efficiently achieve this goal throughout the 
country. Using unallocated support from the reserve account will also 
ensure that the Commission will not increase the size of the Universal 
Service Fund or Connect America budget, that it will not increase the 
contribution burden on consumers, and that it will not divert resources 
from other universal service programs. The Commission will consider 
appropriate treatment of any unallocated funds in the future.

B. Support Term

    8. The Commission concludes that it 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. Subsequently, in April, the Commission adopted a support term 
of 10 years for the competitive bidding process in the Connect America 
Fund Order, 79 FR 39164, July 9, 2014. One of the Commission's primary 
objectives for these experiments is to learn how to structure a 
competitive bidding process for recurring support. The Commission 
therefore concludes 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. Moreover, permitting entities 
to define the length of their support terms would add to the complexity 
of administering the experiments.

C. Eligibility

1. Eligible Areas
    9. In the USF/ICC Transformation FNPRM, 76 FR 78384, December 16, 
2011, the Commission 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. 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. In the Tech Transitions Order, the 
Commission 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. The Commission did so 
because it was 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. 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.
    10. The rural broadband experiments, in addition to providing 
robust last-mile broadband service to consumers in rural

[[Page 45707]]

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, the 
Commission now concludes that 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. The Commission 
recognizes that some parties may be able to submit cost-effective 
proposals that would encompass all of the eligible census blocks within 
a tract, and it continues 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, the Commission 
waives the requirement to file proposals at the census tract level. By 
accepting proposals at the census block level, the Commission hopes 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.
    11. 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. The Commission requires applicants to commit to 
serving the total number of price cap 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.
    12. 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 model-based support to 
price cap carriers because they are also served by an unsubsidized 
competitor. After reviewing the record, the Commission concludes 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. Further, CenturyLink observes that allowing 
partially-served blocks would require the Commission to adjust model-
based support amounts and conduct a challenge process. Because doing so 
would add complexity and time, as well as divert Commission attention 
and resources, the Commission declines 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.
    13. The Commission also decides that it will accept rural broadband 
experiment proposals only from entities that seek to provide service in 
price cap territories. Over the coming months, the Commission will be 
focused on reviewing the record it will shortly receive regarding near 
term and longer term reforms to develop a Connect America Fund for 
rate-of-return carriers. The Commission believes 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.
    14. 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. A number of 
commenters supported this proposal. The Commission adopts this 
approach, concluding that it furthers our policy of not providing 
duplicative support in a given area. Specifically, once winning bidders 
are identified, the Wireline Competition Bureau (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. The Commission also determines that it will exclude any area 
funded through the rural broadband experiments from the Phase II 
competitive bidding process.
    15. The Commission concludes that areas served by competitive 
eligible telecommunications carriers (ETCs) will be eligible for 
support in the rural broadband experiments. The Commission notes that 
it received a number of expressions of interest from competitive 
affiliates of rate-of-return carriers operating out of region in price 
cap territories, and it recognizes that these carriers may be 
interested in submitting rural broadband experiment proposals, alone or 
in partnership with other entities. The Commission is 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.
    16. 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 their Phase II support. 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. The 
Commission believes it is important to implement the measures that the 
Commission has already adopted for the Phase II competitive

[[Page 45708]]

bidding process to the extent possible in these experiments.
2. Applicant Eligibility
    17. The Commission concluded in the Tech Transitions Order that it 
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. The Commission was 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.
    18. The Commission reminds 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. As stated in the Tech Transitions Order, the Commission expects 
entities to confirm their ETC status within 90 days of the public 
notice announcing the winning bidders selected to receive funding. 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. The Commission concludes 
this is necessary so that it 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.
    19. The Commission 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. Multiple commenters 
supported this proposal. The Commission now concludes that, for 
purposes of 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). Although the 
Commission is confident that states share our desire to work 
cooperatively to advance broadband, and it expects 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, the Commission also recognizes 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.
3. Three Types of Experiments
    20. 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 the Commission's current standards; and $10 million for 
projects dedicated to serving extremely high-cost locations. Below, the 
Commission outlines 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.
    21. The Commission stated in the Tech Transitions Order that its 
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. 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, the Commission 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, 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 the Commission expects 
to make in the coming months regarding proposals set forth in the 
Connect America Fund FNPRM.
    22. 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, the Commission makes 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. 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).
    23. The Commission 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.
    24. The Commission also is 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. The Commission 
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. 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. The Commission expects 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, the Commission hopes to learn more 
about interest in the deployment of various fixed wireless solutions,

[[Page 45709]]

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.
    25. Satellite providers that are interested in serving extremely 
high-cost locations may submit proposals for participation in the rural 
broadband experiments. The Commission recognizes, however, that these 
providers may not be able to satisfy the 100 ms latency standard that 
it establishes for the other two groups. Therefore, the Commission 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
    26. In the Tech Transitions FNPRM, 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. 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.
    27. Based on further consideration and our review of the record, 
the Commission concludes that it 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 the Commission has structured our selection process 
to choose experiments from three separate categories, it expects to 
select a diversity of projects in terms of geography and technologies. 
Recognizing unique challenges in serving Tribal lands, the Commission 
provides 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, the Commission requires 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.
    28. The Commission concludes that it should use cost-effectiveness 
to select applications, and it 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, the Commission 
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, the Commission will select applications based on the 
lowest-cost per location. The Commission finds 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. The Commission 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. The Commission seeks more focused comment in the 
concurrently adopted 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.
    29. 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. The Commission concludes that it 
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. The Commission recognizes that 
it could potentially extend the availability of broadband-capable 
networks to more locations if it 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, the Commission also hopes 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, the 
Commission expects 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 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.
    30. Some commenters suggest that the Commission should measure 
cost-effectiveness in relation to broadband speeds. The Commission 
concludes that the approach it adopts 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.
    31. For purposes of evaluating cost-effectiveness in comparison to 
the model, among applicants in each of the first two experiment 
categories, the Commission 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, the Commission will 
divide the total amount of support requested for each proposal by ten 
so it can compare proposals to annual model-based support amounts. Then 
the Commission will calculate each proposal's requested support per 
location and divide that number by the model-based support per 
location. Using these ratios, the Commission 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.

[[Page 45710]]

    32. 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. The Commission anticipates 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, the Commission 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. 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.
    33. For purposes of evaluating proposals in category three, the 
Commission will calculate the cost per location, and rank these 
applications on a dollar requested per location basis, from lowest to 
highest. The Commission will select projects based on the lowest cost 
per location, until the budget is exhausted. 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.
    34. 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. The Commission does 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, the Commission 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, the Commission 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, the 
Commission will select the supported project randomly.
2. Measures To Ensure Diversity of Projects
    35. Given our interest in testing how a variety of entities use 
Connect America funds in various geographic locations, and deploy 
different types of technologies, the Commission finds that it will be 
advantageous to award support to a diverse group of projects within the 
$100 million budget. Below, the Commission adopts 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.
    36. Funding Limits. There has been a wide variety in the funding 
amounts requested by interested entities. To preclude one entity or one 
project from exhausting the entire budget, the Commission places limits 
on the amount of funding that each project and each entity can receive. 
With these limits, the Commission balances 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, the Commission expects that the projects that ultimately win 
support will be geographically diverse.
    37. First, the Commission adopts project limits for each experiment 
category it adopts above to ensure that it awards support to multiple 
projects within each category. The Commission places 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. The Commission chooses these 
numbers to ensure that it is able to select at least two projects in 
each category, to provide greater diversity.
    38. Second, the Commission adopts an overall limit of $20 million 
per entity, including its affiliates. Each entity and its affiliates 
will be precluded from being awarded more than $20 million in support 
across all three experiment categories. This limit also applies in 
situations where an entity is in more than one consortium.
    39. Service to Tribal Lands. In the Tech Transitions FNPRM, the 
Commission sought comment on including as a selection criterion whether 
applicants propose to offer high-capacity connectivity to Tribal lands. 
Rather than a separate selection criterion that the Commission would 
have to measure against cost-effectiveness, it now concludes that using 
a bidding credit is more consistent with the type of objective 
selection criteria it is adopting for the experiments and the 
Commission's precedent. This is consistent with our Connect America 
Fund FNPRM, which sought comment on using bidding credits for service 
to Tribal lands.
    40. For the purposes of the rural broadband experiments, the 
Commission adopts 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, the Commission directs 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. Because the Commission is focused on swiftly implementing these 
experiments, it will not entertain any proposals to modify this list.
3. Mechanics of the Bidding Process
    41. To participate in the rural broadband experiments, entities 
must submit a formal application to the Commission. The formal 
application must be submitted no later than 90 days from the release of 
the Order. 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

[[Page 45711]]

obligations in each area they seek support.
    42. The Commission requires 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, the 
Commission requires only one entity in the partnership to be registered 
with a FRN.
    43. 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.
    44. 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. The Commission notes 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. Applications with a total request for 
funding that exceeds the model-based support calculation will not be 
considered. Therefore, the Commission expects 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.
    45. 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. As the Commission noted in the Tech 
Transitions Order, rural areas are home to a higher proportion of low-
income Americans. The Commission seeks 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, 
whether it will have a broadband offering for low-income consumers, and 
whether it will permit qualifying consumers to apply the Lifeline 
discount to bundled voice and data services.
    46. 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. The 
Commission concludes 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
    47. The 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. To the extent that 
a challenge is granted in whole or in part, funding for those locations 
will be adjusted proportionately.
    48. 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.
    49. The Commission has recognized network security as an imperative 
in technology transitions. 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, the Commission seeks to promote the sustainability of rural 
broadband through early planning to incorporate effective cybersecurity 
risk management measures. The Commission commits 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. 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

[[Page 45712]]

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.
    50. Within 10 business days of public notice of winning bidders, 
the Commission requires 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, the Commission requires 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. 
Finally, each selected applicant is required to provide within 90 days 
of public notice of winning bidders appropriate documentation of its 
ETC designation in all the areas for which it will receive support and 
certify that the information submitted is accurate. 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, the Commission requires 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 
it describes 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.
    51. Requirements for Letters of Credit. The Commission requires a 
winning bidder to secure an irrevocable stand-by original LOC for its 
winning project before support will be disbursed. The Commission's 
decision to require entities to obtain a LOC is consistent with the 
requirements it has adopted for other competitive bidding processes the 
Commission has conducted to distribute Connect America funds, where 
both existing providers and new entrants were required to obtain LOCs. 
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. 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 the Commission adopts in this Order, and fails 
to cure within the requisite time period, 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. 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.
    52. As the Commission found when it established Mobility Fund Phase 
I, 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 from being used promptly to accomplish our goals. 
These concerns are relevant to both new entrants and established 
providers.
    53. While our existing accountability measures help ensure that 
Connect America funds are being used to deploy or sustain broadband and 
voice-capable networks, the Commission concludes 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 it sees no reason to depart from this 
practice for the rural broadband experiments. The Commission continues 
to view them as beneficial and our experience has shown that winning 
bidders are able to obtain LOCs.
    54. 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. 
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.
    55. 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 the Commission adopts are largely the same as the requirements 
the Commission adopted for Mobility Fund Phase I and Tribal Mobility 
Fund Phase I, although it adopts several modifications to enlarge the 
potential pool of eligible banks for purposes of these experiments. 
First, the Commission requires 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). The Commission expands the pool of 
eligible banks from the top 50 to the top 100 banks for purposes of 
these rural broadband experiments because it expects the projects to be 
small in scale, and thus drawing on the LOC is unlikely to exhaust the 
assets of any bank in the top 100. The Commission has 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 the 
Commission expects 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 it finds that it is 
beneficial

[[Page 45713]]

to increase the number of options from which they can choose. The 
Commission also requires 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, 
the Commission requires 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, the Commission will enlarge the pool of eligible issuing banks, 
without significantly increasing risk to the universal service fund.
    56. To provide more flexibility, the Commission also concludes 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). The Commission finds that Farm 
Credit System Insurance Corporation (FCSIC) insurance provides 
protection that is equivalent to those indicated by holding FDIC-
insured deposits. Thus, the agricultural credit bank must have its 
obligations insured by the FCSIC. The agricultural credit bank must 
also meet the other requirements that the Commission has 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. 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.
    57. 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. The 
Commission also reserves the right to temporarily cease disbursements 
of monthly support until the recipient submits to us a new LOC that 
meets our requirements.
    58. 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 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.
    59. 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.
    60. Costs of Obtaining LOCs. Now that the Commission has experience 
with LOCs in the Mobility Fund Phase I and Tribal Mobility Fund Phase I 
auction, it is confident that winning bidders will be able to secure 
LOCs. The Commission notes 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. The Commission recognizes that banks 
charge fees for obtaining LOCs and also may charge renewal fees. But 
the Commission finds 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. And as the Commission noted in the USF/ICC 
Transformation Order, 76 FR 73830, November 29, 2011, LOCs are 
regularly used in the course of business, and companies that use 
existing lenders are able to use multiple forms of financing. 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. The Commission also notes that applicants can 
factor in the costs of LOCs when submitting their bids.
    61. Applicability to All Winning Bidders. The Commission's 
paramount objective is to establish strong safeguards to protect 
against misuse of the Connect America Fund. The Commission concludes 
that requiring all entities to obtain a LOC is a necessary measure to 
ensure that it can recover support from any recipient that cannot meet 
the build-out obligations and public service obligations of the rural 
broadband experiments. The Commission also agrees with those commenters 
that argue that requiring all recipients to obtain a LOC will ensure 
that all recipients are subject to the same default process if they do 
not comply with the experiments' terms and conditions.
    62. The Commission is not persuaded by arguments that it 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. 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. The Commission finds 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.
    63. Tribal Nations and Tribally-Owned Applicants. Based on the 
Commission's experience in implementing LOCs for Mobility Fund Phase I 
and Tribal Mobility Fund Phase I, it recognizes 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. 
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. The Commission finds that such situations with respect to 
Tribal Nations are best handled on a case-by-case basis through the 
waiver process.

[[Page 45714]]

    64. 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, the 
Commission concludes that it will be manageable to address this 
situation on a waiver basis if such entities become winning bidders.
    65. 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 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. The Commission also adopts 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.
    66. 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.
    67. Moreover, the Commission is not persuaded that LOCs raise due 
process concerns. 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 the Commission discusses 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

    68. 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. . .'' The Commission also sought comment on 
whether it should adopt any rules or requirements specific to the rural 
broadband experiments. Here, the Commission adopts several conditions 
that winning bidders must meet to receive rural broadband experiment 
support. The conditions the Commission adopts 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 
the Commission can leverage when making key policy decisions regarding 
both universal service and technology transitions.
1. Build-Out Requirements
    69. The Commission requires winning bidders to meet certain build-
out requirements during their support term. Consistent with the build-
out requirements the Commission has already adopted for the Connect 
America Fund, it finds 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.
    70. Build-Out Requirements for all Recipients. As the Commission 
discusses 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 it has adopted for the Phase II 
competitive bidding process. 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. During this support term, the recipients will be 
required to meet interim build-out requirements consistent with the 
build-out requirements the Commission has adopted generally for 
recipients of Connect America Phase II funding. By the end of the third 
year, the recipients must offer service meeting the public service 
obligations the Commission 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 the Commission 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.
    71. Accelerated Disbursement Option. Although the Commission adopts 
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 the Commission can learn from 
these deployments and leverage that knowledge when making policy 
decisions regarding technology transitions, it also provides 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, the Commission 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

[[Page 45715]]

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, the 
Commission requires 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).
2. Accountability Requirements
    72. 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. Here, the Commission provides more details regarding the 
framework for accountability that it adopts for recipients of the rural 
broadband experiments. The reports, certifications, and other 
accountability measures the Commission adopts serve a dual purpose. 
First, a framework for accountability ``is critical to ensure 
appropriate use of high-cost support'' and allows the Commission to 
detect and deter waste, fraud, and abuse. Second, the framework the 
Commission adopts below will permit us to quickly gather data about how 
the experiment funds are being put to use, which will inform policy 
decisions it ultimately makes for Phase II and our other universal 
service programs.
    73. Annual Reports. All recipients of Connect America support are 
required to file an annual report pursuant to Sec.  54.313 of the 
Commission's rules by July 1st of each year. This requirement also 
applies to recipients of support in the rural broadband experiments. 
The Commission finds there is good cause, however, to waive on our own 
motion Sec.  54.313(a)(1) of the Commission's rules for recipients of 
rural broadband experiment support. Because the Commission adopts other 
requirements for the rural broadband experiments recipients that will 
ensure that it will be kept apprised of their build-out progress, the 
Commission finds that it is unnecessary to require these entities to 
file a five-year service quality plan.
    74. As the Commission requires of price cap carriers accepting 
model-based support, it also requires 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. Recipients may use the approach adopted in the 
Bureau's Phase II Service Obligations Order, 78 FR 70881, November 27, 
2013, to measure latency.
    75. In addition, because these rural broadband experiments 
represent the first implementation of Phase II of the Connect America 
Fund, the Commission requires 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. The Commission 
concludes 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.
    76. The Commission 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. 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, the Commission requires all recipients of the rural 
broadband experiments to file with their annual reports evidence 
demonstrating to which locations they have deployed facilities. This 
information must be current as of the June 1st immediately preceding 
the July 1st deadline. 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. The materials must at least detail the pricing, offered 
broadband speed, and data usage allowances available in the relevant 
geographic area.
    77. To ensure that rural broadband experiment funds are being used 
for their intended purposes, the Commission also finds that it would be 
helpful to monitor the recipients' progress in deploying their networks 
prior to the deadline for the first annual report, which it anticipates 
will be July 2016. Thus, the Commission will require all recipients to 
file an interim report on the November 1st after they receive their 
first disbursement. 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. 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.
    78. 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 Sec.  54.314 of the Commission's rules stating that ``all 
federal high-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.'' 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.
    79. The Commission also requires experiment recipients to certify 
when they have met the build-out requirements defined above. 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

[[Page 45716]]

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. 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 the Commission describes 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. The Commission expects 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.
    80. Compliance Reviews. The Commission reiterates that all 
recipients of rural broadband experiment support are subject to 
compliance reviews and other investigations so that it can detect and 
deter waste, fraud, and abuse, and ensure that rural broadband 
experiment support is being used for its intended purpose.
    81. Record Retention. The Commission also reiterates that rural 
broadband experiment recipients are subject to the 10 year record 
retention requirement adopted in the USF/ICC Transformation Order. This 
requirement will ensure that documents related to the experiments are 
available to facilitate USAC audits and other oversight measures.
3. Data Gathering
    82. 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. 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. The Commission finds 
that collecting data from the rural broadband experiments would 
similarly help them answer some of the key policy questions they 
identified in the Tech Transitions Order. The Commission therefore 
requires 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.
    83. As the 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. The Commission believes 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, the Commission expects 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. The Commission notes 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.

F. Measures To Ensure Compliance

    84. 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.'' Here, the Commission adopts specific measures 
to ensure participants meet the terms and conditions of the rural 
broadband experiments.
    85. 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. Thus, here the Commission adopts 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. The Commission also notes that it intends to 
enforce the terms and conditions vigorously. 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.
    86. 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, or the winning bidder failed to keep open 
and renew its LOC as required above, it will be a performance default. 
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 the Commission has adopted for the experiments, 
including speed, latency, data usage, and reasonably comparable 
pricing. The Commission expects 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.
    87. 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.
    88. 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

[[Page 45717]]

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.
    89. 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. If after USAC recovers the support under the LOC, the 
winning bidder is able to 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.
    90. Forfeiture. To further impress upon recipients the importance 
of complying with the rural broadband experiments' terms and 
conditions, the Commission notes that it will enforce these 
requirements vigorously. The Enforcement Bureau may initiate an 
enforcement proceeding in the event of a default or after the 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.
    91. 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 Sec.  1.3 of the Commission's 
rules. The petitioning entity will then have the cure period described 
above to meet the terms and conditions of the experiment. The 
Commission encourages 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 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. The Commission notes 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. The Commission expects 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.
    92. 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. Recipients may also be 
subject other sanctions for non-compliance with the terms and 
conditions of the rural broadband experiments or the Commission's 
rules, including, but not limited to, potential revocation of ETC 
designation and disqualification from future competitive bidding for 
universal service support.

III. Procedural Matters

A. Paperwork Reduction Analysis

    93. 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, the Commission notes that pursuant to the 
Small Business Paperwork Relief Act of 2002, it previously sought 
specific comment on how the Commission might further reduce the 
information collection burden for small business concerns with fewer 
than 25 employees. The Commission describes 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.

B. Final Regulatory Flexibility Analysis

    94. As required by the Regulatory Flexibility Act of 1980 (RFA), as 
amended, an Initial Regulatory Flexibility Analyses (IRFA) was 
incorporated in the Further Notice of Proposed Rulemaking (USF/ICC 
Transformation FNPRM). 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. 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.

A. Need for, and Objectives of the Report and Order

    95. The Commission explained in the Tech Transitions Order that the 
Commission must ``ensure that all Americans benefit from the technology 
transitions, and that it gains 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.'' In this Order, the Commission adopts certain 
parameters and requirements for the rural broadband experiments that 
will assist us with accomplishing these goals. The Commission expects 
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. In addition to gathering 
information relevant to broader questions implicated by technology 
transitions, the Commission expects these experiments also will inform 
key decisions that the Commission will be making in the coming months 
regarding the Connect America Fund.
    96. The Commission adopts a budget of $100 million for funding 
experiments in price cap areas focused on bringing

[[Page 45718]]

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. 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. Applications will be due 90 days from the release of this 
Order. The Commission also determines the objective methodology for 
selecting projects among the applications it receives for the 
experiments. Given the manner in which the Commission has structured 
the budget and the selection criteria, it believes that it will be able 
to fund a range of diverse projects throughout the country. Finally, 
the Commission outlines 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.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    97. 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

    98. 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. The RFA generally defines the 
term ``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small-business concern'' under the Small Business 
Act. 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.
    99. Small Businesses. Nationwide, there are a total of 
approximately 28.2 million small businesses, according to the SBA.
    100. 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. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    101. 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. According to Commission data, 1,307 carriers reported 
that they were incumbent local exchange service providers. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. 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.
    102. 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. According to 
Commission data, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 have more than 1,500 employees. 
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.
    103. The Commission has 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.'' 
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. The Commission has 
therefore included small incumbent LECs in this RFA analysis, although 
it emphasizes that this RFA action has no effect on Commission analyses 
and determinations in other, non-RFA contexts.
    104. 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. 
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. Of these 1,442 carriers, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. 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. In addition, 72 carriers have reported that they 
are Other Local Service Providers. Of the 72, seventy have 1,500 or 
fewer employees and two have more than 1,500 employees. 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.
    105. 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. According to Commission data, 359 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 359 companies, an 
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 
employees. 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.
    106. 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

[[Page 45719]]

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. According to Commission data, 193 carriers 
have reported that they are engaged in the provision of prepaid calling 
cards. Of these, an estimated all 193 have 1,500 or fewer employees and 
none have more than 1,500 employees. 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.
    107. 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. According to Commission data, 213 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 211 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
rules adopted pursuant to the Order.
    108. 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. According to Commission data, 881 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 857 have 1,500 or fewer employees and 24 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
rules adopted pursuant to the Order.
    109. 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. 
According to Commission data, 284 companies reported that their primary 
telecommunications service activity was the provision of other toll 
carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
five have more than 1,500 employees. 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.
    110. 800 and 800-Like Service Subscribers. 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. 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. 
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. The Commission does 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, the Commission estimates 
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.
    111. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of Paging and Cellular and Other Wireless 
Telecommunications. Under the present and prior categories, the SBA has 
deemed a wireless business to be small if it has 1,500 or fewer 
employees. For this category, census data for 2007 show that there were 
1,383 firms that operated for the entire year. Of this total, 1,368 
firms had employment of 999 or fewer employees and 15 had employment of 
1000 employees or more. 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. Of these, 
an estimated 261 have 1,500 or fewer employees and 152 have more than 
1,500 employees. Consequently, the Commission estimates that 
approximately half or more of these firms can be considered small. 
Thus, using available data, the Commission estimates that the majority 
of wireless firms can be considered small.
    112. 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. 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. These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. 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. In 1999, the 
Commission re-auctioned 347 C, E, and F Block licenses. 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. 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. 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. Of the 14 winning bidders, six were 
designated entities. In 2008, the Commission completed an auction of 20 
Broadband PCS licenses in the C, D, E and F block licenses in Auction 
78.
    113. Advanced Wireless Services. In 2008, the Commission conducted 
the auction of Advanced Wireless Services

[[Page 45720]]

(``AWS'') licenses. 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. Four winning bidders that 
identified themselves as very small businesses won 17 licenses. 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.
    114. 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 revenues for the prior three calendar years of $40 
million or less. Through these auctions, the Commission awarded a total 
of 41 licenses, 11 of which were obtained by four small businesses. 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, 65 FR 35843, 
June 6, 2000. 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. 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. The SBA has approved these small business 
size standards. A third auction was conducted in 2001. Here, five 
bidders won 317 (Metropolitan Trading Areas and nationwide) licenses. 
Three of these claimed status as a small or very small entity and won 
311 licenses.
    115. Paging (Private and Common Carrier). In the Paging Third 
Report and Order, 64 FR 33762, June 24, 1999, the Commission 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. 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. According to Commission data, 291 
carriers have reported that they are engaged in Paging or Messaging 
Service. Of these, an estimated 289 have 1,500 or fewer employees, and 
two have more than 1,500 employees. 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 licenses. 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. 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. 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.
    116. 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, the Commission applies 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. 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.
    117. 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, 62 
FR 15978, April 3, 1997, the Commission 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. 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. 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. The SBA has approved these 
small business size standards. Auctions of Phase II licenses commenced 
on September 15, 1998, and closed on October 22, 1998. 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.
    118. 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. 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. The SBA has 
approved these small business size standards for the 800 MHz and 900 
MHz SMR Services. The Commission has held auctions for geographic area 
licenses in the 800 MHz and 900 MHz

[[Page 45721]]

bands. The 900 MHz SMR auction was completed in 1996. 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. 
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. 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.
    119. 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. 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. Of the 22 winning bidders, 19 claimed 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.
    120. In addition, there are numerous incumbent site-by-site SMR 
licensees and licensees with extended implementation authorizations in 
the 800 and 900 MHz bands. The Commission does 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, the Commission does not know how many 
of these firms have 1,500 or fewer employees. The Commission assumes, 
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.
    121. 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'')). 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. 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, the Commission estimates 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. After adding the number of small business auction 
licensees to the number of incumbent licensees not already counted, the 
Commission finds 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. In 2009, 
the Commission conducted Auction 86, which offered 78 BRS licenses. 
Auction 86 concluded with ten bidders winning 61 licenses. 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.
    122. 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. Thus, the Commission estimates 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.'' 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. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1000 
employees or more. Thus, under this size standard, the majority of 
firms can be considered small and may be affected by rules adopted 
pursuant to the Order.
    123. 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. 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. 
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. 
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. The SBA approved these small size standards. 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

[[Page 45722]]

the 740 licenses available for auction, 484 licenses were sold to 102 
winning bidders. Seventy-two of the winning bidders claimed small 
business, very small business or entrepreneur status and won a total of 
329 licenses. 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. 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. 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.
    124. In 2007, the Commission reexamined its rules governing the 700 
MHz band in the 700 MHz Second Report and Order, 72 FR 48814, August 
24, 2007. 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. An auction of A, B 
and E block licenses in the Lower 700 MHz band was held in 2008. 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 seven winning bidders in 
Auction 92 claimed very small business status, winning a total of four 
licenses.
    125. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and 
Order, the Commission revised its rules regarding Upper 700 MHz band 
licenses. In 2008, the Commission conducted Auction 73 in which C and D 
block licenses in the Upper 700 MHz band were available. 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).
    126. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, 
65 FR 17594, April 4, 2000, the Commission 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. 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. 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. An auction of 52 Major Economic 
Area (MEA) licenses commenced on September 6, 2000, and closed on 
September 21, 2000. 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.
    127. 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. 
Bidding credits for designated entities were not available in Auction 
77. 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.
    128. 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, the Commission uses 
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. 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. The Commission notes 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.
    129. As of March 2010, there were 424,162 PLMR licensees operating 
921,909 transmitters in the PLMR bands below 512 MHz. The Commission 
notes 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.
    130. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio System (BETRS). In the present 
context, the Commission 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. 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.
    131. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. The Commission 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. There are approximately 100 licensees in the Air-Ground 
Radiotelephone Service, and the Commission estimates 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.
    132. 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

[[Page 45723]]

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. Census data for 
2007, which supersede data contained in the 2002 Census, show that 
there were 1,383 firms that operated that year. 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, the Commission estimates 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. 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. 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.
    133. Fixed Microwave Services. Fixed microwave services include 
common carrier, private operational-fixed, and broadcast auxiliary 
radio services. 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. 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 may be affected by the rules 
and policies adopted herein. The Commission notes, however, that the 
common carrier microwave fixed licensee category includes some large 
entities.
    134. 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. 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. Census data for 
2007, which supersede data contained in the 2002 Census, show that 
there were 1,383 firms that operated that year. 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.
    135. 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. 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. The 
SBA has approved these small business size standards. 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.
    136. 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. 
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. 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. The SBA has 
approved these small business size standards in the context of LMDS 
auctions. There were 93 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.
    137. 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. In the 
218-219 MHz Report and Order and Memorandum Opinion and Order, 64 FR 
59656, November 3, 1999, the Commission 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. 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. These size standards will be used in 
future auctions of 218-219 MHz spectrum.
    138. 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''

[[Page 45724]]

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. The SBA has approved these definitions. 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.
    139. 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.
    140. 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 operations, 
utilizing contention-based technologies, in the 3650 MHz band (i.e., 
3650-3700 MHz). As of April 2010, more than 1270 licenses have been 
granted and more than 7433 sites have been registered. The Commission 
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the 
Commission estimates that the majority of these licensees are Internet 
Access Service Providers (ISPs) and that most of those licensees are 
small businesses.
    141. 24 GHz--Incumbent Licensees. This analysis may affect 
incumbent licensees who were relocated to the 24 GHz band from the 18 
GHz band, and applicants who wish to provide services in the 24 GHz 
band. For this service, the Commission uses the SBA small business size 
standard for the category ``Wireless Telecommunications Carriers 
(except satellite),'' which is 1,500 or fewer employees. To gauge small 
business prevalence for these cable services the Commission must, 
however, use the most current census data. Census data for 2007, which 
supersede data contained in the 2002 Census, show that there were 1,383 
firms that operated that year. 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. The Commission notes that the Census' 
use of the classifications ``firms'' does not track the number of 
``licenses''. The Commission believes that there are only two licensees 
in the 24 GHz band that were relocated from the 18 GHz band, Teligent 
and TRW, Inc. It is our understanding that Teligent and its related 
companies have less than 1,500 employees, though this may change in the 
future. TRW is not a small entity. Thus, only one incumbent licensee in 
the 24 GHz band is a small business entity.
    142. 24 GHz--Future Licensees. With respect to new applicants in 
the 24 GHz band, the size standard for ``small business'' is an entity 
that, together with controlling interests and affiliates, has average 
annual gross revenues for the three preceding years not in excess of 
$15 million. ``Very small business'' in the 24 GHz band is an entity 
that, together with controlling interests and affiliates, has average 
gross revenues not exceeding $3 million for the preceding three years. 
The SBA has approved these small business size standards. These size 
standards will apply to a future 24 GHz license auction, if held.
    143. Satellite Telecommunications. Since 2007, the SBA has 
recognized satellite firms within this revised category, with a small 
business size standard of $15 million. The most current Census Bureau 
data are from the economic census of 2007, and the Commission will use 
those figures to gauge the prevalence of small businesses in this 
category. Those size standards are for the two census categories of 
``Satellite Telecommunications'' and ``Other Telecommunications.'' 
Under the ``Satellite Telecommunications'' category, a business is 
considered small if it had $15 million or less in average annual 
receipts. Under the ``Other Telecommunications'' category, a business 
is considered small if it had $25 million or less in average annual 
receipts.
    144. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and 
receiving communications signals via a system of satellites or 
reselling satellite telecommunications.'' For this category, Census 
Bureau data for 2007 show that there were a total of 512 firms that 
operated for the entire year. Of this total, 464 firms had annual 
receipts of under $10 million, and 18 firms had receipts of $10 million 
to $24,999,999. Consequently, the Commission estimates that the 
majority of Satellite Telecommunications firms are small entities that 
might be affected by rules adopted pursuant to the Order.
    145. The second category of Other Telecommunications ``primarily 
engaged in providing specialized telecommunications services, such as 
satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing Internet services or 
voice over Internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry.'' 
For this category, Census Bureau data for 2007 show that there were a 
total of 2,383 firms that operated for the entire year. Of this total, 
2,346 firms had annual receipts of under $25 million. Consequently, the 
Commission estimates that the majority of Other Telecommunications 
firms are small entities that might be affected by our action.
    146. Cable and Other Program Distribution. Since 2007, these 
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.'' 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. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1000 employees or more. Thus, 
under this

[[Page 45725]]

size standard, the majority of firms can be considered small and may be 
affected by rules adopted pursuant to the Order.
    147. Cable Companies and Systems. The Commission has developed its 
own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small and may be affected by rules 
adopted pursuant to the Order.
    148. Cable System Operators. The Act also contains a size standard 
for small cable system operators, which is ``a cable operator that, 
directly or through an affiliate, serves in the aggregate fewer than 1 
percent of all subscribers in the United States and is not affiliated 
with any entity or entities whose gross annual revenues in the 
aggregate exceed $250,000,000.'' The Commission has determined that an 
operator serving fewer than 677,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Industry data indicate that, of 1,076 cable operators 
nationwide, all but ten are small under this size standard. The 
Commission notes that it neither requests nor collects information on 
whether cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, and therefore it is unable to 
estimate more accurately the number of cable system operators that 
would qualify as small under this size standard.
    149. Open Video Services. The open video system (``OVS'') framework 
was established in 1996, and is one of four statutorily recognized 
options for the provision of video programming services by local 
exchange carriers. The OVS framework provides opportunities for the 
distribution of video programming other than through cable systems. 
Because OVS operators provide subscription services, OVS falls within 
the SBA small business size standard covering cable services, which is 
``Wired Telecommunications Carriers.'' 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. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1000 
employees or more. Thus, under this second size standard, most cable 
systems are small and may be affected by rules adopted pursuant to the 
Order. In addition, the Commission notes that it has certified some OVS 
operators, with some now providing service. Broadband service providers 
(``BSPs'') are currently the only significant holders of OVS 
certifications or local OVS franchises. The Commission does not have 
financial or employment information regarding the entities authorized 
to provide OVS, some of which may not yet be operational. Thus, again, 
at least some of the OVS operators may qualify as small entities.
    150. Internet Service Providers. Since 2007, these 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.'' 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 3,188 
firms in this category, total, that operated for the entire year. Of 
this total, 3144 firms had employment of 999 or fewer employees, and 44 
firms had employment of 1000 employees or more. Thus, under this size 
standard, the majority of firms can be considered small. In addition, 
according to Census Bureau data for 2007, there were a total of 396 
firms in the category Internet Service Providers (broadband) that 
operated for the entire year. Of this total, 394 firms had employment 
of 999 or fewer employees, and two firms had employment of 1000 
employees or more. Consequently, the Commission estimates that the 
majority of these firms are small entities that may be affected by 
rules adopted pursuant to the Order.
    151. Internet Publishing and Broadcasting and Web Search Portals. 
Our action may pertain to interconnected VoIP services, which could be 
provided by entities that provide other services such as email, online 
gaming, web browsing, video conferencing, instant messaging, and other, 
similar IP-enabled services. The Commission has not adopted a size 
standard for entities that create or provide these types of services or 
applications. However, the Census Bureau has identified firms that 
``primarily engaged in 1) publishing and/or broadcasting content on the 
Internet exclusively or 2) operating Web sites that use a search engine 
to generate and maintain extensive databases of Internet addresses and 
content in an easily searchable format (and known as Web search 
portals).'' The SBA has developed a small business size standard for 
this category, which is: all such firms having 500 or fewer employees. 
According to Census Bureau data for 2007, there were 2,705 firms in 
this category that operated for the entire year. Of this total, 2,682 
firms had employment of 499 or fewer employees, and 23 firms had 
employment of 500 employees or more. Consequently, the Commission 
estimates that the majority of these firms are small entities that may 
be affected by rules adopted pursuant to the Order.
    152. Data Processing, Hosting, and Related Services. Entities in 
this category ``primarily . . . provid[e] infrastructure for hosting or 
data processing services.'' The SBA has developed a small business size 
standard for this category; that size standard is $25 million or less 
in average annual receipts. According to Census Bureau data for 2007, 
there were 8,060 firms in this category that operated for the entire 
year. Of these, 7,744 had annual receipts of under $24,999,999. 
Consequently, the Commission estimates that the majority of these firms 
are small entities that may be affected by rules adopted pursuant to 
the Order.
    153. All Other Information Services. The Census Bureau defines this 
industry as including ``establishments primarily engaged in providing 
other information services (except news syndicates, libraries, 
archives, Internet publishing and broadcasting, and Web search 
portals).'' Our action pertains to interconnected VoIP services, which 
could be provided by entities that provide other services such as 
email, online gaming, web browsing, video conferencing, instant 
messaging, and other, similar IP-enabled services. The SBA has 
developed a small business size standard for this category; that size 
standard is $7.0 million or less in average annual receipts. According 
to Census Bureau data for 2007, there were 367 firms in this category 
that operated for the entire year. Of these, 334 had

[[Page 45726]]

annual receipts of under $5.0 million, and an additional 11 firms had 
receipts of between $5 million and $9,999,999. Consequently, the 
Commission estimates that the majority of these firms are small 
entities that may be affected by our action.

D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    154. In the Order, the Commission establishes three experiment 
types for which it will accept applications. The Commission allocates 
$75 million to projects that must propose to deploy a network capable 
of delivering 100 Mbps downstream/5 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, with no more than 
100 milliseconds (ms) of latency. 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). The Commission also makes $15 million available for 
projects that 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 must offer at least 100 GB of usage, 
no more than 100 ms of latency, and meet the reasonable comparability 
benchmarks for the pricing of voice and broadband. Finally, the 
Commission makes $10 million available for projects in extremely high-
cost census blocks that propose to offer at least one service plan that 
provides 10 Mbps downstream/1 Mbps upstream, and 100 GB of usage at a 
rate that meets the reasonably comparable pricing benchmarks, with 
latency of 100 ms, or, in the case of satellite providers, a Mean 
Opinion Score of four or better. If an entity wins support for one of 
these categories, it will be required to meet these public service 
obligations, or will be found in default and subject to certain 
compliance measures as described in the Order.
    155. To participate in the rural broadband experiments, entities 
must submit a formal application to the Commission by no later than 90 
days from the release of the Order. Entities will be required to submit 
confidential bids requesting a certain amount of support to serve 
specified census blocks (including the census block ID 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). They will also be required to provide 
information regarding any agreements or joint bidding arrangements with 
other parties, disclose any ownership interests in Commission-regulated 
companies, declare whether their project will serve only Tribal census 
blocks, submit a proposal containing basic information that will be 
made public if they win (e.g., background information on the applicant 
and its qualifications to provide voice and broadband service, a 
description of the proposed project, service area, planned service 
offerings including offerings to low-income consumers, and technology 
to be used; and the number of locations, including community anchor 
institutions, within the project area), and certify that they meet 
certain threshold requirements, including being in compliance with all 
the statutory and regulatory requirements to receive support and being 
financially and technically capable of meeting the required public 
interest obligations in each area they seek support. All entities 
submitting proposals must also utilize a FCC Registration Number and 
identify the type of project for which they are submitting a proposal.
    156. Winning bidders will be required to demonstrate that they have 
the technical and financial qualifications to successfully complete 
their proposed projects within the required timeframes and that they 
are in compliance with all the statutory and regulatory requirements 
for the universal service support they seek. The Commission staff will 
perform a review to ensure that the applications meet our expectations 
for technical and financial capability. Within 10 business days of 
public notice of winning bidders, the winning bidders will be required 
to submit three consecutive years of audited financial statements 
(including balance sheets, net income, and cash flow), a description of 
the technology and system design used to deliver voice and broadband 
service, including a network diagram certified by a professional 
engineer, and a description of spectrum access in the areas for which 
applicants seek support for wireless technologies. Within 60 days of 
public notice of winning bidders, the winning bidders must submit a 
letter from an acceptable bank committing to issue an irrevocable 
stand-by original LOC. That LOC must remain open and renewed until 120 
days after the end of the tenth year of the support term. Within 90 
days of public notice of winning bidders, the winning bidders must 
provide appropriate documentation of their eligible telecommunications 
carrier (ETC) designation in all areas for which they will receive 
support and certify that the information submitted is accurate.
    157. Once a winning bidder has been found to have met the 
Commission's technical and financial requirements and has secured the 
required ETC designation and LOC commitment letter, the Bureau will 
release a public notice stating that the entity is ready to be 
authorized to receive support. Within 10 business days of this public 
notice, the entity must submit an irrevocable stand-by original LOC 
that has been issued and signed by the issuing bank along with an 
opinion letter from legal counsel. Once USAC has verified the 
sufficiency of the LOC, the Bureau will issue a public notice 
authorizing the entity to begin receiving support.
    158. The winning bidders must meet several conditions to receive 
rural broadband experiment support. First, like all recipients of 
Connect America support, they must meet certain build-out requirements. 
Recipients must deploy to 85 percent of the required number of their 
locations within three years of their first disbursement and 100 
percent of the required number of their locations within five years of 
their first disbursement with service meeting the service obligations 
required by the relevant experiment category. Entities that choose to 
receive 30 percent of their support upfront must meet an additional 
build-out requirement of 25 percent of the required number of their 
locations within 15 months of the first disbursement, and then must 
meet the same build-out requirements as recipients not requesting 
upfront support (85 percent of locations within three years and 100 
percent within five years). All recipients must submit a certification 
that they have met these milestones, accompanied by evidence. The 
evidence may include the evidence that they submit with their November 
1st build-out report, as described below.
    159. Second, the Commission requires that recipients comply with 
several accountability measures. Like all recipients of Connect America 
support, they must file annual reports by July 1st of each year 
pursuant to Sec.  54.313(a) of the Commission's rules, starting the 
first July after the year in which they begin receiving support. These 
reports must also include a certification regarding their compliance 
with the Commission's latency standard, or Mean Opinion Score, as 
applicable; the number, names, and addresses of the community anchor 
institutions to which they newly began providing access to broadband 
service in the preceding year; and build-out information including 
evidence

[[Page 45727]]

demonstrating which locations they have built out to in their project 
areas where the recipient is offering services that meet the public 
service obligations adopted for the relevant experiment category along 
with evidence that demonstrates they are meeting the public service 
obligations (e.g., marketing materials that detail the pricing, offered 
broadband speed, and data usage allowances available in the relevant 
geographic area).
    160. To ensure that the Commission is able to monitor how 
experiment recipients are using their funds for their intended 
purposes, it also requires them to file a one-time report on November 
1st of the year they begin receiving support. This report must describe 
the status of their project (such as whether vendors have been hired, 
permits have been obtained, and construction begun) and include 
evidence demonstrating which locations (if any) to which they have 
built out to in their project areas where they are offering services 
that meet the public service obligations for the relevant experiment 
category, along with evidence that the public service obligations are 
being met (e.g., marketing materials and a latency certification).
    161. 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 
Sec.  54.314 of the Commission's rules. 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. The Commission also requires recipients to 
certify when they have met the build-out requirements defined above. 
With these certifications, they must submit the same build-out 
information that must be included in their annual reports: Evidence 
demonstrating that they have built facilities to serve 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 or alternative 
service quality requirement. All recipients are also subject to random 
compliance reviews, and will be subject to verification of their build-
out compliance. Moreover, recipients are subject to a 10-year record 
retention requirement.
    162. Finally, rural broadband recipients are required to 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.

E. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    163. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its approach, which may 
include the following four alternatives, among others: (1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    164. The Commission adopts a streamlined application process to 
encourage a wide variety of entities, including small entities, to 
participate so that it can learn from the applications that are 
submitted. The Commission struck a balance between requiring enough 
information to prompt bidders to take appropriate steps to determine 
that their projects are financially viable before submitting bids, but 
also minimizing the resources that entities need to spend upfront in 
case they do not win support. The Commission does not require that 
entities undergo a full scale technical and financial review and obtain 
a LOC and ETC designation until they have been announced as winning 
bidders. Even after they have been announced winning bidders, the 
information the Commission requires to conduct such a review is 
information it expects winning bidders will already have on hand (e.g., 
audited financial statements) or will have developed as a result of 
planning their project (e.g., a network diagram certified by an 
engineer and a description of spectrum access).
    165. The Commission recognizes that some entities, including small 
entities, may not be able to submit proposals at the census tract 
level, but would be interested in submitting proposals for smaller 
neighborhoods that they may already be well positioned to serve. The 
Commission waives this requirement for those entities, and permit them 
to submit proposals on the census block level. Recipients also have the 
choice of receiving 30 percent of their support upfront. This option 
provides the flexibility to all participating entities, including small 
entities, to receive more support upfront, or to receive their support 
spread out over a longer period time if they are unable to meet the 15-
month interim build-out deadline.
    166. The Commission also adopts a bidding credit for entities, many 
of which may be small entities, who propose projects that will serve 
only Tribal census blocks. This 25 percent bidding credit will increase 
the likelihood that these entities will receive funding. And 
recognizing the unique challenges that Tribally-owned or -controlled 
entities may face in obtaining LOCs, the Commission also provides a 
waiver process for those entities that are unable to obtain a LOC.
    167. The accountability measures the Commission adopts are also 
tailored to ensuring that rural broadband experiment support is used 
for its intended purpose and so that it can quickly gather data to 
inform our policy decisions. The measures the Commission adopts are 
largely the same measures that are required of all recipients of 
Connect America support, including annual reports and certifications. 
And the Commission finds that ensuring that all recipients are 
accountable in their use of rural broadband experiment support, 
including small entities, outweighs the burden of filing an extra 
build-out report on November 1st of their first funding year and of 
submitting evidence such as marketing materials to demonstrate 
compliance with public interest obligations with their annual reports, 
their November 1st build-out report, and with build-out certifications. 
Recipients are likely to have such information available to them as a 
regular course of business.

F. Report to Congress

    168. The Commission will send a copy of the Report and Order, 
including this FRFA, in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996. In addition, the 
Commission will send a copy of the Report and Order, including this 
FRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the Report and Order (or a summary thereof) 
will also be published in the Federal Register.

IV. Ordering Clauses

    169. 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), 1302 the Report

[[Page 45728]]

and Order in WC Docket No. 10-90 and WC Docket No. 14-58 is adopted, 
effective September 5, 2014, except for the application process and 
reporting requirements that contain new or modified information 
collection requirements that will not be effective until approved by 
the Office of Management and Budget. The Commission will publish a 
document in the Federal Register announcing OMB approval.
    170. It is further ordered, that pursuant to Sec.  1.3 of the 
Commission's rules, 47 CFR 1.3, the Commission waives on its own motion 
Sec.  54.313(a)(1) of the Commission's rules, 47 CFR 54.313(a)(1) for 
all recipients of the rural broadband experiments.
    171. It is further ordered, that the Commission shall send a copy 
of the 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).
    172. It is further ordered, that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of the Report and Order in WC Docket No. 10-90 and WC Docket No. 
14-58, including the Further Regulatory Flexibility Analysis, to the 
Chief Counsel for Advocacy of the Small Business Administration.

Federal Communications Commission.
Gloria J. Miles,
Federal Register Liaison.
[FR Doc. 2014-18328 Filed 8-5-14; 8:45 am]
BILLING CODE 6712-01-P